Serco

Prison contractor Serco has warned it faces a £20m-a-year hit from Rachel Reeves’s National Insurance (NI) tax raid, amid a broader funding crisis that has thrown the prison system into chaos.

The company, which runs five adult prisons across the UK, said on Friday it was “actively exploring ways to offset” the burden of the Chancellor’s maiden Budget last month.

It is understood that Serco is examining its contracts to work out if there is scope to pass on some of the added costs to its customers, which include the Government, as well as looking at other ways to cut costs by increasing efficiency.

Serco’s warning will prompt questions about the impact on public services delivered by the outsourcing giant. As well as running prisons, the company helps to manage the asylum and immigration system. Serco landed a £1.9bn deal to manage housing for asylum seekers in 2019 – the largest contract ever awarded by the Government.

Robin Speakman, analyst at Shore Capital, said he expected “an element of job cuts” as Serco moves to drive down costs.

However, he added: “There are going to be challenges in cutting costs because they are a blue-collar operator working across public sector organisations, including some of the most difficult areas to manage and the most politically difficult areas.”

Shares in Serco plunged by almost 11pc as the stock market opened on Friday. As well as warning about the impact of National Insurance changes, the company also announced it had lost a lucrative, long-running contract to run immigration detention centres in Australia.

Employers across a range of industries are grappling with soaring costs after Ms Reeves unveiled plans to lower the threshold at which employers start paying NI contributions and increase the rate from 13.8pc to 15pc from April next year.

Other major employers hit by the tax raid include Sainsbury’s, whose chief executive, Simon Roberts, warned the supermarket would face “difficult decisions” around how to deal with a £140m hit this week.

Serco’s woes come amid a wider funding crisis in the prison system after repeated cuts to budgets. This has left prisons buckling under the weight of growing offender populations, a problem that has been compounded by worker shortages and rising costs.

Prisons across the UK are almost entirely full. Official population figures from September showing a total population of 88,521 – approaching operational capacity of 89,619.

In a bid to ease pressures on the system, hundreds of prisoners have been released early – leading to jubilant celebrations as newly released convicts sprayed champagne and blasted music outside of HMP Wandsworth and other prisons last month.

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The Government called the celebrations “completely unacceptable”, but said it had been left with no choice but to release the prisoners to free up cells.

Prison operators have also been scrambling to recruit staff amid severe shortages. There are now 11pc fewer staff in prisons across England and Wales compared with 2010.

Delegates at the Prison Governors’ Association (PGA) conference last week said they had been forced to recruit staff who lacked basic skills including speaking and understanding English.

A shortage of workers at Serco was blamed for a recent incident that saw prisoners released without being electronically tagged, sparking a rebuke of the firm by the Ministry of Justice.

The company was also this month affected by a cyber attack on its software supplier Microlise, which led to tracking devices and panic alarms on prisoner transport vans being disabled.

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