Source · Select Committees · Public Accounts Committee
Recommendation 7
7
Accepted
Departments have varied approaches to understanding supply chains and informal distress monitoring.
Conclusion
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
Government Response Summary
The government states the recommendation is already implemented, highlighting its Lead Government Department approach, improved supplier monitoring since 2018, the Sourcing Playbook, Cabinet Office monitoring, and published strategies for critical sector supply chain resilience.
Government Response
Accepted
HM Government
Accepted
1.1 The government agrees with the Committee’s recommendation. Recommendation implemented 1.2 The government uses a Lead Government Department (LGD) approach to cover all phases of emergency planning, response, recovery and risk assessment. Usually, the LGD is the department with primary policy responsibility for the risk and expertise for the area impacted by the emergency scenario. 1.3 LGDs should escalate supplier and company risks through their internal escalation routes and to Cabinet Office and HM Treasury as required, for example should the department identifying the risk not be the clear lead for response, if intervention is being considered and HM Treasury spending approval may be required, or for additional expert support. 1.4 Monitoring of suppliers for financial distress has improved significantly since Carillion’s liquidation in 2018. The Government Commercial Function’s ‘Sourcing Playbook’ and associated guidance provide recommendations to departments regarding regular monitoring of suppliers’ financial performance. 1.5 The Cabinet Office monitors the strategic suppliers to government and proactively engages with public sector stakeholders to share intelligence, including bringing together customers of a common supplier where appropriate. Where there is a high level of exposure across multiple departments, the Cabinet Office may coordinate a response. 1.6 Responsibility for supply chain resilience and corresponding intelligence lies with LGDs. The government has published several strategies to ensure resilience in supply chains for critical sectors, for example on semiconductors, batteries and critical minerals. Supply chain intelligence is regularly gathered by sector teams from conversations with industry and shared with ministers and between officials.