Select committee inquiry
Lessons for government: monitoring and responding to companies in distress
Closed
What the inquiry looked at
“Direct intervention in the private sector has generally been seen as a last resort by the Government, with private sector companies allowed to fail as part of the efficient working of markets and the economy. The Government’s approach in this area is now changing, with the pandemic, war in Ukraine and the energy crisis all seeing the state intervene to keep companies functioning. The UK Government Resilience Framework proposes a shift towards prevention and preparation, and the Government is also working to improve its understanding of critical supply chains, including chemicals, communications, energy, and water. The Committee has also reported on several examples of government involvement in distressed companies and suppliers, including Bulb Energy, Carillion and Community Rehabilitation Companies . Based on a National Audit Office report setting out the wider government context to interventions, the Committee will take evidence from senior HM Treasury and Department for Business and Trade officials on subjects including: • The financial monitoring of water companies; • Support to steel companies; • Interventions to sustain critical supply chains; • Interventions to manage the failure of government suppliers. If you have evidence on these issues, please submit it here by 23:59 on Sunday 7 January 2024. Please look at the requirements for written evidence submissions and note that the Committee cannot accept material as evidence that is published elsewhere. The Committee is not able to investigate individual cases or companies. This inquiry was closed due to the 2024 General Election.”
The committee's words, from the inquiry page on parliament.uk ↗.
What it found
In the committee's words, from the summary of Twentieth Report - Monitoring and responding to companies in distress ↗
The lasting effects of the COVID-19 pandemic and high interest rates have led to a level of company insolvencies across the economy not seen since the financial crisis in 2009.
Several risks related to company failure are identified in the August 2023 National Risk Register, including failure of a major adult social care provider, insolvency of suppliers of critical services to the public sector such as IT services or banking facilities, and insolvency affecting fuel supply. In this context, it is even more important that the government is a step ahead of the next company or sectoral failure.
The government considers direct intervention to be a last resort when private sector companies have failed, or are at risk of failure. However, there are cases, many of which this Committee has examined, where the government has decided it is necessary to step in and support distressed companies, to protect society or the economy. Examples of interventions examined by this Committee range from Carillion to Northern Rock, to community rehabilitation companies, and more recently Bulb Energy. We have also reported on the government’s unprecedented interventions to keep companies functioning and sustain essential services in response to the COVID-19 pandemic and the energy crisis. The government tells us it is focused on resilience and preparedness.
However, there is work to be done to ensure this approach is consistent and joined up across government. It is vital that the government identifies and equips itself with the tools and skills required to monitor the financial resilience of sectors and companies, so it is well prepared to respond in these distress situations.
HM Treasury has set out high-level principles to apply when deciding whether to provide financial support. Nonetheless, these decisions are often time-pressured and involve complex trade-offs, with sometimes significant ramifications for taxpayers and public services. We are concerned that high staff turnover may be resulting in a loss of corporate knowledge and expertise in this area. It is therefore important that the government has a consistent approach to evaluating, learning, and sharing lessons, both from past interventions and from instances where government decided not to intervene, to maintain institutional memory of what works for future cases.
What the government said
The government responded on 28 May 2024.
Summary written by Accountability Index from the government's response.
The government states that it agrees with each of the Committee's recommendations on intelligence-sharing, institutional knowledge, accounting officer assessments, support for accounting officers, skills and evaluation of company distress cases.
- On accounting officers, it says guidance already requires them to consider commercial risks, including supplier financial resilience, and HM Treasury will "shortly re-issue information" including the NAO's good practice guide (target implementation date July 2024).
- On skills, it agrees (target implementation date April 2025) but states that existing standards and the Risk Management Strategy mean there is no "need for setting new functional standards"; the Commercial Function "will work with" other bodies on a "more targeted approach".
- On evaluation, it says that "evaluation of company cases has not been formalised" and is "an area of potential improvement", with HM Treasury to work with the Cabinet Office and UKGI to "consider future changes" (target July 2024).
- On intelligence-sharing, it states that the recommendation is implemented and that responsibility for supply chain resilience and corresponding intelligence "lies with LGDs", with the Cabinet Office monitoring strategic suppliers.
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 13 December 2023 to its close on 28 May 2024.
