Taxpayers to foot the £148m bill for failed outsourcing firm, says National Audit Office

This article is more than 2 years old

This article is more than 2 years old

Accountants and lawyers will earn £70m managing the fallout from the collapse of Carillion, according to the National Audit Office, with taxpayers expected to foot a bill of more than £150m.

In a report into the government’s handling of the outsourcing company, the NAO said the liquidation of Carillion showed the government had “further to go” in understanding the financial health of suppliers whose failure could have major consequences.

The NAO estimated that Carillion would end up costing the Cabinet Office at least £148m but warned the overall cost borne by taxpayers was “likely to be higher”. It cited factors such as potential legal disputes with Carillion clients, the wider impact on the economy and the £12m cost of finding placements for more than 1,000 of its former apprentices.

Accountancy firm PricewaterhouseCoopers, which earned £17m in fees from Carillion in the decade before its demise, is expected to earn a further £50m from managing the insolvency.

Government was too slow to spot Carillion's trouble brewing – MPs Read more

Lawyers will pick up a further £20m slice of costs that are projected to reach £566m, offset by an estimated £317m in income, including from ongoing public and private sector contracts being managed by the Insolvency Service and PwC.

Business committee chair Rachel Reeves said the share of total costs made up by PwC’s bill was further evidence of a lack of competition among the so-called big four accounting companies.

“The dice are loaded in the big four’s favour,” the Labour MP said.

“They make a killing in fees advising struggling companies how to turn them round and then they pocket millions tidying up when that advice fails. On Carillion, taxpayers are left to foot the multimillion pound bill for corporate failure.”

Reeves’ and Frank Field’s work and pensions committees urged the government to consider breaking up the big four accountants in a joint report into Carillion’s collapse published last month.

Field, also a Labour MP, said: “More money for PwC is less money for sub-contractors and the Pension Protection Fund.”

The PPF, the UK’s pensions lifeboat, will take over Carillion’s retirement schemes, which have a collective liability of £2.6bn.

Tens of thousands of subcontractors who were owed more than £2bn by Carillion when it failed, are slated to get just £164m according to the NAO.

A spokesperson for PwC said it had been appointed to manage “a liquidation of exceptional size and complexity as quickly and effectively as possible”.

“We understand concerns over the cost of the liquidation, however, without this work the cost to UK jobs, the economy and the taxpayer would be considerably higher.”

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Field said the NAO’s report also showed that Carillion had “hoodwinked” the government into believing its finances were in good shape up until a shock profit warning in July last year.

He pointed to a section of the report that detailed major failings with Carillion contracts in the UK, which he said cast doubt on evidence given by former directors that the company’s woes were down to its “more exotic forays overseas”.

The report listed serious problems that sent costs spiralling on multimillion pound projects such as the £335m Royal Liverpool university hospital and £350m Metropolitan Midland hospital, both of which have been on hold since Carillion’s insolvency.

Jon Trickett, Labour’s shadow minister for the Cabinet Office, said the mounting cost to the taxpayer of Carillion’s failure was down to an over reliance on private companies to provide public services.

“The government’s dogmatic commitment to the failed outsourcing ideology blinded it to the large risks,” he said.

“The Tories were more concerned about the commercial interests of big business than protecting taxpayers’ money or public services.

“The Tories pretend it is the bosses who will pay the price, but with 2,340 jobs lost and the public footing at least a £148m bill that is clearly not the case.

“In government, Labour would end this racket, and would introduce a presumption in favour of bringing contracts back in-house.”

A spokesperson for the Cabinet Office said: “”Throughout this process, the government has been clear that its priority is to ensure that public services continue to run smoothly and safely.

“The plans we put in place have ensured this, and we continue to work hard to minimise the impacts of the insolvency, having safeguarded over 11,700 jobs to date.”

While nearly 12,000 staff have been transferred to new employers, 2,332 people have been made redundant and a further 3,000 are still working for the remnants of the company under the auspices of the Insolvency Service and face an uncertain future.