Interserve is a giant UK outsourcing company, which employs over 65,000 people worldwide including 45,000 in the UK. It has thousands of government contracts, including for hospital cleaning, probation services, school meals and the maintenance of military bases, benefitting from the Tory off-loading of the duties of a civilised modern government.
Interserve now has ended up with crippling debts of £631 million. Its shares has been suspended and has effectively gone into administration. The firm’s lenders and bondholders will agree to write off £485 million of Interserve’s £631 million debt and inject £110 million of additional funds, in return for ownership of the company’s stock. Current stockholder have lost everything they had in the company.
A similar government contractor, Carillon, went bust very messily in January 2018, triggering the collapse of hundreds of supply firms, and leaving the British government holding a tab for at least £148 million.
Interserve’s decline can be partly ascribed to an unprofitable foray into the waste recycling, but the fact is that sub-contracting government services to companies required by their shareholders to make a profit and issue dividends simply doesn’t work and is the result of having right-wing governments manned by people with inherited wealth and full of ideological fervour about shrinking government, but having not a clue about business, profit, man management or anything else (See Brexit for typical actions by the same crowd!). This could be ( should be) the swan song of a deeply flawed and dying business model that has made a very small few rich while saddling future generations with huge debts and increasingly shoddy public services . Conservative government cannot govern.
A scathing parliamentary inquiry last year accused successive British governments of using the Public Finance Initiative (PFI) to keep many of its current liabilities off balance sheet, Enron-style, while also awarding well-connected businesses and investors public work contracts. At the moment it will end up having to pay private companies almost £200 billion, including interest to lenders, until the 2040s, just for existing deals, in addition to some £110 billion already paid. That’s for 700 projects worth around £60 billion.
Research last year by the weekly publication Construction News revealed that the average pre-tax margin for the 10 biggest UK contractors fell for the fifth consecutive year, to -0.9%, while their combined debt rocketed 24% year-on-year to €3.9 billion. Dividends have also been slashed, as evidence emerges of firms tightening their belts ahead of Brexit. To make matter even worse, banks and investors, that had already incurred large losses on Carillion and are now having to take over Interserve’s business, are likely to be even more reticent about backing the industry, particularly as it faces greater scrutiny from regulators as well as the rising risk of local authorities taking contracts back in-house. The ultimate irony is that some of the same banks that feasted on the absurdly high interest rates the UK government agreed to pay on its PFI deals — at times as high as 3.75 percentage points higher than the cost of government borrowing — are now themselves, thanks to Interserve’s collapse, public service providers.
The failure of a second major outsourcing player in barely more than a year provides strong evidence that the UK approach to outsourcing government activities was deeply flawed.
(Adapted and edited from an article by Don Quijones, an editor at Wolf Street. Originally published by Wolf Street. https://wolfstreet.com/
Thus does neoliberalism produce incompetence, corruption and waste, allowing politicians to say that they have been able to slash the size of the government ! This is supposed to be a good thing, so why is it that so many people, teetering on the edge of financial disaster, support a political party that is busy making them poorer, less secure and less well- served, helping only the rich and comfortable? Truly puzzling. As goes the UK so goes the US; only a matter of time. Epicurus would despair; for him government was government for all the people.