Category Archives: Business

Outsourcing 9: Care homes crisis

Before 1990, healthcare in the United Kingdom was provided by health authorities which were given a budget to run hospitals and community health services in their area. The National Health Service and Community Care Act 1990 introduced an internal market into the supply of healthcare in the United Kingdom, making the state an ‘enabler’ rather than a supplier of health and social care provision.

Care homes were then outsourced by local authorities to the private sector which employed large numbers of low-paid workers with weak representation by unions and professional organisations. Spending on social care is now below 2010 levels.

Gill Plimmer describes the way in which global private equity, sovereign wealth and hedge funds have piled into the sector in the past three decades, lured by the promise of a steady government income and the long-term demographics of Britain’s ageing population.

Three of the biggest chains — HC-One, Four Seasons and Care UK — are in the hands of buyout groups.

At the Four Seasons Whitchurch Care Home in Bristol (above), emergency buzzers went unanswered, some medicines were not dispensed and many of its frail and elderly residents had not been given a bath, shower or a wash for a month, an official inspector’s report found. A broken elevator meant residents on the second floor could not be taken to hospital appointments.

Problems are in part a result of:

  • a long-term decline in fees paid to providers for social care,
  • a state mandated rise in the minimum wage,
  • a decline in state funding for local governments, which pay for 60% of their residents,
  • short term investment and speculation,
  • larger private equity-owned care homeowners have a short-term investment focus and complex structures, involving scores of subsidiary companies, many of which are listed offshore and
  • the money to fund the trading coming from taxpayers or from middle class people running down their savings.

When Terra Firma (building better businesses) bought the Four Seasons chain in a £825m deal in 2012, there was still £780m of outstanding borrowings hanging over the business. Now around £1.2bn of interest-bearing debt and loans from unspecified “related” parties.

Nick Hood, analyst at Opus Restructuring & Insolvency, which has advised several care home chains, said “owners are playing with the debt and expecting returns of 12 or 14 per cent and that is simply unsuitable for businesses with heavy social responsibilities”

He adds that the watchdog — the Care Quality Commission — should require the entire corporate structure to be held within the UK

Jon Moulton, the private equity veteran who ran Four Seasons in the early 2000s recommends that care home chains should hold a certain amount of capital, just as banks are requited to do by the Financial Conduct Authority.

Toothless regulator/watchdog places all responsibility on Britain’s cash-strapped local authorities

Kate Terroni, chief inspector of adult social care at the CQC, says that for now it has no authority to introduce minimum capital requirements or to intervene to prevent business failure. “Our powers are to provide a notification to assist local authorities who are responsible for ensuring continuity of peoples care

Meanwhile, as Four Seasons “hurtles towards insolvency”, directors are paid lavishly and their care homes continue to close.

 

 

 

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Outsourcing 8: apprenticeship training 2017-2020

In 2018, the Times (paywall) reported the verdict of MP Meg Hillier, chair of the Public Accounts Committee: “The apprenticeship levy is not working. It was meant to incentivise large employers to invest more in apprenticeships by requiring them to pay into a central fund from which they can claim back some or all of their training costs.

Instead it has led employers to recoup the cost of existing in-house training schemes by relabelling them as apprenticeships. 

She noted that more companies are setting themselves up as training providers and that Ofsted says that it will struggle to keep tabs on these. The following year her report pointed out that too many apprentices were still being trained by sub-standard providers.

Around a third of apprentices covered by Ofsted inspections in 2017/18 were being trained by providers rated as ‘inadequate’ or ‘requires improvement’. The poor quality of some contributed to a situation where over 30% of apprentices fail to complete their apprenticeship successfully each year.

A letter to the Times editor added: “The Learndirect scandal serves as a stark case: an organisation was allowed to take on more and more learners (reaching 75,000) when warning signs of inadequate training and poor financial management were already being issued”.

