The Carillion Loop

Breaking news of the Construction and services firm Carillion PLC going into compulsory liquidation with a threat of job losses to 20,000 people, is a testament to the crazy economic system we endure. We are now in the Carillion Loop which has three parts.

The first is the cycle where profit is privatised and massive losses are ‘socialised’. Businessmen are eulogised and deified and put on the telly as gurus and wise men. Public sector workers and leaders are ridiculed. We take all the risk, they take all the money.

The second is where profit is made by ripping off our public services. The likes of Carillion bids for and gets contracts for public institutions and bodies, and then charges exorbitant fees within that, driving up the costs of running that body (often – as in the school meals – hiding their appalling practice behind “commercial confidentiality”). Our politicians then tell us that body is too expensive to run (probably too many immigrants or something).

The third part of the loop is where these PFI contracts are “flipped”. As the Independent reports:

“Private contractors have pocketed hundreds of millions of pounds of profits in the past four years by exploiting deals that were controversially awarded to them by the last Labour government. Companies that were awarded contracts to build and maintain state schools for 25 years have been doubling their money by “flipping”, or selling on, the Private Finance Initiative (PFIs) projects just four years after finishing them.”

Four contractors alone made profits of more than £300m. Carillion made £12.2m according to stock market filings and company documents.

In any sane country this would be a wake-up call for the disastrous policies of privatisation which have puts thousands of jobs a stake, undermined hundreds of small companies and routinely rip-off the public purse. It would bring down a government and cause such a shock to the general public it would trigger a reassessment of the decades-old mantra of private good-public bad and usher in a new era.

The reality instead?

The chairman of Carillion, Philip Green, is an adviser to the Prime Minister Theresa May on corporate responsibility.

Jim Kennedy, Unite’s national officer for local government, said: “Public services, vast amounts of public money, thousands of jobs, including in a lengthy supply chain of insecure agency workers who are also at risk, and workers’ hard-saved pensions are all in danger of being dragged under by yet another bout of reckless corporate irresponsibility.

“There are also serious questions that need to be asked and answered about Carillion’s conduct.

“Did directors move to protect their bonuses before the financial stability of the company?”

That’s a good question.

BlackRock, where George Osborne is a £650,000-a-year adviser, are among the short-sellers that have made a killing betting on Carillion’s collapse. 

Campaign group People vs PFI (private finance initiatives) said the crisis was reminiscent of the 2008 banking crash and any notion of a bailout or state-backed loan guarantees should be rejected. People vs PFI campaigner Joel Benjamin said: “Carillion’s implosion is a timely reminder just how out of step UK privatisation and infrastructure finance policy is with public opinion.

“PFI deals are rightly associated by the public with crony capitalism and corruption and should be banned.”

The most troubled contracts include: HS2, Midland Met Hospital; Royal Liverpool Hospital and the Aberdeen bypass.

None of this is new.

Back in 2016 when PFI-built schools in Edinburgh were literally falling apart, that as a wee wake-up call right then.

Back then George Monbiot called PFI:

“A racket, the legacy of 13 years of New Labour appeasement, triangulation and false accounting.”

As I pointed out at the time, the scheme, which started under the John Major government, was enthusiastically embraced by Blair and Brown’s administrations. Scotland wasn’t just the testing ground for this disaster (the first PFI project in Britain was the Skye bridge), it has a far higher proportion than anywhere else.

As the writer Gerry Hassan pointed out: “Scotland has 40% of PFI schools with 8.5% of the population.”

Why is that? The journalist Mark Leftly suggests it was Brown who persuaded Blair to take PFI forward – resulting in a debt Leftly puts at a cool £222bn.

Carillion is the PFI scandal writ large. It is Britain’s dark money, shabby deals that steal from the public and shovel money into the mouths of the rich. The system is discredited. The model is broken. It is crumbling before our eyes.

As the Brexit farce reaches new depths, you know what we should take back control of? Our schools and hospitals.

Let’s make tomorrow a better place.

