Southern Cross, Britain’s largest care home provider with over 30,000 residents in 750 homes, is facing the prospect of complete collapse as it struggles to meet its rent bill. The company is in a dire financial state with the latest half-year results showing a loss of £311m. This is due to a fall in demand as local authorities reduce their social care spending by 10% while the company’s rent payments have risen by 2.5%.
The company has launched a desperate bid for survival, announcing 3,000 job cuts and unilaterally cutting its rent payments by 30%. However its landlords, among them Britain’s largest property firms, aren’t too keen on the idea and have put forward a plan to oust the management, take back leases, and sever ties with the company.
Whatever the fate of Southern Cross and its residents, the company’s troubles have revealed a deep crisis in the care home “industry” as a whole. Southern Cross is far from being an isolated case. A recent Unison report shows that 1,000 nursing and residential care homes could be at risk of closure, affecting nearly 50,000 vulnerable people and their families and hitting more than 60,000 staff. What is the cause of these problems?
In common with other public services, care homes have been the victim of a programme of ruthless privatisation over the last 20 years. In 1990, nearly 200,000 of the 500,000 care home beds were operated and owned by either the NHS or local authorities. Now only 31,000 residential care beds are provided directly by local authorities and most of those are expected to go in the near future.
Prior to the 2008 financial crisis the industry was a magnet for private equity firms and property speculators looking to invest. Southern Cross, for example, was bought by private equity firm Blackstone for £162 million in 2004, with its value doubling in two years. But why was looking after elderly people considered such big business? The speculators reasoned that an ageing population producing ever increasing demand, a steady stream of government funding and a valuable property portfolio was a recipe for mega profits. Much like the US housing boom, money poured into the sector with banks competing to lend money to investors on ever more leveraged deals. What could possibly go wrong?
This orgy of speculation was accompanied by the same financial ‘innovations’ that were prevalent throughout the economy. Banks packaged up the care home loans into different slices and sold them on to other investors. In the case of Southern Cross, Blackstone used a ‘sale and leaseback’ strategy. It stripped out Southern Cross’s property assets to a separate company (also owned by Blackstone) then rented them back to Southern Cross at higher rents. Blackstone then went on to sell the new property arm of the company for at least as much as it had paid for the whole business.
Of course the bubble could not go on expanding forever. The financial crisis came and with it a collapse in property values and a new unwillingness to lend on behalf of the banks. Investors value-to-loan ratios quickly plummeted and companies were forced to refinance their debt. At the same time “demand “fell as some councils tried to meet older people’s wishes to stay in their own homes and, of course, save money by any means possible. Having promoted privatisation as the catch-all solution to local authority spending levels, it was inevitable that the privatised operations would be hit by the fallout from the ruthless cutbacks in council budgets being pushed through as part of “austerity Britain.” In an attempt to shore up their profits and continue to pay the bills these heavily indebted companies were forced to drastically reduce expenditure, but in the care home industry this comes with a disgraceful human cost.
A care home’s biggest expense is it’s staff’s wage bill, so naturally companies seeking to cut costs reduced both wages and staff numbers. Indeed they were doing this during the so-called good times in order to increase their profits year-on-year. Care work is very hard and with a reduced ratio of workers to residents, while staff also worked longer hours to make up for their lower wages, it is inevitable that standards slip, regardless of how well intentioned the staff may be.
At the same time staff have been forced to cope with crumbling infrastructures in many of the homes. In the boom years, companies sought to maximise profits by keeping investment to a minimum and with the advent of the crisis even this meagre investment was cut. For example Southern Cross’s capital expenditure fell from 8.3 per cent of revenue in 2006 to 3.7 per cent in 2010.
To make matters worse staff sometimes do not even receive the necessary training. A care home worker quoted in the Financial Times describes how she hadn’t received proper training for dealing with residents with dementia. On one occasion a resident cornered her and started punching her in the face. She reached out to activate the emergency alarm only to find that as a result of cost cutting it hadn’t been properly tested and wasn’t working.
All the while the owners continued to cream off profits. The same care worker goes on to say:
‘You’ve worked an extra two hours because no one turned up... and then the director turns up in a Bentley with a fur coat and an Armani suit and you just think, oh my god, that two hours work I’ve just given you has gone straight into your bank account’
The end result is of course a drop in the quality of care and residents suffer. According to a Financial Times analysis, 13 per cent of care homes were rated poor or adequate by the Care Quality Commission and privately run homes perform worse. Only 1 in 11 local authority or non-profit run homes were rated as poor or adequate while the figure rises to 1 in 7 for privately run homes making them almost twice as likely to provide inferior care. These low ratings indicate potentially serious problems such as a failure to adequately feed or clean residents.
The apologists of capital are seeking place the blame for this crisis on irresponsible lending, claiming that there is nothing fundamentally wrong with private ownership of public services, there were just a few ‘bad eggs.’ In fact the current government are seeking to do much the same thing to the NHS in the name of ‘efficiency’ and ‘competition’. This will expose not only the care of elderly people to the ravages of capitalism but heart operations, cancer treatment and whatever else, with many of the same companies and investors who have so monumentally failed to care for our nation’s elderly looking to squeeze further profits out of treating the sick. As a social worker quoted in the Financial Times put it:
‘Nobody thinks of looking at the care sector to see what’s actually happened regarding quality of care and creaming off profit, and it’s exactly the same model they’re going for[with the NHS], and it’s the same companies too’
The worst excesses of financial ‘innovation’ produced by the credit bubble may have played a particularly pernicious role in deepening this crisis but it cannot just be put down to the irresponsible behaviour of a few individuals. Rather this was a systemic problem across the world capitalist economy, driven not by mere irresponsibility but by the objective needs of the capitalist system to extend itself beyond it natural limits in search of ever greater profits, no matter what the human cost.
In any case, the simple fact is that private care providers seeking to maximise profits will always be tempted to cut back on the spending needed to provide the best possible care for the vulnerable people they have been charged with looking after. If you give the NHS £100 nearly all of it will be spent on staff and treatment costs, if you give a private company the same £100 they will take out a percentage as profit before they even begin to consider patient care. It should be elementary therefore that in such cases private companies will always offer a worse service than public ones. This begs the question as to why swathes of public services have been privatised in the first place.
Britain was long ago transformed into a vitual rentier economy where the owners of capital seek profits not by investing in the production of useful goods but by creating vast sums of fictitious capital totally and parasitically leeching off the state. As we have explained elsewhere, the crisis of capitalism is at heart a crisis of overproduction made worse because workers cannot afford to buy back the very goods that they produce. In such a situation the capitalists are forced to exploit new areas of the economy in search of profits and this is the motivation for privatisation. Engels explained over 130 years ago how the capitalist class no longer has any useful role to play in the economy:
‘All the social functions of the capitalist are now performed by salaried employees. The capitalist has no further social function than that of pocketing dividends, tearing off coupons, and gambling on the Stock Exchange, where the different capitalists despoil one another of their capital’ (Engels, Anti-Dühring, Page 330)
In this period of deep economic crisis, it is clear that the government cannot “afford” to provide the necessary care, but neither can the private companies. There is no way out under capitalism, what is required is to nationalise the financial institutions and the commanding heights of the economy and use their resources to provide the services we require in the interest of working people and not profit. These care homes must be nationalise (or rather, in most cases,renationalised) now and there should be no question of any compensation being paid out to these privateers who have leeched millions from these services over the years.
- No to care home staff wage cuts or job losses!
- Nationalise care homes under workers control! No to privatisation!
- A massive programme of public investment to provide the standard of care older people deserve!