Britain: Carillion collapse – the true, ugly face of the profit system

The collapse of Carillion has come as a shock to the company’s workers and the public who rely on its services. But it seems that Westminster politicians and City bankers were fully aware of the dodgy dealings going on at the construction and outsourcing giant.

The government knew the company was in big trouble but said nothing. Instead, the Tories preferred to give the ailing firm fat new public sector contracts, such as a £1.4bn fee to build the HS2 rail link.

The banks also knew what was going on, but have been determined to protect their investments before everybody else. Hedge fund managers certainly knew what was going on and have made a mint out of betting on Carillion’s decline. Over £300 million has been pocketed by these vultures on the back of the firm’s fall. Even the company administrators can expect to do well, claiming huge fees for carrying out the last rights.

Things are not so rosy for the 20,000 workers affected, however, including 12,000 employed in Britain. Carillion pensioners will now see their schemes taken over by the Pension Protection Fund, with a resultant cut in payouts of up to 20%. Thousands of subcontractors face being stuck with unpaid invoices.

The government will also have to find extra money to pay for the completion of a whole raft of major and minor public sector projects that were being carried out or administered by Carillion. Whitehall has already had to announce that the wages of those Carillion workers employed by the state - including for hospitals, rail maintenance, prisons, military bases, etc. - will be paid out of public funds.

Carillion’s Ponzi scheme

Only last May, the company was promising “strong growth in total revenue and increased operating profit”. By July it was clear to those in the know that the reverse was true.

Carillion - which in recent years has absorbed such firms as Mowlem, McAlpine and Wimpey - has issued three profit warnings in the last six months. The company had racked up more than £900 million in debts, on top of a pension deficit of a further £587 million.

Despite this, the Tory government gave the company a number of major public sector projects. Ministers hoped hoped that this would be enough to keep the firm going. The alternative, we are now being told, was that the company would have gone under months ago.

But this was simply throwing good money after bad. “Carillion needed new contracts to provide the cash it lacked to pay staff, suppliers and lenders,” notes Matthew Vincent in the Financial Times. “Adding more construction work — such as on the HS2 high speed rail line — was the only way to keep cash coming through the door. It had, in effect, become a lawful sort of Ponzi scheme — using new or expected revenues to cover more pressing demands for payment.”

Now Carillion have gone under anyway, and the government money has just been swallowed up.

The myth of private efficiency

The blame is being put, in particular, on cost overruns involving three major public sector projects. But this begs the question: what about the so-called private sector ‘efficiency’ that we were promised?

For decades, we have been told by the experts that the private sector is far better at running services and building infrastructure than the public sector. This was the mantra of successive Tory and New Labour governments, justifying their drive to outsource and privatise the provision of public services. Private companies were meant to be more efficient and less wasteful. But now the truth prevails.

Carillion has been involved in one mess up after another. They have built up a reputation as being terrible to deal with: cutting costs, paying bills late, and so on. The only thing they seem ‘efficient’ at has been ripping us off. Privatisation and outsourcing, all along, have just been a means for the bosses and bankers to line their pockets with taxpayers money.

The system has failed

No wonder this scandal - and it is a scandal - has rightly raised questions, once again, about the whole system.

Bernard Jenkin, the Conservative chairman of the House of Commons Public Administration Committee, had stated that Carillion's collapse, “really shakes public confidence in the ability of the private sector to deliver public services and infrastructure.”

The editorial of City A.M. (15/1/18) goes further. “Such situations imperil public faith in business and the very principles of a market-led economy.” And so it should.

Bernard Jenkin Conservative chairman of the House of Commons Public Administration Committee stated that Carillions collapse shakes public confidence in the private sector delivering on infrastructureBernard Jenkin, Conservative chairman of the House of Commons' Public Administration Committee, stated that Carillion's collapse has shaken public confidence in the private sector delivering on infrastructure. There is no more confidence in the capitalists! / Image: Gary McAndrew

All the great promises from the apologists of capitalism are once again being shown to be a very sick joke. We have seen this across the board: the disgrace that is the privatised rail system; the wrecking of the water supply network; the price-increasing and service-declining postal service - and so on and so on.

Companies like Carillion have made billions on the back of taxpayers. They have been proved wanting to say the least. Meanwhile, the Tories have cut public services to the bone, with many sectors - like the NHS - now in a critical state.

Nationalise without compensation!

To add insult to injury, Carillion were heavily embroiled in the blacklisting of construction workers for trade union activities. As the Blacklist Support Group noted today:

“Carillion admitted in the High Court that they blacklisted workers who complained about safety on their building sites, while at the same time milking public sector contracts for millions. Workers on projects run by Carillion need to be paid and are entitled to their pensions, but no more public money should be given to the bosses of the disgraced company. In any civilised society, these people would be facing criminal charges.

“When you invite blacklisting human rights abusers to run the NHS and school meals, don’t be surprised when vampire capitalism attempts to suck the taxpayer dry. The government should bail out the NHS, not Carillion or their bankers. The government should nationalise Carillion now at the current market value of their shares (nothing), and go further by banning all of the construction companies involved in the blacklisting human rights conspiracy from any publicly funded contracts.”

This is the correct demand. Nationalise Carillion now - without any compensation to the parasites! Labour must commit itself to reversing all privatisations, ending these scandalous outsourcings. And proper funding should be provided to the public sector.

Where is the money to come from? From the nationalisation of the top 200 monopolies, banks and finance houses, without compensation. This would provide the basis for a socialist plan of production, established for the benefit of the many, not the greedy few.

The company directors and the bankers hoped that the state would just bail them out. They wanted us to give them money so that they could carry on ripping us off: nationalising the debt and pocketing future profits.

The Carillion collapse has shown the true, ugly face of capitalism. Real action must now be taken, as this scandal will not be the last. There are plenty more Carillions out there. Nationalisation under workers’ control and management is the only answer.

  • Nationalise Carillion without compensation!
  • Bring all outsourcing and privatisation back under public control!
  • Nationalise the banks and major monopolies under workers’ control!
  • For a socialist plan of production, in the interests of the many not the few.