Tuesday, 16 January 2018

Jeremy Corbyn is right. Carillion should be a watershed moment.

By Tom O’Leary

The collapse of Carillion was wholly made in Britain, although it has negative consequences internationally. Much of the coverage surrounding the failed outsourcing company focuses on its ailing business in Canada and the Middle East. This is a red herring. In its last-ever full year annual report and accounts (pdf) approximately three-quarters of the business revenues were generated in the UK (74% of the total, amounting over £3.8 billion).

The truth is Carillion has gone bust, putting vital public services and thousands of jobs at risk, because it and its component companies grew fat during the first phase of neoliberal economic policy and could not cope with the more recent phase, austerity.

The immediate cause of the collapse is a failed acquisition spree since the crisis began. This is highlighted by the fact that revenues were barely changed between 2010 (pdf) and 2016 at just over £5 billion and net assets actually shrank, even before the latest collapse to zero.

Yet the underlying cause is the disastrous relationship successive governments have had with the private sector. Whether the Thatcher/Major/Blair governments believed the nonsense they spouted about the superior efficiency of the private sector is immaterial. Only the wilfully ignorant could ignore the litany of failed privatisations and the extortion of PFI contracts that followed that followed their policies. The real purpose of Thatcherite economic policy, which has become widely known as neoliberalism, was precisely to hand state resources and revenues to the private sector.

Carillion, and the companies it acquired, expanded rapidly as it was fattened on the force-feeding of outsourcing, privatisations and PFI. Carillion’s ‘business model’ was to acquire as many of these companies as possible that benefited from public sector hand-outs and increasingly to hide the debt incurred in off-balance sheet special purpose vehicles.

The model came crashing down because of austerity. The main reason revenues are flat between 2010 and 2016 is that the Tories (and the Coalition before them) slashed public sector investment in roads, rail, ports and housing, and took an axe to real current spending, in areas such as education services, the NHS, the justice, system, and so on. The pace of new privatisations and PFI since 2010 was not enough to top up the bucket with a big hole marked austerity.

Where now?

Clearly, no tears should be shed for the private sector shareholders who continued to receive hefty dividends even when Carillion started to make losses. The directors continued to pay themselves hefty salaries and bonuses even as the company floundered. Some will be paid still.

It is those reliant on public services, that is the overwhelming majority of society who face even higher bills and lower living standards as a result of the collapse. The workforce will face job losses, and pensioners will be concerned about their futures. Mostly, this will be without the support of a union, as Carillion was viciously anti-union.

There must be no bail-out of the failed Carillion company. If possible, the directors and their advisers and auditors should be investigated to determine whether they are in breach of company law. Company law must change too. Directors must have a financial liability for this type of failure, including compulsory claw-back of salaries and bonuses, as well as liability for pension scheme failure. Auditors, lawyers and accountancy firms too must be held to account. A windfall levy should also be considered on all past and current holders of PFI contracts in order to fund the inevitable losses, with a view to driving PFI out of the public sector altogether.

The vital public service contracts for staffing prisons, cleaning hospitals and providing school meals and so on, should be taken back into public hands, the natural home for the provision of public goods. Similarly, construction activity must not be halted, the infrastructure deficit and housing shortages are already too great. The Carillion workforce and tens of thousands of workers in ancillary companies can be incorporated into new direct labour organisations.

The claim by George Osborne and Tory mayor of the West Midlands Andy Street that it was government failure to use ‘small and mid-sized firms’ in its contracts is ridiculous. The scale of these contracts is beyond the scope of these firms. Carillion used the familiar, monopolistic approach of buying up mid-sized rivals, which is a general tendency of private sector operations.

Above all, the fallacy that the private sector is intrinsically a more efficient provider of goods and services should die with Carillion. This cannot be true as the private sector is obliged to make a profit and the public sector is not. This is a failure of outsourcing, PFI and privatisation. They should all die with Carillion, and under a Corbyn-led Labour government that process can begin.

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