Leading article: The human cost of a dubious business model

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Brand toxicity claimed the News of the World, and now the same phenomenon has finished off Southern Cross care homes. It had been expected that some, perhaps many, landlords would leave the group, as it struggled to put together a rescue. But by yesterday all 752 said they wanted no more to do with Southern Cross, and the group is to be wound up.

The end of the brand, however, does not end the uncertainty – except for shareholders and creditors, who are unlikely to receive anything. Ownership of the homes now reverts to individual landlords – more than half of whom, it also transpired yesterday, are registered outside the UK's tax jurisdiction. Southern Cross had undertaken that only a dozen or so homes would close as a result of the group's difficulties. That guarantee no longer stands, leaving the residents, their families and local authorities in an agonising limbo.

There are analogies with the banks here. While there were banks that were too big to (be allowed to) fail, so care homes are too crucial to social provision to be permitted to close just like that. Change can be highly detrimental, if not fatal, to anyone who is old and vulnerable – which calls into question the whole idea of allowing the care-home sector to be fully exposed to the market.

It is telling that, while homes themselves are regulated – however inadequately – there was no special scrutiny of the business model that Southern Cross and others followed. Built on sale and lease-back arrangements, value to shareholders and calculated risk, it became unsustainable when the financial crisis hit. The priority now must be to minimise disruption to the residents. But the bigger question is what new regulation is needed to prevent more failures, and how far the state can, or should, delegate the responsibility for care.

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