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Ministers cannot avoid all responsibility for Carillion’s collapse

At the very least, it seems optimistic that so many government contracts were awarded to Carillion in the months after it became clear that it was in serious trouble

Monday 15 January 2018 19:31 GMT
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Carillion went into liquidation today after managers concluded they had been left with no other option
Carillion went into liquidation today after managers concluded they had been left with no other option (PA)

The fallout from Carillion’s collapse into liquidation today will be considerable. Such is the scale of the company’s activities that many thousands of employees will be affected, with the taxpayer forced to pick up the bill for any public service contracts for which the Government assumes responsibility.

There will also be questions for those who dragged Carillion into this mess, and for ministers whose departments continued to award the firm big contracts even after profit warnings last summer signalled its troubles. Whatever else, it is important to learn the lessons from Carillion’s demise in an effort to ensure there is no repeat.

In that context, it is to be welcomed that the Government has not simply decided to offer Carillion a full bailout. While its collapse will cause anxiety for staff, it is imperative that big businesses are not led to believe they are too important to fail, simply by virtue of the role they play in delivering public services.

Sure enough, the degree to which Carillion’s tentacles extended into the daily lives of the British public may well have come as a surprise to many. From construction projects on our railways and cleaning in our hospitals, to school dinners and maintenance work in prisons, Carillion appears to have been willing to take on a wide range of work. Out of total revenues of £5.2bn in 2016, £1.7bn came via public sector contracts.

Naturally, critics of public-private partnerships have been quick to say that Carillion’s descent into liquidation is indicative of broader policy failings. Labour’s renewed commitment under Jeremy Corbyn’s leadership to a programme of renationalisation will be boosted by the notion that the public has been let down by the failings of yet another private company to which the Government had outsourced state functions.

Yet it would be wrong to conclude from this example alone that the private sector should not play a role in delivering public services. More pertinently, it might be wondered whether there is sense in contracts being awarded to huge firms which appear to be jacks of all trades. Economies of scale are all very well, but the risks all too obvious if something goes wrong – and the chickens have come home to roost on this occasion.

The Government has hit back at criticism by Labour, accusing the Opposition of political point scoring. Whether or not the Carillion case is a reasonable bellwether in the nationalisation debate, it is absurd for ministers to give the impression that this is simply a matter of business or economics, and not one of politics too.

At the very least, it seems optimistic that so many government contracts were awarded to Carillion in the months after it became clear that the firm was in serious trouble. Hedge funds were heavily shorting shares in the company last summer, while commentators raised queries about Carillion’s governance. True, businesses should not simply be abandoned when seas look a little choppy, but nor does it necessarily help to keep throwing money in the water in the hope that it magically turns into a life raft.

If ministers and their civil servants took their eyes off the ball in this instance, it will inevitably lead to questions about the extent to which the complex Brexit negotiations are distracting attention from what ought to be run-of-the-mill domestic matters. Indeed, so vital are those negotiations to Britain’s future that there is an argument to say that ministers ought to be distracted by them and be planning for life outside the EU – whatever actually happens.

Yet that will be of small comfort to Carillion staff, particularly those working to complete private sector contracts, which will not be protected by the Government. Likewise, the many subcontractors employed by Carillion outside of its public sector work are likely to be left in the lurch. No doubt many of them had taken on contracts, assured by Carillion’s status as a major provider of services to the state.

The Government was right to have allowed Carillion to go to the wall. But it cannot avoid a share of responsibility for the consequences of its collapse.

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