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UK:From the ruins of Carillion and PFI, let's build a real alternative

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THE UK's second largest construction and services contractor collapsed on Monday, threatening the jobs of its 43,000 workers and tens of thousands more in the supply chain. The developing crisis has exposed how government and fat cat bosses have colluded in looting the public sector.

Carillion was responsible for hundreds of government contracts, covering everything from providing school meals and running prisons, to major infrastructure and construction projects. “Some” of these will apparently be brought in-house, while the most profitable ones will no doubt be farmed off to the bankrupt firm’s rivals.

The government has said those employed on public sector contracts will continue to be paid, but those working for private sector contracts will only be paid for 48 hours, a period of grace described as “a reasonable gesture”.

Typically, Carillion went to the wall with a £580 million pension scheme deficit, having increased shareholder dividends every year it existed. The deficit could be taken on by the Pension Protection Fund, but workers who have not yet retired will see their pensions slashed by at least 10 per cent and potentially much more.

Of course, not all employees are created equal. Richard Howson, the former chief executive will continue to be paid his £660,000 salary until October. Howson and finance chief Richard Adam trousered millions in bonuses while they steered the company onto the rocks. After issuing the first of three profit warnings last July, company bosses secretly changed company policy to protect executives’ bonuses in the event of a corporate crash.

The implosion of a firm at the centre of a sprawling nexus of outsourcing and sub-contracting has left thousands of workers in limbo; suppliers who are owed hundreds of millions of pounds in late payments have already started sacking employees in a ripple effect that could decimate small construction firms.

This chaos is all the more criminal given that the company’s banks and the government knew months ago that Carillion was in serious and probably fatal trouble. But, as usual, workers were left in the dark. The government continued to drip feed Carillion with contracts, whose up front payments were designed to keep it ticking over while it sought out other contracts and attempted to reach an arrangement with its banks.

The crisis has exposed the short term profiteering and speculation which allowed outsourcing giants to cream off huge profits running public services, while saddling our schools and hospitals with crippling debts.

A Private Finance car crash

This disaster is a monument to the swindle of Private Finance Initiative, PFI, contracts. These were first introduced under Margaret Thatcher but really took off with Tony Blair’s Labour government. They created lucrative privatisation deals, with guaranteed profits, in return for private investment in new public infrastructure. They were then extended to a whole range of services from school meals to cleaning prisons. For Blair and Brown, the attraction was that PFI produced upfront cash for badly needed investment without the need to raise taxes on the rich.

Terrified of being labelled the party of "tax and spend", Labour became the party of privatisation and outsourcing. For private companies, it created new sources of profit by opening up the remaining public sector industries and services.

In the event, competition for PFI contracts spectacularly failed to produce the forecast “efficiency savings”. The Treasury Select Committee found that, typically, PFI financed services produced higher charges than government funded ones. They did, however, lay the ground for introducing the market into the public sector, and created monopolies like Serco, Capita and, until now, Carillion, to run them.

Huge numbers of PFI contracts were given to private corporations for building or running new schools and hospitals and the public sector services were saddled with paying them for their use for decades ahead. The huge debts of the Hospital Trusts, £3.7bn in August 2017 according to the Nuffield Trust, are one result of these profligate giveaways to big business. The National Audit Office has calculated that PFI contracts cost up to 4 percent more than publicly funded ones, with £199 billion in extra payments over the next 30 years.

Carillion perfectly illustrates the whole PFI scandal. To win the contracts, firms put in unrealistically low bids, often they then raise charges to cover "unforeseen changes" but tight profit margins mean that real problems can threaten to wipe them out. To offset that danger, they bid for new contracts with large upfront payments that can be used to cover losses or pay off debts in the business. The whole system is, in effect, a giant ponzi scheme in which the government, the banks, the auditors, the directors and shareholders are all complicit in ripping off the public, until the accumulated debts are just too big to cover. Then, it's the workers and small businesses who are left holding the can.

Tory ministers cynically boasted in the House of Commons that they, unlike Labour, would not allow the taxpayer to step in to save private shareholders and bankers. In fact, they fully supported Gordon Brown’s bailout of the banks in 2008-09 and if Labour was responsible for one third of Carillion's lucrative public service contracts Tory and Lib-Dem coalition ministers were responsible for the other two thirds.

