One of Britain’s largest companies was last night desperately pleading for a vast taxpayer bailout to avert a financial collapse that would put tens of thousands of jobs at risk.
Troubled construction and engineering giant Carillion is set to hold last-ditch rescue talks with Whitehall officials today. The company needs to find £300 million by the end of the month to stay afloat.
The group already receives more than £1 billion of taxpayers’ money in government contracts each year. It employs 19,500 staff in the UK.
Unions have called on the government to do everything it can to protect Carillion workers
Carillion is a major Government contractor in charge of building projects such as the HS2 rail project
Despite the lucrative income from the state, Carillion has debts of more than £900 million, and a £600 million hole in its pension fund.
The Prime Minister is being briefed on the crisis, with accountancy firm EY on standby to act as administrator if Carillion goes into administration.
Liberal Democrat leader and former Business Secretary Sir Vince Cable said: ‘The Government can’t just do a financial bailout. The shareholders and the creditors – the big banks – have got to take a hit.’
Why Carillion has careered into crisis
The Wolverhampton-based firm, the backbone behind a raft of public infrastructure projects, is teetering over a precipice.
The company is the second largest construction firm in the UK but has debts of about £1.5billion and a pension fund shortfall of almost £600million.
So how has it got into this mess? Most analysts agree that the answer is simple. It has over-reached itself.
Carillion they argue has its fingers in too many pies at homes and abroad from the Battersea Power station redevelopment in the UK to operations in Canada, the Middle East and the Caribbean.
The company’s incessant desire to expand has resulted in it pursuing too many risky contracts – some accompanied by questionable accounting practices – that have become increasingly unprofitable.
It has furthermore faced delays in payments in the Middle East.
The firm in recent months has found it much harder to manage its mountainous debt pile and pension deficit.
In December Carillion managed to persuade lenders to give it more time to repay them. But the company’s banks are now understood to be unwilling to lend it any more cash.
Much of the blame for Carillion’s parlous state is being directed at former boss Richard Howson, 49, who left last September, having received more than £6 million in pay and bonuses since taking over as chief executive in 2012. He will continue to receive his £660,000 basic salary until his notice period expires at the end of October.
Labour MP Rachel Reeves, who chairs the influential Business Select Committee, said: ‘It’s absolutely staggering that after resigning following a profits warning, the chief executive has continued to take home more than £50,000 a month. He shouldn’t be paid. He should be taking responsibility.’
Carillion’s state projects include the HS2 high-speed rail-line, and the construction of major hospitals, schools and roads.
The Wolverhampton-based firm is the second-largest supplier to Network Rail, and maintains about half the UK’s prisons and about 50,000 homes for the Ministry of Defence. It has been awarded several major government contracts in recent months despite issuing a series of stark profit warnings.
A spokesman said Carillion is ‘in constructive dialogue in relation to additional short-term financing’.
But MPs warned that a failure of the business would cause ‘a huge crisis’ and put thousands of jobs at risk.
The Government has already prepared a contingency plan for Carillion’s collapse, and it is understood to have drafted in private sector advisers to handle the fall-out for projects and contracts. The Cabinet Office is already touting Carillion’s contracts to rival firms.
Insiders said yesterday that administration is ‘inevitable’ unless the Government steps in.
‘It is hard to see how Carillion can go on much longer,’ a senior industry source said. ‘Unless they can pull a rabbit out of the hat, they risk entering a death spiral.’
A spokesman for the GMB union said Carillion bosses ‘should not be rewarded for failure with public money’.
Carillion is playing a major role in the HS2 railway development