Carillion was established in 1999 as a construction and services company and by 2016 had a stated turnover of £5 billion. It became insolvent in January 2018 with losses and liabilities of £7 billion, including £2.6 billion owed to its employee pension scheme.
The company’s collapse follows a long list of other major company collapses, often after raids on their employee pension scheme—such as Robert Maxwell’s, Interserve and Sir Philip Green and BHS. This practice is hardwired into the nature of capitalism and paid for repeatedly by the working class.
Carillion’s bank debts grew from £242 million in 2009 to £1.3bn by 2018. Between 2010 and 2017 the company had won 20 Public Private Partnership contracts for very large public sector projects and numerous projects overseas.
It had, however, started to act like a giant “Ponzi” scheme, taking on new contracts and debt. It used the new income to service its existing debts and to keep paying out dividends, but not to make good the deficit in the pension scheme.
While the business was basically being run into the ground financially, the chief executive and directors were happily paying out huge amounts in remuneration packages to themselves and to shareholders via dividends. Between 2009 and 2016, £554 million was paid out in dividends, from income for the period of £594 million, with only £159 million being from actual earnings.
Carillion seems to have “got away with it” for so long by having a lucrative, cosy relationship with its auditors of 19 years, KPMG, which certified the company accounts year after year as “true and fair”.
Carillion used accounting “sleights of hand”. Such manoeuvres are all legal but, as Wylie says, they resulted in a “smoke and mirrors” balance sheet.
The book’s cover carries a quote from the GMB union Scotland secretary, saying, “Read it and rage!” Yes, rage against all the corruption and inequity, but then what?
Wylie says he aims to offer a critique of the structure of the British economy and what reforms are needed to create a more equal society. He suggests that in company’s with more than 250 employees directors should be subject to a total pay clawback provision for company failure and trade unions should be listened to more. And workers reps should sit on remuneration committees and company boards and new laws and regulations and stronger regulators need to be developed.
I find it quite astonishing that after more than 250 pages detailing theft, corruption, cover ups, and inaction at the highest levels across whole swathes of companies and banks, Wylie would suggest a few more regulations.
Clearly, the board of Carillion smugly thought the government would bail them out – that they were “too big to fail” like the banks in 2008. Individual projects were eventually rescued by the government, but Carillion was left to declare insolvency, and in the process destroyed many subcontractors, other workers and company pensioners’ livelihoods.
Although Wylie’s conclusion will prove inadequate for revolutionary socialists, the book is well written, extensively researched and a comprehensive overview of much that is wrong with 21st century capitalism.
Bandit Capitalism: Carillion and the Corruption of the British State. Bob Wylie. Birlinn, Edinburgh. £14.99
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