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Carillion’s tactics were straight out of the Robert Maxwell School of Risky Business

ONE of the accusations that is often made of those of us who work in the House of Commons bubble is that all too often the citizens of the Westminster village attach far too great an importance to the daily activities that make up the parliamentary agenda. 

Usually it’s only when reporting back to their activists and constituents that the parliamentarian becomes acutely aware that the fine rhetoric and forensic technical points of debate and skilfully managed votes that you and your fellow MPs are so exercised about and want to shout about have barely registered with anyone except the Hansard writers.

Of course, the big issues of the day such as Brexit are always on the radar, especially via social media, but it can be frustrating to realise that many small but significant pieces of work go on in committee, almost unnoticed. 

I’d be willing to guess that every MP can tell a tale of a seemingly minor piece of committee work that they’ve done that actually stands a chance of making a real difference to people’s lives, (instead of the panto yah-boo rituals in the chamber) but will never translate well onto a leaflet or feature in one of those proverbial doorstep conversations/conversions.

To be fair, there are exceptions that prove the rule, and serving on the work and pensions select committee has enabled me to participate in some of the most revealing investigations into the way things actually work — for example, in our broken benefits system — as opposed to the utterances in the House of Commons chamber from some Tories who manage to avoid inconvenient reality on a daily basis.

However, the committee piece of work that has been the real eye-opener for me is the joint investigation by the work and pensions and the business, energy and industrial strategy committee into the collapse of Carillion. 

This has produced a report that stands as one of the most damning indictments of the total failure of a political ideology that assumes privatisation and outsourcing is always value for money and better than the public sector. 

The report, published today, does not, as we say in Glasgow, miss and hit the wall.

Obviously it’s a very detailed report but if I can pick out one sentence that sums up the entire fiasco it’s this: Carillion’s business model was an unsustainable dash for cash. The mystery is not that it collapsed, but how it kept going for so long.

I’ve often wondered what quality in someone’s character enables them to collect the eye-watering salaries and bonuses that typify the worst excesses of the corporate world, but on the basis of what we heard in committee the answer would appear to be “shamelessness.” It certainly wasn’t competence or caution with public money. 

As the evidence sessions went on it became clear that this wasn’t just an organisational failure in one company, it was a systemic multi-organisational failure.

The key themes uncovered by the committee and reflected in the report are:

  • Corporate Greed
  • Lack of regulation
  • Big Four auditors creaming money from struggling companies
  • Pension scheme stability sacrificed for dividends
  • Aggressive accounting
  • Taxpayer footing the bill for collapse (as always)
  • Outsourcing — risk does not move from public to private sector
  • Outsourcing needs to end

The business model, such as it was, relied on ever more acquisitions, rising debt, expansion into new markets and exploitation of suppliers, with a side order of creative accounting and out of control bonus culture.  

Gambling with public assets and finances, always seeking to eliminate any competitors, squeezing sub-contractors and suppliers through delayed payments (as a matter of course) and blithely ignoring responsibility for pension liabilities were tactics straight out of the Robert Maxwell School of Risky Business.

The only element of risk that was carefully managed was that of ensuring any bonuses couldn’t be recovered in the event of any problems arising with the company. 

Boardroom lifebelts were well and truly secured on this corporate version of the Titanic, with the auditors signing off their “tickety-boo” assurances as the SS Carillion steered full speed ahead to the icebergs.

The practice of illustrious advisory firms telling clients exactly what they wanted to hear in order to secure future business was a feature of the 2008 crash and has continued merrily on despite everything. 

As the report states: “Advisory firms are not incentivised to act as a check on recklessly run businesses. A long and lucrative relationship is not secured by unduly rocking the boat.”

This corporate culture of collective back-scratching and covering for one another has flourished in the absence of any firm regulatory regime or determination by governments to tackle private-sector mismanagement and greed. 

The frustration for those of us with a public-sector background is in seeing chickens come home to roost when all along the unions have been making the case against privatisation based on well-founded fears of what happens when profit becomes a central feature of public sector delivery. 

No amount of sophisticated accounting and management speak jargon can hide a basic truth — capitalism is based on a drive to monopoly to maximise returns for shareholders above all else and in this casino economy even the long-term sustainability of a company is hostage to the sacred dividend and bonus. 

Governments didn’t cause the collapse of Carillion directly, but as the conclusion of the report states: “Successive governments have nurtured a business environment and pursued a model of service delivery which made such a collapse, if not inevitable, then at least a distinct possibility. The government’s drive for cost savings can itself come at a price: the cheapest bid is not always the best.”

What price public services when those in charge of delivering those services operate in an environment of thinly controlled chaos and with contempt for the concept of public service delivery and ethos?  

I would urge everyone who has an interest in the answer to that question to read the report published today — how many more wake-up calls do there have to be?
  
Chris Stephens is SNP MP for Glasgow South West.

 

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