In March, The Centre for Research on Socio-Cultural Change (CRESC) released a Public Interest Report, ‘Where does the money go? Financialised chains and the crisis in residential care’. The report considers the financial activity of the largest care provider ‘chains’ and questions whether there is indeed a financial crisis in residential care or if this is a ‘narrative’ designed to protect them from their losses.
To quote from the citizen’s summary, ‘The chains are effectively asking for a bail out when they are squeezed between austerity fees and rising wage costs. Through threats of home closure, they are now trying politically to spook the State into paying a higher price for residential care, which will protect them from the losses that are an ordinary risk of capitalist businesses. Their own financial engineering is a major contributor to chain fragility and care quality problems so that private gain comes at the expense of costs for residents, staff and the State.’
To give an overview, the report claims that:
- The large chains’ call for Government action to address the residential care crisis (autumn 2015) was based on fees paid by local authorities being too low. This is viewed as a ‘trade narrative’ in the report, designed to serve the interests of the chains.
- The financial activity of these chains, including cash extraction, debt leveraged buyouts (resulting in inflated sale prices), results in the cashflow becoming inadequate to cover the financing costs.
- Financial engineering by the chains is hidden in complex structures enabling tax avoidance and opacity. The uncertainty of where the care fees go to means that such accountability is impossible. This engineering and lobbying activity represents business models aiming to create a high return sector while shifting risks and costs on to the State, residents and staff.
- Higher care fees would effectively be a bail out, representing the privatisation of gains and socialisation of losses by the chains. Their development of 60-plus bedded ‘standard institutional’ style homes is driven by a need for return on capital; an operating model it describes as incidious.
- Though Britain leads the way in outsourcing residential care, other countries have been more successful in developing such care provision in more domestic settings. Public policy should encourage social innovation to rebuild adult social care.
- The Government should act to create low cost finance for providers, to enable the development of care services at a more appropriate 5% return on capital rather than the 12% return sought by the chains.
Is it just me?
The collapse of Southern Cross was undoubtedly a wakeup call for commissioners and the sector alike. The move by the regulator to monitor the finances of the largest providers is a reassuring measure but the CRESC report raises concerns about how thorough this action can be. Better transparency of how the money flows into care businesses would result in greater accountability, but just how this can be achieved in the context of what the report describes will be a huge task.
However, my issue with this research is the dangerous message that there is no financial crisis in residential care and that it’s the big firms’ attempts to make greater returns. To describe the crisis as a ‘trade narrative’ communicated by the ‘chains’ (who they claim speak for the sector) is provocative at the least. I would also take issue that the ‘chains’ speak for the sector.
Added to this, what about the majority of providers, who are not considered in this research and who also struggle to survive on current local authority fees that fail to keep pace with rising operational costs.
The existing and well-established care associations play a major role in speaking for the sector to represent the concerns of all providers, from small to corporate. I’m sure that I’m correct in saying that underfunding of care fees is an inherent business challenge, regardless of the size of a provider. I’m unsure how this fits with the ‘narrative’ being communicated to the public by this report.
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