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You can find the current article at its original source at https://www.theguardian.com/global/commentisfree/2018/jan/31/the-guardian-view-on-capitas-woes-another-warning-of-a-system-in-crisis
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| The Guardian view on Capita’s woes: another warning of a system in crisis | The Guardian view on Capita’s woes: another warning of a system in crisis |
| (21 days later) | |
| When the chief executive of a business declares its operations to be “far too complex”, investors are naturally alarmed and customers concerned. In the case of Capita, the ultimate customer is the taxpayer, since the group specialises in services outsourced from Whitehall, devolved administrations, local government, the NHS and other public sector bodies. Wednesday’s profit warning by Jonathan Lewis, Capita’s CEO, is all the more alarming since it comes so soon after the collapse of Carillion, whose over-complex business also relied heavily on public sector contracts. But Capita is not, yet, the new Carillion. Its share price has tanked, but it is still able to raise money. Mr Lewis is airing dirty financial laundry now because, being new to the job, he can signal change and blame troubles on the old management. | When the chief executive of a business declares its operations to be “far too complex”, investors are naturally alarmed and customers concerned. In the case of Capita, the ultimate customer is the taxpayer, since the group specialises in services outsourced from Whitehall, devolved administrations, local government, the NHS and other public sector bodies. Wednesday’s profit warning by Jonathan Lewis, Capita’s CEO, is all the more alarming since it comes so soon after the collapse of Carillion, whose over-complex business also relied heavily on public sector contracts. But Capita is not, yet, the new Carillion. Its share price has tanked, but it is still able to raise money. Mr Lewis is airing dirty financial laundry now because, being new to the job, he can signal change and blame troubles on the old management. |
| Capita was founded in 1984 when ex-local government officer Rod Aldridge led a management buyout of the business from the Chartered Institute of Public Finance and Accountancy. At the time it had 33 employees. | Capita was founded in 1984 when ex-local government officer Rod Aldridge led a management buyout of the business from the Chartered Institute of Public Finance and Accountancy. At the time it had 33 employees. |
| The company joined the stock market in 1991 and became a member of the FTSE 100 in 2006. | The company joined the stock market in 1991 and became a member of the FTSE 100 in 2006. |
| In the same year Aldridge resigned as executive chairman after it was revealed he had lent the Labour party £1m. He denied suggestions the loan had any influence on the company winning government contracts but said he would step down to avoid any further controversy. | In the same year Aldridge resigned as executive chairman after it was revealed he had lent the Labour party £1m. He denied suggestions the loan had any influence on the company winning government contracts but said he would step down to avoid any further controversy. |
| He was replaced by Paul Pindar who became one of Britain’s best paid businessmen, earning £2.5m in 2012. He stepped down from the group in 2014 to move into private equity. | He was replaced by Paul Pindar who became one of Britain’s best paid businessmen, earning £2.5m in 2012. He stepped down from the group in 2014 to move into private equity. |
| Capita grew largely through acquisitions, but a series of profit warnings saw it lose its place in the FTSE 100 in March 2017. | Capita grew largely through acquisitions, but a series of profit warnings saw it lose its place in the FTSE 100 in March 2017. |
| • Employees: 67,000 (About 50,000 based in the UK) | • Employees: 67,000 (About 50,000 based in the UK) |
| • Revenue (2016): £4.9bn | • Revenue (2016): £4.9bn |
| • Pre-tax profit (2016): £475m | • Pre-tax profit (2016): £475m |
| • Proportion of business in public sector: 47% | • Proportion of business in public sector: 47% |
| • Dividend payout (2016): £210m | • Dividend payout (2016): £210m |
| • Net debt (expected at end of 2017): £1.15bn | • Net debt (expected at end of 2017): £1.15bn |
| • Pension deficit: £381m | • Pension deficit: £381m |
| • Share price peak: £13.26 July 2015 | • Share price peak: £13.26 July 2015 |
| • Share price now: 196p | • Share price now: 196p |
| • Market capitalisation at peak: £8.8bn | • Market capitalisation at peak: £8.8bn |
| • Market capitalisation now: £1.3bn | • Market capitalisation now: £1.3bn |
