Theresa May: I will fine greedy bosses who betray their workers

PM pledges tough rules to tackle pensions abuse
Whitehall weighs up plan to target executives

Theresa May arrives for an official dinner at the Victoria & Albert Museum in London.






Theresa May arrives for an official dinner at the Victoria & Albert Museum in London.
Photograph: Peter Nicholls/AP

Irresponsible company bosses who “line their own pockets” while failing to protect workers’ pension schemes are to be hit with huge fines, under plans to be announced by Theresa May’s government within weeks.

Writing in the Observer after a week which saw the collapse of Carillion, the construction and outsourcing giant, with a deficit in its pension scheme of up to £900m, the prime minister says her government will act urgently to stamp out “abuse”.

A total of 28,000 members of Carillion’s 13 pension schemes are facing a cut to their retirement funds.

Other measures being considered for inclusion in a white paper in March would give regulators new powers to block or place conditions on takeovers that are deemed to put pension schemes at risk. The regulator will also be given the power to request information about how companies run schemes.

Resurrecting a commitment with which she launched her premiership – to govern “not for a privileged few, but for every one of us” – May says that while governments should not get involved in day-to-day management of businesses, the state should act now “in favour of ordinary working people”.

While the measures will be welcomed by millions of workers, May’s move to intervene directly in the financial affairs of companies is likely to antagonise Tory backers in the City.

Referring to company bosses who put their own financial interests, and those of shareholders, above their workers, May says “tough new rules” will be introduced to tackle the behaviour of “executives who try to line their own pockets by putting their workers’ pensions at risk – an unacceptable abuse that we will end”.

It is understood that the pensions regulator will be given specific powers to issue punitive fines on company directors in cases of clear wrongdoing. Criticising a business culture which too often prioritises immediate financial rewards over long-term stability, she adds: “Too often we’ve seen top executives reaping big bonuses for recklessly putting short-term profit ahead of long-term success. Our best businesses know that is not a responsible way to run a business and those who do so will be forced to explain themselves.”

Among radical potential measures that have been discussed in Whitehall are plans that would leave individual executives personally liable for hefty financial punishments if their companies’ pension schemes collapse. One proposal is for regulators to be empowered to claw back executives’ bonuses after a company and its pension system go to the wall.

The all-party work and pensions committee has recommended a system of “mega fines” on executives who crash their companies and their pension schemes. The committee chair, the Labour MP Frank Field, says such fines would act as a “nuclear deterrent” against abuse and negligent approaches to pensions.

Steve Webb, a former pensions minister and now director of policy at the pensions company Royal London, said: “The last Conservative manifesto floated ideas of tackling firms who put executive pay and dividends ahead of the pension fund, and the Carillion scandal has given that new urgency.

“The prime minister will want to see bonuses clawed back from executives who steer a company onto the rocks, and will want new powers to block takeovers that could threaten the pension scheme. The government could also make sure that ‘recovery plans’ to tackle pension scheme deficits are tougher, putting the pension fund further up the queue relative to dividends and bonuses.

“The Treasury and the business department will be hostile to these sorts of ideas and will not want regulators interfering in the business decisions of corporate Britain. Despite the idealistic rhetoric, I would expect any actual action to be some years away and reserved only for the most extreme cases.”

May’s pledge comes as she faces renewed criticism from some Tory MPs for a lack of willingness to back radical policies. Nick Boles, a former minister, warned last week of a timidity at the heart of her administration.

Field said: “The prime minister said when she first entered Downing Street that she would be on the side of hardworking British people and those who were the underdogs.

“The reforms suggested by the committee – including mega-fines on individuals who crash their companies and pension funds – gives her an opportunity to get on the front foot with this agenda.”

Parliamentary inquiries are already being set up into how the funding shortfall in Carillion’s pension scheme widened before the business’s spectacular collapse. Its deficit rose from £317m in 2015 to £587m by the end of 2016. The final figure is believed to be high as £900m.

