Have you heard of the private firm Carillion?
Possibly … it’s a firm that runs most of Britain’s public sector.
Heres some of the sectors they’re involved in :-
- CENTRAL GOVERNMENT
- COMMERCIAL, RETAIL, RESIDENTIAL AND LEISURE
- FINANCIAL SERVICES
- LOCAL GOVERNMENT
- OIL AND GAS
So what has happened?
The firms troubles began last summer, after it issued a shock profit warning, prompting a 90pc plunge in its share price, but concerns have spiralled recently amid suggestions it needs £300m of funding by the end of this month.
Carillion presented a business plan to banks including Barclays, HSBC and Santander on Wednesday, hoping to agree a refinancing deal.
However, it is understood that the banks said the status quo at Carillion was no longer sustainable, rejecting the initial plan and calling for the Government to step in given it is a major source of cash flow for it. In a bid to save the company from falling into administration and to protect its pensioners, a crunch meeting was held between Carillion, the Government and pension bodies, including the Pension Regulator and Pension Protection Fund, on Friday.
The thing is with all these private companies that have their tentacles so firmly entrenched in the public sector is that they are answerable to their shareholders and have to pay out dividends to them. This if course is something that NEVER happens in a public sector organisations in which no private firm is involved.
On the face of it, these private firms look as if they’re offering value for money … but it’s unsustainable because of the involvement of the dividend payments.
So there is now a real possibility that with Carillion on the verge of collapse, this government so enamoured of private sector contracts for public sector services, will have to bail them out … with taxpayers money of course.
The Tory mantra of private sector good, public sector bad (with apologies to George Orwell) isn’t looking so attractive now.
The consequence of bailing out this firm will be a reduction in the public services in which Carillion are involved.
It is perhaps interesting to note that even though it was quite obvious that Carillion were in trouble (the firm issued profit warnings last summer)
Chris Grayling gave part of £1.4b HS2 contract to troubled Carillion despite their huge debts.