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Source · Select Committees · Public Accounts Committee

Twentieth Report - Monitoring and responding to companies in distress

Public Accounts Committee HC 425 Published 13 March 2024

Report Status

Government responded

Conclusions & Recommendations

27 items (17 recs)

Source

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Government Response

AI assessment · 26 of 27 classified

Recommendations

10 results

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 … Read more

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 … Read more

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 … Read more 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 Show less

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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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 … Read more

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 … Read more

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 … Read more

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 … Read more 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 Show less

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 … Read more

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 … Read more

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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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 … Read more

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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Conclusions (7)

Observations and findings

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.

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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.

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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.

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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.

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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.

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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.

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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.

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