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Courtesy of the Times, yesterday we were told that no taxpayers money would be used.
Ministers are scrambling to get construction work restarted on a major hospital run by Carillion as MPs raise concerns over the future of private finance initiative schemes. Yesterday the government guaranteed payments for all Carillion employees working on public sector contracts and urged them to turn up for work.
However there are additional complications for Carillion contracts governed by PFIs, including the contract for Midland Metropolitan Hospital in Sandwell, where the bank rather than the official receiver must now make decisions about the project’s future. The National Audit Office is expected to publish a damning report into PFI schemes on Thursday. Taxpayers face a bill for hundreds of millions of pounds from the collapse of Carillion after ministers made an open-ended commitment to protect the company’s public sector work.
They guaranteed the salaries of employees in 450 public sector contracts yesterday and urged them to keep turning up for work after the company went into liquidation saying that it could no longer service its £1.6 billion debt. Thousands more Carillion employees in private sector contracts will find out tomorrow whether they still have jobs because ministers allowed 48 hours for other companies to take over the contracts.Carillion had 20,000 employees in the UK and 62 per cent of its work was in the private sector. Almost 30,000 people are likely to suffer cuts to their pensions after its collapse.
Construction work has been stopped at the £350 million Midland Metropolitan Hospital, which is two thirds complete and is already over budget and delayed. The hospital was due to open next spring, providing maternity, acute and emergency services. The Treasury, the local NHS trust and The Hospital Company, which holds the building contract, were in urgent talks last night over its future.
“The government’s wish and intention is that we can get on with construction work in the west midlands without material disruption,” the Cabinet Office minister, David Lidington, said.
However, Stella Creasy, the Labour MP, said that Carillion’s PFI contracts could prove especially difficult for ministers. “Critically, banks take priority in these contracts as the senior lenders,” she said. “It is little wonder the minister today could not guarantee Carillion’s PFI-owned schools and hospitals will not have to be sold off to cover the company’s debts.”
MPs are pressing the government to stop payments to Carillion for ongoing PFI projects.
Mr Lidington said: “The principle will be that one will need to find willing suppliers to take over the role of Carillion in a PFI, but on the basis of the information that I have been given today no PFI faces an immediate crisis as a result of the liquidation.”
The Times understands that a taxpayer loan likely to be worth hundreds of millions of pounds will be handed to Carillion’s official receiver to keep public sector operations afloat, with a precise figure announced next month. The government hopes to recoup some of this because it will be first in line to benefit from remaining company assets after the liquidation.
The amount returned to the taxpayer “depends where the bodies are buried”, a government source told The Times. Mr Lidington told the Commons that the taxpayer loan was not a bailout because Carillion’s shareholders and lenders would bear the “brunt of the losses” and the government was focusing on protecting public contracts. “Taxpayers should not and will not bail out a private sector company or allow rewards for failure,” he said.
Ministers are likely to renationalise some of the work handed to the private sector, he said, with the Ministry of Justice among departments in line to take contracts back in house.
Senior executives at Carillion now face investigation by the official receiver and could face “severe penalties”. Richard Howson, who was chief executive from 2012 to July last year, pocketed £1.5 million in salary, bonuses and pension payments in 2016. As part of his departure deal, Carillion agreed to keep paying him a £660,000 salary and £28,000 in benefits until October.
Whitehall sources denied suggestions the government was behind the decision to put the company into liquidation, leading to its break-up, rather than administration, where a rescue package could be put together. “The maths dictated what happened, not us,” an insider said. Industry experts warned that Carillion’s collapse could trigger a “domino effect” hurting similar suppliers and smaller companies in the contracting sector. Ministers pledged to take a broader look at government procurement, after the conclusion of an inquiry by the Public Administration and Constitutional Affairs committee announced yesterday.