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Government Ideological Obsession With Outsourcing Behind Carillion Collapse

Carillion’s collapse in January sent shockwaves through the country. One of the ‘companies that run Britain’ seemingly collapsed overnight, throwing public services into chaos, threatening thousands of jobs and placing a huge burden on the taxpayer.

But it soon came to light, thanks to probing by Labour, that this hadn’t happened overnight. Profit warnings, spiralling debt and risky ‘short-selling’ of Carillion stock were regular occurrences in the months before. This was a ship taking on water way before it sunk below the surface.

Despite insistence from the Government that Carillion is a one-off and that “shareholders and not the taxpayer taking the burden on this," the fallout has exposed shocking Government negligence and serious flaws at the heart of the outsourcing system.

The public have of course paid a price: £148 million to cover the cost of Carillion’s liquidation and 2332 jobs lost so far. The damage goes deeper than this, though. Just how deep we don’t know as the Government has refused to conduct an assessment of the impact of Carillion’s collapse on the supply chain.

The Government was much less hesitant when it came to handing contracts to Carillion when it was clear the company was heading for disaster. According to the Cabinet Office minister David Lidington the Government did this because “it would be a major legal risk for the Government, having published criteria, then to seek to exclude any bidder from a contracting process on the basis of other, somewhat arbitrary, criteria.”

Think about that for a second: ‘arbitrary criteria.’ Could the financial stability of a company that is bidding for a public contract be any less arbitrary? Obviously not. But what this tells us is that the legal frameworks that govern the awarding of contracts are simply not fit for purpose, and that the Government prioritise competition over the public interest.

But there is more to it. A recent report by the Public Administration and Constitutional Affairs Committee showed how the Government rarely follows the process set out by the Treasury, to make decisions about how it should deliver services and run projects, and it often provides no evidence to support its decisions to outsource.

The report also found that the Government was “unable to provide significant evidence for the basic assertion behind outsourcing: that it provides better services for less public money.”

In other words, the Government are being reckless with taxpayers’ money and they are blinded by an ideological obsession with outsourcing.

How else could you explain the Minister for the Cabinet Office’s recent attempt to defend outsourcing at a moment when the public are firmly against it, and the evidence that it does not work is stacking up by the day? Pure dogma.

On the surface, the policies laid out in the Minister’s speech sound encouraging, but on closer inspection they are vague and almost certain to lack teeth. When I asked the Cabinet Office whether the companies that have failed to meet the social and environmental criteria will face sanction, the reply was revealing. They talked of not wanting to put regulatory burdens on business. We can expect this Government to talk tough and act weak.

In contrast, the Labour Party has set out a detailed plan for outsourcing. We will introduce a presumption in favour of insourcing and we will require all private companies bidding for Government contracts to meet the following criteria:

  • Give full trade union recognition for their workforce and comply with collective bargaining agreements
  • Move towards a ratio of 20 - 1 between the lowest and highest paid, matching the target in the public sector, over a transitional period
  • Pay their suppliers the full amount owed within 30 days
  • Maintain high environmental standards in relation to energy use, emissions and waste disposal, while taking appropriate measures to aid the transition to a low carbon economy
  • Provide training and apprenticeship opportunities proportionate to firm size
  • Full tax compliance
  • Adopt best practices in equal opportunities

Any government contractor found to be breaching the above conditions will be designated as “high risk”, which will trigger the option for the contract to be retendered or brought back in-house. We will not tolerate poor performance or socially irresponsible behaviour.

Our policies entail a full transformation of the way outsourcing works and form an integral part of our strategy to return accountability and best value to public services. Anything short of this is bound to produce another Carillion further down the line.

By Jon Trickett MP, Shadow Minister for the Cabinet Office and Shadow Lord President of the Council House of Common.