John McTernan has written a typically forthright (strident), piece in the Guardian arguing that the Carillion collapse is the ultimate proof of the virtues of outsourcing government services to private companies.
McTernan was Tony Blair’s director of political operations 2005-2007. He has been loud and clear about his opposition to Jeremny Corbyn and has clearly not budged a centimetre in his belief in the Blairite embrace of private solutions to public problems. He says of the Carillion collapse
… we should always be grateful that private companies have delivered better public service for less money.
Carillion, he says, has:
… delivered vital public services – and delivered them well. Notice that in the fallout over the collapse of Carillion, few questioned the quality of what it has been doing in the public realm. From the NHS to HS2 the company’s record of delivery is positive;
… taken risk out of the public sector and absorbed it themselves. It is one of the oldest criticisms of public private partnerships that … profits … are privatised, while risk remains nationalised. In the case of Carillion we can see that is utterly and demonstrably false. How? In the simplest possible way – the company has gone bust.
… we have had a bargain – we have paid substantially less for services than they cost to deliver. How can we be sure about that? Again, it is the collapse that is the proof. If the directors had driven exploitative bargains with the public sector, they would be driving round in Maseratis rather than polishing their CVs and wondering how to explain their catastrophic failure to future prospective employers.
On the other hand, Lord Adonis, who is no slouch when it comes to involving the private sector in public projects, now has doubts. In a video discussion on the Guardian website he starts out by saying that the government has behaved “improperly” over the East Coast rail franchise.
… by bailing out Stage Coach and Virgin to the tune of up to £2bn and, in doing so, potentially opening up the tax payer to billions in payments to private rail companies, all because Chris Grayling was not prepared to threaten, or indeed to set up, a public company, which is what I did when I was Transport Secretary faced with exactly the same situation …
… Carillion … was clearly a very badly mismanaged company … the bonus culture … and the culture of bidding aggressively at all costs and a ponzi-type arrangement …. All of that was a failure of the private sector. … There is an issue of why Chris Grayling was awarding contracts to the company even after it had been shown that it was in dire straights. … it was to bale out Carillion in the sense that it continued to give it contracts to stabilise it …
… it’s going to have massive knock-on effects. We’re dealing with thousands of subcontractors to Carillion many of which are small and medium-sized business that will be at death’s door as a result of this.
… There has been a culture that has developed … under both parties … of contracting out as a first recourse rather than a last recourse. … As public budgets have been constrained it has always looked as if you could get a bigger bang for your buck, and get investment more quickly, if you went for PFI …
When asked “Do you think that New Labour was guilty of tipping too far into the ideology of private provision” Lord Adonis says
Yes I do. … We were too excited by the prospect that new shiny private sector companies with names like Richard Branson on them would deliver a better service just because they were Richard Branson and were in the private sector. I’ve got over that.
Guardian Economics Editor Larry Elliot has a piece on Carillion in which he says that “Carillion’s collapse was capitalism in action. Profits are the reward for taking risks, and sometimes the risks materialise. … In a free-market system, it’s that simple.”
Except that it isn’t quite that simple in this case, because much of Carillion’s work was for the government: building roads and hospitals, running prisons, providing school meals. Whitehall didn’t want the company to go bust, so bunged it a few new contracts when it was already in trouble in the hope that something would turn up.
Elliot goes on to discuss the general problem of private/public projects. He says
There are lessons to be learned from Carillion’s collapse, but the idea that SMEs should be building billion-pound hospitals is not one of them. Lesson one is that governments can have austerity or they can have PFI, but not both together.
Lesson two is that the state is not well equipped to manage big infrastructure projects. There are plenty of examples – the abandonment of the NHS IT project at a cost of £12bn, for example – of official incompetence. Whitehall’s handling of Carillion has left a lot to be desired. No matter what Labour says, the private sector will inevitably have a big role in the delivery of major projects. Even under a Corbyn-led government, there would inevitably be a role for it.
If Elliot is right it follows that there are no simple “ideologically pure” solutions. Hard thinking is required and he makes some proposals for that. These different reactions provide plenty of thought to anyone interested in exactly what Labour’s approach to private/public projects should be and I recommend that anyone who has not read/viewed them does so.
Rather more radical than Elliot is the approach of the We Own It campaign. Their website has a large amount of information about privatisation and publicly owned alternatives. This material clearly needs to go into the mix for an informed debate about how best to respond to the Carillion Collapse.
Hounslow Council. It is clear that the Council read the runes and started the process of ending Carillion involvement (which was started by the previous Tory/ICG administration) before the Company collapsed. It might be argued that it should have started the process earlier given that load warning signs were clear from April/June 2017 but that would require some understanding of what it did and when. What we know from its statement is that it was actively engaged in backing out of Carillion contracts by last November and the process had obviously started before that. It would be interesting, of course if anyone can provide more detail on this but let’s not judge without that detail.