- Oral evidence 17 Jan 2024
- Report 13 Mar 2024
- Government response 28 May 2024
- Correspondence 2 letters
What it recommended 17 recommendations · 10 conclusions
2Set out how HM Treasury and Cabinet Office will support departments to maintain risk knowledge.
Recommended (the committee's words)
We are concerned that departments are not maintaining institutional knowledge relating to ‘at risk’ companies and sectors. HM Treasury monitors the health and resilience of the corporate sector as a whole and the Department for Business and Trade oversees industry and different priority sectors and has a role in responding to economic shocks. It is the responsibility of individual departments to monitor the health of their sectors, and those at the centre of government say they are not aware of any one sector that is more at risk than others. However, a high turnover of staff in government means that corporate knowledge held by departments, which may be commercially sensitive and therefore restricted to a small handful of individuals, is at risk of being lost. HM Treasury spending teams act as the filter for warnings from departments, but turnover of staff in HM Treasury is historically even higher. Recommendation 2: In the Treasury Minute response, HM Treasury and the Cabinet Office should set out how they will support departments to maintain a continuous level of knowledge about risks to companies and supply chains in sectors that are relevant to their departmental duties and objectives.
3Set out how HM Treasury will ensure accounting officers address supplier commercial model risks.
Recommended (the committee's words)
We are not convinced that accounting officers give sufficient consideration to the commercial models of those they contract with, which means they do not understand the potential risks (including supplier failure). HM Treasury suggests accounting officers should produce a formal Accounting Officer Assessment for 6 Monitoring and responding to companies in distress any significant novel and contentious proposal involving the use of public funds. However, we often see a tendency in government to push ahead with new projects and commitments involving the private sector without careful consideration of the risks and liabilities it exposes the government to. Too often, the government has failed to understand the economic and business models of the suppliers it contracts with, and as a result has not been able to assess whether the gain-share and pain-share mechanisms of the contract are appropriate. This includes risks with outsourcing a service for the first time in “untested markets”, which we saw materialise when the Ministry of Justice rushed through reforms to outsource probation services to community rehabilitation companies. The Government Commercial Function now advocates piloting and scenario-testing in these situations but could not tell us how it measured success. Recommendation 3: HM Treasury should set out in the Treasury Minute response how it will ensure accounting officers explicitly address the risks presented by suppliers’ commercial models in Accounting Officer Assessments for new projects and commitments involving private companies. Should the assessment identify a risk of company failure, we expect it to include an estimate of the impact of supplier failure, high-level contingency plans should failure occur, and an estimate of the potential costs incurred.
4Set out HM Treasury support for accounting officers making decisions in company distress situations.
Recommended (the committee's words)
We are concerned that accounting officers may not always be equipped to protect taxpayers’ money when making decisions on intervention in these fast-paced, high-pressure situations. This Committee and previous committees have reported many times over the past two decades on government interventions in financially distressed companies. Prior to 2020, the government acknowledges that it took an ad hoc approach to providing support to distressed companies. Since then, HM Treasury has established some high-level principles to apply to company distress cases. Nonetheless, decisions about whether or how to intervene in companies require accounting officers to make difficult judgements and balance complex trade- offs, often at speed. In the case of Silicon Valley Bank UK, government officials had to rapidly draw up several options for how the government could respond to the situation, over the course of a weekend. Accounting officers need to ensure any decisions on intervention adhere to the principles of feasibility, propriety, regularity and value for money, as set out in Managing Public Money. It is important therefore that accounting officers can articulate the trade-offs they are balancing and any consequences of their decisions, including how any moral hazard (where support for one company creates an incentive for other companies to take risks with the expectation they will also be supported) or free rider risks (where the company’s incumbent lenders or shareholders may benefit from government support without having to contribute themselves) might be managed over the course of an intervention. It is also important that they consider exit strategies and articulate how they will manage the intervention under different scenarios, including if the government ends up being involved for the medium to long term, and consequent unforeseen costs. Recommendation 4: HM Treasury should set out in the Treasury Minute response what it is doing to support accounting officers to dis
5Set functional standards for monitoring and responding to companies in distress across government.
