Carillion reveals the real threat to jobs - debt

By Neil Patrick

The Yas Viceroy Abu Dhabi Hotel built by Carillion. Photo credit:Rob Alter

When I started work on my book with Marcia LaReau, Careermageddon, we did not have an agenda. Our view was that the evidence will take us where it will.

But after three years research, even I was surprised where we ended up as we sought to discover the real destroyers of jobs.

Careermageddon is a politically neutral book. The conventional ‘wisdom’ about jobs from the left is that government must borrow and spend to create jobs. Amongst the right it is that the free market is more efficient, therefore tax cuts and business friendly policies are the best framework.

The trouble with the free market is that if government uses private contractors, it does not absolve itself of risk, because private companies act primarily in the interests of shareholders and investors. And this can lead to some pretty nasty outcomes for employees and customers.

This week we have seen the unravelling of Carillion, one of the biggest construction firms in the UK. It holds numerous government construction contracts including the UK's high speed rail network expansion, HS2. I flagged this three years ago here as an example of government spending folly.

Carillion is massively in debt. The debt burden is so great that the future of the firm and around 20,000 UK jobs and a further 23,000 overseas jobs hang in the balance. It has a £900m debt pile and £600m shortfall on its pension plan.

It is just the latest in a long and sorry catalogue of failed businesses which are massively over borrowed to the point that even the smallest shortfalls in revenues compound over time to become catastrophic.

The biggest threat to jobs which we identified in Careermageddon is not technology. It’s not migrant workers. It’s not globalisation.

It’s debt. Personal debt, corporate debt, and government debt.

Whatever happens to Carillion, the debt spiral will be even more compounded – it won’t be written off, it will just move and spread elsewhere.

Which leads me to three simple conclusions. Government needs to take greater oversight of the debt vulnerability of firms it contracts with. Business needs to borrow less and invest more not in executive bonuses and shareholder dividends, but in long term assets and debt reduction. And people need to reduce their personal debt so they have greater financial resilience when disaster strikes.

It might not be fun, but if you want to make a worthwhile new year’s resolution, reducing debt is a much more worthwhile one than most that I have heard.


  1. I saw two scary charts on two different sites.

    One was the total amount of money (wealth) in the world. The second was the total amount of debt in the world. The second was - IIRC - 5X (or more) than the first. Thus confirming my long-standing view that there is, thanks to QE and other fiat-money tricks, quite literally not enough wealth in the world to pay all the debts that are owed.

    I asked my financial advisor what he's buying. "Canned goods, guns, and ammo."

    1. 5x is extremely optimistic in my view David. My calculations are that it is closer to 14x. Modest debt okay in any situation where it is secured against assets and/or incomes which are rising more rapidly than the debt. The trouble is this hasn't been the case for a very long time on most domestic, corporate and government P&Ls...