| So business as usual? Not quite. Given the scale of public sector vulnerability, the Carillion case takes business as usual off the menu. This is a political matter more than a commercial one. Businesses operate under the conditions that are set for them by governments and, where outsourcing is concerned, the market only exists by virtue of public procurement. That brings special responsibilities and unique consequences for failure. Most voters do not dwell on ownership structures behind public services – until they go wrong. There is higher awareness of the private sector’s role in the NHS, providing buildings as well as clerical and clinical tasks. That is because the health service is a symbol of universal care bought with general taxation. Fear of its cannibalisation for profit animates great political passions. | So business as usual? Not quite. Given the scale of public sector vulnerability, the Carillion case takes business as usual off the menu. This is a political matter more than a commercial one. Businesses operate under the conditions that are set for them by governments and, where outsourcing is concerned, the market only exists by virtue of public procurement. That brings special responsibilities and unique consequences for failure. Most voters do not dwell on ownership structures behind public services – until they go wrong. There is higher awareness of the private sector’s role in the NHS, providing buildings as well as clerical and clinical tasks. That is because the health service is a symbol of universal care bought with general taxation. Fear of its cannibalisation for profit animates great political passions. |
| In other sectors, the balance between public and private provision has been a story more of ideological drift than open battle. Tony Blair had a faith in the efficiency benefits of private sector provision that was not shared by much of his party. David Cameron once claimed to be a great admirer of the public sector ethos. He then presided over austerity policies that forced national and local government to rely ever more on outsourcing to the lowest bidder. The likes of Carillion and Capita then became reliant on chasing contracts on terms that were not financially sustainable. | In other sectors, the balance between public and private provision has been a story more of ideological drift than open battle. Tony Blair had a faith in the efficiency benefits of private sector provision that was not shared by much of his party. David Cameron once claimed to be a great admirer of the public sector ethos. He then presided over austerity policies that forced national and local government to rely ever more on outsourcing to the lowest bidder. The likes of Carillion and Capita then became reliant on chasing contracts on terms that were not financially sustainable. |
| Theresa May has stuck to Mr Cameron’s course as much from inertia as conviction. Jeremy Corbyn promises complete reversal. He recently told parliament that corporate providers should be “shown the door”. But Labour’s position on where the line falls between jobs that only fully fledged public employees can be trusted to do and those that contractors might perform is unclear. | Theresa May has stuck to Mr Cameron’s course as much from inertia as conviction. Jeremy Corbyn promises complete reversal. He recently told parliament that corporate providers should be “shown the door”. But Labour’s position on where the line falls between jobs that only fully fledged public employees can be trusted to do and those that contractors might perform is unclear. |
| It is easier to proclaim the need for such a line than it is to draw it in practice. But the line exists in the public mind and it has probably moved less in recent decades than is suggested by the scale of structural change. Ideological dedication to rolling back the state or advancing the frontiers of public ownership are niche pursuits. There is a pragmatic tradition in Britain that is relaxed about private expertise being deployed to improve services but resistant to the idea of profit being extracted – and accountability drained – from services that exist for the collective good: schools, hospitals, the justice system, for example. | It is easier to proclaim the need for such a line than it is to draw it in practice. But the line exists in the public mind and it has probably moved less in recent decades than is suggested by the scale of structural change. Ideological dedication to rolling back the state or advancing the frontiers of public ownership are niche pursuits. There is a pragmatic tradition in Britain that is relaxed about private expertise being deployed to improve services but resistant to the idea of profit being extracted – and accountability drained – from services that exist for the collective good: schools, hospitals, the justice system, for example. |
| It is clear that Britain’s outsourcing model is commercially unstable. That requires a wider debate about the right balance of public and private sectors to meet collective social interests – a debate driven not by the ruthless pressure of shrinking budgets, but by principles of what works best for democratic accountability and raising standards. | It is clear that Britain’s outsourcing model is commercially unstable. That requires a wider debate about the right balance of public and private sectors to meet collective social interests – a debate driven not by the ruthless pressure of shrinking budgets, but by principles of what works best for democratic accountability and raising standards. |
| Capita | Capita |
| Opinion | Opinion |
| Carillion | Carillion |
| Construction industry | Construction industry |
| Privatisation | Privatisation |
| Economic policy | Economic policy |
| NHS | NHS |
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