Latest Public Sector News

06.02.18

Councils could be hit with 20% fee rise to cover Carillion deals

Councils who were using failed construction and services giant Carillion are expected to be hit with a 20% hike in services charges to cover the company’s losses.

The increase is being overseen by PwC, at the request of the Official Receiver, and has been implemented to reflect the cost of services and construction work left unfinished by Carillion.

The company went into liquidation in January leaving authorities across the country out-of-pocket and with contracts abandoned – the firm was found to have debts of around £900m, with a £580m pension deficit.

An LGA representative said some councils had raised concerns about the rise in fees, especially at a time when central government cuts are making it difficult to plug funding gaps.

“We raised this issue with central government who have advised that all customers will be required to pay more than the contract price with Carillion to reflect the direct cost for ongoing provision of service including support functions,” explained an LGA spokesperson.

“This additional cost is estimated to be around 20% although it is likely to increase as contracts are re-let or taken in-house.

“We have advised councils that a pacy transition to new arrangements is likely to be the best way to minimise exposure to escalating costs.”

A spokesperson from the Ministry of Housing, Communities and Local Government (MHCLG) told PSE that the government was funding the official receiver to reduce some pressure on services.

 “The collapse of the company does not threaten the viability of councils who held contracts with Carillion, and we are monitoring the situation closely to ensure this remains the case,” they added.

Some councils have already approached the Official Receiver with complaints that the costs being charged are unrepresentative of services, where this is the case, the government has encouraged local authorities to seek a review of charges.

Officials from Carillion appeared in front of the Work and Pensions Committee today to answer for the failure of the company.

Former finance director Zafar Khan, who was in his role from January to September 2017, said there were four major contracts that were “underperforming significantly” which led the firm into difficulty, although he told ministers on the committee that he did “everything I could have done.”

Andrew Gwynne, shadow secretary for communities and local government, said local government should not be forced to pay for the private sector giant’s collapse.

He said: “Almost eight years of cuts under the Tories have devastated our local government services and left children’s services facing a £2bn funding gap by 2020.

“With the uncertainty caused by this collapse and now the risk posed by struggling Capita, forcing our councils to take on these additional fees feels like a kick in teeth.”

Fears that another private sector giant, Capita, could go the same way as Carillion were allayed this week by ministers, who said the situation was not similar.

Rachel Reeves, chair of the Business Select Committee, said the two firms rely on a similar section of the public sector for work and both have grown through acquisitions rather than organic growth.

However, Cabinet Office minister Oliver Dowden said Capita was not in a comparable position despite shares plummeting nearly 50% following profit warnings.

Top image: PA Wire

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