The Financial Times reminded readers that Learndirect was privatised and sold to the private equity arm of Lloyds Bank in 2011 but is still reliant on government funding. When the Public Accounts Committee questioned Learndirect and Ofsted, Ofsted revealed the findings of Learndirect’s “inadequate” performance and the ‘legal shenanigans’ used to prevent earlier revelations. The findings included:

The National Audit office’s 2019 report focussed on the cost of apprenticeships and the low rate of uptake. In its first full year of operation, the apprenticeship levy raised £2.7 billion and this is expected to rise to £3.4 billion by 2023-24. However, there have been repeated warnings in recent months that the funding pot generated by the levy is about to run out

Earlier this month the Financial Times reported on an Education and Skills (EDSK) report, based on official data, which has investigated what is happening with the apprenticeship levy and the apprenticeship system in England more broadly. 

It found that 50% of apprenticeships funded by the levy are ‘fake’, citing figures which relate closely to those reported by the Public Accounts Committee, recorded in the FT box above:

  • Some £1.2bn of the £2.4bn money raised since the levy was introduced in April 2017 had been spent on “fake” apprenticeships, rebadged MBA courses and low-skilled jobs training,
  • £550m of levy funding had been spent on management training courses for experienced employees, which previously would have been funded from professional development budgets.
  • Highly qualified academics, many of whom already have PhDs, had been relabelled as apprentices in order to put them through levy-funded professional development courses.
  • And £235m had been used to teach people in low-skilled jobs, including working at a shop checkout or serving in a bar, often requiring minimal training, which pay low wages and do not meet any established definition of an apprentice.

Last July Boris Johnson said that, while he will always “defend and extol the advantages of having a degree, there are far too many young people who leave university with huge debts, and no clear sense of how their academic qualification has helped their career.” He has pledged to “elevate practical and technical qualifications” to “recognise their immense value to society and to the individual” and to raise funding for apprenticeships.

As – regrettably – Learndirect has re-emerged in the apprenticeship sector under a new name: Learndirect Apprenticeships Ltd., EDSK reflects that government pays private providers taxpayers’ money to deliver public services but can fail to monitor the results or truly penalise those that do not deliver. It recommends the Department for Education to tighten rules to stop financing of rebadged MBAs and low-skilled training and introduce a new definition of apprenticeship, benchmarked against the world’s best technical education systems.

 

 

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Public health emergency: move some freight from road to water and reduce air pollution

“There are an estimated 11,000 deaths per year at the moment, but this will rise as the population continues to age”. (The British Heart Foundation (BHF) 

Summarising an Environmental Law paragraph:

  • Transport is the biggest source of air pollution in the UK.
  • In town centres and alongside busy roads, motor vehicles are responsible for most local pollution.
  • Surface transport is responsible for around a quarter of UK emissions of carbon dioxide (CO2) – a major contributor to climate change.
  • Many areas still fail to meet national air quality objectives and European limit values for some pollutants – particularly particles and nitrogen dioxide.

As the shortage of HGV drivers in the UK has climbed to 59,000 and 64% of transport and storage businesses now face severe skills shortages, (according to a recent report by the Freight Transport Association) it is a good time to consider a shift from HGV to barge.

The British Heart Foundation (BHF), has warned that more than 160,000 people could die over the next decade from strokes and heart attacks caused by air pollution. Jacob West, executive director of healthcare innovation at the BHF, which compiled the figures, said: “Every day, millions of us across the country are inhaling toxic particles which enter our blood and get stuck in our organs, raising our risk of heart attacks and stroke”.

Bellona Europe (header below) comments that inland waterway transport has greater potential to reduce greenhouse gas emissions than road or rail, when discussing ways to make the mobility sector more clean and carbon-neutral.

“With air pollution contributing to around 40,000 deaths a year and four in 10 children at school in high-pollution communities, it’s clear that tackling air pollution needs to be everyone’s urgent business.”

 

 

 

 

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Will turkeys vote for austerity, exploitation, climate disaster and profits for the few?

