Monitoring and responding to companies in distress – Report Summary

Summary

The lasting effects of the COVID-19 pandemic and high interest rates have led to a level of company insolvencies across the economy not seen since the financial crisis in 2009. Several risks related to company failure are identified in the August 2023 National Risk Register, including failure of a major adult social care provider, insolvency of suppliers of critical services to the public sector such as IT services or banking facilities, and insolvency affecting fuel supply. In this context, it is even more important that the government is a step ahead of the next company or sectoral failure.

The government considers direct intervention to be a last resort when private sector companies have failed, or are at risk of failure. However, there are cases, many of which this Committee has examined, where the government has decided it is necessary to step in and support distressed companies, to protect society or the economy. Examples of interventions examined by this Committee range from Carillion to Northern Rock, to community rehabilitation companies, and more recently Bulb Energy. We have also reported on the government’s unprecedented interventions to keep companies functioning and sustain essential services in response to the COVID-19 pandemic and the energy crisis. The government tells us it is focused on resilience and preparedness. However, there is work to be done to ensure this approach is consistent and joined up across government. It is vital that the government identifies and equips itself with the tools and skills required to monitor the financial resilience of sectors and companies, so it is well prepared to respond in these distress situations.

HM Treasury has set out high-level principles to apply when deciding whether to provide financial support. Nonetheless, these decisions are often time-pressured and involve complex trade-offs, with sometimes significant ramifications for taxpayers and public services. We are concerned that high staff turnover may be resulting in a loss of corporate knowledge and expertise in this area. It is therefore important that the government has a consistent approach to evaluating, learning, and sharing lessons, both from past interventions and from instances where government decided not to intervene, to maintain institutional memory of what works for future cases.