Concluded (the committee's words)
The Cabinet Office has not assessed or coherently identified the skills and expertise needed for monitoring and responding to companies in distress. We have previously raised concerns about the level of commercial, risk management and corporate finance expertise in government amid increasing demand for these skills, all of which are important for monitoring and responding to companies in distress. Departments and regulators face the challenge of competing with the private sector for these high-in-demand skills. The Government Commercial Function, UK Government Investments (UKGI) and HM Treasury are having to do more work to support companies with restructuring. The UKGI special situations team has been involved in over 200 company distress cases in the last six years. HM Treasury acknowledges that having the right skills and capabilities in place is a critical lesson, but also that they are currently patchy across government. There are pockets of expertise, but no one has taken responsibility for assessing the varied skills needed for monitoring and responding to companies in distress. Recommendation 5: The Cabinet Office Commercial Function should set functional standards for monitoring and responding to companies in distress. As part of this process, the Function should write to the Committee within six months, explaining: • The skill requirement across government for monitoring and responding to companies or suppliers in distress; • The current level of these skills and expertise across government and where gaps exist; • How the Commercial Function plans to close the gaps identified; and • How the Commercial Function will ensure departments know where, how and when to access support.
6Set out updated approach to evaluating company distress cases and sharing lessons learned.
Recommended (the committee's words)
It is vital that the government evaluates and shares the lessons from these cases on a timely and consistent basis, regardless of whether the case resulted in government intervention. We have previously found that much of government activity and spending is not evaluated robustly, or at all. Government interventions in distressed companies can involve significant amounts of taxpayer money, and yet it is not evident that these interventions are being evaluated consistently and transparently, or that lessons are being shared across government. There are also many cases where the government ultimately decides not to intervene, or finds other non-financial ways to support the distressed company or manage the situation. It is important that the government documents its rationale and learning from these cases too. The government does not appear to be routinely learning from other countries and their processes for intervening in distressed companies, although it has expressed an interest in doing so. A lack of institutional memory across government coupled with a lack of systematic evaluation puts government at risk of not learning what works for future cases. 8 Monitoring and responding to companies in distress Recommendation 6: HM Treasury should set out in its Treasury Minute response how it will update its approach to evaluating company distress cases (including those that have not resulted in government intervention), and how lessons are shared across sectors. Alongside its Treasury Minute response HM Treasury and UK Government Investments should also provide some examples of lessons learned reports or evaluations from recent cases. Monitoring and responding to companies in distress 9 1 Preparedness for company distress situations
1Committee examined evidence from key departments on government's corporate distress monitoring.
Concluded (the committee's words)
On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Treasury (the Treasury), the Department for Business and Trade, the Cabinet Office, and UK Government Investments (UKGI).1
7Departments have varied approaches to understanding supply chains and informal distress monitoring.
Concluded (the committee's words)
Departments are at different stages and have different approaches to understanding their sectors’ supply chain dependencies and exposure.13 The Treasury told us that individual departments lead on their sectors and it is for each of them to monitor the health of their sectors.14 It explained how information that a particular sector or company is in distress is shared through “the informal network of interaction between relevant teams” or through the Treasury spending teams if the department was seeking to prepare a financial contribution to support the company. The Treasury explained that it also monitored various indicators of health and resilience of the corporate sector as a whole. Although the Insolvency Service statistics indicate an increase in insolvencies in absolute terms, it told us that the number of businesses had also increased.15 We asked the Treasury about how it measures the number of businesses and ensures that these are trading businesses, as we were concerned that the figures may be misleading if they include new companies being created that do not exist or have no intention of carrying out any activity.16 The Treasury wrote to us after the evidence session and confirmed that “there is a risk these figures include some inactive firms.” However, it said it was reassured by the fact new legislation 8 C&AG’s Report, paras 2.2–2.4 9 Q41 10 Department for Business and Trade, Critical Imports and Supply Chains Strategy, 17 January 2024 11 Q43 12 Q48 13 C&AG’s Report, para 2.17 14 Q41 15 Qq33–34 16 Q40 Monitoring and responding to companies in distress 11 when introduced would improve the accuracy and quality of data on Companies House registers, that it could still make judgements on the overall trend by comparing numbers over time, and that it also used other metrics to analyse the corporate sector.17
8Lack of integrated departmental oversight creates blind spots for distressed companies.
