Source · Select Committees · Public Accounts Committee
Twentieth Report - Monitoring and responding to companies in distress
Public Accounts Committee
HC 425
Published 13 March 2024
Recommendations
2
Accepted
Set out how HM Treasury and Cabinet Office will support departments to maintain risk knowledge.
Recommendation
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 …
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Government Response Summary
The government states it already supports departments through existing mechanisms, including commercial engagement on supplier risk, two-way intelligence sharing, Orange Book guidance, and Cabinet Office commercial teams providing regulation, guidance, and playbooks. Additionally, the DBT recently published a Critical Imports and Supply Chains Strategy to monitor and respond to supply chain shocks.
HM Treasury
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3
Accepted
Set out how HM Treasury will ensure accounting officers address supplier commercial model risks.
Recommendation
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 …
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Government Response Summary
The government states it already ensures Accounting Officers address supplier commercial risks through existing guidance documents like the AO Assessments Guidance, Managing Public Money, the Sourcing Playbook (which includes guidance on supplier failure and contingency planning), and the Orange Book for risk management.
HM Treasury
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4
Accepted
Set out HM Treasury support for accounting officers making decisions in company distress situations.
Recommendation
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 …
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Government Response Summary
The government explains it supports Accounting Officers through various existing guidance, playbooks, training, and specialist teams. It also commits to shortly re-issuing information, including the NAO’s good practice guide, to departments and AOs to further highlight guidance for dealing with distressed companies.
HM Treasury
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6
Acknowledged
Set out updated approach to evaluating company distress cases and sharing lessons learned.
Recommendation
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 …
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Government Response Summary
The government acknowledges that evaluation of company distress cases has not been formalised and will work with the Cabinet Office and UKGI to consider future changes and how to strengthen departmental evaluation requirements and share lessons. It also points to parliamentary and NAO scrutiny as providing evaluation.
HM Treasury
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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 …
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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.
HM Treasury
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9
Accepted
Mapping multi-tiered public service supply chains presents significant complexity and cost challenges.
Recommendation
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 …
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Government Response Summary
The government states the recommendation to improve supply chain mapping is already implemented. It describes existing measures such as the Lead Government Department approach, improved supplier monitoring via the ‘Sourcing Playbook’, and Cabinet Office monitoring of strategic suppliers.
HM Treasury
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10
Accepted
Treasury relies on departments for specific sectoral monitoring despite central oversight.
Recommendation
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 …
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Government Response Summary
The government states the recommendation on monitoring the UK corporate sector and relying on departments is already implemented. It highlights existing approaches like Lead Government Departments, improved supplier monitoring, Cabinet Office oversight of strategic suppliers, and published strategies for critical supply chain resilience.
HM Treasury
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11
Accepted
High civil service turnover undermines corporate knowledge and institutional memory on distress.
Recommendation
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 …
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Government Response Summary
The government agrees with the recommendation, stating it is implemented through ongoing actions such as making supplier risk a standing item for engagement, fostering two-way intelligence sharing to retain corporate memory, and requiring departments to escalate risk indicators via their governance frameworks and the Orange Book. It also highlights the Cabinet Office's commercial team support and DBT's Critical Imports and Supply Chains Strategy.
HM Treasury
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13
Accepted
Departments underutilise and produce inconsistent Accounting Officer Assessments for public funds.
Recommendation
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 …
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Government Response Summary
The government states the recommendation regarding Accounting Officer Assessments is already implemented. It details existing guidance for AOs on considering commercial risks, value for money, and feasibility, as well as the support provided by finance directors and commercial teams.
HM Treasury
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17
Accepted
Require departments to rigorously adhere to public money principles for all company interventions.
Recommendation
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 …
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Government Response Summary
The government states the recommendation to adhere to principles of regularity, feasibility, propriety, and value for money for interventions is already implemented. It outlines existing guidance in Accounting Officer Assessments, Managing Public Money, and the Sourcing Playbook, along with support from finance directors and commercial teams.
HM Treasury
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20
Acknowledged
Government interventions often lead to prolonged involvement and unforeseen costs without clear exit strategies.
Recommendation
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 …
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Government Response Summary
The government agrees with the recommendation on planning for long-term scenarios and exit strategies for interventions, with a target date of July 2024. It highlights existing guidance and support from various departments and commits to shortly re-issuing the NAO's good practice guide to departments.
HM Treasury
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21
Accepted
Ensure departments possess or access essential specialist skills for company distress interventions throughout their lifecycle.
Recommendation
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 …
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Government Response Summary
The government agrees to the recommendation and aims to implement it by April 2025. The Cabinet Office Commercial Function will collaborate with other bodies to develop a more targeted approach for building skills in monitoring and responding to companies in distress.
