Carillion crisis sparks privatisation storm

Who owns what? Britain generally favours state intervention less than the rest of Europe.

Should we start to renationalise key services? The Left is using the collapse of the outsourcing behemoth to attack privatisation. The Right argues that it represents “capitalism in action”.

Until a few days ago, the name “Carillion” was unfamiliar to the average person on the street. But on Monday the company went into liquidation. It has prompted a bitter debate about privatisation, capitalism and government intervention.

Carillion is described as a “British multinational facilities management and construction services company”. What does this mean?

Put simply, Carillion builds. Its portfolio includes Liverpool FC’s Anfield stadium expansion and the Beetham Tower in Manchester. But it is best known for being one of the largest suppliers of services to the public sector.

It is part of a consortium that holds a contract to build part of the HS2 railway line, as well as looking after huge areas of the NHS, including 11,800 hospital beds. It has also designed and built 150 schools.

Here is what went wrong. Carillion relies on large contracts, some of which have proved much less lucrative than it expected. Last year it slashed the value of them by £845m. As its contracts underperformed, its debts soared. The company needed a £300m cash injection, but the banks refused to lend them money and the government also refused to bail it out.

Much of their debts were down to public-private partnerships, which are supposed to allow private sector management of public sector contracts while shifting the risks associated with these contracts onto the private company, where they could be better managed.

And it is this privatisation that enrages Jeremy Corbyn, who this week fumed about the “private-profit-is-best dogma”, where companies cream “off profits and failing to deliver the quality of service our people deserve.”

But there is another possible reading: that this is capitalism and privatisation at its best. As Andrew Lilico explains in The Telegraph, the process is “weeding out inefficient and obsolete companies and working practices to make space for new entrants and new ideas”. In other words, Carillion is dead, but something better will replace it.

So where do you stand: privatisation or nationalisation?

Power to the people?

“Private companies do it better”, say advocates of the free market. Britain’s era of nationalisation coincided with the country’s economic decline. Profits form an incentive to become more efficient and to produce better technology, and private companies will always know their fields better than government bureaucrats.

But proponents of state control argue that privatisation leads to too much uncertainty and greed. Thousands of jobs can be lost at a day’s notice. Certain things, like schools, healthcare and transport are common assets, and should be run purely for the people’s benefit without having to worry about profits.

You Decide

  1. In general, are you in favour of privatisation or nationalisation?
  2. “All good policies begin with good principles.” Do you agree?

Activities

  1. Railways, post, water, energy, telecoms, healthcare, roads, education, air travel, the BBC. Which of these should be in private hands, and which should be in public hands?
  2. Research a case study of privatisation in the UK. Write 500 words on whether it has been a success or not.

Some People Say...

“Underlying most arguments against the free market is a lack of belief in freedom itself.”

Milton Friedman

What do you think?

Q & A

What do we know?
Carillion, Britain’s second largest construction firm, has gone bankrupt after running up massive debts. The company is a huge supplier to the public sector, leaving many fearful of a lot of disruption. The government has promised to provide the cash necessary to maintain public services provided by Carillion staff, and have also promised that staff will be paid despite the company’s situation.
What do we not know?
The future of Carillion’s employees. Around 20,000 jobs also hang in the balance. Unions have said workers do not deserve to be “caught in the crossfire” and have urged the government to safeguard their jobs and bring Carillion's contracts back into the government’s hands.

Word Watch

Liquidation
Carillion chose to go into liquidation rather than administration. The difference is that administration aims to help a company pay off its debts to avoid bankruptcy if possible, while liquidation is the process of selling all assets before closing down the company completely.
Beetham Tower in Manchester
A 47-storey skyscraper which is the tallest building in the UK outside London.
Services to the public sector
The list of services that Carillion provides (or provided) is almost endless: 32,000 school meals every day, building motorways, upgrading railway lines, building bridges and looking after 200 operating theatres are just a few more.
Jeremy Corbyn
At the party’s annual conference in September, Jeremy Corbyn’s right-hand man and shadow chancellor, John McDonnell, vowed that a Labour government would renationalise railways, water, energy and Royal Mail.

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