With Carillion, lenders that included HSBC, Barclays, Santander and Royal Bank of Scotland would not provide the cash without a government guarantee, which was not forthcoming. The fact that the same banks, that gladly took a £1 trillion government bailout ten years ago are now sitting on their hands just goes to prove there’s no honour amongst thieves.

Far from providing savings, for 25 years outsourcing and privatisation has subsidised staggering profits for private monopolies - much of which is stashed offshore. When things go wrong, the cost of failure is picked up by the taxpayer.

Labour movement response

Jeremy Corbyn described Carillion’s collapse as a “watershed moment” that means we should “take back control”, by ending PFI and running public services “for the benefit of the many, not the profits of the few”.

The Trades Union Congress, which represents most UK trade unions, has called for a national taskforce to be set up, which would bring public sector contracts back in-house, support transfer of private sector contracts to alternative providers, with guarantees on pay, jobs and pensions, fund a training and financial support package for at-risk workers and apprentic and perform a risk-assessment for other large outsourcing firms.

But appeals to a government, which poured money into a company it knew was bankrupt, but was prepared to watch Britain’s steel workers thrown on the scrapheap in 2016, are futile unless backed up by a serious threat to resist the job cuts, pension write-downs and asset-stripping that are already being drawn up by liquidator, PwC.

Whilst employees working on public sector contracts could be brought in-house, or more likely shunted over to rival companies, the real threat is to the 30,000 “small businesses” many of which in reality will be self-employed workers, who are owed up to £1 billion in late payments.

John McDonnell is right to emphasise a Labour government’s commitment to bringing services “in-house”. But it is a sign of the low horizons of the trade union and “left” Labour leaders, that none of them have demanded the government act now to take the entire company into public ownership. Yet that is the only action that can guarantee security for the tens of thousands of workers affected and start the process of creating a rationally planned construction industry, linked to a state investment bank, run under workers’ management and democratic control.

A socialist alternative

The betting against Carillion’s share price by speculators, including BlackRock, the firm advised by former Chancellor George Osborne, the jump in the share price of its rival, Serco, show that this is not simply a problem with PFI, which requires a more “rational” intervention by the state; it’s a perfect demonstration of the chaos and venality of the capitalist system from top to bottom.

In order to create an economy for the many, not the few, a Labour government has to suppress the system of private ownership that allows the few to monopolise the wealth produced by the many.

We share the desire for more efficient public infrastructure projects and an end to private rip offs. But the best way to achieve that is to ensure projects are run by the government so that profit is reinvested. Their operations should be overseen by the workers themselves, who are best placed and have an incentive to confront waste and inefficiency. By taking over the big auditors like KPMG, PwC, EY, and Deloitte, we could gain an unparalleled access to the data and experience that can be put to use investing in society rather than milking it and then hiding profits.

Labour’s leaders should be calling for the full nationalisation of Carillion and its rivals, and their conversion into the foundation of a national building and construction service. Their health, education and local government divisions should be returned to public control under the relevant departments.

In the short term, nationalisation can cushion the small suppliers and self-employed who have been poleaxed by Carillion’s implosion. In the longer term, Labour should offer them the option to join a cooperative of suppliers to public industries, supported and financed by a state-investment bank run under democratic control. This would create the basis for achieving Labour’s infrastructure goals; building council houses, new hospitals, schools and green energy projects, without being ripped off by the profiteers.

Labour should have the courage to refuse a single penny of compensation to the big private investors and the banks that have already soaked the working and middle class taxpayers of billions on these projects for 25 years. There must be no sale of assets to pay back the banks. Any sites and assets actually owned by Carillion should be occupied by their workers, until they receive cast-iron guarantees about their wages, jobs and pensions.

Under the impact of Brexit, more than one major company could nosedive in the coming months and years. The labour movement, both trade union and political, needs to return to the militant tactics of occupations, workers' control and appealing for solidarity action from other sectors of workers that their parents and grandparents used to good effect in the twentieth century.

The TUC and the unions directly involved should call demonstrations in solidarity with the Carillion workers, not forgetting either that over half of the company’s workforce is abroad. This Tory government is not so strong that it cannot be forced to retreat or surrender. A massive display of solidarity can change the entire mood in the workers' movement and shift the balance of forces in the class struggle in our favour.