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Billions made from care home crisis

This article is over 8 years, 5 months old
Care homes are charging residents and local authorities tens of thousands every year while many care workers are paid less than the minimum wage. But nursing home bosses predict that scores will close because they are not making enough money. Raymie Kiernan says the big firms that stand behind social care are still raking it in
Issue 2485

Social care is in crisis. The Tories have made savage cuts as part of their drive to dismantle the welfare state—and handed life and death decisions to profiteering corporations.

They have ignored repeated warnings from care organisations, directors of adult social services and public and private health care bosses of an impending collapse in services.

Instead they slashed real terms spending on social care by £4.6 billion over the last parliament. Older people are particularly at risk.

The number of over 65s receiving publicly funded care dropped by 27 percent.

In nine out of ten local authorities only those with “substantial” or “critical” care needs are deemed to be worthy of publicly funded services.

Denying hundreds of thousands of people access to care fuels pressure on the NHS as people turn to it when they reach crisis point. But the NHS is also suffering unprecedented cuts. And once treated, patients can be stuck in hospital if the social care services they need once they are out aren’t in place.

The problem, called delayed transfers of care (DToC), is getting worse. In the year from June 2014 to June 2015 DToCs were 17 percent higher than the previous year.

Between June 2010 and June 2014 the estimated cost to the NHS of patients waiting for social care related support rose to £526 million.

Some of those on the right say that the problem is that people are living longer. The number of people over 65 in Britain has nearly doubled since the mid 1970s. This group made up almost a fifth of the population last year.

And the trend is set to continue. By 2035 the number of over 85s is expected to be more than double the 2010 figure. A third of babies born in 2013 are expected to live until they are 100 years old.

But the fact that people are living longer should be something to celebrate. That it isn’t says a lot about the kind of society we live in and its priorities. For the Tories and their rich mates, people become a burden when they retire.

They are no longer working and producing the surplus value that the bosses can make their profits from. For the capitalists, that makes older people worthless.

The Tories bemoan the “pensions bill” as they call it—without admitting that government income is made up of taxes that workers pay.

Britain is a rich society in a rich world. There are easily enough resources to make sure that every older person has a decent standard of life.

Getting older could be a source of joy and happiness as people are relieved from the burden of work and have the time to do more fulfilling things.

Too many older people are left with very little in their lives but a constant stress of how to make ends meet.


Glasgow residential care workers on strike in 2014. Fights for workers’ rights are in both the public and private sector

Glasgow residential care workers on strike in 2014. Fights for workers’ rights are in both the public and private sector (Pic: George Connelly)

More funding for social care could let people manage their health problems much better—and live much fuller lives.

Yet governments refuse to put the resources in to make this happen. They won’t even meet people’s basic needs.

The rising number of older people means more demand for long term and chronic condition care.

But the Tories continue to slash local authority funding, which is driving more and more privatisation of services (see right).

One recent report estimated that by 2020-21 the funding gap in residential care for older people alone would be £1.1 billion.

It said that if the residential care sector only provided the amount of care forecast to be funded 37,000 beds could go. And that’s a likely scenario when profit is the driving factor.

A loss of 37,000 beds would be equivalent to the collapse of Southern Cross in 2011. That firm imploded after a spiral in rental costs for the 750 homes that it sold and then leased back.

Four Seasons, which operates 470 homes with a total of 22,500 beds, could easily be the next Southern Cross. Terra Firma owner, Guy Hands, pointed to Four Seasons’ ownership of 60 percent of its care homes as a counter argument. But with debts of half a billion pounds many are unconvinced.

The Financial Times newspaper last November reported “industry sources” saying, “Four Seasons is fine until Christmas.

“But after that all bets are off. They will run out of money and Hands won’t want to bail them out. I can’t see it being around in its current form in a year’s time.”

Four Seasons was already selling 53 care homes. Bupa, the second largest operator, was putting 200 up for auction.