Recommended (the committee's words)
Companies and markets can cut across several departments’ policy responsibilities or provide services to multiple departments. This meant that in the cases of Carillion, CF Fertilisers and UKCloud, no single department had a complete picture of the government’s exposure to the company in advance of it becoming distressed.18 We asked the Treasury about instances where its alert system had not worked. The Treasury told us that CF Fertilisers was an example where they “could have been alerted ahead of time had we understood that supply chain risk more systemically” as they had not known “that the supply of CO2 was dependent on that particular company”. The Department for Business and Trade agreed that it had been “slightly caught off guard”.19 Around two thirds of the UK’s CO2 was sourced from CF Fertilisers in 2018, supplying the food and drink, energy, nuclear, medical and water sectors among others. In 2019, following a CO2 supply shortage the previous year, the Food and Drink Federation recommended a clearer focus in government on the significance of the UK’s CO2 supply chain, but at the time no action was taken.20 The government had to provide temporary financial support to the company in 2021 to avoid a CO2 supply shortage after it halted operations at its site due to high natural gas prices.21
9Mapping multi-tiered public service supply chains presents significant complexity and cost challenges.
Recommended (the committee's words)
The National Audit Office (NAO) reported that the Cabinet Office’s markets, sourcing and suppliers team were in the early stages of exploring how departments map their supply chains, and whether a similar approach could be taken for public service supply chains.22 The Cabinet Office spoke about the example of UKCloud, which provided secure cloud data services to several government departments and went into liquidation in 2022.23 It explained how this was a “very difficult-to-spot problem” because it was “four tiers down” and it would be very costly and difficult to maintain a database that mapped “other subcontractors to people way down our supply chain”.24 Retaining corporate knowledge
10Treasury relies on departments for specific sectoral monitoring despite central oversight.
Recommended (the committee's words)
The Treasury told us that some of its staff work on monitoring the health of the UK corporate sector overall, by looking at a series of indicators.25 It told us that actively monitoring the corporate sector is an important and critical part of what the Treasury does centrally. The Department for Business and Trade also explained its “industry brief” and its “role in economic shocks generally, and monitoring and forecasting”. Nonetheless the Treasury told us that it is reliant on departments monitoring their own sectors.26
11High civil service turnover undermines corporate knowledge and institutional memory on distress.
Recommended (the committee's words)
The government’s corporate knowledge about the health of key sectors and companies may be vulnerable because of the high turnover of civil servants in this field, who may have 17 Correspondence from HM Treasury to Committee, 30 January 2024 18 C&AG’s Report, para 1.8 19 Q23 20 C&AG’s Report, para 2.15 21 National Audit Office (NAO) Report, Good practice guide: Monitoring and responding to companies in distress, October 2023, page 10 22 C&AG’s Report, para 2.17 23 Qq13,27; C&AG’s Report, para 6 24 Q12–13 25 Q23 26 Qq 41–43 12 Monitoring and responding to companies in distress built trusted relationships with the private sector and be skilled at handling information “sensitively and carefully”.27 The Cabinet Office told us that the last time it had a company it needed to look at, the Chief Operating Officer for the Civil Service wrote to all departments to nominate a single point of responsibility in their operations team. It told us that “it is important to have someone in departments so we can have a Government-wide call.”28 Despite this, it explained that next time there is a similar case, this will need to be updated because “doubtless people will have moved on.” The Treasury also explained to us how its spending teams are formally alerted when a department is seeking to make any sort of financial contribution to a company.29 We have previously raised concerns about the high staff turnover in the Treasury and a lack of operational experience at more junior levels of the Treasury spending teams.30 Analysis of the latest civil service statistics shows that the Treasury has the highest turnover rate of all departments.31 The Treasury told us that it had launched a corporate finance network as one way of maintaining institutional memory, and that there is a regular permanent secretaries’ group focused on growth where it shares its guidance and principles on company distress situations, to be cascaded to teams across the civil service.32
12Departments have improved sectoral understanding post-pandemic, though construction remains fragile.
