Carillion has been one of the biggest stories of the week and this is unsurprising as it highlights the issues of outsourcing government work to private companies. But what is probably more of a concern is that it shows the governments since the early 90s in one of two lights, firstly, that of financial and economic incompetence or secondly, wilfully corrupt. British economic policy in the last 100+ years has barely changed, with a few slightly more Keynesian moments post-WWII.
British economic policy is economic fascism. The wealthy use their money to gain power, drive down wages and prejudice against anyone who is poor.
By maintaining this status quo, they can keep inequality thriving, use nationalist rhetoric to garner public support and maintain power.
The Carillion collapse
PFI contracts were first introduced by John Major, continued by Tony Blair and increased by the Conservative governments since 2010. Carillion was one of those main benefactors but with consistent profit warnings, why did the government keep awarding them contracts? It had essentially become a lawful sort of Ponzi scheme, using new or expected revenues to cover more pressing demands for payment. The Financial Times said “A further similarity with such schemes was the incentive for senior managers to keep bidding, acquiring and chasing cash.
Many in the industry are paid bonuses based on revenue growth, not efficiency.”
Furthermore, government procurement laws states that they must exclude abnormally low bids from outsourcers. One lawyer claims, “Carillion has tendered at very low margins, possibly unsustainably low, in order to win these huge volumes of work. If such bids have succeeded, that can only mean either that the regulations themselves are ineffective or that public sector clients lack the confidence or the expertise properly to enforce those rules.” But there is one other reason that the bids were allowed to succeed, and that is because those involved knew it would collapse ad decided to profit from the subsequent disaster.
Carillion were responsible for £16 billion worth of government contracts and up until December 2016, the chairman, Phillip Green, was corporate responsibility advisor to Theresa May, why he resigned is unknown. But this represents a conflict of interest for the government and hedge funds began betting on Carillion’s collapse back in 2013 when they realised that they were taking 120 days to pay back subcontractors and began short selling shares to profit from future falls, one of those hedge funds includes BlackRock, who hired George Osborne as advisor last year.
The same man who gave Carillion government contracts, but he has come out since and blamed civil servants for the outsourcing.
In addition to the uncertainty to worker’s jobs and pensions, just weeks before the collapse, Carillion changed their rules to safeguard the multi-million-pound bonuses paid to bosses and protect them from being clawed back from investors and the taxpayer. Normally when companies such as Carillion have profit warnings, they avoid contracts with low margins for example, Serco turned itself around after avoiding unprofitable work, and asking shareholders to bear the pain. But This was a blatant disregard to public finances and scheme for the wealthiest to profit from, whether they are in government or control them, and place the burden on the poorest in society. Theresa May claimed in PMQs that there were no signs despite economists and business leaders warning them of the potential collapse.
