The Leading News & Information Service For The Facilities, Workplace & Built Environment Community

Shareholders Cashing in on Outsourced Public Services, Says TUC

Frances O'Grady General Secretary TUC
20 April 2018 | Updated 12 February 2021

Shareholders are creaming off more and more cash from outsourced public services said the TUC on Monday April 16 despite profits falling in most cases and in the shadow of the Carillion collapse where directors were accused of protecting their own pockets rather than their employees and sub-contractors.

The TUC is also published a report on the reforms they believe are needed to protect public services and improve quality in the wake of Carillion’s collapse three months ago.


Cashing in from public services

The TUC looked at dividends and profits for the 7 largest public limited companies with significant business running outsourced public services. Dividends have risen in most years since 2010, reaching a combined total of £642m in 2016 for the 7 firms. This is an increase of 67% compared to shareholder dividends in 2010.

The analysis also found that pre-tax profits have fallen 31% 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. And 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 protecting and improving public services report

What lessons can we learn from Carillion? asked the TUC report which identifies the problems the Congress believes that led to Carillion’s collapse while proposing reforms to improve the quality, value and sustainability of public services.

The report says the failures of an outsourcing model prioritises low cost over quality and a corporate governance model prioritises shareholder interests. 'These combine to encourage firms to further outsource risk, leading to a complex web of sub-contractors with little transparency or clarity for where responsibility lies' is one damning conclusion of the report.

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.


Recommendations include:

Restore public interests to the heart of public services.  All commissioning decisions should be based on a public interest test with clear criteria.  In-house provision should be the default, unless there is a demonstrable public interest case for outsourcing.

Provide transparency for who runs services. The government should publish comprehensive information on significant contracts across the public sector, including information on value, length and performance.

Reform directors’ duties to promote long-term success. Directors should be required to promote the long-term success of the company as their primary aim, while having regard to the interests of shareholders, workers, customers and service-users, the local community and other stakeholders.

Strengthen UK law to better protect workers. Companies must have stronger duties in insolvency situations. This should include early and meaningful consultation with trade unions, protection of pay and conditions for staff transferred to a new employer, and recovery of unpaid wages and holiday pay.

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 rethink 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.”

Picture: TUC General Secretary Frances O’Grady


Article written by Brian Shillibeer | Published 20 April 2018


Related Articles

Bidvest Noonan Security Staff Strike At UCL Over Pay

Outsourced security staff have been striking at University College London this week, in a protest over pay. Over 150 people attended the strike on Monday 14 November,...

 Read Full Article
Barnet Council Votes to Stop Key Service Outsourcing by 2026

As their ten-year support services contract with Capita draws to an end, Barnet Council has voted to bring HR, finance, IT and estates back in-house. Barnet Council...

 Read Full Article
Should There be a Legal Maximum Working Temperature?

As temperatures in Europe reach record-breaking highs, unions are calling for a legal maximum temperature for work of 25°C to be set. However, the Health and...

 Read Full Article
50p Increase to SSP Not Enough, Says Union

Statutory Sick Pay in the UK increased from £95.85 to £96.35 this week, but the TUC says that this is not enough to support those who need to self-isolate due...

 Read Full Article
NAO Criticises Prison Maintenance Transformation Plan

The government is failing to provide and maintain safe, secure and decent prisons - and some of the blame falls at the decision to outsource to Carillion and...

 Read Full Article
Bradford Plan Scrapped

Plans by the Bradford NHS Trust to transfer porters, cleaners, security staff and others into a private company have been scrapped. Earlier this year, senior managers...

 Read Full Article
Adult Retraining Scheme Rolled Out Further

Education Minister Kemi Badenoch has announced the further rollout of the Get Help to Retrain digital service to the West Midlands and North East following a successful...

 Read Full Article
Should Boris Fall, Red's Flag Of Insourcing May Fly

Should Boris Johnson fall and the Conservative Party with him at the next general election and Labour get in, insourcing will be the order of the day, Labour’s...

 Read Full Article
Summertime - Make The Living More Easy

Bosses and facilities managers have been urged to allow flexible working, even on a temporary basis, as temperatures threaten to hit 37oC. The Trades Union Congress -...

 Read Full Article
ThisWeekinFM Spotlight Interview - Q3 Services

The principals at Q3 Services - a boutique British FM company founded in 2018 - claim they are changing the way clients benefit from outsourced services. The first...

 Read Full Article