The future of the left since 1884

Financing care

Labour’s plans for a National Care Service will require not just a reversal of austerity, but also the unwinding of decades of financialisation, writes Amy Horton.



Social care should be made free and tax-funded, according to a report today by the cross-party Lords economic affairs committee, which calls for a reversal of funding cuts as a first step. These proposals should be welcomed, but they will not be effective without profound changes to the way that major care companies are run.

Of the 420,000 people who live in care homes, a fifth of them are in companies owned by investment funds. They have turned to financial markets for credit to fund buy-outs and expansion, while restructuring companies to maximise returns to investors. Their financing and business models have contributed to the crisis of care. The impacts of this crisis of care have been felt most strongly by women, who make up three-quarters of care home residents and most of the low-paid, disproportionately migrant, care workforce.

One key challenge for the future is to ensure affordable space for residential care. Since the late 1970s, the development of care homes has been left largely to the independent sector: only 10% of provision is public. In this context, care homes have come to be seen as a property investment – attracting private equity firms, hedge funds and real estate investment trusts. In many cases, investors have sold off care companies’ real estate, which for them has been “phenomenally accretive”. But the care operating companies then have to lease back premises, diverting funds from residents and workers.

The burden of rent played a key role in the collapse of Southern Cross in 2011, which led to a chaotic scramble to find new operators for its homes. This caused great uncertainty for their 30,000 residents, while 3000 staff lost their jobs. Maintenance spending had suffered, and a number of Southern Cross homes that had been “run down to rack and ruin” were later shut down by the regulator, forcing vulnerable residents to relocate.

More recently, real estate investment trusts have become the leading developer of care homes. For their tenants, there are concerns about the sustainability of high rents that increase automatically, inflated property values, and the amounts paid out to shareholders. Investor agendas are also giving rise to large, ‘hotel-like’ facilities, with little sense of ‘home’. Staff reported that they struggled to get to know so many residents, while those with dementia could feel further disorientated. The quality of care tends to be poorer than in smaller homes.

Policymakers need to consider appropriate sources of land and financing for future care homes. They might use public land and loans from the Public Works Loans Board. Several councils, including Poole, have started to care back in house and could offer valuable lessons.

Another consequence of financialisation has been the overindebtedness of major care companies. Over the past two decades, an influx of investment has driven massive expansion of care chains, which have been repeatedly bought and sold using high levels of debt financing that can inflate prices and generate crises.

For example, one of the largest care providers, Four Seasons, was bought by investors in 2004 and sold just two years later for twice as much. This £1.4 billion deal was almost entirely debt financed. The costs rapidly proved unsustainable: in 2009 the company required one of the largest debt restructurings in Europe triggered by the financial crisis. New private equity owners acquired the company in 2012, promising more stable financing. But in 2016, Four Seasons still accounted for 13 per cent of sector’s debt, compared to only 5 percent of its beds. Annual borrowing costs of £50 million have put more pressure on less profitable homes, prompting closures and forcing residents to move. In 2018, Four Seasons was again unable to meet repayments. Its hedge fund owners are now seeking to sell the company, though several other care chains have been languishing on the market.

Evidently, it is not only austerity, but also corporate debt burdens, that undermine spending on residents and drive providers to maximise fees. Even in a nursing home charging £75,000 a year, staff reported rationing of incontinence pads. If future governments simply increase care funding without tackling the debts of care providers, much of the money will flow out of the sector to creditors.

Policymakers could return to the stricter proposals for regulating care providers’ finances that were considered but rejected after the collapse of Southern Cross. These included stronger checks on provider finances as a condition of licensing; requirements that they post capital upfront to be used to prevent sudden closures; or checks on provider indebtedness. Bans on the ‘sale and leaseback’ of property assets and caps on debt have also been proposed. Another option would be to take struggling companies into public ownership.

Transforming the care system is an opportunity to build a caring economy. This means recognising care homes as social infrastructure, with sustainable and democratic forms of ownership, financing and operation. With 1.6 million jobs, social care is a vast and growing sector of employment. Visions for the future of work must take a feminist approach and recognise and reward the valuable, skilled work of carers – not treating them as a cost to be minimised. Residents and their relatives, workers and communities must all play a greater role in building the care service we need. Creating a system that supports good relationships between them should be at the heart of 21st century welfare.

Amy Horton

Amy Horton is a lecturer in economic geography at UCL.


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