Government 'too close' to Carillion, Labour claims

Mr McDonnell alleged that ministers were 'too wedded' to privatisation and as a result had tried to 'buoy up' Carillion by handing it contracts.

Chief Secretary to the Treasury Liz Truss rebuffed his comments and accused Mr McDonnell of taking 'cheap political shots'.

Mr McDonnell, speaking during Treasury questions, said: "When there were loud and clear worrying signs about Carillion, why, instead of intervening, did the Treasury Minister collude in the strategy of drip-feeding more contracts to Carillion to buoy up an obviously failing company?"

Ms Truss said: "It would be completely wrong for a company that had got itself in this state to be bailed out by the state and that is what we are not doing.

"We're making sure we continue to supply those services at the same time as helping people who are working for those companies."

Mr McDonnell called for 'full transparency' and urged the Treasury to assess the potential costs of the collapse to the taxpayer.

He said: "I put it no stronger than this: at this stage, there are real suspicions that the Government was too close to this company and too wedded to its privatisation role.

"We need full transparency on meetings and discussions that took place between Government ministers, civil servants and representatives of Carillion and what warnings were given to ministers and what actions recommended implemented or not.

"We now need the Treasury to start playing its proper role and provide an independent assessment of the potential costs and risks facing the taxpayer."

Ms Truss said: "I think that the Government is dealing with this in a responsible and measured way, rather than making cheap political shots at a time when people's jobs are in question and we are working to sort that out."

In an interview, Mr McDonnell said: "We need a full public inquiry immediately to find out what has happened.

"We want to know what the Government's involvement in all of this is. How were these PFI contracts signed off by the Treasury when the Government knew that the company was in trouble.

"We just need openness and transparency. We need to know the potential costs to the taxpayer."

He added: "I don't think there should be any bailout of Carillion whatsoever. This could be a bottomless pit if we are not careful.

"With many of the public services, I think need to be brought back in-house, and we certainly shouldn't be bailing out or compensating the company."