The Carillion Fallout

There's absolutely no doubt about it - the political fallout from Carillion's collapse is massive and at a stroke, completely altered the whole position relating to any further privatisation agenda the Tories might have been considering. In addition and as a bonus, it serves to highlight even further the failures of already outsourced public sector services and as if that wasn't enough, it's drawn renewed attention to the disaster called PFI, so beloved of Brown and Blair. 

Try as she might to put a brave face on things, - 'I will fine greedy bosses who betray their workers' - Theresa May and her government has now comprehensively lost the argument in the public/private debate with such hollow words. Jeremy Corbyn has been given a massive amount of ammunition in order to seize the non-Brexit agenda thanks to the public now being well aware of what happens when favoured private sector behemoths fail. There is very much a feeling in my mind of a number of celestial bodies coming into alignment and it must surely be good news for us and the criminal justice sector generally?

Lets start with a bit more insight into things leading up to the Carillion failure with this edited extract from the FT:-

Lack of political support doomed Carillion

As Carillion’s seven-strong management team sat down with its 160 bankers and advisers in Clifford Chance’s offices in Canary Wharf last week, they were confident they could still save the company from collapse. There was just one hitch. All the deals relied on state backing. By Sunday, and seeking just £25m in forward funding at an “ill-tempered” Cabinet Office meeting, Keith Cochrane, the company’s interim chief executive, found that support for the company had finally run out.

“We were reasonably confident,” says one person close to the board of Britain’s second-biggest construction company. “The one aspect that was vital was the support from the government.” What the Carillion team did not know was that when ministers arrived at the meeting, they had all but made up their minds. The political heat was high. Carillion executives left Westminster empty-handed.

By 7am on Monday Carillion, a business worth more than £2bn only 18 months earlier, was forced to announce that so dire was the state of its finances it would be liquidated, not put into administration. The decision sparked one of the largest financial collapses in recent UK corporate history; its effect seen on countless deserted building sites across the UK, hitting tens of thousands of workers, and in its operations in Canada and the Middle East.

The repercussions of Carillion’s spectacular bankruptcy after executives left the business with just £35m in cash, more than £1.35bn in debt and a £587m pension deficit have only just started to unfold. And fingers are being pointed at the management. “In the good old days the commercial rottweilers would have been through any contract. They never would have made lossmaking bids. But that all had changed. There was too much emphasis on short-term cash and they never really kept a close watch on the business,” says the person close to the board.

Less than a year ago, Carillion was still in favour among institutional investors in the City of London. Auditing firm KPMG had raised no serious questions as it signed off on the accounts. Richard Howson, chief executive at the time, had told the company’s annual meeting that it had “made an encouraging start to the year”. 

--oo00oo--

Remember when the Forensic Science Service was abolished and replaced with a free-for-all range of alternatives? It's all going wrong as reported in the Guardian last week and this bit sounds very familar:- 

"Conservative ministers wanted to create a market in which independent companies competed for business."

Falling forensic science standards 'making miscarriages of justice inevitable'

Police forces are failing to meet the official standards for forensic science, making miscarriages of justice inevitable, the government’s forensic regulator has said. In her annual report, Gillian Tully highlighted her growing concerns about the failure of some forensic firms used by the police to meet basic quality standards. It means innocent people could be wrongly convicted and offenders escaping justice.

The routine outsourcing of criminal forensic work to unaccredited laboratories worries Tully, with some not subject to independent oversight. She told the Guardian that without urgent action there would inevitably be miscarriages of justice, including in cases involving murder, rape and child abuse. “If you’re not finding indecent images of children on someone’s phone when you should be, that’s a miscarriage of justice as much as if someone was wrongly convicted of a crime,” Tully said.

The government abolished the Forensic Science Service in 2012, which was the primary provider to the police and courts, resulting in forensic work being transferred to in-house police laboratories and private providers. Conservative ministers wanted to create a market in which independent companies competed for business. But most forces appear to be behind schedule in bringing their own laboratories into line with official standards, the regulator’s latest report shows. Just a few met the October deadline to gain formal accreditation to carry out digital forensic science work.

Police are also outsourcing large volumes of digital forensic science casework – the analysis of phones, computers and CCTV – to low-cost private forensic labs without any accreditation or oversight, the report said, describing this as “unacceptable”.

