The private security giant G4S has warned its shareholders that it may lose £57m if the Home Office extends its contract to house destitute asylum seekers for a further two years.
The warning came as its shares dropped by more than 10% after reporting a 40% fall in its pre-tax profits due to rising losses on a series of contracts including a £31m loss on its contract to house 18,000 asylum seekers in Britain.
G4S also announced that it intends to sell its entire Israeli business, which employes 8,000 people and has a turnover of £100m, and confirmed the sale of its UK “children’s services”, including the scandal-hit Medway private secure training centre.
The shareholder warning underlines the loss-making nature of the Home Office contracts under which G4S, the public services company Serco, and a third company, Clearsprings, provide housing for more than 30,000 asylum seekers dispersed outside London and the south-east.
The companies provide accommodation, transport and pay rent and other utilities for asylum seekers while their claims are considered, under contracts that began in 2012 and run to 1 September 2017, with a potential for the Home Office to extend to 2019.
But as the refugee crisis across Europe has deepened so the numbers of asylum seekers coming to Britain has risen and the numbers are expected to continue to rise in the foreseeable future.
G4S, which is responsible for housing asylum seekers in the Midlands, north-east, Yorkshire and Humberside, and the east of England, has seen their numbers rise from 9,000 to 18,000 since the start of the £60m-a-year contract.
The company announced on Wednesday that it had revised its expected loss on the current contracts upwards from £20m to £31m for the period up to August 2017. It says the contracts were never loss leaders and would not have been signed under the present conditions: “Rise in housing need is behind the provision,” a spokesman added.
G4S recently told a Commons home affairs select committee inquiry that it was paid an average of only £9.35 a night to house each asylum seeker. It is understood to incur costs at least 30% higher for each asylum seeker.
The private security company said it had based its latest estimates on the likely increase in the number of asylum seekers, the availability of suitable accommodation approved by local authorities and the time taken by the Home Office to process asylum applications.
Serco, which currently houses 14,300 asylum seekers, has told MPs that they were paid £300 a month to house each asylum seeker but were spending £450 a month and so were making a loss of £150 a month per person. At the end of 2014, Serco made provision of £115m for future losses on its asylum housing contracts.
Shortages in affordable accommodation across the country mean that both companies are currently putting up more than 1,500 asylum seekers in hotels, which also significantly adds to their costs. The Home Office has appealed to more local authorities to take part in the voluntary dispersal scheme to ease the housing pressures.
Despite the losses, G4S’s chief executive, Ashley Almanza, said on Wednesday the company did not intend to walk away from the asylum housing contract.
“We have around 18,000 asylum seekers in our care at the moment. Year on year, that is up 10% roughly and most of that increase was in the final part of the year [to the end of December]. It’s a very difficult thing to project. The fairly obvious point is that there is a lot of conflict around the world and people are naturally getting away from those conflict areas into Europe and some come to the UK,” he said.
“The government has an option to extend the contract for another two years and it hasn’t extended it at this point. Everywhere we operate, when we enter into a contract we put all our effort into fulfilling the contract and we have no intention of getting out of the contract. It’s a contract we are working extremely hard to fulfil to the best of our ability. We are working extremely closely and well with the customer to deliver the contract in extremely challenging conditions.”
The Commons public accounts committee in a report in 2014 said that both G4S and Serco had taken on the contracts without any experience in providing accommodation for asylum seekers and incurred substantial penalties for providing sub-standard accommodation. The decision to paint the doors of asylum seeker homes red by its Middlesbrough subcontractor recently attracted widespread criticism.
The private security company also confirmed in its full-year results on Wednesday that it is selling its G4S Israel business – which supplies alarms to Israeli prisons, and is in the process of pulling out of a number of contracts over the next two years, including US youth justice services and its UK children’s services, including the Medway secure training centre.