Big care providers are wasting taxpayers’ money
New Ecomonics, by Sarah Lyall
In his final Spring Budget on Wednesday, the Chancellor announced that he would pour £2bn of cash into social care services. We all know that money is desperately needed. But this kind of emergency relief is simply not sustainable.
Our social care system is a leaky bucket. Large chunks of cash invested in social care end up in the hands of private investors. Instead of simply pouring an endless stream of public funds at the problem, we urgently need to fix the bucket.
The waste in the social care system should make any prudent Chancellor wince. According to new analysis by the New Economics Foundation, £115m of the cash that Hammond has pledged for social care will go to the profit-making investors of the five biggest private care providers. That’s 29p in every £1 of taxpayers’ money – the second biggest cost for these businesses after staff wages. That cannot be a sensible way to pay for something so fundamental as how we care for our elderly and disabled. How did it come to this?
The rise of the care chain
The UK has seen an astronomical rise in private social care over the past 30 years. In the 1980s, more than 90% of beds were provided by publicly owned care homes, and only 10% by independent providers. By 2016 this figure had been reversed: 90% of residential care is now delivered by independent providers, the vast majority of which are for-profit organisations.
During this process, the phenomenon of the chain care provider reared its head. According to the Centre for Research on Socio-Cultural Change (CRESC), the five largest private chains offering residential care currently provide 20% of publicly funded care home beds. And they are gradually increasing their market share – buying up small chains and taking over provision from family-owned homes.
High-risk or low-risk?
In order to raise the cash to buy up smaller homes, these chains attract investment from private equity firms, hedge funds, banks and consortiums of individual investors. Three of the biggest five chains are owned by private equity. And they operate on a business model which expects to offer unusually attractive returns to investors.
Big care providers routinely expect to offer 11% returns to investors. But social care should not be a high-risk, high-return business. It is backed by the state, and demand is steady. That’s why we want to see rates of return for social care investors capped at 5% by default.
“Local authorities are being held to ransom by large providers”
In low-risk sectors like food, 5% returns on investment are more normal. If the five biggest care providers offered a more appropriate 5% return, that would mean an extra £53m of the cash promised in the Budget would be freed up to deliver care rather than being channelled to investors. And that would equate to over 117,500 desperately needed beds in the social care sector.
Local authorities are being held to ransom by large providers. Either they pay into the providers’ high-return model, or the huge chains threaten care home closure which would remove care for hundreds of sick, elderly and disabled residents. With the memory of the collapse of Southern Cross Healthcare in 2011 fresh in their minds, that is a threat which councils take seriously.
As a much-needed extra £2bn pours into the social care system this week, we have to question this high-risk, high-return model. Our care system needs urgent reform.
Big or small?
Big care providers favour 60-70 bed care homes. But research by the Care Quality Commission shows that smaller care homes of ten beds or fewer generally provide much better outcomes.
With the aim of maximising returns, many big providers squeeze their staff and seek to optimise the number of beds — not to provide the best setting for care but to ensure staff costs and overheads can be kept to an absolute minimum.
This is no way to provide care. By supporting councils to encourage and develop small-scale, personalised providers, the government could help create local care networks designed around the best evidence on quality care. If councils were allowed to borrow from the Public Works Loan Board to build and refit care homes, they could let these at moderate rents to organisations delivering the high-quality care people desperately need.
Britain is careering towards a care sector which is dominated by a handful of giant providers of expensive but poor-quality care. Of course funding is desperately needed for social care. But the Chancellor could be using that extra cash to take the first steps towards fixing our care system rather than propping up a broken and unsustainable business model.
We deserve better than this investor-driven factory farm operation. It’s long past time we fix Britain’s system of care so that it delivers the human-scale and affordable service people desperately need.