Friday, 4 March 2011

The Empire Strikes Rich

Most businesses have narrow profit margins. A single McDonald's franchise outlet can have an annual turnover of up to five million pounds if they're in the right place, but this doesn't mean they're profitable; their running costs can almost overlap their income. They have high staff turnover, uniforms, utility bills, maintenance, franchise payments to the McDonald's company, Happy Meals are rumoured to be loss-leaders(get 'em young), a truly scary fast-deploying fire extinguishing system which almost literally causes involuntary evacuation of both the building and bowels. I worked in a McDonald's; it's like playing the Sims only you get caked in grease and cooked alive for miss-clicking.


I have a lot of time to listen to what people who run businesses have to say, though I wish they would speak more from the heart or their own heads instead of relying on sound bites from the UK Chambers of Commerce and other employers 'Unions', yes that's pretty much what they are you filthy socialist swine. Businesses have their struggle and whilst the working class have their built-in aversion to benefits and benefit claimants(sometimes sugar-coated with the qualifier 'just the cheats, not the genuinely sick' etc), competitive and honest businesses seem to say little about the welfare queens of their own 'business-class' or they simply aren't being given any attention when they do so. Surely they can not respect a for-profit business which exclusively relies on government contracts paid for from their taxes? Maybe they are themselves reluctant to speak out because they know a substantial number of their own service-end customers will be public-sector workers paid from the taxation pool, meaning their business is indirectly relying on the same source for income. Maybe there is just a taboo in the business world in giving any real criticism to another business; you may one day have to deal with them. But is this competitive? No, it's anti-competitive and means the only source of criticism for shady business practices comes from outside, which in turn feeds a sense of solidarity among businesses who then feel an attack on one of them is an attack on all of them: to put a single business under scrutiny is to be anti-business.

The paranoia cartel must be broken and it must begin with the bad being cut out, they are poisoning the rest. This supplement aims to make it clear that the Welfare to Work industry is bad business, is bad for business and does not create wealth; it merely acquires it at both ends: from the poor it targets and from the tax pool that it is a net drain on(a feature of no other successful business).
Here is the amount paid by the DWP to Welfare to Work contractors in 2009-2010(source: Kable.co.uk):

ACTION FOR EMPLOYMENT LTD: £150,835,957.26

ATOS ORIGIN(included because their purpose in government policy is identical to the others): £150,798,434.69

INGEUS GROUP: £63,892,101.33

WORKING LINKS: £134,722,405.31

REED IN PARTNERSHIP: £52,003,323.15

SERCO GROUP PLC: £37,508,503.87

THE WISE GROUP: £18,465,796.92

THE INTRAINING GROUP: £13,741,136.56

CALDER UK LTD: £13,624,384.74

REMPLOY: £12,821,724.11

MANPOWER PLC: £7,373,686.64

YMCA: £4,661,076.27

SKILLS TRAINING UK LTD: £29,386,893.19

PROSPECTS SERVICES LTD: £3,143,024.35

FOURSTAR EMPLOYMENT AND SKILLS LTD: £6,890,669.37

LOCAL AUTHORITY - DUDLEY: £9,155,674.48

SEETEC BUSINESS TECHNOLOGY LTD: £40,715,027.45

AVANTA ENTERPRISE GROUP(TNG): £48,264,956.86

THE SHAW TRUST: £71,251,397.48

PERTEMPS: £31,915,873.14 

This list is non-exhaustive and includes a few public and non-profit organisations, but the majority are for-profit businesses and these are to the best of my knowledge just the fees they recieve from the Department for Work and Pensions for Welfare to Work services. Prospects is not to be confused with the National Autistic Society's Prospects employment service which has had to be scaled back because of a lack of funding when all the contracts were sucked up by for-profit organisations with more capital and friends in government. The same thing is starting to happen to the Citzens Advice Bureau. £901,172,047.17 is spent on this list alone out of the full £4,590,814,915.44 the DWP spent on outside organisations and departments: 19.6% of it in total going to the industry.

With my axe still grinding let's look at A4e who report their turnover in 2010 as being £190 million on their website. You don't need any formal qualifications to work as a caseworker in the industry, so they won't be made much and any commission they get for getting people into work is squashed by how small their success rate is. For that single year alone A4e must have had a huge profit margin and for a company with no public shareholders this is a lot of power, it's no wonder they virtually control the market. Is this competitive? Is this the win-win scenario that well-functioning capitalism is meant to provide for all active and productive participants? A4e also say they helped 32,000 people into work, but only helped 8,000 get a qualification and that will cover both the few found jobs and the many still jobless after being referred to them. According to A4e turnover was less than what the DWP reports they gave to A4e: £146 million compared to £150 million but I'm sure that missing £4 million is down the back of a sofa somewhere. A4e employs 3,400 people worldwide but most are in Britain so we'll use that as a ball-park number.

Before I go into this; A4e reports their Earnings Before Interest, Taxes, Depreciation and Amortisation(EBITDA) as being just £9.5 million next to that £146(or 150 depending on who you believe) million in turnover in 2009. Seriously, a profit margin of just 6.5%? What expenses have they been spending all that on? Could Emma Harrison have made her estimated £35 million(down from £40 million the previous year according to the Sunday Times rich list) even after 17 years? Unless what she pays herself isn't included in the EBITDA, which incidently is a non-GAAP instrument(Generally Accepted Accounting Principles).
Let's assume A4e's workforce is a large enough sample to be representative of the UK and let's say we believe what the Corporate Research Foundation Institute(it's what CRF Institute stands for, no one is expected to credit these people with grammar: just look at Carley Consult) says when they name A4e top UK employer and give them three and a half stars for pay and benefits so we can assume the average UK full-time wage applies. It's £31,323 and multiply that by 3,400 gives you £106,498,200 on A4e's wages, leaving them with a cool £40(or £44) million to spend on their other running costs. Does £30 million really go on their offices? Yeah if all their offices were like the Sheffield HQ and not like the Hull one featured on Benefit Busters, or the one I attend.

A4e's own reported turnover increased to £190 million in 2010 and the EBITDA to £14 million. That means turnover went up roughly 30% but their EBITDA is closer to 47%.
I made no mention of A4e's profits in the main article, it wasn't the topic, but I was still accused by one poster of being critical of a company just for making money. No, I was critical because they were being paid to fail and the emphasis was on the failure. I would have preferred that failure and the market manourvering and lobbying being employed to entrench a virtual monopoly to have sank in first, only then does the money become a debateable issue. A4e's success must be seen in the context of what A4e actually does, which by almost any measurement no matter how generous as long as it is accurate finds them to be running a false economy, their ethics worse than bankers but their PR better. Their regulator is going to be a man that worked for them and is being paid around £300k for it. £300,000 to fund a regulator against a horde of commercial monsters and he's best buddies with the biggest one. (note: some corrections have since been made to my main Guardian article that seem inconsequential to this but I've contacted CiF as I'm not happy with them)

Is this the acceptable face of business now? Businesses that actually compete and put their money where their mouth is on government spending by not taking government contracts should start saying "No".

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