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Carillion collapse: two years on, 'government has learned nothing'

The Guardian logo The Guardian 15/01/2020 Rupert Neate and Rob Davies

a group of people holding signs: Photograph: Andy Rain/EPA © Provided by The Guardian Photograph: Andy Rain/EPA

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The government has been accused of failing to learn any lessons from the collapse of the outsourcing giant Carillion two years ago, when more than 3,000 jobs were lost and 450 public sector projects including hospitals, schools and prisons were plunged into crisis.

The Unite union said it was shocking that the government was “proposing to do exactly nothing” to reform accounting rules to prevent a similar corporate disaster caused by “rampant bandit capitalism”.

Gail Cartmail, Unite’s assistant general secretary, said the UK’s accounting and audit system was “clearly not fit for purpose” and accused the government of failing to demand reforms because it “has many friends among the major accountancy firms”.

“The collapse of Carillion, and other high-profile corporate failures, has resulted in thousands of workers losing their jobs,” Cartmail said on Wednesday, exactly two years since Carillion collapsed with £7bn of debt on 15 January 2018. “In all these cases apparently healthy companies suddenly experienced financial problems and in several cases collapsed.

Video: What is the Carillion fiasco? (The Independent)


“The UK’s existing auditing and accounting system for major companies is clearly not fit for purpose and workers are suffering as a result. Despite this the government, which has many friends among the major accountancy firms, is proposing to do exactly nothing.”

The circumstances of Carillion’s collapse are being investigated by the Financial Reporting Council, the National Audit Office and the Official Receiver. However, two years on from the devastating collapse, none of them have published reports. The FRC has warned it will need at least another six months before it can publish its findings. The NAO will deliver its verdict on Friday.

The demise of Carillion was the UK’s biggest corporate failure in decades, affecting hundreds of thousands of people across the country:

• More than 3,000 jobs were lost at the company, and the collapse affected 75,000 people working in its supply chain.

• It failed with debts of £7bn, more than its annual sales of £5.2bn.

Gallery: Carillion collapse - Here's a list of the construction jobs that are most at risk (CNBC)

• The firm was working on about 450 public sector projects, which have been delayed or seen costs escalate. They include: the £475m Midland Metropolitan hospital in Sandwell, West Midlands; the £335m Royal Liverpool hospital: the £745m Aberdeen bypass; the £153m Lincoln Eastern bypass.

• The Ministry of Justice was forced to set up a £4m business to take on maintenance and cleaning of 42 prisons.

• About 45% of the firm’s UK income was from public sector projects, and the government continued to award about £2bn of contracts despite Carillion issuing two profits warnings.

• The HS2 north-south rail link signed two contracts worth £1.3bn with Carillion just 21 days after the firm issued a profits warning.

• It was the largest corporate failure ever dealt with by the Official Receiver, costing the taxpayer more than £150m.

• Despite this, Carillion’s former bosses walked away with millions of pounds in pay and bonuses. Richard Howson, who was chief executive from 2012 until he resigned after issuing a shock profits warning in July 2017, earned £1.5m in 2016, including £591,000 in bonuses. He continued to receive a salary of £660,000 until October 2018.

Rachel Reeves, the Labour MP who hopes to be re-elected as chairwoman of the Commons business select committee, said it was unacceptable that two years on from Carillion’s implosion the public was “still waiting for the official investigations to report back into what went wrong”.

“The government needs to urgently reform the way business works by toughening up the controls on the governance and auditing process of these companies,” Reeves told the Guardian. “Ministers must learn the lessons from the disaster at Carillion so that business works in best interests of the wider economy – not just those in the boardroom.

“The government’s politically driven obsession with outsourcing often results in poorer services, lower wages and heavier costs to the taxpayer. Ministers need to end that myopic mindset and consider keeping or bringing back services in-house.”

Reeves, who hauled Carillion’s former bosses before parliament in 2018, has previously said:“The company’s delusional directors drove Carillion off a cliff and then tried to blame everyone but themselves. Their colossal failure as managers meant they effectively pressed the self-destruct button on the company.”

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