News and Comment from Roy Lilley.
A succession of ministers walk into an anonymous building in Whitehall...
All the major departments represented; schools, prisons, airports, security, hosptials, transport, Treasury. Something's up.
It's a wake. One of government's favourite friends... dead. They'd been sick for sometime, no one had a cure.
Carillion, the UK's second biggest construction and service company has collapsed. Breathtaking failure. Heartbreaking for small business, employees and families.
Little known, the real reason for government's concerns; Carillion runs GCHQ. That is a problem. A big problem. This has to be fixed.
Carillion has gone broke. Crashed doesn't quite do it. One of those occasions where you watch events unravel in slow motion.
This is a disaster, anyone who reads the FT could see coming. Anyone who had a stockbroker would have gambled on failure. Probably made a fair-few quid.
The unions knew and were powerless. We all knew but no one wanted to know, we knew. It's too big, too difficult and there's Brexit, the NHS falling apart, the wheels coming off universal credit, no majority and the rise and rise of Corbyn.
Government is busy right now. Too busy hanging on to government to govern.
Carillon going broke? Government's simple solution; give them more contracts, they'll trade their way out of the mess. It usually works.
It hasn't. Part of the problem; the banks. Why wouldn't the banks take a punt on a company like this. Huge contracts and government their customer?
Since 2010, the Bank of England has imposed regulatory leverage ratios. This is part of the stress testing we hear about in the news; designed to make sure the banks are not over exposed to risks and they have sufficient cash (they call it liquidity) to ride a storm.
That's why it's more difficult for our kids to get a mortgage. It's the same for businesses. The answer is, No!
Profits in the building game are slender. Margins on tenders for government contracts, wafer thin. In some cases taking on huge developments for under 3%. It all gets very risky.
You only have to be a bit out on your costings, a shift in the value of the pound, government change a policy or unexpected over-runs and you're stuffed. Take on a lucrative contract in the Middle East and have payments slowed up by 'mates of his highness' and your are stuffed again.
Surviving on cash flow with no prospect of profit is clinging-on. Reckless.
The business of business is the avoidance of risk and the success of business is the control of costs. Carillion have not been able to do either.
Is this the end of outsourcing and contracting out?
Look at the record; Serco pulled out of patient facing services. Interserve struggled. Circle failed at Hinchingbrooke. There's no money in health.
One care home a week is failing. GPs shutting up shop.
Virgin sued it's NHS customer. In his recent blog Richard Branson tells us; Virgin Care makes no money 'but it doesn't matter'. He's wrong; it does matter. The sector regulators should step in. Doing business and making no margin is not a business. It's a one-way-bet. Bravado is not a business strategy.
Pushing companies to the edge of bankruptcy isn't clever. Squeezing contracts dry... not smart. Companies must make profits... therein the conundrum.
Pay £1 to the NHS, you get a pound of healthcare. Buy a quid's worth in the private sector and you get 60p of health care and the rest goes on borrowings, dividends, bonuses and a bung to a tax haven.
It's not entirely accurate but you get my drift.
We have some decisions to make. PFI consumes 2% of the NHS budget. Some are perfectly are viable. Great places to work and be treated in.
The rationale for contacting out is the transfer of risk, get a grip on price, a handle on quality and a hold on efficiency.
When tendering drives prices to a place where the risk is too great, the price too low, quality and efficiency are forgotten and the tax payer deals with the mess.
Can we really run everything ourselves? No. Does the private sector know more about efficiency than the NHS? Probably not. Can it borrow money cheaper? Definitely not. Does it train qualified staff? No.
Does the wider public care, provided they can get in, get diagnosed, get fixed up, get out and get on with their lives and it's free at the point of use?
Answers on a postcard...
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