Comments (18)

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  1. Brian says:

    Excellent post, articulating what a lot of people I know are feeling. The only thing we can be sure of, from experience, is that the first to suffer will be the 20,000 employees and the pipeline of companies in Carillion’s supplier base.
    Just how can a company this size get so bad so quick. Answer – it didn’t. How long has its shaky financial position been known to the directors and the banks? And the government?

  2. William Low says:

    Again Michael a telling article that rehearses all of the issues that have dogged us for years. As the song says, ‘when will they ever learn.’ All of that which you have detailed is a more telling requirement for independence now and the ability to build a society that avoids such corruption and supports all in growing, developing and becoming what they can be.

    Bill

  3. William Low says:

    Sorry, should have added that the knock on effect could cause the loss of 200,000 jobs in those areas of sub contracting and the closure of many small and medium size companies that are the engine of our economy. This has indeed been a ‘Blue Monday,’ probably one of the worst inner recent economic history.

    Bill

  4. Dougie Blackwood says:

    I looked up Carillion’s dividends this morning. In the last year they paid out almost £80 million to their investors. This will probably be in addition to very large bonuses and incentive payments to senior staff and directors. Now all the money is gone. These self same directors and senior staff will move on to other lucrative jobs in other multinational companies and the story will be repeated.

    In the meantime most of the guys doing the work contracted by Carillion are on the scrap heap; either as small sub-contractors that will not be paid or employees that are out of a job.

    Another unacceptable face of capitalism.

    1. Gordon says:

      We can only hope the bonuses and incentive payments were in share options, but I suppose that is too much to hope for. These guys knew perfectly well what the company was worth. But then, again, they may have been betting on our wonderful business-savvy government bailing them out. Up to now it has been a no-risk share market with guaranteed government contracts with the surety that if they went bust the taxpayer would cough.
      We did it for the banks and even got Richard Branson off the hook for a contract that was doing him no good. We have private medical companies contracting for bundles of hospital services and offloading back to the NHS the loss-making parts. A contract should only be broken under pain of severe financial penalty.
      If the Tories bail Carillion out, they will become unelectable. The public has had enough of Westminster mismanagement and inefficient companies breast-feeding off the teat of the taxpayer.

      1. Derek says:

        Don’t think it’s share options, as there was talk of various rule changes and jiggery pokery to protect people’s bonuses in the event of occasions such as this.

        As you say, they knew what the company was worth.

    2. Willie says:

      Dougie, you want to get a load of what PWC are putting in place on the Network Rail contracts.

      Fronted by Carillion supply chain managers, suppliers and sub-contractors are being offered continuing work post 6.40 am on the 15th January 2017 with Carillion Construction Limited ( in cumpulsory liquidation ) on pre appointment terms and on the basis that any arrears will be claim on the insolvency.

      An administration and not a liquidation one may enquire. But no, a liquidation where the suppliers,sub-contractors and pension funds take the hit, and then business continues as if nothing had happened.

      And with creditors being able to look forward to a virtual certainty of a post liquidation zero in the pound, there will be desperation in many of the suppliers and sub-contractors hit by their losses.

      So what kind of liquidation is this when things carry on. Are Network Rail, or more accurately Her Majesty’s Government effectively assisting facilitate in the commission of an offence under the 2016 Insolvency Act.

      I don’t know the answers, but even a representative of the Special Managers appointed by the High Court in London acknowledge that their appointment is unusual.

      One thing for sure is that the pig sty is rotten to the core and that the Government in Westminster is up to its neck in facilitating this, whilst ordinary folk suffer and the fat cats line their pockets.

  5. Crubag says:

    Brexit means the UK (or a future iScotland) wouldn’t have to comply with the terms of the EU Stability and Growth Pact, which put limits on government deficits (3% of GDP) and debt (60% of GDP).

    But while those limits are in place – or the markets are demanding them – then governments always have the temptation to move costs off the balance sheet. In Scotland we have the Aberdeen bypass example where the Office of National Statistics ruled this was effectively a government scheme. The government has since looked at restructuring to re-emphasise this is a private sector project. Ironically, Carillion are meant to be delivering it.