 

 

 

 

 

 

 

 

 

 

 

The revolving door between government & big business

Yesterday’s headlines review of ONS report: 2008-2019, richest 10% enjoy biggest gains in household wealth

 

 

 

 

 

 

THEIR CHOICE

 

 

 

 

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Outsourcing 6: Ministry of Justice in meltdown’ – again

There are many forms of outsourcing, defined here, but in this post we refer to the practice of handing over control of public services to private enterprises. Many adverse references to the practice of outsourcing may be seen by searching this site.

The Information Services Group consultancy reports that the UK outsourcing market is now the second largest in the world outside the US; under the coalition government the number of outsourced contracts rose 125% from 526 under the last Labour government to 1,185. Justice, defence and welfare are the biggest ‘markets’

‘HGS seamlessly supports your business behind-the-scenes’ . . .

The Ministry of Justice (right), which had serious IT problems earlier this year, is handing over its outsourced system, designed to help police to book local duty solicitors and co-ordinate payments from the existing supplier, from Capita to HGS UK. After a week-long transition period solicitor Kerry Hudson, vice president of the London Criminal Courts Solicitors’ Association, said that police are struggling to log cases with the Defence Solicitor Contact Centre (DSCC). Bethan Staton reported on the problems experienced, including 30-minute hold times, staff who cannot operate the bookings system and requests being sent in error or after suspects had been released under investigation.

David Greene, vice-president of the Law Society of England and Wales, said that the service administered by Capita, had previously been plagued by faults:

  • reports of wrong or missing names of detainees,
  • cases given to incorrect firms,
  • solicitors directed to custody suites — only to find the detainee isn’t there.

He added that the call centre “appears to have undergone a complete system meltdown” during the contract changeover.

The Law Gazette reports that Kerry Hudson wondered how many detainees across the country had gone into interview alone, having been told the police cannot get through to request a solicitor to attend. Kerry Hudson said that even when they do manage to get through, there are said to be:

  • delays of four or five hours between the police first call and the DSCC then contacting the solicitor and
  • when they are contacting the solicitor, much of the key information is missing (including the detainee name in some cases) and the crucial DSCC reference number.

Law Society vice president David Greene added that denying suspects the right to legal advice risks miscarriages of justice.

Public Finance, which provides news and analysis for professionals in public finance, has commented that a series of botched UK government contracts, including a Serious Fraud Office investigation into Serco and G4S for overbilling on a deal to monitor offenders, has raised concerns over whether the taxpayer receives the best value for money and the National Audit Office has called for closer scrutiny of government contracts.

This is the latest in a series of debacles linked to government outsourcing of some parts of the law enforcement system; last year the government had to reverse its decision to use private companies to run probation services.

 

 

 

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Nationalise British Steel? A viable asset, essential to a decarbonised economy

 

Andrew Pendleton (New Economics Foundation) reminds us that since Margaret Thatcher first stood on the steps of Number 10 in 1979, successive UK governments have chosen to withdraw all but the barest bones of support from Britain’s foundational industries, of which steel is one. He questions whether any owner of steel manufacturers in the UK could thrive in the hostile environment UK governments have created.

Failed by the current government’s blind faith in markets, Pendleton writes,  the people of Scunthorpe and many other places have had no voice whatsoever in how the economy was run, until ‘the blunt instrument of the EU referendum’. The loss of this significant company will intensify the sense of loss that contributed to the Brexit vote

There are risks in selling to the Turkish Military Pension Fund or to the Chinese Jingye Group, about which very little is known, industrially, but the interest of foreign buyers suggests that British Steel is seen as a potentially viable asset.

Many tonnes of steel will be needed to build a cleaner economy – for wind turbines, electric vehicles and the rail lines made in Scunthorpe, critical to a decarbonised economy. As Pendleton points out, steel production is ‘problematic’ for climate change – but steel production in Scunthorpe can be ‘greened’ by investing to reduce its carbon emissions, eventually reaching zero as coal-free production (below) becomes the norm.

