Private companies cannot be allowed to continue running public services. The consensus around this practice is thankfully crumbling, argues Sean Ledwith
2018 may well go down as the year the outsourcing dogma of neoliberalism fell into irretrievable disrepute. Hot on the heels of the collapse of construction giant Carillion last month, another high profile corporate parasite announced a spectacular nosedive in its share value. Capita shares plummeted to a 15-year low following the announcement of a 42% drop in profits.
Like Carillion, this company (unaffectionately dubbed ‘Crapita’ by many analysts) has played an insidious role in the hollowing out of the public sector that has been a feature of UK governments since the 1990s. Capita has been handed government contracts such as managing the Jobseekers' Allowance, curfew tags for ex-offenders, the teachers’ pension scheme and the London congestion charge. It has around 70,000 workers and, like Carillion, has allowed a massive pensions deficit of £381 million to accumulate due to prioritising shareholder dividends over employer contributions.
As Capita has less public sector contracts than Carillion and more money in the bank (£1 billion as opposed to £29 million), it may well ride out this crisis. However, the public backlash against blood-sucking privateers fleecing essential public services is picking up political momentum in the wake of the Carillion fiasco. The liquidation of Britain’s second biggest building firm shone a light onto some of the darkest practices of the neoliberal wasteland. The construction giant has become a by-word in the industry for cost-cutting, last-minute delivery, union-blacklisting and extravagant executive bonuses. Its tentacles reach into huge swathes of the fabric of British society including schools, hospitals, prisons and roads.
Just after Christmas, corporate lenders made it clear they were not prepared to bail out the company’s £900 million debt and nearly £600 million pension deficit. Fat cats in the City cynically expected the taxpayer to foot the bill in accordance with the now familiar get-out-of-jail card for financial malpractice that Carillion was ‘too big to fail’. The fiasco blatantly exposed the gulf between the worlds of bosses such as failed Chief Executive Richard Howson (awarded £1.9 million over eight years and owner of a £2 million mansion in the Yorkshire Dales) and the 20,000 direct employees of the company who turned up for work on a Monday morning not knowing if they would have a job at the end of the day. The anxiety affecting them is in addition to people working for the 30,000 companies sub-contracted by Carillion. Even though the government has guaranteed the work for the first group, workers face a 20% cut in the value of their pensions.
The crisis highlights the parasitical greed of City hedge fund managers who trousered £80 million last year buying up Carillion shares and selling them off at a profit (‘shorting’ in the venal vocabulary of the City of London). This chasm between rich and poor in May’s Britain applies not just to wealth but also to access to information. The cynical market manipulations of City slickers was based on three warnings in six months about Carillion’s future that most people would not have spotted. Accountancy giant KPMG lamentably signed-off as secure 58 Carillion contracts in 2016. They also performed the same job for Capita.
Transport Secretary Chris Grayling handing over £1.4 billion to Carillion for the benighted HS2 project last September, again despite the company’s precarious position being the worst kept secret in Whitehall, brought to light the entwining of Britain’s financial and political elites. The political fallout from the debacle also implicates former Chancellor George Osborne, who works part-time for Blackrock, one of the firms that profited from the fall in Carillion share prices.
Sandwiched between the Carillion and Capita stories was the release of a National Audit Office report that conclusively busted the myth of PFI/PPP schemes operated by these type of firms being value for money. The government watchdog concluded schools constructed by outsourcing companies cost 40% more than state financed ones and in the case of hospitals, it was a staggering 70%. Jeremy Corbyn has rightly called for an end to the default outsourcing of public provision and noted how this debacle reflects the priorities of May’s ailing government: ‘One rule for the super-rich, another for everybody else’.