New Times,
New Thinking.

Leader: private gain, public loss

The government’s carelessness has deepened the consequences of Carillion’s collapse.

By New Statesman

Until recently, few outside the opaque world of procurement had heard of Carillion. But the construction company, which was placed into liquidation on 15 January, is profoundly immersed in the public realm. As well as providing 11,500 hospital beds and 32,000 school meals, the firm – which employs 20,000 UK workers – was responsible for constructing the High Speed 2 rail link, the Royal Liverpool and Midland Metropolitan hospitals and the Birmingham library. It maintained 50,000 army homes and half of Britain’s prisons and young offenders’ institutions. At the time of its demise, having absorbed other firms including Alfred McAlpine, Mowlem and part of Tarmac, Carillion was responsible for 450 taxpayer-funded contracts.

Though the company’s collapse appeared sudden, it was not. The firm’s market value last year fell from almost £1bn to just £73m, it issued three profit warnings and went through three chief executives in six months. As long ago as 2015, its shares were shorted by investors who exploited its anaemic growth and excessive debt.

In view of this, the government now appears not merely complacent but reckless in continuing to award contracts to the troubled company. On 10 July 2017, Carillion issued its first profit warning, an act which reduced its share price by 39 per cent and led to the resignation of its then chief executive, Richard Howson. A week later, with almost comic timing, the unfailingly inept Transport Secretary, Chris Grayling, awarded Carillion a £1.4bn HS2 contract as part of a joint venture.

The government’s largesse did not end there. On 18 July, Carillion was awarded a £158m contract by the Ministry of Defence to provide “catering, retail and leisure, together with hotel and mess services” at 233 military sites. After its second profit warning in September (which revealed a first-half loss of £1.15bn), the company won a Network Rail contract to electrify the London to Corby line. Finally, three days after Carillion’s third profit warning (and a 48 per cent fall in its share price), the company was handed a £12m schools building contract.

Company failures are an inevitable – and painful – feature of a market economy. But the government’s carelessness has deepened the consequences of Carillion’s collapse. The Business Secretary, Greg Clark, has rightly announced that a statutory investigation into the conduct of the company’s present and past directors will be “fast-tracked”. It would be unacceptable for executives such as Mr Howson (who is still entitled to a £660,000 salary) to privatise the profits and socialise the losses.

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how Progressive Media Investments may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.

The government’s own conduct must also be probed. The justified suspicion is that, having helped create the Carillion behemoth, ministers awarded contracts to prop up a company that had grown too big to fail (the firm’s chairman, Philip Green, served as an adviser to the government on corporate responsibility).

Carillion’s fate is a salutary demonstration of the limits of the market. Too often, as in the case of Britain’s railways, the government’s ideological presumption in favour of outsourcing and the private sector leads to avoidable costs and failures. The demise of Carillion should also herald the demise of this ruinous dogma. 

Content from our partners
We need an urgent review of UK pensions
The future of private credit
Peatlands are nature's unsung climate warriors

This article appears in the 17 Jan 2018 issue of the New Statesman, Churchill and the hinge of history