In Germany, Thyssenkrupp recently demonstrated running a steel blast furnace completely on hydrogen – opening up the prospect of zero-emissions steel production by using renewable hydrogen.

Hydrogen will become cheaper as current methods, which rely on creating hydrogen fuel from purified water, are superseded by less expensive technologies such as one being developed by Stanford researchers, who have been separating hydrogen and oxygen gas from seawater via electricity.

And millions of tonnes of carbon used in shipping will be saved by using steel close to where it is manufactured

Pendleton sees the current economic model, ‘now the default preference of our policy-makers’, as absurd; in Fife, steel fabrication firm BiFab is in mothballs (right) while energy giant EDF imports the casings for the turbines on its new offshore wind farm from Indonesia.

He points out that Indonesia and some of our European neighbours’ governments habitually intervene to ensure that ‘foundational industries’ have guaranteed supply chains and amply-filled order books.

British Steel owners Greybull, a private investment company which owns many other industries, are unlikely to be seriously affected, but the company’s workforce, its suppliers, Scunthorpe and the wider economy will. It will be a disaster, politically and economically. Andrew Pendleton ends:

“Nothing short of immediate nationalisation is needed; anything less will be a betrayal of a whole town and will send shockwaves through the UK’s industrial heartlands . . .

“It is not too late for the government to step in and take the company over, which would have the immediate effect of keeping people in work and the economy of a town afloat. This is absolutely government’s proper role. But it shouldn’t stop there. After nationalisation should come a three-pronged approach:

  • focus on industrial strategy for British Steel in order to secure its supply chains
  • fill up its order book with a proactive procurement policy.
  • and create a worker owned company who could then benefit from an ownership dividend

“Given the UK’s need to invest and build green infrastructure, such as railways, steel is of national strategic importance”. 

 

Read Andrew Pendleton’s article here.

 

 

 

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City fund managers, responding to Gail Bradbrook, call for reform of our economic system

Patrick Jenkins (Financial Times) attended a debate held by the FT City Network, a panel of more than 50 senior figures from across the City of London, during which ‘two of the world’s biggest fund management bosses’ pleaded for reform.

He reported that these pleas were made in response to an address by Gail Bradbrook, co-founder of Extinction Rebellion, in which she called for wholesale reform of the current economic system to avert global disaster.

Recent protests have focussed in part on the City of London and the role that banks, asset managers and insurers play in financing and sustaining some of the world’s most environmentally damaging industries, from oil extraction to vehicle manufacture.

In October Extinction Rebellion activists dressed in red later demonstrated outside the Royal Exchange in the City of London in October

Several participants praised the part that UK-based climate change activist group Extinction Rebellion has played — alongside others, including Swedish teenager Greta Thunberg and film-maker David Attenborough.

Anne Richards, chief executive of Fidelity International, said the world must end “our obsession with ever-increasing GDP” and the “primacy of shareholders” to foster the kind of long-term thinking that would help protect the environment and “pivot [away] from the Milton Friedman concept of capitalism and the primacy of shareholders, who may have a very short-term involvement with an individual company, towards a wider stakeholder approach”.

Andreas Utermann, CEO of Allianz Global Investors, said that the world’s growth mania — “nominal GDP growth, supported by population growth, [and profit] growth” — was clearly unsustainable, and suggested that capitalism in its current form is “borrowing from the future while destroying the environment . . . A more holistic approach to ‘growth’ needs to evolve, looking to capture societal and environmental benefits and costs . . . More sophisticated measures than GDP per capita are required to determine whether capitalism is delivering to all stakeholders without borrowing from the future while destroying the environment. It was self-evident that this is not sustainable”.

A number of City Network contributors said that, while it was impossible to blacklist climate unfriendly firms instantly, it was vital that companies set tough environmental targets, measure whether they were met and reward managers on their performance, rather than on short-term profit. Other interventions showed that a wider range of contributors to the debate believe that business and government must urgently improve their response to the growing evidence of environmental catastrophe.

 

 

 

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