Support for distressed companies: Government must be a step ahead of next crisis

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Government must be a step ahead of crises caused by the next major company or sectoral failure. In a report published today, the Public Accounts Committee (PAC) calls on the Government to do more to monitor the financial resilience of sectors and companies, so it is well placed to respond in the case of the failure of a strategically important company or key supplier.

State intervention in private sector company failure is considered a last resort, but there are cases where Government has decided it is necessary to step in to protect society or the economy. The PAC’s report finds no joined-up Government approach for collecting intelligence on supplier, company, and supply chain resilience. A good example of why this is particularly important is CF Fertilisers and the CO2 market, where a CO2 supply shortage seemed to come as a surprise to the Government in September 2021.

The report further warns of a tendency in Government to push ahead with new private sector relationships without careful consideration of resulting risk or liability exposure, with a frequent failure to understand the economic and business models of contractors. An example of this would be the reforms rushed through by the Ministry of Justice to outsource probation services to community rehabilitation companies, a risky approach in outsourcing a service for the first time in an untested market.

Government interventions in distressed companies can involve significant amounts of taxpayer money; with cases ranging from Carillion to Northern Rock to Bulb Energy, as well as the unprecedented interventions to keep companies functioning and sustain essential services in response to the pandemic and the energy crisis. But the PAC’s report finds no evidence that interventions are being evaluated consistently and transparently, or that lessons are shared across government.

The PAC also warns of a lack of institutional memory across Government relating to at-risk companies and sectors. 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.

Chair's comment 

Dame Meg Hillier MP, Chair of the Committee, said:

“When the failures of private companies or indeed entire sectors poses a risk to society or the economy, Government will need to take a view as to whether or not to step in. But Government ought only to be deciding how to proceed based on the best available evidence and consistent institutional knowledge, and our report warns that neither routinely underpin policy delivery.

Worryingly, we have identified a tendency for Departments to embark upon private sector partnerships without as close an eye on the risk to taxpayers’ money as they perhaps should have. State support for private companies will naturally always be a contentious area, with many liable to view such failures as the simple judgment of the market, and not a proper recipient of taxpayer support. It is precisely for this reason that the Government must ensure that it maintains a consistent and evidence-based approach when deciding to act.”

Further information

• Inquiry: Lessons for government: monitoring and responding to companies in distress
• Public Accounts Committee
• About Parliament: Select committees
• Visiting Parliament: Watch committees

Image: UK Parliament / Tyler Allicock