Alex Brummer
THERE is no room for complacency about the impact of the Carillion implosion on private sector involvement in government projects and the reputation of the City.
Among those paying the heaviest price will be the 30,000 smaller firms and their employees who face ruin because of the catastrophic management of Carillion and bungling oversight in Whitehall.
These firms are the bedrock of our free enterprise economy and it is their energy and resilience which enabled Britain to bounce back quickly from the financial crisis.
Private Finance Initiative (PFI) projects have been far from ideal as a National Audit Office report indicated this week.
But we should be careful about buying into the assertion of Royal Bank of Scotland chairman Sir Howard Davies that ‘PFI has been a fraud on the people.’
It is a suggestion which could have come out of the mouth of Jeremy Corbyn.
Has Davies forgotten that the bank he heads survives because of a £45bn direct bail-out from taxpayers and advocated that customers of its recovery arm should be allowed to ‘hang themselves’?
Yes, PFI contracts may cost more than direct borrowing by the Government. But that is because the public sector is paying for the more efficient execution of business. The Corbyn condemnation of PFI as an ‘outsourcing racket,’ justifying bringing the contracts back to government, must be resisted. The underlying problem is in Whitehall and at Westminster.
It is only too easy for civil servants to sign off on the lowest tender and Carillion were experts at delivering this. A preferable approach would have been to choose a more realistic bid by a better contractor. Instead, civil servants stood back, waited for Carillion to go wrong and claim it ‘wasn’t me, guv’.
Some of the better infrastructure projects of recent times, including the Severn Crossing and the M6 toll road, have been delivered as a result of intelligent private partnership with government, along with many impressive new hospitals. If anyone needs insight into the hopelessness of Whitehall when it comes to delivery, I would suggest they take a look at Arcadia boss Sir Philip Green’s 2010 report.
Sir Philip may not be to everyone’s taste but his study highlights inconsistent commercial skills and lack of budgetary discipline across government departments.
The idea that repatriating the 700 or so PFI contracts back to government will improve matters is piffle. Just look at far away Venezuela to know how disastrous that might be.
CLEARLY
a huge amount of blame for what happened at Carillion must be laid at the door of another Philip Green, the chairman, former chief executive Richard Howson, interim CEO Keith Cochrane and the rest of the board.
It is shocking that a contractor and outsourcer of Carillion’s scale was down to its last pennies when it wrote a begging letter to the government on January 1 asking for a £150m bailout.
Until that moment Whitehall seemed only dimly aware of problems even though hedge funds had read the runes long before.
All of these issues at Carillion, including pension funds with a black hole of £2.6bn, need to be explored properly. The public can have no confidence in the inquiries so far announced. The Insolvency Service may have the powers to ban and punish rogue directors, but as the BHS investigation (still not finished) shows it struggles with complexity.
Faith in the Financial Conduct Authority’s skill as an enforcer is badly shaken by its snail pace enforcement against HBOS executives, a lack of willpower in dealing with RBS’s global restructuring unit and failure to clampdown on share price movements on the eve of profit warnings.
As for the Financial Reporting Council, it failed miserably in punishing KPMG over the HBOS audit so no one can have any confidence in the probe into the same firm’s audit at Carillion.
Rich company directors and auditors employ best ‘magic circle’ law firms to plough the ground first, claim privilege and tie regulators in knots.
That is why a full judicial inquiry which forces all those involved to testify in public and under oath is demanded.
Kicking a huge scandal involving misuse of government and shareholders money into long grass is unacceptable. The public deserves answers speedily.
Delay may be politically expedient but is a dereliction of duty.