TUC calls for reforms in wake of Carillion collapse

New analysis published today by the TUC shows that private companies running public services are handing out more and more cash to shareholders, despite profits falling in most cases.

The TUC is also publishing a report today on the reforms needed to protect public services and improve quality in the wake of construction and support services group Carillion’s collapse in January

The TUC looked at dividends and profits for the seven largest public limited companies with significant business running outsourced public services.

Dividends have risen in most years since 2010, reaching a combined total of £642 million in 2016 for the seven. This is an increase of 67 per cent compared to shareholder dividends in 2010.

The analysis also finds that pre-tax profits have fallen 31 per cent across the same period, undermining claims that higher dividends reward investors for improved business performance.

The pattern is found across several of the leading companies running public services, suggesting Carillion is not an isolated example.

Some companies even had years between 2010 and 2016 when they continued to pay dividends despite making a pre-tax loss.

The TUC says this is evidence of a fundamentally flawed model, which prioritises short-term shareholder interests over the sound stewardship of public services, the wellbeing of the workers who provide them, and the needs of communities that rely on them.

The report identifies the problems that led to Carillion’s collapse and proposes reforms to improve the quality, value and sustainability of public services.

Wake-up call

It highlights systemic failures of an outsourcing model that prioritises low cost over quality, and a corporate governance model that prioritises shareholder interests.

The report recommends corporate governance reforms and an improved commissioning process.

The TUC proposes a new commissioning model based on public provision of public services, except in cases where it is clearly shown that outsourcing is in the public interest.

TUC General Secretary Frances O’Grady said: “Carillion was a wake-up call. It put the spotlight on private firms hoovering up public services contracts with little public scrutiny. It showed how these contracts line shareholders’ pockets instead of serving the community. And when Carillion failed, the government had to clean up the wreckage.

“We need to get back to running public services for the common good. Frontline staff work hard and aim high because they care about the community they serve. That should be the motivation for public service managers and boardrooms too.

“The Government needs to re-think outsourcing. Most services would be better off back in public hands. And the government must reform outsourcing and corporate governance rules so that all services are run for the long-term benefit of the communities that depend on them.”

Carillion's dividends rose 34 per cent from £59m in 2010 to £79m in 2016. Pre-tax profits fell 13 per cent from £168m to £147m over the period.