By John Pickard, Brentwood Labour Party (personal capacity).
The collapse of Carillion, the building and services conglomerate, has put tens of thousands of jobs and small businesses at risk. This is not just the ‘ugly face’ of capitalism and something that can be put down as a one-off, but is typical of the pernicious greed and the parasitic nature of big business in general and British companies in particular.
Firms like Carillion are kept afloat for years on what are effectively tax-payer hand-outs, through lucrative public-sector contracts. Carillion had no fewer than 450 public-sector contracts, thanks to the Tories’ drive for privatisation. Carillion’s cosy relationship with the Tory Government has meant that even after its ‘profit warnings’ in July last year, it had been handed £2bn-worth of public contracts, including deals linked to HS2.
Companies like Carillion, Serco, Capita and other conglomerates depend entirely on the welfare of the taxpayers. While Tory rags like the Sun and the Mail crucify, practically on a daily basis, so-called “welfare-scroungers” trying to scrape by on a few pounds, these big companies are awarded billions in contracts, with next to no oversight of the quality, reliability or value for money. Such is the absence of oversight that one company, G4S, was even found to be charging the government for tagging prisoners who had died. They were, of course, obliged to give back some of the money they had fiddled, but there were no repercussions beyond a gentle slap on the wrist. The same company contracted and then failed to provide security for the London Olympics, leaving the army and the tax-payer to pick up the tab.
Carillion was a huge and sprawling conglomerate, with interests in scores of building contracts for schools, hospitals and road and in services from the provision of school meals to cleaning services. The company claimed to provide facilities management in nearly 900 schools, cleaning services in 245 and mechanical and fabric maintenance in nearly 700. The cut-throat nature of the competition for lucrative contracts meant that profit margins were allegedly tight. But the 2016 Carillion annual report showed that the dividend to shareholders had increased “in each of 16 years since formation of company”, including in the years when the pension fund deficit was growing. Like a lot of companies in the same game, Carillion uses the alleged “tightness” of profit margins as an excuse to trim costs by using poor building materials and standards and by providing an inferior service, chiefly by undermining wages and conditions of workers.
Doubts now hang over the contracts to build The Royal Liverpool and the Midland Metropolitan Hospitals, which are massive building projects. Then there is the £750m road scheme around Aberdeen and the biggest-ever regeneration project in Sunderland. Already, building workers who arrived for work on the hospital projects have been turned away and told they will not be paid. In Oxfordshire, the County Council has been forced to put the fire service on alert to deliver school meals. Presumably, if there is a serious fire incident, school-children will not be fed.
Like many big companies, Carillion operated through a huge network of contractors, sub-contractors and sub-sub-contractors. This is not a system that is essential for the provision of services, of course, but merely a means to undermine the wages and conditions of workers, while at the same time minimising tax and National Insurance responsibilities. At the bottom of the ‘food chain’ of this vast sub-contracting network are very small businesses and individual workers, often deemed ‘self-employed’ so the companies further up the chain were not obliged offer them sick pay, holiday pay or other benefits. The whole sub-sub-contracting system infests the whole British economy and is a means of keeping wages and costs low.
For Carillion and big firms like them, sub-contracting also means they can delay payment to the little firms by up to 120 days, while their revenue from the Government is based on a 30-day turnaround. Now, with the collapse of the firm, thousands of little firms will be out of pocket and unable to recover the money they are owed. For the minority of workers who are directly employed by Carillion, they will find their pensions take a big hit, even with the Government stepping in the breach the gap in the pension fund.
Meanwhile, as the little companies and the employees of Carillion are facing loss of jobs and income, the shareholders and bosses of Carillion are laughing all the way to the bank. The former chief executive, Richard Howson, who was sacked last summer because the company wasn’t doing so well, still received his nice bonus and is going to be paid his £600,000 salary up to end of 2018. So this man collects his £50,000 every month for doing nothing, while his former employees and sub-contractor are now having to phone a Job Centre hotline.
