14th January 2018
Carillion are on the point of collapse and the government may have to bail them out. It’s the current UK headline news. So what? Who are Carillion, why should we care about them and why should the government be considering propping them up? All good questions, which go to the heart of how public services in the UK are financed and supported.
Any notion we have of Carillion is probably that they are something to do with construction, their name appears on the billboards surrounding major capital works and their adverts feature men in hard hats. Yet like many companies in the capitalist market place, Carillion has branched out beyond its initial base of expertise and embraced areas in which, quite simply, money can be made from the public sector.
Carillion employs 20,000 staff in the UK alone and is one of the government’s biggest contractors. A large number of those staff, 8,000 in fact, work in Carillion’s healthcare division, providing facilities management to the NHS. In practice this means engineering teams carrying out 200,000 maintenance tasks on 1m square metres of NHS space. It means Carillion having responsibility for 200 operating theatres with 300 critical care beds and 11,500 in-patient beds. It prepares 18,500 patient meals per day. Carillion’s NHS helpdesks manage more than 1.5m calls each year.
Carillion is the love child of construction companies Tarmac, Wimpey, Mowlem and Alfred McAlpine, private sector construction companies brought together to get fat on private finance initiative (pfi) contracts, dished out by successive governments keen to divert financial risk and appear economically astute.
The collapse of Carillion’s market value from an estimated £2bn to a mere £61m on Friday, with share prices down from 300p two years ago to 14.2p last week, suggests that the economic astuteness of the pfi process may be flawed. It may even give cause to reflect on who thought a bunch of road builders were suited to manage sections of the NHS, not to mention prison contracts and Ministry of Defence work.
Ironically it is the building projects which are at present causing Carillion’s downfall. Three major pfi schemes are overdue and over budget, these being the £350m Midland Metropolitan hospital in Birmingham, the £335m Royal Liverpool University hospital, and the £745m Aberdeen bypass. These at least you would think a bunch of road builders would be able to manage but it appears not! Certainly, it does not inspire confidence in your next NHS patient meal.
Main lenders to Carillion, previously keen to cash in on the profits are Barclays, HSBC and Santander UK, all now looking likely to pull out as they are exposed to huge potential losses. The options under consideration include a debt for equity swap, basically the government stepping in to guarantee loans, thereby shielding lenders from losses in the event of a collapse. The capitalist free market is truly a wonderful thing!
Professor Karel Williams, a bit of an expert in these matters from Manchester University, sums it up nicely when he says,
“The whole rational for PPP (public private partnership) – where Carillion has been a big player in the UK – is that, notionally, you transfer risk to the company that takes the contract. But, fundamentally, the limit of that risk is the balance sheet of the outsourcing company. If you move beyond that it becomes a crisis for the government.”
This means that in practice the inefficiencies of the private sector are covered up through the use of public funding, so the public, in effect, get hit twice. Firstly, by the private sector syphoning off resourcing from vital services, such as the NHS, in order to pay their shareholders dividends. Secondly, by the government having to use more public money to bail out those services when the private sector is in danger of going belly up.
Is it a scam? Of course it is! You can bet that not many NHS nurses or hospital porters will have shares in Carillion in order to have profited from dividend pay outs in previous years. On the other hand, a large part of the £1.5bn Carillion debt is a £590m pension deficit. Will the government honour that as well as protecting the pockets of the shareholders and the banks? Keep an ear out for the news in the next few days, lets see where that one goes.
So called public private partnerships have many flaws. The most basic one is that they are not a partnership of equals. The public sector rarely, if ever, benefit and the shareholders either reap dividends during the good times or get protection from the government when things go wrong. The answer is to cut the private sector out of the equation, make sure key national infrastructure projects and service delivery are publicly resourced, publicly managed and publicly accountable.
Public need should not be fuelling private greed. Public services are there for people, not for profit. It’s an age-old adage on the Left, let’s get back to making it count.