Carillion crash means public may have to subsidise Tory privatisation yet again

This week alone shares in Carillion have plummeted by around 22 per cent [Image: Reuters].

Isn’t that a contradiction in terms?

Back in the 1980s, Margaret Thatcher sold us a pup. She told us private companies could run public services more cost-effectively than government. Either she was badly mistaken or she was lying.

Most voters believed her, though, and in the decades that followed, she and her successors have sold off as many public utilities and services as they could, hiring private contractors in to run crucial aspects of most of the others.

The Carillion case is indicative of what happens next.

The outsourcing company, which has maintenance contracts in the NHS, a contract for work on the HS2 rail link, contracts with the Ministry of Defence, and is a major supplier of rail infrastructure, is in serious financial trouble.

Its major lenders – banks including Lloyds and RBS – have rejected the company’s rescue plan and are urging the government to pay off its debts – using public money.

So these banks – who were themselves bailed out with public money when they caused the financial crisis that led to the Great Recession 10 years ago – are now saying they need the public to bail out this private company, because they won’t.

It is the most damning evidence possible that privatisation of public services is a failure.

The idea of privatisation was that the public wouldn’t have to pay for services. Instead, it seems we are being asked to pay time and time again.

We bailed out the banks once; now they want us to bail them out again, repaying their loans to Carillion.

No! Let the company go out of business and take the contracts back in-house.

Oh, but the Tories probably can’t manage that because the state no longer has the wherewithal to carry out that kind of work. Typical Tory short-sightedness.

Another brilliant example of the same stupidity is rail privatisation. Private companies took over rail services in the 1990s, and we were led to believe that this would lead to better services, with profits being ploughed into infrastructure and other improvements. Instead, the public subsidy has skyrocketed and so have fares; 70 per cent of our rail companies are owned by foreign concerns (some of them, ironically, nationalised) which means we are subsidising rail services abroad rather than funding improvements here, and those that aren’t seem to be in permanent financial difficulties, meaning more public money is used to bail them out. Look at the Virgin East Coast franchise.

Do you call that value for money? Because I don’t.

It should be no surprise that Chris Grayling is the transport secretary who has admitted Virgin overbid for the East Coast franchise. The company offered to pay too much and that is, we’re told, why it is in financial difficulty now. The same thing happened with the probation service when Mr Grayling was justice secretary.

The social media commentariat have been on the case, of course, so I refer you to a few people who understand the situation better than myself – for the benefit of those who won’t just take my word for it:

I don’t know about good, but grief is certainly an appropriate word.

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12 thoughts on “Carillion crash means public may have to subsidise Tory privatisation yet again

  1. Thomas

    There have been cases like with the phones where privatisation has worked well, but it only works with a lot of companies. Otherwise one ends up with either a monopoly or close to it.

  2. NMac

    Personally, I have always believed that Tory privatisations were Tory cash cows – many, such as British Rail, are publicly-funded cash cows.

  3. rollo57

    One only need look as far as America, their Corporations & Banks are running a ‘shadow Government’, this is reflected here and across EU, as Banks are controlled by Fed Res & BIS! [Why does one suppose Trump & Corbyn are being demonised in the media]?
    It’s time we started investing in our Infrastructure, get rid of banks creating money from fresh air. Bring back the Bradbury Pound, created in a similar way, but overseen by a totally independent Public body.
    Issued interest free we can rebuild our Social Infrastructure, re-nationalise public transport and make it non-profit making. Bring in nationalised industry to give competition to Corporations, who have had none since we sold all ours off!!

    1. Mike Sivier Post author

      Please don’t lump Donald Trump and Jeremy Corbyn together – that would be highly misleading.

  4. Ann Ford

    Taxpayers money should never be used to bail out a private company especially when it will be used to also pay a dividend. Make the banks take the loss for their ‘dodgy’ lending.

  5. graham669

    I suspect that the corrupt management of this company have been siphoning off profits for years, making the owners and investors very wealthy. Now it is time for shareholders to cough up and get their own company out of trouble.
    Carrillion has been a very inept and incompetent company for years, and we have paid from our taxes, now they can sort out themselves or go bankrupt, and then the taxpayer can take it over as a public company for a £1, away from Philip Green.

  6. Dez

    I’ll be damned if a penny of my money goes towards additional tax to help the NHS …….. all the while that Hunt is progressing forward with his covert privatisation behind the scenes. Any tax contribution would be for service improvements not shareholders and overpaid director bonus payments for reducing quality in lieu of greed and profit. This Carillion disaster is a great warning to those that wish to hear that privatisation is a recipe for disaster, greed and corruption.

  7. jmikeb2

    Isn’t the historic model of capitalism that, when a badly run or unlucky company fails, its losses fall on its equity shareholders (as the shares are worth less or sometimes nothing), the creditors (banks, bondholders and sub-contractors) and, sadly, often their workers.

    If the work still needs doing other companies will offer to take on the contracts and assets in return for payments they consider will allow them to make a reasonable return (this should be a fair price as that is what the free market is supposed to deliver. With luck the employees should be one of the assets needed by the new owners.

    Investors in and lenders and contractors to the failed company have made a bad call and will have learned to be more cautious about where they place their money in the future. This part of the system is essential to making any sense at all of Thatcher’s views on the efficiency of privatisation.

    Where the public sector lags behind the private sector is in not being hard-nosed about the firms it awards contracts to.

  8. AD

    Management failure of private companies happens to ex-public services as well as companies that have always been private. However, the article implies that everything would be rosy if re-privatised…for those of you not old enough to remember have a check on what happened in the 70’s – union rule, 26% inflation, begging to the IMF, strikes galore, rubbish in the streets, power cuts, the beginning of the end of our car, coal and steel industries…yes, that worked out well…. and just a reminder that it was a Labour government that presided over the conditions that led to the events of 2008 and it was them that bailed the banks out then.

    1. Mike Sivier Post author

      “… If re-PRIVATISED”?
      You mean, if re-NATIONALISED, I think.
      And your comment goes downhill from there.
      You attribute the wrong things to Labour. Check your history books – and look for the causes of situations, rather than lazily looking at who was in government at the time – and you’ll get a different story.
      For example – it was the Tories who trashed UK industry.
      For another – it was greedy bankers who caused the financial crash of 2008 (even George Osborne has now admitted it). And you’d be very poor indeed if Labour hadn’t helped the banks at that time.
      This Site, together with others, has gone into these matters in great detail. I’m not going to chastise you for coming late to the party, but please do a little research before posting ill-advised comments.

    2. wildswimmerpete

      @AD you need to check your own recollection of history:
      “…..check on what happened in the 70’s – union rule, 26% inflation, begging to the IMF, strikes galore, rubbish in the streets, power cuts, the beginning of the end of our car, coal and steel industries…yes, that worked out well…”

      You forget the elephant in the 1970s room: OPEC quadrupling the price of crude that resulted in all those financial woes. And yes, I was there.

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