Concluded (the committee's words)
We asked the witnesses what lessons they had learned about companies’ resilience across the economy from supporting them during the pandemic. The Treasury told us that it had learned the “importance of departments having a good sectoral understanding, understanding the nature of their sectors and things like the composition of their sectors”. The Treasury and Department for Business and Trade told us that, prior to the pandemic, knowledge of some sectors was “mixed” and they “did not know some almost at all”. However, they said that departments now have a much better understanding of their sectors and have been building those relationships.33 Given the current high levels of insolvencies across the economy, we asked the witnesses if there were any particular sectors giving cause for concern. The Treasury told us that there was “no one sector that seems to be more in trouble than any others”.34 We were told by the Cabinet Office that “16% of insolvencies are in construction” but “construction is usually held as the most fragile sector” due to low margins and complex working capital arrangements. The Cabinet Office explained how it has built resilience into this sector by introducing a prompt payment exclusion to prohibit companies from bidding for contracts if they do not pay their suppliers promptly.35 Understanding risks when contracting
13Departments underutilise and produce inconsistent Accounting Officer Assessments for public funds.
Recommended (the committee's words)
This Committee has continually advocated for the use of Accounting Officer (AO) Assessments to support high quality decision-making and enhance transparency. The Treasury’s guidance suggests that it is good practice for an AO Assessment to be produced for each significant novel and contentious transaction or proposal involving the use of public funds.36 Our 2022 report on Improving the Accounting Officer Assessment process 27 C&AG’s Report, para 3.10; Q48 28 Q27 29 Q22 30 Committee of Public Accounts, Improving government planning and spending, Seventy-Eighth Report of Session 2017–19, HC 1596, 8 February 2019, Conclusions and recommendations para 1 31 Institute for Government, Whitehall Monitor 2024, January 2024, page 19 32 Q16 33 Q69 34 Qq33–34 35 Q37 36 HM Treasury, Accounting Officer Assessments: Guidance, May 2023 Monitoring and responding to companies in distress 13 found that departments do not make as much use of these assessments as they should.37 The quality of these assessments varies across departments, with some not providing sufficient detail to allow for a good understanding of the programme or the accounting officer’s assessment of risks.
14Government remains vulnerable to provider failure in outsourced public services, despite measures.
Concluded (the committee's words)
For several decades, successive governments have contracted out public services to private providers. Where providers or suppliers fail, the government is often the fall-back owner of risks. This was demonstrated when Carillion failed and the government had to step in to fund a trading liquidation while contracts and services were transferred.38 We asked the Cabinet Office how likely it was that we would see another Carillion. It told us “never say never” but that it had introduced ‘playbooks’ to help define how to go to market in these areas. For complex outsourcing where government is the only customer, the Cabinet Office told us that it is “particularly important that we really understand the economics for the supplier and whether the gain share and pain share mechanisms are appropriate” and that it had “spent a lot more time thinking about that recently”. The Cabinet Office also explained how it requests a living will statement for critical contracts or complex outsourcing contracts. Each year, the vendor will have to confirm to the contracting authority whether it still passes the financial entry tests that are expected to be met at the beginning of a contract.39
15Ensuring taxpayer gains from contracts remains challenging, requiring improved market testing.
Concluded (the committee's words)
We asked the government specifically about how it ensures the taxpayer gains when a company does well partly as a result of having a government contract. The Cabinet Office told us that it publishes key performance indicators (KPIs) for its contracts, and it will be publishing more of these from October 2024 so that taxpayers can see whether the contract is delivering. It said that it was particularly challenging to assess gain share and pain share mechanisms where the government has not tested the market. It used the example of outsourcing probation rehabilitation services to demonstrate the consequences when government does not test the market to see whether, under different scenarios, the companies would survive or make undeserved profits. Ultimately, the government bore the risk when “volumes sank” and several of the companies “went bust”, leading the services to be taken in house. The Cabinet Office told us that the message from this example was to “think carefully about the payment mechanisms to make sure that we are not being overly generous on the upside and that people are not getting a free run, and neither is the scheme so punitive on the downside for things that are outside of the vendor’s control.”40 The Cabinet Office agreed that piloting was part of the answer to this problem where there is no existing external market. In response to our question about how much success it was having in promoting this approach, the Cabinet Office said that outsourcing in new areas was “relatively rare, and the presumption is that we will pilot it”.41 37 Committee of Public Accounts, Improving the Accounting Officer Assessment Process, Twenty-Eighth Report of Session 2022–23, HC 43, 24 November 2022, Summary 38 C&AG’s Report, paras 2.9, 2.11 39 Q74 40 Q75 41 Qq76–78 14 Monitoring and responding to companies in distress 2 Responding to distress situations, skills and evaluation Protecting taxpayers when making decisions on interventions
16Government previously lacked a structured framework for providing financial support to distressed companies.