“Quality standards are not a nice-to-have extra that, if we have any money left, we’ll do some quality,” said Tully. “Doing something that you can’t necessarily stand behind in court is just inappropriate at every level.” The regulator said she would be examining whether failures to follow correct procedures in digital forensic science could have played a role in a number of high-profile rape cases that collapsed before going to trial. “I have formally requested more information on those recent cases,” she said.

--oo00oo--

With HMP Liverpool in the media spotlight last week following the official publication of the damning HMI report, the POA representative - I think it might have been their new Chair Mark Fairhurst - gave a bravura TV performance that covered the failure of 'Fair and Sustainable', regional and National HMPPS management, the MoJ, Carillion and in the process, made it plain the previous Governor had been scapegoated. It really must be time for Michael Spurr to fall on his sword in order to try and protect the Minister and failed Tory Party policies. 

Whilst we are discussing the dire problems at Liverpool, look where the drive to cut costs gets us as part of this whole contracting-out culture. This on the BBC website:-

Healthcare budgets have been cut at a prison described by inspectors as "Britain's worst".

A damning report on HMP Liverpool on Friday said it was "squalid". The BBC has now learnt Lancashire Care NHS Trust is leaving its contract with the jail in March citing the £6.7m it is paid to provide healthcare as "unsustainable". NHS England has offered new providers a five-year contact at £6.5m per annum - £200K less than Lancashire Care. It has said when a new provider is found, it can bid for additional money to develop the service.

Since 2011, there have been at least 17 suicides at the Liverpool prison, one of the highest figures in England. Healthcare staff have told the BBC that in recent months, pressures in the unit have contributed to at least three deaths, and the inspection report said staff shortages had had a negative impact on all aspects of health services.

Lancashire Care NHS Trust told NHS England, which commissions services, it had exhausted all efforts to recruit new staff and the price it was paid made the service "financially unsustainable". NHS England has advertised a five-year contact at £6.5m per annum but so far no providers have been forthcoming. The BBC understands NHS England will now speak to other trusts to persuade one to take over the healthcare services at HMP Liverpool.

--oo00oo--

Things are moving fast and there are already signs that politicians are beginning to sense the game is up and as we know, the MoJ contracting team are particularly inept. This in the Independent:-

Urgent review of £300m arrest warrant contract needed in wake of Carillion collapse, MPs demand

A £300m state contract to pay private firms to arrest people for not settling court fines must urgently be reviewed in the wake of Carillion’s collapse, MPs on an influential committee have said. Both Conservative and Labour members warned the new deal risks creating a “monolithic” nationwide provider, unable to properly monitor staff who will probably be physically restraining members of the public.

MPs on the Justice Committee also told The Independent the deal could put service delivery at risk, by potentially putting “all our eggs in one basket”, with a single firm enforcing warrants across the country. Their call to review the process comes as the Ministry of Justice (MoJ) tries to reduce spending following years of deep cuts, with civil servants hoping the new deal can deliver £3m of annual savings.

But the department’s outsourcing activity has repeatedly come under fire, with millions of pounds wasted and lucrative contracts handed to firms like G4S, which landed a 2017 deal despite having been fined amid a fraud inquiry. Monday’s collapse of Carillion has led to checks across Whitehall to ensure further public service providers are not at risk, leading members of the Justice Committee to shine a light on the MoJ’s current tendering processes.

Civil servants are expected in February to announce winners for the new contracts, which will see either several regional firms or one large national company paid some £290m to enforce warrants of debt collection and arrest for the courts. The Independent has already reported how business insiders sounded the alarm over the tender which they say is skewed towards favouring a big national company.

Labour Justice Committee member and former police minister, David Hanson said there is now enough concern to merit the department looking at the tender again. He said: “In the light of the collapse of a major single provider, it is right that there is more due diligence done on the tender for this prior to the issuing of any contract.

“We do not want a situation whereby one huge provider tenders for business, at a rate that offers a low profit margin and then finds themselves struggling to meet the obligations as has Carillion.” He was joined by Conservative committee chair Bob Neill who said there is a “genuine worry about putting all our eggs in one basket with a single provider”.

