This article is more than 2 years old

This article is more than 2 years old

The London borough dubbed the “easyCouncil” for its reputation as one of the most extreme local authorities in Britain for outsourcing public services is to examine how it would handle the fallout should Capita follow the fate of Carillion.

Conservative-run Barnet council, where Capita has contracts worth almost half a billion pounds that run for a decade – including for services such as funerals and food inspections – voted late on Tuesday to look at contingency plans in the event that Capita ran into financial distress.

Q&A What is Capita? Show Hide 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. 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. 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) • Revenue (2016): £4.9bn • Pre-tax profit (2016): £475m • Proportion of business in public sector: 47% • Dividend payout (2016): £210m • Net debt (expected at end of 2017): £1.15bn • Pension deficit: £381m • Share price peak: £13.26 July 2015 • Share price now: 196p • Market capitalisation at peak: £8.8bn • Market capitalisation now: £1.3bn

The decision came less than 24 hours before the firm issued a profits warning and revealed plans to raise about £700m from investors to reduce its debts, but it underlines the concern in local government over the health of private sector firms in the wake of Carillion’s collapse.

Councillor Barry Rawlings, leader of the Labour group in Barnet, said the warning from Capita and its falling share price raised questions over how the council might respond to further troubles. Speaking to the Guardian after the profits warning, he expressed concern that the firm said it would look to exit some areas of business.

“Somewhere like Barnet, where Capita handles all of the back office, enforcement, planning, environmental health, trading standards, estates, payroll and so on. Will that be part of their core services? We might be one of the only places they do some things. If they narrow their scope, what is going to happen to these services?

“Carillion is a warning, not a direct parallel. But there are some similarities, in the profit warning and the way the shares are going,” he said.

Capita: beginning of the end for public service contracting | David Walker Read more

The move by Barnet to consider its position underscores growing concerns over the sustainability of mass outsourcing, after decades of government and local councils picking private partners to run public services. The mood appears to be changing, as nationalisation of the railways and other utilities has gained the favour of a majority of voters according to recent polling.

Tony Travers, an expert in local government at the London School of Economics, said “alarm bells will be ringing all over government” following the failure of Carillion.

“If there were any sense of an unravelling of companies that provide services to the public sector, then immediately it reveals to us that the government cannot in the end transfer the risk [of running public services to private firms],” he added.

The extent of the private sector’s reach into once traditionally state-run services extends from cradle to grave – from the building of hospitals by Carillion in cities such as Birmingham and Liverpool to the running of funeral and cremation services in Barnet by Capita.

Q&A What government contracts does Capita hold? Show Hide Runs government helplines for:

• The state pension

• Jobseeker's Allowance

• National Insurance number allocation

• Winter fuel allowance Transport:

• Operates London congestion charge

• Manages wifi services for Transport for London, including free public access on London Underground

• Provides IT infrastructure services for UK air traffic control

• Planning for 10km of cycling routes in Salford NHS/health:

• Provider of blood transfusion systems to some hospitals

• Manages communications between the NHS and its suppliers, vetting firms on data security standards

• Provides online payment systems to some NHS trusts Pensions:

• Runs the teachers’ pensions scheme

• Works on behalf of the pensions regulator on the automatic enrolment of staff into company pension schemes Other:

• Army recruitment

• Electronic tagging of offenders in England and Wales

• Operates the Gas Safe register for the Health and Safety Executive

• Carries out disability workplace assessments

• Operates the BBC licence fee Photograph: Alessia Pierdomenico/X01156

Barnet has been seen as a testbed for mass outsourcing in recent years, with the council having handed a vast chunk of the state to Capita since August 2013. Services under its remit as part of two contracts lasting 10 years include IT, finance, HR, planning and regeneration, trading standards and licensing, environmental health, procurement, and the highways department.

Councils have started reassessing their options in light of the collapse of Carillion, while other local authorities are also looking into whether to run services directly once more after decades of outsourcing.

Carillion's collapse should make all councils rethink privatisation | Joanne Fry Read more

Croydon recently terminated its eight-year contract with Carillion to run libraries and said it would take the services back in-house. Bin collections in Blackpool are set to come back under council control, which local bosses have said should also save them money.

A Barnet council spokesperson said: “The council regularly reviews the financial status of its major suppliers as part of its contract management and contingency planning arrangements. This is what any responsible local authority would do.”