Concluded (the committee's words)
In 2020, the government set out publicly some broad principles which it uses to underpin decisions on providing last-resort bespoke financial support to financially distressed companies. The government has publicly stated that there is an “extremely high bar for putting taxpayers’ money at risk in this way”.42 The Treasury told us that before developing the principles, it had had “a rather ad hoc framework for addressing companies in distress-type situations.”43
17Require departments to rigorously adhere to public money principles for all company interventions.
Recommended (the committee's words)
As with any activity involving public money, a department must adhere to the principles of regularity, feasibility, propriety and value for money set out in the Treasury’s Managing Public Money. A department will likely be required to carry out a formal Accounting Officer Assessment when considering an intervention in a private company.44 The Treasury told us that if a department is seeking to provide financial support to a company and “it is highly likely to be novel, contentious or repercussive”, it is likely that it will require Treasury’s approval.45
18Maintaining propriety during rapid, imperfect decision-making in company distress situations is challenging.
Concluded (the committee's words)
Propriety is concerned with meeting high standards of public conduct and parliamentary expectations, and cannot be dispensed with even when making difficult judgements on competing issues in an emergency.46 Responding in these situations often requires rapid decision-making by officials and ministers, based on imperfect information and a set of unattractive options.47 We heard how quickly departments have to weigh up different options and make decisions in a crisis situation. For example, when the government was notified of the imminent failure of Flybe in 2020, UKGI told us that advisors spent four days in the company and assessed that intervention “would not be a good use of government money because, if we put a penny in at the top, we might not be able to work out where that penny would go and it might not be focused on what we needed it to”.48 More recently, when the issues surrounding Silicon Valley Bank arose, a number of teams were stood up over the course of a weekend to come up with a rapid set of different contingency plans.49
19Government employs stringent due diligence and asset security to mitigate moral hazard risks.
Concluded (the committee's words)
We asked the witnesses how they manage the risks of moral hazard (where support for one company creates an incentive for other companies to take risks with the expectation they will also be supported) and free riders (where the company’s incumbent lenders or shareholders may benefit from government support without having to contribute themselves) when deciding if and how to intervene in a company.50 The Treasury explained how it sets “the bar very high” and conducts very detailed due diligence on the companies, 42 C&AG’s Report, para 1.4, Figure 4 43 Q15 44 C&AG’s Report, paras 3.3, 3.5 45 Q22 46 C&AG’s Report, Lessons learned: tackling fraud and protecting propriety in government spending during an emergency, Session 2023–24, HC 444, 8 February 2024, Lesson 2, para 19 47 C&AG’s Report, para 3.6 48 Qq18–19 49 Q28 50 Qq61–64 ; C&AG’s Report, para 3.2 Monitoring and responding to companies in distress 15 such that the cases where it does intervene “are very few and far between”. UKGI told us how it is very mindful of the free rider problem and, if other financial stakeholders did not play their part, government would take assets as security to protect the taxpayer’s position.51 For example, when providing a £30 million loan to Celsa Steel, the government set the conditions of the support so that public money would be protected if the company became insolvent and it would get a greater return if the company did well. UKGI agreed that this would be a model it would intend to follow in the future.52
20Government interventions often lead to prolonged involvement and unforeseen costs without clear exit strategies.