HM Treasury
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22
Deferred
Specialist skills for company distress are concentrated centrally, resulting in patchy government capabilities.
Recommendation
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 …
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Government Response Summary
The government agrees with the recommendation to address patchy skills across government, setting an April 2025 target. It outlines existing guidance and training but commits to the Cabinet Office Commercial Function working with relevant bodies to look at developing a more targeted approach for skills development.
HM Treasury
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23
Deferred
Departments and regulators face ongoing challenges in securing high-demand commercial and financial skills.
Recommendation
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 …
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Government Response Summary
The government agrees with the recommendation regarding skills and capabilities across government, setting an April 2025 target. It refers to existing guidance and risk management frameworks, and commits to the Cabinet Office Commercial Function working with other bodies to look at developing a more targeted approach for skills development.
HM Treasury
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24
Deferred
Government company interventions are not consistently or robustly evaluated, hindering learning and accountability.
Recommendation
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 …
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Government Response Summary
The government agrees with the recommendation on the importance of evaluation and sets a target date of July 2024. It acknowledges that evaluation of company cases has not been formalized and will work with Cabinet Office and UKGI to consider future changes and how to strengthen departmental evaluation requirements.
HM Treasury
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25
Deferred
Treasury acknowledges government's current lack of systematic evaluation for company interventions and non-interventions.
Recommendation
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 …
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Government Response Summary
The government agrees with the recommendation to systematically evaluate interventions and non-interventions, setting a target date of July 2024. It commits to working with Cabinet Office and UKGI to consider future changes, potentially including placing conditions on departments to report back to the centre.
HM Treasury
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27
Deferred
Value in exploring international frameworks for company intervention and non-intervention approaches.
Recommendation
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 …
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Government Response Summary
The government agrees with the recommendation and aims for a July 2024 implementation, but focuses its response on improving and formalizing the internal evaluation of company distress cases. HM Treasury will work with the Cabinet Office and UKGI to consider future changes, including strengthening requirements for departmental evaluation, but does not explicitly commit to reviewing international frameworks.
HM Treasury
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Conclusions (10)
5
Conclusion
Rejected
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 …
Government Response Summary
The government rejects setting new functional standards, stating existing guidance and risk management strategies suffice. Instead, the Cabinet Office Commercial Function will collaborate with the Risk Centre of Excellence, UKGI, and HM Treasury to explore a more targeted approach for developing necessary skills across government.
1
Conclusion
Accepted
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
Government Response Summary
The government accepts the committee's observation and outlines its Lead Government Department (LGD) approach for emergency planning and risk assessment, noting significant improvements in supplier monitoring since 2018 through the Sourcing Playbook. It details how the Cabinet Office monitors strategic suppliers and how responsibility for supply chain resilience and intelligence lies with LGDs.
7
Conclusion
Accepted
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 …
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.
12
Conclusion
Accepted
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 …
Government Response Summary
The government states the recommendation is already implemented, citing its existing Lead Government Department approach, improved supplier monitoring since 2018, the Sourcing Playbook, Cabinet Office monitoring of strategic suppliers, and published strategies for supply chain resilience.
14
Conclusion
Accepted
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 …
Government Response Summary
The government states the recommendation is already implemented, detailing its Lead Government Department approach for emergencies, significantly improved supplier monitoring since Carillion, the Sourcing Playbook, and the Cabinet Office's monitoring of strategic suppliers and critical sector resilience strategies.
15
Conclusion
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 …
16
Conclusion
Accepted
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 …
Government Response Summary
The government agrees with the recommendation and aims for a July 2024 implementation. It outlines existing guidance, expert teams (HM Treasury's Special Situations team, UKGI), and departmental responsibilities for managing interventions, committing to shortly re-issue relevant information and the NAO's good practice guide to departments.
18
Conclusion
Accepted
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 …
Government Response Summary
The government agrees with the recommendation, with a target implementation date of July 2024. It outlines existing guidance and expert support available to departments for rapid, proper decision-making in crisis situations, and commits to shortly re-issuing information and the NAO's good practice guide.
19
Conclusion
Accepted
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 …
Government Response Summary
The government agrees with the recommendation and aims to implement it by July 2024. It details existing guidance, support teams, and practices for managing interventions and protecting taxpayer interests, and commits to shortly re-issuing relevant information and the NAO's good practice guide to departments.
26
Conclusion
Deferred
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 …
Government Response Summary
The government agrees with the recommendation and aims for a July 2024 implementation, acknowledging that evaluation of company cases has not been formalized. It states HM Treasury will work with Cabinet Office and UKGI to consider future changes to internal evaluation, rather than specifically addressing lessons from airline collapses or managing risks with private insurers.