Robert Peston Robert Peston

Carillion’s collapse ends the love affair between governments and private contractors

If I am reeling from the collapse of Carillion it is because the company, the banks, its advisers and the government apparently thought it was worth having a conversation about a possible bailout of the outsourcing and construction company. Because what we learned this morning is that the gap between Carillion’s debts and the value of its assets is big, and that a significant number of its contracts are toxic.

If that were not the case, if many of its businesses were fundamentally viable and valuable, Carillion would have been put into administration, a form of life support, under insolvency rules. And instead it is being liquidated, under the auspices of the Official Receiver – who is an official at the Business Department, or BEIS.

Given that Carillion is obviously neither too big or important to the British economy to fail – unlike the banks in 2007 and 2008 – any provision of public funds to prop it up as a going concern would have seen taxpayers’ precious money protecting commercial creditors and shareholders from the painful consequences of their cupidity and negligence.

Which would have been a cripplingly expensive precedent – because if it were proper for we the taxpayers to rescue Carillion, by implication all businesses providing services to or on behalf of government would have been seen as underwritten by government.

And that in turn would have blown up the entire point for government of outsourcing services, which is to make providers of those services incentivised to succeed and disincentivised from failing.

The other important point about liquidating Carillion is that it should minimise the costs of its collapse for the government, and by implication probably increase them for banks and commercial creditors: it turns the government or taxpayer into the senior creditor, ranking ahead of banks for repayment, for any new funds its provides.

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Robert Peston
Written by
Robert Peston
Robert Peston is Political Editor of ITV News and host of the weekly political discussion show Peston. His articles originally appeared on his ITV News blog.

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