With the collapse of Carillion, the TUC have called for a “task force” including companies and trades unions, to make sure public-sector jobs and contracts are guaranteed. It is understandable that the TUC will want to protect the jobs of the many workers scattered around the Carillion empire, but the labour movement can have no confidence whatsoever in the Tory Government or the private sector to guarantee any jobs.
In fact, the whole scandal shows that the all-too cosy relationship between the tops of the civil service – those awarding the contracts – and the private sector, is a disaster and even when it ‘works’, it gives the state little value for money. The so-called Private Finance Initiative, PFI, has proved to be a gigantic confidence trick played on the tax-payer. The PFI programme was launched by Tory Prime Minister John Major, in 1991, but was taken up on a massive scale by the Brown-Blair Labour government. It was touted then as the only means to build hospitals and schools, while at the same time keeping them off the Government’s ‘balance sheet’ of public expenditure. But it has become – as socialists predicted at the time – a gigantic millstone around the necks of the NHS and other public and local authorities.
To take only one example, Queen’s Hospital in Romford in Essex, was built on a 36-year PFI contract. According to the figures published by HM Treasury, the total capital cost of the build was £304m. Since it was opened in 2006, already £558m has been paid by the NHS. In other words, it has already more than been paid for. But the contract still has 24 years to run. By the year 2041, the total paid over by the NHS, for this one hospital, will total over £2.2bn.
If one adds up the hundreds of schools, hospitals, clinics, prisons, roads and other public contracts involved in the entire PFI scam, it is easy to understand why there is a very lucrative ‘secondary’ market in PFI stock because of the guaranteed income to the stock-holders. Official government figures this week show that the more than 700 current PFI contracts cost the tax-payer over £10bn every year, which adds up to over £200bn in the next 20 years.
Carillion itself built over 150 schools and the money for these will continue to be paid for decades, depending on how long each contract was. The Private Finance Initiative amounts to a river of money flowing from the public purse – including the NHS – into the hands of private companies. To complete the irony, many of the private companies living off the fat of PFI contracts are registered off-shore, to minimise their own taxes.
John McDonnell, Labour’s shadow chancellor, has correctly described PFI for what it is. “Nothing”, he says, “has come to symbolise the worship of free-market solutions – often against all the evidence – more than the persistent belief that key public services would be better provided by profit-seeking.” This is absolutely correct. It is important, therefore, that Labour must commit itself, on coming into office, to the complete cancellation of all PFI contracts, without further compensation.
It is worth making the point, that there are still many right-wing Labour MPs in the Parliamentary Labour Party who will not have a bad word said about Tony Blair, or Gordon Brown, or their vast PFI strategy. They have temporarily reconciled themselves to a left Labour leadership, but they are in no way reconciled to left or radical policies. These Labour MPs still believe that the best way to conduct economic policy in general is with the cooperation and in partnership with the big business.
On the contrary, socialists must be clear. All those so-called PPP projects – Public-Private Partnerships – of which PFI is the best-known example, are a con and have always been a con. When the Tories give more than half of the Ministry of Justice budget to private contracts, and half of the Department for Transport Budget, and half of the Defence budget, not to mention the NHS, they are not in the least interested in efficiency and savings. They are only interested in supporting their friends in business, at the expense of workers’ wages, conditions and the quality of services provided.
Labour must demand a complete break from the failed policies of the past. Labour needs to be committed to dismantling the parasitic relationship between business and the tops of the civil service, where a revolving door sends ex-civil servants to work in the private sector and private sector employees seconded into ministry positions, all the better to make sure the private sector gravy-train never lets up.
The companies involved in all public-sector contracts should be nationalised and organised as a public service. Profits made should go to the state. Standards, materials, service provision should be based on need and not cost-cutting. Cleaning, meals, facilities management and other services to the NHS and schools should be brought back in-house, so the workers involved can be guaranteed jobs in the NHS or in local government, with decent pay and conditions.
The Carillion fiasco provides an important lesson for workers and the labour movement. The Labour Party must learn from this and make sure policies are put in place that benefit society as a whole and not a handful of greedy shareholders.
January 18, 2018
