The Carillion Scandal Is Proof That Big Business Should Not Run Government Services
How Tony Blair's big privatisation idea ended in crappy hospitals and expensive bail outs.
Carillion grew from the hot new ideas of the 2000s, and it collapse is the cold wet patch left by the public service policies followed under the Blair, Brown and Cameron governments.
In 1997, Blair’s "New Labour" government started its policy of Public Service Reform, which transformed a lot of unglamorous construction and other firms into new "Services" corporations, with smart branding, abstract-sounding names and close friendships with the government.
Blair said his "third way" meant "Investment must drive radical reform" of the public sector: Labour spent more on public services, but expanded privatisation by insisting new "private partners" run public services.
Carillion started its life as a traditional building firm known simply as Tarmac, which started out spreading tarmac on roads, and went on to become one of the UK’s big construction firms – one of the "private partners" that runs schools, hospitals, welfare, prisons and other work formerly done by central or local government.
The company prospered through two forms of privatisation. Under the "Private Finance Initiative" (PFI) Carillion built hospitals and schools, then ran the premises on 25-year contracts. Nurses and teachers found themselves guests in Carillion buildings where the company ran cleaning, catering and maintenance. Carillion also won "outsourcing" contracts, where a council or government department hired them to run an existing school or office.
In 2013, the National Audit Office added up all of Carillion’s central government contracts and found the firm received £215 million a year. This excludes PFI contracts, which Carillion said paid them £300 million a year. Local councils gave millions more. Carillion squeezed out money for shareholders, paying out annual dividends.
In 2015 Carillion said they had "15 successive years of dividend growth" from their launch in 1999, until they paid shareholders dividends of £70 to £80 million each year. Carillion also gave their directors Richard Howson and Richard Adam salaries of £1.5 million and £1 million respectively.
Investors and directors profited from poor services. One of Carillion’s biggest public contracts is maintaining 47,000 houses that the Ministry of Defence lets to army families. Even though the government admitted Carillion’s work was "not acceptable" in 2015, they let them keep the contract. Carillion did not meet "performance targets", which meant soldiers' families lived in dirty houses with black mould, broken cookers and no hot water.
Another example is Swindon’s Great Western Hospital. Carillion built and ran the hospital under a PFI contract. On its opening in 2002, staff complained about stuck lifts, crumbling plaster work, mould on the walls and a repairs backlog. In 2012, low paid cleaning staff went on strike for 12 days. Their GMB union said Carillion’s cleaners were bullied and even forced to pay bribes to managers to get annual leave or overtime.
Carillion’s own investigation admitted there had been "bullying", "intimidation", "excessive use of disciplinary threats" and "racist" remarks. Carillion also admitted that "Gift-giving for advantage (bribery)" was "likely to have occurred".
In 2014, Swindon’s hospital bosses also declared a "lack of confidence" in Carillion because of dirty wards and failed food inspections. Carillion left Swindon Hospital in December of 2017, being replaced by Serco.
Corporations like Carillion were supposed to run public services more efficiently due to private "competition". But the switch from Carillion to Serco at Swindon hospital shows there is no real competition if all the big service corporations have the same model of making money for investors and bosses: by squeezing staff and cutting costs.
When David Cameron became Prime Minister in 2010, Tory-led governments embraced and expanded the New Labour policy of handing public services to private "partners", but under austerity reduced the amount they spent, making the situation even worse.
Carillion is not the first public service corporation hit by collapse or scandal. In 2010, Jarvis – which, like Carillion, lived off PFI and railway maintenance contracts – finally closed. The firm struggled to survive after their poor work contributed to the 2002 Potters Bar rail crash, which killed seven people. Another firm, A4e, grew into a multi-million pound company running government "Welfare to Work" programmes. A series of fraud and poor performance scandals meant, in 2015, A4e was sold to another firm and changed its name.
In 2014, Serco and G4S – two of the biggest "public service" contractors – had to pay back £180 million because they charged the government for "electronic tagging" of prisoners that never happened. These scandals didn’t stop "contracting out" because both main parties backed outsourcing.
It was a classic example of "Crony Capitalism": all these corporations worked with lobbyists, think-tanks and advisers linked to the political parties. Carillion appeared at the party conferences, paying for space every year inside the "secure zone" of Labour, Conservative and Lib Dem annual events.
Labour began breaking with Carillion in 2013 thanks to the blacklisting scandal. In 2009, Carillion was one of the firms revealed to be listing trade union activists by using files from a secretive organisation called the "Consulting Association". Union reps, including safety reps, were put on lists and then systematically kept out of work for years. Screwing the workers was central to Carillion’s approach, and now the unions were fighting back. With union pressure, Carillion was expelled from the Labour conference in 2013.
This led to Carillion throwing extra weight behind the Tories. In the 2015 election, the company's Chairman, Philip Green, was one of the 100 business leaders who wrote a letter to the Telegraph saying the Conservatives were "good for business". Green was a "corporate responsibility" adviser to Cameron and Theresa May from 2011 to 2016.
Carillion has collapsed at the same time as the Labour-Tory consensus on privatisation has also collapsed. Under Corbyn, Labour is challenging the idea that, say, it is better for a hospital cleaner to work for a multinational corporation than the NHS. It’s an argument that hasn’t been heard in public for decades, and there is a good chance it's an argument the pro-privatisation lobby will lose.