A year on from the Southern Cross debacle, what could possibly go wrong with the rental care provider model?

 

The care homes sector is no stranger to private companies. What’s changed is the expansion of big companies, or major providers, who have largely replaced council homes, and swallowed-up hundreds of family-run small businesses. 

Local authorities are no strangers to care homes closing down, and are pretty adept at ensuing elderly residents do not end-up on the streets. But the collapse of Southern Cross changed everything, or at least should have, because it showed that a big company, caring for thousands of vulnerable people across many local authorities could operate a high-risk business without anyone raising an eyebrow.

Southern Cross would buy up homes, sell the freehold to whoever wanted them (to raise capital to expand) and then lease the homes back to operate. Its ever changing landlords put up rents at the same time income went down – as local authorities placed fewer people at lower prices than it was counting on.

None of the 10 biggest care home providers analysed by the The Independent are up the same creek without a paddle, but the level of debts and complex corporate structures of some, is cause for concern. Yet the government’s promise of forced financial transparency - to enable ordinary people to understand what risks companies are taking - appears a long way off.

What’s clear from Suffolk is that the private sector has responded much faster to Southern Cross than government.  The council has not analysed future risks to the indebted Care UK, or the new landlords, as part of its due diligence.

The 25-year deal appears to protect Care UK pretty well, but if its finances did go badly wrong, the local authority would be wholly reliant on the market to step-in. And it would, according to some analysts, as happened with Southern Cross where no homes actually closed.

It’s whether we think it’s okay to leave the wellbeing of vulnerable elderly people in the hands of the market or we think the government should do just a little bit more to keep a beady eye on what deals are being done and why.

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