THE GIANT CONSTRUCTION and construction related services company Carillion is going into liquidation. The collapse will take months, maybe years, to sort out – and the consequences will ripple through the supply chain and the whole economy.
Carillion is the product of a number of mergers in the construction sector. It has taken on a number of very large building projects, particularly in the public and PFI sectors. It also takes on maintenance work and management of company premises and public sector buildings such as schools and prisons.
The company employs 20,000 people in the UK and the same again across the world. Trade unions are already asking what will happen to Carillion’s UK workforce. Economists are asking what effect this will have on the economy. To some extent, it’s too soon to answer either question properly.
Often PFI schemes or more straightforward privatisations have been promoted because the “private sector takes the risk”. The privatisation – of building maintenance, say – is done at a fixed cost so the public sector can better manage its budgets. And the maintenance is tendered for, so the public sector is getting the best price.
Critics of privatisation have often pointed out this is nonsense. If a private company goes bust – perhaps because it has cut its prices just too low in the the rush to win tenders – the state will have to pick up the tab, because it can’t just close down a hospital or a prison. The service has to continue.
Some Carillion employees will stay in their jobs in the long term because either the public sector or a different private company will take over the function that they have been doing and they will just have a change in employer. Some of the major building projects Carillion was working on – like the HS2 high speed rail line – will still be built, so there should not be a loss of construction jobs.
That won’t work for everyone. The finances of the collapse have to be worked through. Small companies which used to supply goods to Carillion may fail while they wait for payment of outstanding invoices – or struggle to deal with not getting full payment.
There will be a political fallout. Jon Trickett MP, Labour’s Shadow Minister for the Cabinet Office, called on the government to act quickly, “to bring these public sector contracts back in-house to protect public services and ensure employees, supply chain companies, taxpayers and pension fund members are protected.”
The Government is, so far, refusing to take any action now to save the jobs. Questions are, however, being asked about what they have been doing over the last year. Carillion has won some government contracts (the sort that a failing company would be desperate to have) on a “joint venture” basis – that is, with a partner which will take over if Carillion fails. Commentators are saying that this shows that the Government knew Carillion was in financial trouble and was trying to help it out quietly, by adopting the joint venture structure. Was it sensible to risk public money in this way? “Given £2 billion worth of Government contracts were awarded in the time three profit warnings were given by Carillion, a serious investigation needs to be launched into the Government’s handling of this matter,” says Trickett.
The collapse of Carillion raises a number of questions – but they biggest one must be why the UK should continue allowing private sector businesses to continue drawing profits out of work for the public sector to the point where they collapse – leaving the taxpayer impoverished and then having to foot the bill to keep services going. That’s going to be much easier for Jeremy Corbyn to deal with than Theresa May.
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