Recommended (the committee's words)
The NAO report has shown how intervening in companies can lead to unforeseen costs and government involvement over a period much longer than expected. Ensuring value for money requires careful consideration not just of short-term objectives but also of longer-term scenarios, including how and when the government may extricate itself from the intervention.53 In light of taxpayers still retaining a large portion of shares in the Royal Bank of Scotland, we asked the witnesses about how they plan exit strategies at the outset of deciding what kind of intervention is appropriate. UKGI told us that the fundamental principle underlying any intervention is to “provide a bridge, not a pier” and that it will spend time doing due diligence to look at what the future for the company might look like. It explained how Sheffield Forgemasters was nationalised and the ongoing work to help support and modernise the company. The government has committed to the company being “returned to the private sector in due course” but has not specified any timescales for this.54 We also received written evidence which raised concerns about the ongoing ramifications playing out at a gas site in South Wales, following the liquidation of Baglan Operations by the Official Receiver. Dr Tribe’s evidence highlighted a lack of anyone taking responsibility for the liabilities at the site and stressed that government involvement must “be for the long run and properly finalise the case” when it does decide to get involved.55 Skills and capabilities
21Ensure departments possess or access essential specialist skills for company distress interventions throughout their lifecycle.
Recommended (the committee's words)
Departments must have, or be able to access, the skills, expertise and capacity needed through the whole lifecycle of any intervention in a company, including to prepare for and respond to company distress scenarios.56 We have repeatedly highlighted longstanding issues with a lack of specialist skills in the civil service and the challenges with attracting and retaining specialist staff.57 We recently found in our 2023 Bulb Energy report that the need for commercial and corporate finance skills across government has increased but these are in limited supply.58 We highlighted the importance of all departments being able to access these skills to make appropriate judgements concerning activities that link the public and private sectors. Our report on Competition in public procurement raised concerns that the government may not fully understand the commercial skills and 51 Q59 52 Qq64–65 53 C&AG’s Report, paras 3.1, 3.7–3.8 54 Qq67–68; NAO Report, page 20 55 Dr John Tribe (Senior Lecturer in Law, University of Liverpool) (LGD0001) 56 NAO Report, page 7; C&AG’s Report, Figure 1 57 Committee of Public Accounts, Specialist skills in the civil service, Thirty-Second Report of Session 2019–21, HC 686, 7 December 2020, Summary 58 Committee of Public Accounts, Bulb Energy, Seventy-Fourth Report of Session 2022–23, HC 1232, 1 November 2023, Conclusions and recommendations, para 5 16 Monitoring and responding to companies in distress capabilities needed across government to implement far-reaching changes to the public procurement landscape.59 We have also highlighted the variability in departments’ risk management capabilities.60
22Specialist skills for company distress are concentrated centrally, resulting in patchy government capabilities.
Recommended (the committee's words)
The Treasury told us that having the right skills and capabilities in place is “a really critical lesson” highlighted by the NAO’s report. It acknowledged that these skills are currently “patchy across government”.61 The relevant specialist skills for responding to company distress situations are concentrated mainly at the centre of government.62 The Treasury told us that its special situations team, UKGI and the Cabinet Office were the “three pockets in the centre” that held the “expertise and experience in both the framework and the practice of how this all works.”63 UKGI told us that its special situations team of 18 has a total of 225 years of experience of financial distress, and has been involved in over 200 cases where distressed companies had approached government in the last six years.64 We also heard how these three central teams are “more in the restructuring business” as they have become trusted by companies who “tell us stuff confidentially so we can be part of the solution”.65
23Departments and regulators face ongoing challenges in securing high-demand commercial and financial skills.
Recommended (the committee's words)
Nonetheless, the Treasury reiterated that it is up to departments and regulators to ensure they have the capability and capacity to discharge their duties, including understanding what financial expertise they need.66 The Department for Business and Trade explained how the kinds of skills it requires, including commercial, financial and accounting skills, are high in demand across the private sector and government. We heard how regulators face the same challenges in competing for these skills.67 The Department for Business and Trade told us that things had improved in getting people with the commercial negotiation and financial experience to be able to talk to companies, but did not specify whether this is the same experience across departments.68 Evaluation and learning
24Government company interventions are not consistently or robustly evaluated, hindering learning and accountability.
