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Outsourcing Capita: Heading towards another Carillion?

Outsourcing giant's profits plummet by 42%, sparking fears of collapse

TORIES could soon have “another Carillion” on their hands, trade unions and opposition leaders warned today after outsourcing giant Capita issued a profit warning.

The company’s shares plunged to a 15-year low after it begged investors for cash.

Capita’s key contracts include running the government's jobseeker’s allowance helpline, teachers' pensions and curfew tags for convicts.

The company’s new chief executive Jonathan Lewis, who took up the role on December 1, admitted the group had become "far too complex" and said "significant change" was needed to get Capita back on track.

Shares in the firm crashed more than 42 per cent to lows not seen since early February 2003.

A government spokeswoman insisted the firm was not “in a comparable position to Carillion.”

But shadow cabinet office minister Jon Trickett said: “We cannot afford another Carillion. The government must take serious steps to oversee the activities of Capita, which is the third major outsourcing company in the last month to issue profit warnings.

"The Tories' privatisation dogma risks lurching our public services from crisis to crisis, threatening jobs, taxpayers' money and leaving people without the services they need. 

"The government must end its ideological attachment to private profit in public services and instead start putting the public interest first.”

Following the collapse of Carillion last month, Labour has called for a major shift in government procurement policy, with privatised services brought back in-house.

TUC general secretary Frances O’Grady also compared Capita’s woes to those of its fellow contractor.

“Today’s profit warning from Capita is really worrying,” she said.

“That’s why the TUC is calling for an urgent risk assessment of all large outsourcing firms. It’s essential the government completes this quickly and is prepared to bring services and contracts in-house if they are at risk.”

Carillion issued a series of profit warnings before finally going under. Accountants KPMG are the auditors for both companies.

There are also concerns that Capita, which employs around 67,000 people, could face similar pension troubles to Carillion, whose scheme was heavily in the red when administrators were called in.

Commons work and pensions committee chairman Frank Field has put Capita on his list of firms to investigate, as Capita's pension fund deficit stands at a sizeable £381 million.

But the firm has stressed that it expects a current review of the pension scheme to show the deficit to be "significantly" narrowed.

Mr Lewis said Capita had become "too widely spread across multiple markets and services, making it more challenging to maintain a competitive advantage in every business and to deliver world-class services to our clients every time."

He added: "Cost savings and non-core disposals alone will not be enough. We have also taken the significant decision to suspend the dividend and seek equity."

The group also revealed that trading had worsened since the most recent update at the end of last year.

Capita’s past failings in the public sector have led the firm to be nicknamed “Crapita.” It has also been criticised for its punitive enforcement of TV licensing for which it holds yet another outsourced contract.

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