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Leader: private gain, public loss

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

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.

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. 

This article first appeared in the 18 January 2018 issue of the New Statesman, Churchill and the hinge of history

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Labour’s renationalisation plans look nothing like the 1970s

The Corbynistas are examining models such as Robin Hood Energy in Nottingham, Oldham credit union and John Lewis. 

A community energy company in Nottingham, a credit union in Oldham and, yes, Britain's most popular purveyor of wine coolers. No, this is not another diatribe about about consumer rip-offs. Quite the opposite – this esoteric range of innovative companies represent just a few of those which have come to the attention of the Labour leadership as they plot how to turn the abstract of one of their most popular ideas into a living, neo-liberal-shattering reality.

I am talking about nationalisation – or, more broadly, public ownership, which was the subject of a special conference this month staged by a Labour Party which has pledged to take back control of energy, water, rail and mail.

The form of nationalisation being talked about today at the top of the Labour Party looks very different to the model of state-owned and state-run services that existed in the 1970s, and the accompanying memories of delayed trains, leaves on the line and British rail fruitcake that was as hard as stone.

In John McDonnell and Jeremy Corbyn’s conference on "alternative models of ownership", the three firms mentioned were Robin Hood Energy in Nottingham, Oldham credit union and, of course, John Lewis. Each represents a different model of public ownership – as, of course, does the straightforward takeover of the East Coast rail line by the Labour government when National Express handed back the franchise in 2009.

Robin Hood is the first not-for-profit energy company set up a by a local authority in 70 years. It was created by Nottingham city council and counts Corbyn himself among its customers. It embodies the "municipal socialism" which innovative local politicians are delivering in an age of austerity and its tariffs delivers annual bills of £1,000 or slightly less for a typical household.

Credit unions share many of the values of community companies, even though they operate in a different manner, and are owned entirely by their customers, who are all members. The credit union model has been championed by Labour MPs for decades. 

Since the financial crisis, credit unions have worked with local authorities, and their supporters see them as ethical alternatives to the scourge of payday loans. The Oldham credit union, highlighted by McDonnell in a speech to councillors in 2016, offers loans from £50 upwards, no set-up costs and typically charges interest of around £75 on a £250 loan repaid over 18 months.

Credit unions have been transformed from what was once seen as a "poor man's bank" to serious and tech-savvy lenders where profits are still returned to customers as dividends.

Then there is John Lewis. The "never-knowingly undersold" department store is owned by its 84,000 staff, or "partners". The Tories have long cooed over its pledge to be a "successful business powered by its people and principles" while Labour approves of its policy of doling out bonuses to ordinary staff, rather than just those at the top. Last year John Lewis awarded a partnership bonus of £89.4m to its staff, which trade website Employee Benefits judged as worth more than three weeks' pay per person (although still less than previous top-ups).

To those of us on the left, it is a painful irony that when John Lewis finally made an entry into politics himself – in the shape of former managing director Andy Street – it was to seize the Birmingham mayoralty ahead of Labour's Sion Simon last year. (John Lewis the company remains apolitical.)

Another model attracting interest is Transport for London, currently controlled by Labour mayor Sadiq Khan. TfL may be a unique structure, but nevertheless trains feature heavily in the thinking of shadow ministers, whether Corbynista or soft left. They know that rail represents their best chance of quick nationalisation with public support, and have begun to spell out how it could be delivered.

Yes, the rhetoric is blunt, promising to take back control of our lines, but the plan is far more gradual. Rather than risk the cost and litigation of passing a law to cancel existing franchises, Labour would ask the Department for Transport to simply bring routes back in-house as each of the private sector deals expires over the next decade.

If Corbyn were to be a single-term prime minister, then a public-owned rail system would be one of the legacies he craves.

His scathing verdict on the health of privatised industries is well known but this month he put the case for the opposite when he addressed the Conference on Alternative Models of Ownership. Profits extracted from public services have been used to "line the pockets of shareholders" he declared. Services are better run when they are controlled by customers and workers, he added. "It is those people not share price speculators who are the real experts."

It is telling, however, that Labour's radical election manifesto did not mention nationalisation once. The phrase "public ownership" is used 10 times though. Perhaps it is a sign that while the leadership may have dumped New Labour "spin", it is not averse to softening its rhetoric when necessary.

So don't look to the past when considering what nationalisation and taking back control of public services might mean if Corbyn made it to Downing Street. The economic models of the 1970s are no more likely to make a comeback then the culinary trends for Blue Nun and creme brûlée.

Instead, if you want to know what public ownership might look like, then cast your gaze to Nottingham, Oldham and dozens more community companies around our country.

Peter Edwards was press secretary to a shadow chancellor, editor of LabourList and a parliamentary candidate in 2015 and 2017.