Capita – the next crisis?

3rd February 2018

NCC HQ

 Northamptonshire County Council’s £53m HQ, opened in October, could be for the axe

The government insist that Capita, another private company getting fat on public sector contracts, is not about to follow Carillion into liquidation.  This is in spite of Capita’s value having halved since a profit warning earlier in the week while shares in rival outsourcing companies, Interserve, Mitie and Serco also fell.  Cabinet Minister, Oliver Dowden, however was quick to state that,

“We do not believe that Capita is in any way in a comparable position to Carillion.”

The Capita debt mountain of £1bn and its £381m pension deficit, to add to the plunging share price, would appear to undermine Dowden’s confident assessment.

Dowden’s view is based upon a government meeting with Capita executives, including Chief Executive Jon Lewis, earlier in the week.  Whether the government have been knowingly undersold may be a question but Lewis has certainly been quoted as suggesting that Capita is “far too complex”, not exactly an inspiring assessment from the man at the top.

TUC General Secretary, Frances O’Grady, has stated that

“…the TUC is calling for an urgent risk assessment of all large outsourcing firms.  It’s essential the government complete this quickly and is prepared to bring services and contracts in-house if they are at risk.”

Capita run the governments jobseekers allowance helpline, teachers’ pensions, curfew tags for offenders, collecting the licence fee for the BBC, in addition to a wide range of contracts with local authorities across the country.

Lewis has announced plans to raise £700m to shore up the Capita balance sheet as well as cutting a dividend which has been worth more than £500m to investors over the past three years. Job losses are expected amongst Capita’s workforce of 67,000, of which 50,000 are in the UK, and parts of the existing business will be sold to raise cash.

Labour’s shadow minister for the Cabinet Office, Jon Trickett, stated,

“The Tories’ privatisation dogma risks lurching our public services from crisis to crisis, threatening jobs, taxpayers’ money and leaving people without the services they need.  The government must end its ideological attachment to private profit and instead start putting the public interest first.”

The public sector privatisation crisis comes at a time when local Councils are in the midst of setting their budgets for next year.  Many are having to increase Council Tax to the permitted level of the government 6% cap but will still struggle to meet social care demands or continue to provide essential leisure services.

Heather Smith, Tory leader of Northamptonshire County Council, has just announced this weekend that it was about to “fall over the edge of a cliff” and has brought in a section 114 notice, the first in over 20 years, banning new expenditure.

Prof Tony Travers, from The London School of Economics, believes other Councils could follow in the wake of the Northamptonshire announcement, stating,

“I think there are others that are quite close to Northamptonshire’s position and, with so-called austerity continuing into the next decade, I would be amazed if Northamptonshire was the only council to get into these circumstances.”

Labour Leader, Jeremy Corbyn, has continued to take a firm stand against the privatisation and under resourcing of local government services. Speaking to Labour’s local government conference in Nottingham, this weekend he stated,

“Austerity is unleashing chaos across our country, squeezing our local authorities and putting jobs, and the vital services they deliver, at risk.”

Against that backdrop local residents are sure to question the ongoing creaming off of profit for the private sector.  The fallout from the Carillion crisis alone has 18,000 staff still uncertain about their futures, with less than a thousand having been found alternative jobs through transfer to other companies.

Councils will soon be setting their sights upon the May local elections.  Service delivery and cuts are bound to be an issue.  Carillion has already raised the issue of the use of the private sector to deliver public services.  The Tories are in chaos over Brexit.  Capita, or one of the other outsourcing companies, tipping over the edge may be the final straw.  The Tories will not do well at the local elections but the fallout may be worse than even they are anticipating.

 

 

 

 

 

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