With its pension problems mounting, Carillion controversially changed the rules in 2016 to prevent any clawing back of executives’ bonuses should the business eventually collapse.

The government has come under pressure to limit the damage to pension funds from reckless employers since the collapse in 2016 of BHS, the retailer that went into administration with a large black hole in its final salary retirement scheme – and despite paying hundreds of millions of pounds in dividends to its owner Sir Philip Green’s wife, Tina.A consultation green paper last year signalled that ministers planned to get tough with employers who failed to tackle large deficits in their pension funds.

Employers’ lobby groups have argued that increased powers for the pensions regulator would give it undue influence in the running of companies already struggling to juggle the competing demands of shareholders, employees and the need to invest in new equipment. They have pushed back against proposals to allow the regulator to block executive bonuses and dividend payments, arguing that they are intrusive and draconian limits on private enterprises.

A pensions expert, John Ralfe, said the regulator was unlikely to want extra powers that could lead it into protracted disputes with companies about the level of payouts to shareholders and directors.

He said the government should move from a “DIY regulation that judges each scheme on an individual basis” to a blanket rule that forces all final salary pension schemes to measure their liabilities in the same way and reduce deficits over the same time.

Currently, the regulator agrees a separate plan with each employer to determine how long it needs to close its pension deficit. This can range from five to 20 years.

Carillion crisis deepens amid scramble to save jobs after firm collapses

Thousands of private sector workers at risk and 30,000 small firms owed money may lose out

Workers locked out of Carillion’s Midland Metropolitan hospital construction site.






Workers locked out of Carillion’s Midland Metropolitan hospital construction site.
Photograph: Darren Staples/Reuters

Thousands of staff who worked for the collapsed construction firm Carillion inside private sector companies will have their wages stopped on Wednesday unless their jobs are rescued by other firms, the government has said.

Experts also said up to 30,000 small firms were owed money by Carillion, which crashed into liquidation on Monday morning, with insolvency practitioners reporting an immediate rush of calls from worried business owners.

Q&A

What government contracts does Carillion hold?

NHS
•Manages facilities including 200 operating theatres and 11,800 beds
•Makes more than 18,500 patient meals per day
•Helpdesks manage 1.5m calls per year
•Engineering teams carry out maintenance work

Transport
•Building ‘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
•Upgrades track and power lines for Network Rail
•Major contractor on London’s Crossrail project
•Roadbuilding and bridges

Defence
•Manages infrastructure and 50,000 homes for Ministry of Defence

Education
•Designed and built 150 schools
•Services such as catering and cleaning at 875 schools

Prisons
•Maintenance and repairs at about half of UK prisons

Libraries
•Manages several public libraries in England

Energy
•Building substations, overhead cables and other works for National Grid

Thank you for your feedback.

Ministers gathered for an emergency meeting on Monday night in an effort to limit the damage caused by the collapse of the sprawling construction and support services business.

As the fallout spread, the Cabinet Office minister, David Lidington, faced mounting pressure over the government’s oversight of the firm’s increasingly precarious finances in the months leading up to its failure.

Lidington told parliament the government would continue to pay those among Carillion’s 19,500 UK staff who work in public sector jobs, such as NHS cleaners and school catering.

But he admitted thousands of Carillion’s private sector workers – who perform jobs ranging from cleaning to catering, security and postroom services for organisations such as the Nationwide building society and BT Openreach – would be cut loose after 48 hours.

“The position of private sector employees is that they will not be getting the same protection that we’re offering to public sector employees, beyond a 48-hour period of grace,” Lidington said.

He added that this would give time for Carillion’s private clients to decide if they wanted to terminate the contracts or step in to cover wages themselves. “I think that is a reasonable gesture towards private sector employees,” he said, adding that a Jobcentre Plus helpline had been set up.

The impact of the company’s implosion was immediately felt on Monday as workers at the Midland Metropolitan hospital – being built near Birmingham by Carillion – were locked out and sent home. The hospital, together with another in Liverpool, is at the centre of the problems that have beset the business. Both are substantially delayed and over budget.

