Contingency plans being made for Barnet’s contracts with Capita

The London borough dubbed as 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.

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.

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.

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

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.