    But the one thing that the public sector should be able to deliver is (relatively) cheap money. Schemes like this should be financed by bond issues and owned by the public. Private sector contractors will be happy to deliver for a set cost.

  6. Pogliaghi says:

    Robert Peston reports that the government has begun lending to the Receivers to pay staff salaries “…who are providing public services and building public infrastructure. This public money is buying a bit of time, during which an assessment can be made of which businesses and contracts are salvageable and sellable, and which are so intrinsically loss-making that they have to be torn up and nationalised ”

    Well here we go with the same chicanery as Railtrack after Hatfield. A lot of public money bought a lot of “time” after that fiasco, specifically the million-pound-an-hour time of the administrators Ernst & Young. The only question now is which of the Big 5 accountancy firms will pick Carrillion’s corpse clean of its potential as a vehicle to socialize losses and privatize profits.

  7. Alf Baird says:

    “…you know what we should take back control of? Our schools and hospitals.”

    …and our major public utilities (energy, water, ports, airports etc) all sold on the cheap by the Tories to their City friends/funders and today mainly owned by offshore private equity funds, still ripping off Joe Public after 25-30 years, meanwhile investing little in new replacement infrastructure. Many of them may also be close to financial collapse due to repeated high leverage takeover deals and now stalled profits.

  8. James Mills says:

    ”Carillion – Making tomorrow a better place ” -for the highly paid incompetents who run British Business ( into the ground ) !

  9. Alasdair Macdonald. says:

    Bodger Broon has a lot to answer for.

  10. Wul says:

    I once worked on a carpentry job at the, then newly purchased (by the Scot. Gov. from a private health care co. who had run into debts), NHS Golden Jubilee Hospital in Clydebank.

    It seemed that much of the work had been sub, sub contracted. The monobloc paving work was being carried out by two (very friendly) guys from Birmingham, wearing casual sports clothing, working out of the back of an estate car. I wondered if they would still be contactable a year later if any problems developed with their work?

    In her book “The Shock Doctrine” Naomi Klein gives an example of this culture of contract flipping after Hurricane Katrina in New Orleans. A disaster for the unfortunate citizens but a golden plundering opportunity for our revered “big hitters” in the business world:

    “After all the layers of subcontractors had taken their cut, there was next to nothing left for the people doing the work. Author Mike Davis tracked the way Fema paid Shaw $175 per sq ft to install blue tarps on damaged roofs, even though the tarps themselves were provided by the government. Once all the subcontractors took their share, the workers who actually hammered in the tarps were paid as little as $2 per sq ft.”

  11. w.b.robertson says:

    the banks will have first grab at the assets, the army of sub contractors and their employees will get screwed. The directors and top executives will keep their bonuses. (and probably move on to bring their talents to other firms) And the poor old workers? Who really worries about them? What was this type of fiasco termed years ago? …answer “the unacceptable face of capitalism”. What was done by successive WM governments? …answer next to nothing.

    1. Dougie Blackwood says:

      Did you read my post?

  12. Jack collatin says:

    Jail the lot of them.

  13. Jim Alexander says:

    It should be noted the Carillion were also carrying out public sector work in Scotland including a large project for West of Scotland Housing Association

    Therefore they have been handed out work by Labour – Tory & SNP Administrations in Power

    None of whom questionened there suitabilty or financial position

    So whilst the statememts regards the behaviuor and business model are all correct – this cant be laid at only the Tories or WM – ALL Governments ignored clear warning signs

  14. Willie says:

    At the heart of this is the insatiable demand to increase a companies share price, pay dividends, and reward executives with fabulous salaries and bonuses.

    And it is this driver together with totally derisory regulation that allows the big boys to walk away with their pockets full while the little people lose their job, their saving, their income and their pensions.

    But do the little people on the kicking end really care. I don’t actually think they do else they would have done something about this latest outrage

    But they don’t. Too many just wallow in the misery and the belief that their beloved Westminster will look after them.

    And so, to all who have lost their jobs, have lost money, have lost their pensions through the Carilion failure, I say God bless you for being the salt of the earth.

    Societies need suckers who are prepared to get screwed whilst the big boys make a killing and walk away Scot free.

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