Economania

There is an impending crisis in the provision of care for the old. Martin Green, the chief executive of Care England, the representative body of the independent care providers, is quoted in The Observer (1/11/15) warning that the crisis in the care sector will dwarf that of the steel industry, saying that, “We are looking at Redcar happening twice a month …”.

In the UK, there are more than 430,000 old people living in care homes and the sector employs 1.4 million people. Of all the beds in care homes, 41% are privately funded, 12% are part privately paid with a subsidy from Local Authority sources, 37% are wholly Local Authority funded and 10% are NHS funded. However, in the last twelve months, 3,000 places have been lost due to closures of care homes.

The Four Seasons group, which owns 470 care homes providing 22,000 beds, is losing money and is burdened with debt. However, Four Seasons represents only a little over 5% of the sector as a whole. Chai Patel, chairman of the HC-One care group, has said: “We reckon that 50% of homes are non-viable, if you allow for capital expenditure and the rent on property. Once the living wage comes in, 50% of beds will go bust.”

The parlous state of the care sector is further exacerbated by the demographics of Great Britain, where the number of people over 65 will increase by more than 40% in the next 17 years. By 2040, almost one quarter of the population will be over 65.

We have been here before.

This, by Simon Neville, from the Daily Mail, 1st June 2011:-

“Four Seasons Healthcare, which rents out 40 homes to Southern Cross, is particularly vulnerable. Bought in 2006 by the Qatar Investment Fund, it ran up debts of £1.5bn, but when the recession hit it was unable to repay its lenders – including RBS – and was forced into a debt-for-equity scheme to pay down £750m. The remaining £750m debt was due to be repaid by September 2010, but this was extended until September 2012.

But whether the firm can make the repayments by next year is still unknown. NHP – which was previously owned by Southern Cross’s former owner, Blackstone – is on the brink of administration. With debts of more than £1bn, it defaulted last year and is currently being managed by Capita.”

The mire becomes more turbid when one looks into the financial shenanigans behind this collapse. Again, from the Daily Mail’s Tim Shipman, 2nd June 2011:-

“The U.S. private equity firm Blackstone, led by Stephen Schwarzman, bought Southern Cross in 2004 for £162 million and sold it three years later. It is believed to have quadrupled its investment. But to achieve this, it sold off the company’s homes, robbing Southern Cross of its capital and forcing it to lease the properties back from another company.

Downing Street announced yesterday that the Government will use public money to ensure those in the 750 affected homes can stay – amid warnings that moving them would lead to the deaths of the most vulnerable.”

It was estimated that it would cost the taxpayer £600 million to bail out Southern Cross.

In 2012, Terra Firma bought Four Seasons for £825 million after Blackstone. Terra Firma is a private equity company founded by one Guy Hands, who lives in tax exile and is estimated to be worth £250 million. Terra Firma has, at various times, owned the record label EMI and Meridien Hotels, and currently owns Odeon & UCI cinemas and Wyevale garden centres. The Observer notes that Four Seasons receives over 60% of its income from local authorities and that any profits it might make will be wiped out by maintenance costs and interest of £50 million per annum on its £500 million debt. It reported a £25 million loss in the second quarter and Moody’s downgraded its debt to junk status.

Chia Patel has said that the care sector needs ‘significant help’. That may be the case, but one has to look into the decisions that brought us to the current unhappy pass. Once again, we are directed to the ideologically-driven policies that took geriatric care out of local authority hands and put it with the private sector. Chai Patel bought 250 of Southern Cross’s home when it folded.

We were told that not only would private provision be more efficient but it would also offer better quality, freed from the deadening effect of the state or local authority. The reality is that geriatric care became just one more investment opportunity for free-booting capital that was floating around looking for something into which to sink its talons.

Vast amounts of taxpayers’ money has found its way in to the pockets of the owners of care homes. The geriatric care sector has long complained that local authorities do not pay a sufficient amount for the care that private care homes provide and, as government spending cuts bite deeper, this can only get worse. Care homes, for obvious reasons, are more and more turning to the privately-funded residents and unloading state-funded beds.

Whether or not the private provision of geriatric care is more efficient is a moot point. Rates of pay in the care sector are typically low and, as has been noted above, the introduction of the national living wage will mean 50% of provision is no longer economically viable. We might reasonably ask why the provision of geriatric care should be so badly paid – it suggests that we value neither the old nor those who care for them.

There is also the question of moral hazard. The ostensibly private care sector relies heavily on funding from the State, which flows into the pockets of the owners, yet in the final analysis, if there are wholesale financial defaults in the sector, the State – that is, the taxpayer – will have to bail it out. It would be a public relations disaster if tens, even hundreds of thousands, of old people were turned out onto the streets. Some would necessarily have to be placed in to hospital beds and this would completely overwhelm the NHS.

The Local Government Association has said that there will be a £2.9 billion gap in funding for social care within 5 years. The national living wage will add a further £1 billion to this. Some serious thought needs to be given by government to this whole question and a good time to start would be right now. The Chancellor’s spending plans are about to go out of the window.

Sources

• The Observer, 1st November 2015
• The Daily Mail, 1st June 2011 and 2nd June 2011

Chris Waller – Permission granted to freely distribute this article for non-commercial purposes if attributed to Chris Waller, unedited and copied in full, including this notice.

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