In a video released on Monday night, the Labour leader, Jeremy Corbyn, called Carillion’s collapse a “watershed moment”, adding that it was “time to put an end to the rip-off privatisation policies that have done serious damage to our public services and fleeced the public of billions of pounds”.

Vince Cable, the Liberal Democrat leader and former business secretary, said: “The government has mismanaged contracts so that fat cat bosses are able to get away with millions, hedge funds are able to make millions, while their jobs are at risk.”

The shadow Cabinet Office minister, Jon Trickett, asked Lidington why Carillion was not overseen by a crown representative – a monitor usually appointed to observe government suppliers in financial difficulty – during the three months leading up to its liquidation.

He said that “the House will conclude [the Cabinet Office] was recklessly complacent”.

Earlier, the civil service chief executive, John Manzoni, told the public administration and constitutional affairs committee, which is now to launch an inquiry into outsourcing, that the crown representative was “rotated out” over the summer.

Manzoni said it was not until November that officials “really started to notice” the problems at Carillion, whose chairman, Philip Green, was an adviser to the prime minister on corporate responsibility until December 2016. Between July and November, Carillion issued three major profits warnings and its shares crashed by 91%.

However, Manzoni insisted that a team watching events at the company had “played a blinder”.

While Carillion’s private sector staff face uncertainty over their pay, the company’s former chief executive Richard Howson is still currently entitled to a £660,000 salary, even though he quit in July over the company’s dismal performance.

Lidington declined to say whether Howson, paid £1.5m last year, would still get the money but he said official receivers managing the remains of Carillion could impose “severe penalties” on former directors.

The Institute of Directors described a change to Carillion’s pay policy in 2016 which made it harder for the company to reclaim bonuses as “highly inappropriate”.

Amid concern about continuity of public services, the prime minister’s official spokesperson said the government had taken steps to make sure services were delivered “as normal”.

But within hours of the firm’s collapse, reverberations from its demise were being felt around the country. Firefighters in Oxfordshire were put on standby to serve school dinners, while the RMT rail workers’ union said disruption to train cleaning services was “almost inevitable” because mobile cleaning crews who travel by van found that fuel cards issued by Carillion to pay for petrol no longer worked.

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How are you being affected by the Carillion liquidation crisis?

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After workers building the £590m Midland Metropolitan hospital in Smethwick were told to go home, the West Midlands mayor and former John Lewis boss Andy Street said a new contractor would have to be found, adding that he had set up a regional taskforce to help staff and suppliers.

Liverpool mayor Joe Anderson said “solid contingency plans” were in place to make sure the £490m Royal Liverpool University hospital was not further delayed.

Small business experts warned Carillion’s suppliers could be driven under if they were not paid. Suzannah Nichol, chief executive of trade body Build UK, said she estimated Carillion owed money to between 25,000 and 30,000 businesses which could now struggle.

“Looking at previous cases where large contractors have collapsed, you typically see that around 17% or 18% of businesses who are creditors […] don’t make it through the next five years,” she warned.

Insolvency firm Mazars said it was already fielding calls from affected Carillion suppliers.

Conrad Pearson
(@conrad_pearson)

We are already receiving calls of suppliers affected by the collapse of Carillion

January 15, 2018

Major partners on key Carillion projects admitted they were bound to take a financial hit from picking up its share of projects.

Construction firm Balfour Beatty, which is working on the £550m Aberdeen bypass, said it expected the collapse to cost it £45m, with partner Galliford Try sharing costs that could reach £80m.

But Serco, which provides some of the same services as Carillion, saw its shares rise more than 7% on the demise of a major rival. Carillion’s engineering partner on HS2 work, Kier Group, said it would take over Carillion’s share of the rail project.

The Financial Reporting Council, the accountancy watchdog, said it had been “actively monitoring” the situation and would make a statement shortly. Auditor KPMG, which signed off on Carillion’s 2016 accounts, said it had conducted its duties “appropriately and responsibly”.

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