The company – whose immediate fate depends on whether its landlords will accept proposals for rent reductions of 30 per cent and more over the coming months – cares for 31,000 people who are elderly, disabled or have special learning needs in 750 homes across England.
In a statement to the City, Southern Cross said it is shedding 3,000 of its 44,000 employees to “improve operational effectiveness” and that there is still “a lot of value (profit)” to be made from its core business.
Amid widespread reports that it is seeking to sell off 50 of its homes that cater for high dependency residents with either physical or learning disabilities the company said it will hold a shareholders’ meeting on July 12 as net assets have fallen in value to less than half of the company’s share capital.
Private equity group Blackstone owned the company between 2004 and 2006 and devised the “sale and leaseback” model which has left the company struggling with an unmanageable rent bill.
Unison, which has consistently been warning about the financial instability at the company but also throughout the entire care industry, condemned the job cuts as a tragedy for residents as much as for staff.
It blamed the company’s highly leveraged financial gearing – which it characterized as “dodgy accounting” – and warned that Four Seasons, which employs 19,000 people to operate 400 care homes for 19,000 residents and is England’s second biggest care provider, is also in severe financial difficulties.
Private equity takeovers of public services that use similar high risk business models, could leave taxpayers picking up the bill for more company failures, warned the union in a detailed report published this week.
Councils have lost much of their grant funding from central Government, leading to further cut backs in social care services.
The cost and risk of operating many of the spun-off care home groups has risen as companies struggle with servicing original borrowings and rent making it hard to honour their original terms and covenants – in many ways analogous to troubles experienced by PFI hospitals.
Local authorities may be forced to take over failing companies to protect residents, but at a huge and unplanned cost to the taxpayer, it warns.
Unison general secretary Dave Prentis said: “The home and day care market is worth about £4 billion a year, making it attractive to private companies eager to make profits but the looming catastrophe in the sector shows that gambling with people’s care is irresponsible and too risky. We are seriously concerned that plans to push through the NHS reforms will lead to a similar crisis in the health service. Private equity and other private sector operators are hovering over the NHS, eager to make a quick profit – at the long term cost of care quality and continuity of service.
“Typically these private equity firms buy companies cheaply, merge with rivals and then sell them on as quickly as possible. Short-term asset holding means that people and services are passed from pillar to post, with no continuity of care. Our list of disasters documents a history of privatisation dogged by problems – companies putting profits before people, funds being lost and inexperienced providers delivering poor quality care.
“Taxpayers have already had to bail out banks that loaned too much to private equity speculators to privatise public sector assets that were over-valued. Now taxpayers will have to pay the price again, as they will be forced to pick up the bill for collapsing companies. We need to halt the privatisation of any more public services, before more people are made to suffer in the name of profits.”
