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01.02.18

Capita situation is not ‘another Carillion’, says Cabinet Office minister

Senior government ministers have denied that the massive downturn in recent profits which has hit Capita is not comparable to the recent failure of Carillion.

The public sector services powerhouse has been under increasing pressure in recent days after shares plummeted nearly 50% following profit warnings.

The company is thought to employ around 50,000 people in the UK and has a significant presence in a number of central and local government services, such as the Jobseeker’s Allowance helpline and teachers’ pension schemes.

Problems began this week when the firm’s new chief executive, Jonathan Lewis, said issues caused by a “short-term focus” and increasing complexity had led to Capita cutting its profit forecast and forced it to try and raise £700m by issuing new shares.

But Cabinet Office minister Oliver Dowden said the government was working with the company to “monitor the execution of its plan” and “ensure the continued delivery of public services.”

“We regularly monitor the financial stability of all our strategic suppliers including Capita and we do not believe that they are in a comparable position to Carillion,” Dowden said, in reply to questions from Business Select Committee chair Rachel Reeves.

Critics feared the failure of Capita would rival the recent liquidation of construction and services giant Carillion, which was also heavily involved in a large number of public sector contracts, particularly in the construction and rail industries.

Reeves said the two companies were in a very similar situation, with both suffering from debts over £1bn, as well as hundreds of millions of pounds in pension deficits.

“Both Capita and Carillion rely on the public purse for half of their contracts,” she said. “Both Capita and Carillion grew through acquisition and not through organic growth. It seems there are more similarities than differences between these two companies.”

However, Dowden said the plans put in place to deal with Capita’s problems could have helped its profits if implemented earlier.

He continued: “The measures that Capita has announced as designed to strengthen its balance sheet, reduce its pension deficit and to invest in core elements of its business. Arguably these are the measures that could have prevented Carillion from getting into the difficulties that they did.”

Top image: Andrew Matthews PA Wire

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