FURY OVER CARILLION FAT CATS
Executives AND ministers under fire amid bid to save 20,000 jobs and key services
FAT cat bosses at failed construction giant Carillion could face severe penalties if they have ripped off staff and taxpayers, ministers warned yesterday.
An inquiry into the firm’s collapse may also lead to sanctions against executives if it is found they mishandled the company’s pension fund.
Ministers were left scrambling to shore up public services yesterday after the firm, which has 20,000 staff and 450 government contracts, went into liquidation.
Firefighters in one county were even put on standby to deliver school dinners that had been provided by the firm.
Amid a furious blame game, ministers came under fire after it emerged they had handed Carillion more than £1.5billion in new contracts since it issued the first of three profit warnings last July.
They were also accused of taking their eye off the ball, after MPs were told the key official in charge of managing the Government’s relationship with the firm was put on other duties between August and November last year – just as the company was collapsing.
Amid fears for vital public services, Cabinet Office minister David Lidington pleaded with Carillion’s public sector staff to turn up for work, saying they would be paid directly by the Government.
But last night he tried to put the focus back on the firm’s management, which has been accused of paying itself huge bonuses and making massive share dividend payments even while the firm was in trouble.
Mr Lidington said receivers would be conducting an inquiry into the firm’s collapse. MPs were told it could lead to ‘severe penalties’ for current and former directors if they were found to have caused ‘detriment’ to staff, taxpayers or the company’s pension fund, which has a £580million black hole.
Downing Street also criticised Carillion’s decision to continue paying the £660,000 salary of former chief executive Richard Howson until October, even though he quit in September.
The Prime Minister’s official spokesman said: ‘We wouldn’t expect to see people benefiting from this failure.’ As fears grew of a substantial multi-million pound bill for the taxpayer:
Some 20,000 Carillion staff and apprentices were warned they could face redundancy as soon as tomorrow, as ministers said they would only extend support to those providing public services.
Analysts said up to 30,000 small suppliers could be left nursing losses totalling £1billion, with banks potentially losing another £2billion.
Unions warned that schools, hospitals and prisons could all face disruption.
Civil service chief John Manzoni claimed EU procurement rules had made it impossible to blacklist Carillion even when it started to run into difficulty.
The taxpayer-backed Pension Protection Fund was poised to take over responsibility for Carillion’s pension schemes.
Carillion said it had ‘no choice but to take steps to enter into compulsory liquidation with immediate effect’ after talks to restructure its debts collapsed yesterday. Ministers turned down a last-minute request for a £20million lifeline to keep the firm afloat for longer.
Mr Lidington said it was right that ‘shareholders and lenders bear the brunt’ of the pain, rather than taxpayers.
Lord Adonis, former chairman of the National Infrastructure Commission, said taxpayers were likely to face a bill running into ‘tens of millions’ to fund the managed liquidation.
Downing Street yesterday insisted services were holding up well. But fears remain overcritical sectors such as cleaning operating theatres, school meals and prison maintenance. Oxfordshire county council put firefighters on standby to deliver school meals, saying ‘no child will go hungry at school’. Liberal Democrat leader Sir Vince Cable accused ministers of ‘feeding contracts’ to the giant to contain fears of the effect that a possible collapse may have on key public services.
Controversy focused on the Government’s decision to continue handing out contracts to the firm after it began issuing profit warnings last summer, including a £1.4billion HS2 rail line deal. Shadow Cabinet Office minister Jon Trickett accused the Government of being ‘recklessly complacent in seeking to avoid responsibility and placing the whole responsibility on the company’.
But Government sources stressed that most of the new contracts were so-called ‘joint ventures’ in which Carillion’s business partners are now obliged to pick up the work.
Mr Lidington insisted that ministers had been ‘closely monitoring’ the firm after it became clear it was running into trouble. But he struggled to explain why the official in charge of the Government’s dealings with the firm was ‘rotated off’ to other duties for three months last year.
Between 2011 and 2016, Carillion paid out £458million in dividends to shareholders, despite a growing black hole in its pension funds. Last September, the firm’s board changed its rules to make it harder to claw back bonuses paid to executives.
Mr Howson pocketed £1.5million in salary, bonuses and pension payments during 2016. As part of his departure deal, Carillion agreed to keep paying him a £660,000 salary and £28,000 in benefits until October. Former finance chief Zafar Khan, who left Carillion in September, will receive £425,000 in base salary for 12 months.
Comment – Page 14
Took their eye off the ball ‘Recklessly complacent’