With a timing to which he appeared oblivious, David Cameron launched his white paper, Open Public Services, on the same day that Southern Cross announced its long-delayed collapse. The white paper proposes that public services be opened up to competition from the private companies, community groups and charities, yet Southern Cross is the most egregious example of how things can go disastrously wrong when the private sector starts running matters like a child let loose on a Monopoly board.
Open Public Services also takes no note of the fact that “take it or leave it”, top-down public services – especially in the social care field and particularly with regard to residential care – have not existed for more than 20 years. Some councils – Westminster is an example – provide few, if any, services directly.
Two decades ago, the landscape looked very different. It was then that social care was used as the pathfinder for changes. At that time, these services were largely provided by local authorities, with some involvement from the private and voluntary sector. At that time, too, private residential care was typically a home run by a married couple. But, in the 1980s, costs to the Exchequer began to rise exponentially when the then Department of Health and Social Security amended Supplementary Benefit regulations to make it easier for care home residents on low incomes to claim fees. In 1978, the bill was £6 million. By 1988, it had risen to £460 million and, three years later, it had reached £1.3 billion. The number of places in privately owned homes for people with a physical or learning disability and older people (the growth was largely for the latter group) almost doubled, increasing by 97 per cent from 1979 to 1984. By 1990, the numbers had risen by 130 per cent since 1979.
Margaret Thatcher asked Sir Roy Griffiths, a former head of Sainsbury’s and an advisor to the Government, to conduct an official review, which found “a perverse incentive” that encouraged older people to enter residential care rather than continue to live with support in their own homes.
Hot on the heels of the review came a white paper and this was swiftly followed by the NHS and Community Care Act 1990 (enacted in 1993). The budget for residential care fees was shifted from the DHSS to local authorities, but the latter were also turned from being providers of services to purchasers. Their residential provision went largely to independent trusts or was taken over by management buy-outs and the private sector, and councils then bought care through contracts.
Corporate encroachment into the care market has proven to be unstoppable. Today the roughly 30,000 mainly private and voluntary employers provide most social care and employ most of the approximately 1.5 million people who work in this area.
These changes have passed largely unnoticed by the general public, but the potential threat to the welfare of Southern Cross’s 31,000 elderly residents in its 750 homes has begun to sound warning bells about the dangers of market-driven reforms. It has highlighted still more the financial juggling, with established property lease-and-buy-back strategies that may suit Tesco but sit very uncomfortably in services where human beings are supposed to be at the centre.
What have also gone largely unnoticed are the telephone figure payments to directors which have been amassed as a result of takeovers. For example, difficult as it may now be to imagine, in 2009, an otherwise unremarked upon item appeared on one or two financial pages. This announced that Richard Midmer, then group finance director of Southern Cross, had received a bonus of £385,000 for negotiating a debt-restructuring package. This was in addition to his golden handshake of £2.5 million worth of share options when he and group chief executive Jamie Buchan (who picked up £3 million in options) joined the company after it first hit the rocks when their predecessors had trouble selling a portfolio of homes they had bought with borrowed money.
In 2007, before Southern Cross’s shares began to plunge, four executives cashed in and took home £35 million. Compare this to the anxiety now felt by residents and their families as a result of the company’s collapse – or the minimum wage salaries paid to staff, who may be wondering if their employer’s demise will leave them jobless.
This is an industry where takeovers can make billions and directors become multi-millionaires, but which rests on an army of poorly paid workers (the minimum wage is common), who often come from overseas and are mostly poorly trained.
When it comes to collecting several millions for passing “Go” on the takeover board, Southern Cross is a notorious example. It was floated in 2006, with a price tag of £400 million, two years after Blackstone, one of the world’s biggest private equity funds, had paid £162 million for it.
To take another case, in 2002, the venture capital company 3i brought Westminster Healthcare (which itself had acquired companies over the years) for £267 million. Three years later, 3i sold it to Barchester Healthcare for £525 million. Wherever the £258million profit went, it didn’t go into care.
Until recent events, the top 10 care home providers controlled a quarter of the market. And while three of the top 10 are not-for-profit providers, the largest of these, Anchor Homes, has only 1 per cent of the market, while The Order of St John Care Trust, the sixth largest provider, has a 10th of Southern Cross’s beds and 0.9 per cent of the market.
Some of Southern Cross’s landlords, who are now divvying up these massive pickings, have their own financial problems. And such are the labyrinthine entanglements of capitalist social care that Four Seasons and Bondcare, both residential care providers, are also two of Southern Cross’s landlords.
Southern Cross (or, rather, its residents) is not the first victim of market machinations. In 2007, Sedgemoor Care, a large provider of children’s homes, foster care, and education for children in care, went bust. But earlier, in 2000, it had been bought for £13 million by the private equity company ECI. At its demise, some homes and schools were sold as going concerns within 48 hours. but many other children, whose lives had been marked by instability, had to be placed in new accommodation and schools.
Should Southern Cross’s new owners have problems in sustaining what they have inherited, there could be problems, despite the Prime Minister’s promise that things can be maintained. Unlike the privatised utilities, where there is legislative provision for the state to step in were they to fail, there is no such protection for social care. Local authorities could step in and run the homes, but their knowledge and expertise in the area has long gone.
One problem facing all providers, large and small, profit and not-for-profit, is the low level of fees paid by local authorities. Those for working with, say, very disturbed children and young people are high (as much as £6,000 a week for each child in some cases). However, fees last year averaged £641 for nursing care and £507 for residential care a week. So, for supporting an older person or someone with a learning disability – offering full bed and board, 24-hour care and activities – the average fee is about equivalent to the cost of a week in a budget hotel. Many homes, run by both charities (such as the Church of Scotland’s residential arm) and smaller private operators, have been forced out of business by fee levels.
Economies of scale, on which large providers are particularly keen in order to reduce costs and push up profits, mean that, while the number of homes has decreased, the number of beds has increased. New homes are larger (and often more impersonal) than those which they replace. In 2010, according to figures from the Care Quality Commission, the regulator, one in seven private sector homes were judged “poor” or “adequate” against one in 11 in the voluntary sector. On average, the private sector pays lower wages and has higher staff turnover rates.
There can be no going back to the days of mass local authority provision. But agencies, social enterprises, not-for-profits, mutuals and co-operatives could have a greater role to create a healthier market. Such a market would encourage the good private providers (the CQC can saddle small home owners with petty restrictions while allowing places such as Winterbourne View, the private hospital in Bristol where abuse was widespread, and Southern Cross to carry on unnoticed until they reach the cliff edge); and restrict the size of corporate providers. The CQC is not a financial regulator and the way the market has developed suggests that what we need – both to control financial manoeuvring, boost co-ops and the like, and ensure that fees are realistic – is a different and more proactive regulator.
As things are, venture capitalism seeks to push out or take over rivals and secure ever-higher profits with lower costs. This is hardly a balance sheet on which vulnerable people can be expected to count.
Terry Philpot is the author and editor of several books and reports on social care