Recommended (the committee's words)
Evaluation is a systematic assessment of the design, implementation, and outcomes of an intervention.69 It is important for learning what works and why, and to demonstrate accountability for the use of public money.70 Our work on the use of evaluation in government found that much of government activity is not evaluated robustly or at all, and the government does not know what works to improve outcomes in those areas.71 In 59 Committee of Public Accounts, Competition in public procurement, Sixth Report of Session 2023–24, HC 385, 13 December 2023, Conclusions and recommendations, para 5 60 Committee of Public Accounts, Government preparedness for the COVID-19 Pandemic: Lessons for government on risk, Forty-Sixth Report of Session 2021–22, HC 952, 23 March 2022, Summary 61 Q15 62 C&AG’s Report, para 3.6 63 Q16 64 Qq17, 83 65 Q21 66 Q53 67 Q30 68 Q69 69 Committee of Public Accounts, Use of evaluation and financial modelling in Government, Fourth Report of Session 2022–23, HC 254, 27 May 2022, para 2 70 C&AG’s Report, para 3.9 71 Committee of Public Accounts, Use of evaluation and financial modelling in Government, Fourth Report of Session 2022–23, HC 254, 27 May 2022, Conclusions and recommendations, para 1 Monitoring and responding to companies in distress 17 the case of government interventions in companies, the NAO found no indication that they are any more likely than other government spending to be formally and transparently evaluated.72
25Treasury acknowledges government's current lack of systematic evaluation for company interventions and non-interventions.
Recommended (the committee's words)
We asked the witnesses about how robustly government collates and shares evaluation findings and lessons on this topic. The Treasury suggested that this was something they “can probably be a bit more systematic on”. It provided the example of the covid support business grant schemes as a “systemic evaluation that is taking place right now”.73 It also said it would be keen to learn the lessons from the Silicon Valley Bank case and that the Financial Stability Board was carrying out an exercise to do this.74 UKGI told us that nine cases out of 10 that it examines do not result in a government intervention.75 However, the Treasury acknowledged that it does not systematically evaluate interventions or non- interventions in a way that would add understanding across government, and said that it was grateful to the NAO’s work for highlighting this.76
26Challenges persist in recovering costs from third parties after airline insolvencies.
Concluded (the committee's words)
We asked the witnesses whether there had been any learning from the experiences of airline collapses about industry insurance schemes and also how government manages the risks around recuperating money from private insurers. UKGI suggested that there was some work undertaken to identify where there might be similar risks but could not recollect where that had got to.77 The Treasury’s subsequent letter explained that the cases of Monarch and Thomas Cook highlight the challenges in recovering costs from third parties when government steps in. It said that the Department for Transport is “taking the time to thoroughly consider the most appropriate package of measures to take forward” in response to the Airline Insolvency Review, which was published in 2019.78
27Value in exploring international frameworks for company intervention and non-intervention approaches.
Recommended (the committee's words)
We also asked the witnesses whether they looked to different international regimes to learn any lessons about how to deal with companies and sectors that might be in trouble. The Treasury and the Cabinet Office said that each country is unique and will have its own way of handling insolvency or distress situations, but the Treasury told us that there would be value in looking at the way other countries structure their frameworks for intervention or non-intervention in companies.79 72 C&AG’s Report, para 3.9 73 Q70 74 Q28 75 Q18 76 Q70 77 Qq45–47 78 Correspondence from HM Treasury to Committee, 30 January 2024 79 Q54 18 Monitoring and responding to companies in distress
Evidence
Oral evidence sessions 1
- 17 Jan 2024Lessons for government: monitoring and responding to companies in distress4 witnesses, listed belowparliament.uk ↗
Who gave evidence 4 witnesses
- Hannah GrayDirector, Special Situations Group, UK Government Investments
- Jess GloverDG Growth and Productivity, HM Treasury
- Neil JohnsonDirector, Materials in the Business Group, Department for Business and Trade
- Sir Gareth Rhys Williams CBGovernment Chief Commercial Officer, Cabinet Office
Correspondence 2 letters
- 6 Feb 2024Correspondence from Jessica Glover, Director General, Growth and Productivity, HM Treasury, re Lessons for government in monitoring and responding to companies in distress hearing, dated 30 January 2024
- 6 Feb 2024Correspondence from Gareth Rhys Williams CB, Government Chief Commercial Officer and Non-Executive Director, Crown Commercial Service, re Committee’s inquiry into lessons for government: monitoring and responding to companies in distress, dated 26 January 2024