--oo00oo--

It was interesting to see that on last weeks BBC1 Question Time, tory MP Margo James was shouted down and called a liar by an angry audience when trying to deny that privatising the NHS was on their agenda. Post-Carillion, the Tories are definitely getting rattled judging by this also in the Independent:-

Senior Conservative MP urges Jeremy Hunt to put the brakes on backdoor NHS privatisation

A senior Conservative MP has called on Jeremy Hunt to put the brakes on plans which campaigners have previously claimed could open the NHS to privatisation. Sarah Wollaston, the chair of the Commons Health Committee, has written to the Health and Social Care Secretary urging him to delay a new contract for Accountable Care Organisations (ACOs) – due to be implemented later this year. She claims there is a “great deal of concern” over the plans which she considers “have not been well aired publicly up until now”.

According to the House of Commons Library, the little-known policy is a model of healthcare organisation where a provider or group of providers takes responsibility for the healthcare provision of a certain area. The providers are expected to take responsibility for a budget. The Government hopes the plans will dissolve the boundary between health and social care systems and integrate services, with the aim of improving the health of local populations. But critics of the planned system claim it would open up the NHS to privatisation and have launched a legal challenge against the changes.

The Department for Health and Social Care have previously strongly rejected such claims, adding it is “misleading” and “irresponsible scaremongering” to suggest ACOs are being used to support privatisation of the NHS. In her letter, Ms Wollaston said she is requesting the Government delay the introduction of the new contract for ACO until after the Health Committee “has taken the opportunity to hear evidence on the issues around the introduction of accountable care models to the NHS”.

She said: “As I am sure you are aware, a great deal of concern has been expressed about the development of ACOs in the NHS. I expect the Committee to consider these concerns, and the responses to them, in the course of its inquiry into sustainability and transformation partnerships, announced last autumn.”

--oo00oo--

It's probably as good a time as any to put a tentative step into economic theory and this is an interesting piece in a newspaper we've never featured before, a Scottish one, the National and the first to my knowledge to call-out the Carillion debacle for what I think it is - an old-fashioned ponzi scheme:-  

The Carillion story is proof our economic system is obsolete

The story of Carillion going into liquidation this week is more than just another business going bust with a pension fund gap. It’s more than a business story – it’s another warning sign that one of the key foundations of our entire economic system is failing. I have been writing in recent weeks about the need for a completely new approach to economics and therefore society. It is a viewpoint I first developed back in the late 1990s and in my 2001-2002 set of reports on what we called the “e-conomy” for The Herald and Sunday Herald. Many leading economic thinkers are now calling for a new economics and more and more think tanks and institutions are lobbying for reform.

Each economist or lobby group seems to have their own pet heterodox policy that they want adopted; sovereign money (Government-owned banking and currency creation), basic income, environmental sustainability modelling, zero growth (not as dumb as it seems) and multiple fairness and equality measures that you can bolt on to our neoliberal economic system to improve it. However, I have come to believe that is part of the problem. Almost no-one is talking about redesigning our economic system from the core principles outwards.

Take for instance the adoption by David Cameron in 2010 of wellbeing as a measure of economic progress. The Joseph Roundtree Foundation, Oxfam, the New Economics Foundation and several other key progressive forces championed that well-meaning move, but if it’s only an add-on to a corrupted and failing economic system, can any new metric seeking to address the symptoms and not the root causes of economic failure ever work?

Looking at the key and interlinked cornerstone beliefs of today’s dominant neoliberal/neoclassical economic system (Financialisation, Consumerism, Small Government and Globalisation) I can see signs that they are all failing. It’s going to get worse unless we do some serious rebuilding at the core of the system rather than just papering over the cracks with nice sounding new measures that tick boxes but change nothing.

Firstly, the issue with “Financialisation” is plain to see – the UK and many other western nations became over-dependent on the finance sector. That was the first cornerstone to crack in 2007, and the risk associated with the finance sector has not fallen sufficiently, and housing in London and the south east can still be described as bubble-like. But also the financialisation of everyday lives through easy credit, and the propensity for people to borrow to fund even basic consumption rather than by residual income, could still bring a personal credit crunch.

If inflation rises further, and interest rates are used control it, debt-ridden consumers will stop spending and the economy will tailspin.

