Source · Select Committees · Public Accounts Committee
Recommendation 8
8
Accepted
Lack of integrated departmental oversight creates blind spots for distressed companies.
Recommendation
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
Government Response Summary
The government states the recommendation concerning the lack of a complete cross-departmental picture of exposure to distressed companies is already implemented. It refers to the existing Lead Government Department approach, improved supplier monitoring since Carillion, and Cabinet Office monitoring of strategic suppliers.
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.