Key points
The collapse of Carillion, the construction company which was one of the biggest contractors to the British government, provided Jeremy Corbyn with an open goal at this week’s prime minister’s questions. The Labour leader began by asking why the government had awarded more than £2bn of contracts to Carillion, even after the company had issued three profit warnings and its share price was in freefall.
May replied that if the government pulled out of contracts whenever a profit warning was issued, it would lead to companies failing and jobs being lost. Corbyn retorted that the government had continued to hand the company public contracts, either to keep it afloat or because they were “deeply negligent of the crisis coming down the line”.
To roars from Conservative MPs, May said Corbyn had not asked her a question. He replied that he had asked whether the government had been negligent or not “and they clearly have been”. He added: “Tory MPs might shout but the reality is over 20,000 Carillion workers are very worried about their future.” The government was supposed to protect public money through crown representatives, he said, “so why did the position of crown representative to Carillion remain vacant during the crucial period of August to November when the share price was in freefall and many people were very worried?”
May responded to a heckle from Emily Thornberry by saying that the shadow foreign secretary had praised Carillion in the past. She said the chief commercial officer took over the crown representative’s responsibilities so it was not the case that no one was looking. “Well they clearly weren’t looking very well,” Corbyn replied.
While Carillion went into liquidation with debts of £1.29bn, he said, they were paying extravagant share dividends and bonuses, and the chief executive will be renumerated for another 10 months. “One rule for the super-rich, another for everybody else.” Can May assure the House that no more money will go to directors, or on bonuses?
May said workers would continue to be paid and that the official receiver was doing his job; where bonus payments were unlawful, they could be recovered. “We were a customer of Carillion, not the manager and that’s a very important difference.”
Q&AHow did Carillion get into trouble?
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How did the company get into trouble?
Companies like Carillion have to keep projects on budget and keep winning new contracts. When one of those fail, problems loom.
Carilllion shocked the market in July with a massive profit warning, writing down its value by £845m, all related to key contracts. Two more profit warnings followed and the company admitted it needed cash quickly not to breach bank loan terms
At the start of 2017 shares were changing hands at 240p. This weekend they were 14p.
With debts of £900m it has been trying to arrange a £300m cash injection. However, lenders will not provide the cash without government guarantees.
What happens to the pension scheme?
Carillion has a £580m pension scheme deficit. If it collapses the government-backed Pension Protection Fund would take over the scheme, although the liability would swell, to £800m. While the Fund provides a safety net for millions of workers, there are limits on what it can pay out.
Who runs Carillion?
Chief executive Richard Howson quit after the July profit warning, with the new boss yet to start. It has been run by engineering industry veteran Keith Cochrane and the group’s chairman Philip Green, the former boss of United Utilities. Sally Morgan, who was director of government relations for Prime Minister Tony Blair, is also a director.
Corbyn said Carillion was a notoriously late payer, often taking 120 days, placing the burden on small companies. Carillion wasn’t an isolated case, the system was broken. “Under this government, Virgin and Stagecoach can mismanage the East Coast mainline and be let off a £2bn payment,” he said.
“Capita and Atos can wreck the lives of those with disabilities and win more contracts. G4S failed to provide security for the Olympics and the army had to step in. Corporations need to be shown the door – we need public services provided by employees with a public sector ethos.”
May saida third of Carillion’s contracts were awarded to it by a Labour government. “We want to provide good quality service at the best value to taxpayer.” Labour, she said, “oppose the private sector as a whole”.
Q&AWhat government contracts did Carillion hold?
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NHS
• Managed facilities including 200 operating theatres and 11,800 beds
• Made more than 18,500 patient meals per day
• Helpdesks dealt with 1.5m calls per year
• Engineering teams carrying out maintenance work
Transport
• Built 'smart motorways' – which ease congestion by monitoring traffic and adjusting lanes or speed limits – for the Highways Agency
• Major contractor on £56bn HS2 high-speed rail project
• Upgraded track and power lines for Network Rail
• Major contractor on London’s Crossrail project
• Roadbuilding and bridges
Defence
• Managed infrastructure and 50,000 homes for Ministry of Defence
Education
• Designed and built 150 schools
• Catering and cleaning contracts at 875 schools
Prisons
• Maintenance and repairs at about half of UK prisons
Libraries
• Managed several public libraries in England
Energy
• Built substations, overhead cables and other works for National Grid
Verdict
One of the best PMQs for ages, with strong, detailed questions, the prime minister being properly held to account, and Corbyn and May using the exchanges to make big political arguments.
Corbyn comfortably came off best – he has the wind behind him on this issue – but May managed to pull it back a bit with her final answer. Until then, although clearly about the details, she struck the wrong tone at least twice. Refusing to engage with Corbyn’s second question just because it wasn’t a question sounded petty, and her repeated insistence that the government was just a “customer” of Carillion, while technically correct, made her sound rather feeble. She is not just a customer – she is the prime minister, armed with the full power and authority of the state.
May came to office promising a crackdown on excessive corporate greed, and a bolder and more imaginative leader would have used the crisis to reboot this agenda. May did not even try to do this, and her response to Corbyn’s question about the Carillion directors sounded correct but uninspiring.
That paved the way for Corbyn’s powerful final question, a tirade against the private sector contracting “racket”. It was his best moment. May’s answer was her most effective too. Her argument about Labour being fundamentally anti-business is persuasive enough to have some traction, but attacking New Labour for putting the contracts out to tender in the first place was probably a mistake. If anyone is going to get credit for opposing New Labour neoliberalism on an issue like this, it’s not going to be May, but Corbyn.
Memorable lines
“As the ruins of Carillion lie around her, will the prime minister act to end this costly racket of the relationship between government and some of these companies?
Corbyn links the failure of Carillion to other failures of public-private partnerships
The vast majority of people are employed by the private sector, but [the shadow chancellor] John McDonnell calls business the real enemy. The Labour party will always put politics before people.
May’s final retort
