The EconomistJanuary 20th 2018 Britain 492 to protect executives’ bonuses if the com-
pany failed. On January 17th the Insolven-
cy Service said that it wasstoppingall fur-
ther payments.
Who wants to be a Carillion heir?
Shares in its rivals, such as Serco and Kier,
rose after the firm imploded, on the expec-
tation that they would pick up some of Ca-
rillion’sbusiness. Yet many of the pro-
blems that sank the company are common
to the outsourcing industry. Interserve,
which has an annual turnover of £3bn, is-
sued two profit warnings last year, follow-
ing technical problems at a waste-to-ener-
gy plant in Glasgow. Not long ago Balfour
Beatty, Britain’s largest construction firm,
issued seven profit warnings in the spaceof two-and-a-half years, after accepting too
much work at low margins. Construction
News, a trade paper, found thatlast year
Britain’s ten largest builders made a com-
bined pre-tax loss of £53m; the average pre-
tax profit margin was -0.5%.
And now there is intense pressure on
outsourcers to change their ways. The gov-
ernment has launched an inquiry into the
Carillion saga. It may also re-examine its
procurement processes. On January 18th
the National Audit Office published evi-
dence thatPFIis a pricey way to fund infra-
structure, and that itdoes not reliably bring
benefits. Carillion’s competitors may be
glad to have seen off a rival, but they are
operatingin a troubled industry that is un-
der more scrutiny than ever before. 7The GuardianBack in black
O
N JANUARY15th the Guardian
showed off its new, trimmer look,
shifting from its idiosyncratic “Berliner”
format to a tabloid shape with a rede-
signed logo in sober black type. But the
more dramatic makeover is of the fi-
nancial books of Guardian Media Group
(GMG), publisher of the SundayObserver
and the dailyGuardian, which may find
its news operation in the black next
financial year. A newspaper business
that two years ago was beset with exis-
tentially worrying losses appears on the
verge of breaking even.
The turnaround is partly due to steep
cost-cutting, which is a dog-bites-man
story in journalism. But the Guardian
would manage the feat while still giving
away news free online, and that is a story
worth telling.
In January 2016 David Pemsel, the
new chief executive ofGMG, and Katha-
rine Viner, the new editor-in-chief of the
Guardian, informed staff thatGMG’s
endowment fund, meant to ensure the
financial security of the paper in perpetu-
ity, had lost £100m ($140m) in just half a
year, taking it to £740m. Mr Pemsel was
advised by industrypeers to trim costs
and put online news behind a paywall.
He and Ms Vinercut costsby 20%, or
more than £50m. Alan Rusbridger, Ms
Viner’s predecessor, had led the newspa-
per to global relevance with a large on-
line readership. But he spent profligately.
In two yearsGMG has reduced its head-
count by 400, to about 1,500.
Yet unlike a growing number of news-
papers, the Guardianhas not put up a
paywall. Instead it haspursued a mem-
bership model, asking online readers to
contribute whatever they like. About600,000 now do, with recurring pay-
ments or one-off amounts. American
readers tend to choose the latter option,
Ms Viner says (Donald Trump’s inaugura-
tion was a big day for donations). GMG
says the total figure amounts to tens of
millions of pounds per year. Ms Viner
says revenue from readers (including
200,000 print subscribers) now exceeds
revenue from advertisers.
The result is steadily declining operat-
ing losses: from £69m two years ago to
£45m last financial year and, Mr Pemsel
says, less than £25m in the year that ends
on April 1st. He predicts breaking even
next year. Ditching its own printing
presses and going tabloid will help, sav-
ing several million pounds a year. The
Guardian may now physically resemble
more of its peers, but its turnaround story
remains idiosyncratic.The relaunched newspaper’s bosses are bullish about breaking evenNo longer red all overT
HE collapse of Britain’s second-biggest
construction company may mean that
many of the firm’s workers lose their jobs.
But the pension rights of Carillion’s 20,000
Britain-based employees should largely be
preserved, thanks to the Pension Protec-
tion Fund (PPF), a private scheme funded
by a levy on member companies. When a
firm with a salary-linked pension scheme
goes to the wall without enough assets to
carry on paying pensioners, the PPF steps
in to bail the workers out.
Those already in retirement get their
pensions met in full, although future in-
creases may be lower than the inflation
rate. Those who have yet to reach retire-
ment age, meanwhile, receive 90% of their
benefits, up to a cap of around £35,000
($48,000) a year. None of this applies to
workers with a defined contribution pen-
sion, where benefits are not promised by
the company; their pension pots will be
completely untouched.
Carillion has a complex structure cov-
ering 14 different pension schemes. If all of
them end up with the PPF, the fund may be
on the hook for almost £900m. That would
be the biggest single claim yet on the
scheme, which was set up in 2005. Fortu-
natelythe PPF’s most recent annual report
says that it is 122% funded, by its own calcu-
lations, with £6.1bn in reserves.
Nevertheless, it still faces some tricky
long-term questions. As of November 2017,
the schemes that itcovers had a collective
deficit of £103.8bn. In its latest financial
year, the PPF raised £585m from its levy,
and paid out £661m in compensation.
Modern companies in fast-growing indus-
tries like technology tend not to offer
schemes linked to a worker’s final salary;
the companies covered by the PPFtend to
be in older industries, some of which (re-
tailing, for example) are in decline. Over
time, the pool of contributing companies
will shrink.
There is no imminent problem. The
scheme had accumulated £28.7bn in assets
as of March 2017, and buoyant markets will
have pushed that figure higher by now. But
a recession that drove a lot of companies to
the wall and sent markets lower would
make the PPF’s finances look less rosy. Ca-
rillion’s collapse, like the fall last year of
BHS, a big retail chain, raises questions
about whether the pensions regulator
should be tougher with companies and
stop them from accumulating deficits on
this scale. 7PensionsA big hole
Carillion could be the biggest claim yet
on the pensions-insurance scheme