Andrew Adonis is right to see Carillion as another Lehman (Report, 17 January). In the same way as letting Lehman fail undermined the whole banking sector, the failure of Carillion will infect the whole supply chain and threaten all companies that have the same flawed model of using high levels of debt to give the illusion of profitability. Like the banks, some form of state rescue will be needed. However, the state should not repeat the error of using public money to put Humpty Dumpty back on the wall.
As Aditya Chakrabortty says (It’s time to take on the zombies, 17 January), the nonsense of neoliberalism must be challenged. Stratospheric executive pay, prioritising shareholder value and stock market froth do not reflect market efficiency. Nor are states households that must be disciplined by austerity. As I argue in my book Debt or Democracy, public money is an independent force, as the bank rescue showed. The private sector needs a vibrant public economy able to use all its powers to sustain overall economic wellbeing (wellth). The private sector is only as strong as its weakest link. When that fails, the only grownup in the room is the public economy. In the face of market failure, states need to plug the gap with surplus expenditure, that is, deficit spending, funded by quantitative easing not borrowing. When the crisis is over, if necessary, this spending can be reclaimed through taxation.
Mary Mellor
Newcastle upon Tyne
• Your practical suggestions regarding a proper response to the Carillion debacle (Editorial, 16 January) are rather feeble. It is clear that Carillion was overindebted and that will doubtless be true of many other British companies, because the tax system encourages companies to use debt finance rather than equity finance, as debt interest is allowable against profit.
This is bound to put companies seriously at risk of insolvency when their cashflow is reduced, so it is not a policy consistent with good macroeconomic management.
The solution is clear: disallow debt interest as a charge against profits. This should be done – in phases, if necessary – only for large companies, leaving small and medium companies still able to charge debt interest against profits as now.
The result would be threefold. First, large companies would be more financially stable. Second – other things being equal – they would pay more corporation tax. Third, SMEs would have a competitive advantage, and so a better chance of winning government contracts, which would serve the public interest better.
This is one of a number of practical policy changes that need to be made to force large companies to better serve the public good, including measures to combat tax avoidance and evasion advocated by the Tax Justice Network.
Ian Lovegrove
Manchester
• Carillion’s role in exacerbating the current prison crisis should be highlighted. Independent Monitoring Boards at Dartmoor and Ford have pointed to serious weaknesses in its service delivery.
In late 2017 the prison inspectorate indicated that in Wormwood Scrubs “many repairs were outstanding, often for many months. Numerous cell windows were broken, affecting security … Many showers and telephones were out of action, which caused considerable frustration to prisoners, who often had only limited time on association to wash and make calls … These delays were caused by the maintenance services team, managed by Carillion, not being fully staffed, and also by difficulties with prison staff reporting repair jobs and allowing access to cells … The prison’s main stores were locked up during the inspection and were not currently staffed by Carillion, the remaining employees having left many weeks before. They had to be accessed on an ad hoc basis by prison managers, who left already-overstretched residential units to fetch essential daily items, which meant that supply was haphazard. Most cells had televisions and kettles, and some store rooms had been replenished before the inspection, but there was no reliable, weekly flow of these items to the wings … In our survey, only 31% of respondents said that they normally got clean sheets.”
This is a shocking indictment not only of Carillion but also of the corrosive, immoral policies uncritically pursued by successive governments in facilitating private sector involvement in the criminal justice system. Is it any wonder that prisoners are frustrated and that the prison system is in severe crisis?
Professor Joe Sim
School of humanities and social science, Liverpool John Moores University
• The government says that it awarded contracts to Carillion after the company’s profit warning in order to avoid pushing Carillion under. But, when awarding public contracts, purchasing authorities define the qualification criteria – including financial reliability criteria – that firms must meet to be allowed to bid. It would be an extraordinary failure if these did not exclude the possibility of bids being accepted from a company in serious financial difficulties. More troubling, if the criteria were in fact sufficient to prevent that outcome, and if what the government now says is true, its conduct would be unlawful. Purchasing authorities cannot waive financial reliability criteria for a particular company, no matter how important, since that would destroy the level playing field to which other bidders are entitled. It would expose the government to litigation by disappointed bidders. This was, after all, the fate, only a few years ago, of the then corporate officer of the House of Commons in a case concerning a contract for the supply of windows for parliament’s Portcullis House, a case which cost taxpayers more than £5m in damages and over £4m in costs. Let’s hope, as the government tries to explain its awards to Carillion, that it doesn’t sleep walk into an even more expensive round of litigation.
Peter Kunzlik
Emeritus professor of law, University of East Anglia
• The collapse of Carillion raises yet more questions for Whittington Health’s new contract with a private provider. Its board has just appointed Ryhurst, a subsidiary of Rydon, the Grenfell refurbishment contractor, to manage and initially provide the capital to develop the Whittington estates strategy. Whittington Health provides general hospital and community services to 500,000 people living in Islington and Haringey, as well as other London boroughs.
Though it’s pressing hospitals to develop, the government will not provide funding, so forcing hospitals into private finance. But why Ryhurst? The Whittington board won’t give reasons why Ryhurst’s bid was accepted over the others. All it and the CEO say is that there was an open procurement process which Ryhurst won. But that depends on what was in the contract specification, which also seems not to be available to public scrutiny. We can only assume that the lowest price was the winning factor. Just like Carillion, which has collapsed because they’ve taken underfunded contracts, which they couldn’t afford (or the profit margins weren’t big enough). So now thousands of jobs will go, pensions are under threat and communities will decline. The Defend the Whittington Hospital Coalition (DWHC) is campaigning to get Rydon out of the Whittington.
We wish the workers solidarity over their jobs and pensions.
Dr Valerie Lipman
London
• The British Woodworking Federation represents the UK’s £3.8bn woodworking sector, a craft at the heart of the UK’s construction sector, which employs approximately 60,000 people around the country.
As the news of the liquidation of Carillion breaks, it is almost ironic that we are putting our final comments in on the government’s consultation into retention payments in the construction industry. This debate is not about whether the state should bail out Carillion, but whether government can in all conscience turn its back on a supply chain of SMEs who will end up carrying the can for poor procurement, bad business management and an endemic failure by the government to address some of the archaic procurement practices surrounding late payments and retentions that place risk unfairly on SME subcontractors. Many of the creditors are SMEs and the sums, while likely to be significantly lower than the liquidators will take, could define the future of these businesses – it would be a gross injustice if their money unfairly held is lost in this process.
To my mind the government is complicit in the sorry saga that is unfolding, and we need decisions fast. In the short term we need to see some security against these retentions and unjust payment clauses. Moving forward, we urge the government to develop a structured and more consistent legislative process to deal with market failures, be they banks, construction firms or steel manufacturers. We cannot rely on arbitrary decision-making and political posturing. There needs to be clear process to ensure those responsible foot the bill and ensure society and supply chains do not suffer unduly. The government consistently fails to recognise the stress of running a small business and keeping people employed – a lot of business owners in this supply chain won’t be sleeping soundly until this is resolved.
Ian McIlwee
CEO, British Woodworking Federation
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