The second cornerstone – “Small Government” – could also lead to the next economic crisis. We all understand the impact of light-touch regulation on banking but the negative impacts of outsourcing are just beginning to bite. PFI costs Scottish councils a billion a year and ironically Labour (who championed PFI in government) now talk about nationalising them – but that can cost more than maintaining them in many cases. Massive outsourcing companies like Carillion, Serco, Capita and Interserve grew out of the outsourcing boom, winning massive Government contracts at ultra low margins and squeezing costs. Those companies swapped margin for turnover and long-term contracts and so had to keep growing and winning more and more government work to pay the bills, wages and make returns to shareholders.

However, with austerity, the budget squeeze means that the outsourcing companies are unable to win enough new contracts to refinance their massive contracted outgoings. We have a phrase for that – we call it a Ponzi scheme, and Carillion is the first warning sign of what might become a new financial crises.

Ironically, austerity, the automatic response to fiscal deficit if you believe in “Small Government”, the driving force behind outsourcing, is now killing it. The drive for smaller government privatised profits in the good times and now we are nationalising the losses and bailing out pension schemes. Scottish Water, the Royal Mail, East Coast Rail etc all prove that private sector isn’t always more effective.

--oo00oo--

Finally, earlier on I mentioned PFI and to round this off lets have a quick trip down memory lane courtesy of a regular reader who pointed me in the direction of a brilliant 11-page Private Eye Special Report from March 2004 An Idiot's Guide to the Private Finance Initiative by the renowned investigative journalist Paul Foot. Well worth reading in full and highly enlightening as to how we got to where we are now, here's just the opening taster:-

This is the story of the private Finance-Initiative: how it became a jewel in the crown of New Labour, its savings, its costs, its pitfalls and windfalls, and how it changed the face of British accountancy and British politics...

Wind in the Willetts

Norman Lamont tinkered with it. John Major approved it. But the intellectual thrust for the idea of the private finance initiative (PFI) came from David Willetts, the Tory frontbencher nicknamed "Two Brains". In a pamphlet in 1993 called The Opportunities for Private Funding in the NHS, published by the Social Market Foundation and financed by the private health insurance company BUPA, Two Brains came up with a brainy idea. Instead of paying for hospitals by public funding, why not get reliable old private enterprise to build and run them - and then, at the end of the process, inherit them too? 

When he wrote the pamphlet, Willetts was a consultant to Healthcall, a private health firm. (In 1997, when the Tories lost office, he became an adviser to the Dresdner Kleinwort merchant bank, which rapidly became one of the great beneficiaries of PFI.) But back in the early 1990s, two brains were rather too many for Tory leaders of the day and the idea of PFI wasn't very popular in the treasury either. Senior civil servants liked to keep tight control on NHS spending and old-fashioned mandarins there felt the radical ideas of Two Brains might be going too far. 

When Kenneth Clarke succeeded Lamont as chancellor, he endorsed PFI and wrote it more firmly into the government's programmes. But he insisted that PFI would only work if the whole of the financial risk of a project was transferred from the public sector to the private sector. This caused a lot of concern to private contractors and banks. Their directors were prepared to bid for government contracts for which the government was eventually responsible, but were not at all happy about bidding for contracts for which private contractors might be held liable. 

Another worry was the Labour opposition whose MPs were inclined to oppose such measures as "creeping privatisation". So although Two Brains' theory was officially accepted by the Tory government, it never really got off the ground. As predicted by the sceptics, the idea infuriated Labour and the trade unions in 1996 the TUC vigorously opposed PFI and in a Commons debate on 1 May the same year, Labour frontbencher Sam Galbraith got to the root of the matter. 

"The private finance initiative", he concluded, "is basically all about government bodies borrowing money but not having it set against the public sector borrowing requirement." He forecast: "Today, the private sector will only get involved in the PFI within the health services if it carries no real risk." The result, he said, was "a financial sleight of hand, a massaging of figures as a result of which the increase in the public sector borrowing requirement is not shown and is thus a matter of deceit." 

In another debate another Labour frontbencher, Harriet Harman, denounced the concept of PFI in the NHS in terms that won warm support from her colleagues. "When the private sector is building, owning, managlng and running a hospital" she declared, "that hospital has been privatised." Yet unknown to Harman, the leaders of her party were engaglng in secret discussions to make sure that if and when they came to office, the private sector would do precisely that: build, own, manage and run new hospitals.