Terra Firma won’t be using any of the more than £700 million of its own capital it announced was available for deals last year to protect the care of older people in residential homes. Neither will Guy Hands stump up any of his estimated personal fortune of £250 million.

If the NHS were to take over responsibility for the care of those lost care home beds it would cost £3 billion a year.

The crisis in social care threatens to spiral into a much bigger disaster—and the most vulnerable will be expected to pay the price.

A lucrative industry for private equity

The current crisis is a warning against a future of privatised care.

Care is big business. Some 90 percent of Britain’s care homes are privately owned

But nearly 60 percent of residents rely in part or wholly on state funding.

Between 2005-06 and 2012-13 the number of people using local authority-supported residential care homes rose by more than a fifth—to 164,000.

One projection forecast a further 15 percent rise in demand by the end of this Tory government.

Profit margins are high.

The industry is dominated by low pay and labour is estimated to be 60-80 percent of all costs.

For some years firms have milked the public purse while squeezing staff.

Of 224 care firms investigated, 115 failed to pay the minimum wage

Figures last year showed that more than half the care companies investigated by customs officials were paying their workers less than the minimum wage.

Of the 224 care companies HMRC investigated 115 failed to pay nearly 7,000 workers the minimum wage.

They owed workers an average of £200 each, or £1.3 million in total.

But the industry is getting increasingly shrill.

Fees from publicly funded residents are stagnating while private firms’ employment practices are increasingly in the spotlight.

They believe they should be free to extract public subsidies, pay illegal wages and as little tax as they can get away with.

Their investments have nothing to do with providing care for the most vulnerable in our society.

One market analyst moaned that, “Homes catering mainly for publicly paid residents in non-affluent areas have sunk to worryingly low profit levels”—hovering around 15 percent of revenues.

Yet “operators focusing on self-pay residents in affluent areas of the country” can enjoy “healthy profits” of 25-30 percent of revenues.

The analyst noted, “New investment for private payers remains strong.

“Investment in new capacity has largely dried up in areas dominated by public pay.”

The latest half yearly figures to March 2015 show that for the first time overall care home capacity—the difference between closures and new openings—show a net loss of 3,000 beds.

As councils slash funding, debt?laden private equity-owned firms that have modelled their business on profiting from publicly funded residents are starting to squeal.

They threaten care home closures because cuts threaten their bottom line.

Scam that hides profits

Four Seasons is the largest operator in Britain’s £24 billion care home industry. It announced last November that it was closing seven care homes in Northern Ireland, giving just 12 weeks’ notice.

The homes were “operating at a loss and no longer viable” it said.

Four Seasons reported pre-tax losses of over £24 million last year. Yet private equity owners Terra Firma have Four Seasons paying £50 million a year in interest to service debts.

This masks the fact that money is being made—and is a common practice.

Private equity firm Bridgepoint Capital plays the same game with Care UK, which also has a significant stake in Britain’s care homes.

Bridgepoint received £90 million in interest payments from Care UK in 2013. Meanwhile Care UK posted operating losses of £9 million and slashed workers’ pay in Doncaster by up to £7,000 a year.

For private equity firms, care providers are cash cows. They set up complex financial models involving inter-company loans.

Four Seasons, Bupa UK, HC-One, Care UK and Barchester warned last year that extra costs would mean “thousands of older people could be left without a home”.

They bemoaned stagnating fees and the “National Living Wage” of £7.20 an hour, which comes into force in April. They predicted these things could spark the “catastrophic collapse” of the care sector.

The firms were fishing for a bailout from Tory chancellor George Osborne in the run-up to his Autumn Statement. He responded by giving local authorities in England the power to raise council tax by 2 percent—selling it as a boost for social care.

But there is no guarantee this would raise the extra £2 billion Osborne claimed, or that councils would spend it on social care. And it wouldn’t be enough to treat the damage already caused by his cuts.

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