Carillion collapse to cost taxpayers £148m

Probe: Likely to be years before full cost of failure is known

The collapse of engineering giant Carillion will cost taxpayers an estimated £148 million and have a significant impact on workers, investors and firms which supplied it with goods.

The National Audit Office (NAO) said it could take years to establish the final cost of the liquidation, while the £2.6 billion pension liabilities will be borne by the Pension Protection Fund.

A report into the Government’s handling of the crisis said Carillion’s non-government creditors are unlikely to recover much of their investment.

The scale of a profit warning issued by Carillion last July came as a “surprise” to the Government, said the NAO.

The report states the Cabinet Office began contingency planning for the possible failure of Carillion shortly after the profit warning, accelerated the process in October, and it was complete by January 15 when the firm ceased trading.

Carillion’s 2016 accounts were published in March 2017 and showed the company as profitable and solvent.

The Cabinet Office raised Carillion’s risk rating from amber to red in response to the July 2017 profit warning, but it did not increase it to the highest risk as it did not want to risk precipitating Carillion’s financial collapse.

In the months following Carillion’s first profit warning, the firm secured £1.9 billion of new Government work, including a £1.3bn HS2 contract.

“Many of these contracts had been agreed before the profit warning, although in some cases contracts were signed, or variations agreed, afterwards.”

Carillion asked the Government for £223m in January to help it through to April and additional support with its financial restructuring.the request was denied as the Cabinet Office had serious concerns about the group’s business plans and decided it was better to allow it to enter into a trading liquidation.

Around two-thirds of Carillion workers – 11,638 – have found new jobs but more than 2,300 have been made redundant and 3,000 are still employed on contracts.

Amyas Morse, the head of the NAO, said: “When a company becomes a strategic supplier, dependencies are created beyond the scope of specific contracts. Doing a thorough job of protecting the public interest means government needs to understand the financial health and sustainability of its major suppliers, and avoid creating relationships with those which are already weakened. Government has further to go in developing in this direction.”

Doing a thorough job of protecting the public interest means government needs to understand the financial health and sustainability of its major suppliers.