Blog Archives

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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If the economy ‘tanks’ post-Brexit, will shopping mall and carpark revenues be enough to compensate for government cuts?

 “Years of chronic underfunding have left local government ‘on life support’ “

123 of England’s 353 councils sent information to the 2019 State of Local Government Finance survey, conducted by the Local Government Information Unit and Municipal Journal. Chris Tighe (possible paywall) reports that Jonathan Carr-West, chief executive of the LGIU, has warned of a future in which care for the elderly and for vulnerable children could be funded from shopping centre investments and car parks – “a significant risk if the economy ‘tanks’ “.

Survey findings include:

  • More than half of English councils will eat into their reserves.
  • Four out of five are investing in commercial developments to supplement their revenue this year to compensate for central government funding cuts.
  • Nearly half of the local authorities are planning to cut services.
  • Most will raise council tax this year and increase charges to stay afloat.
  • A quarter said planned cuts to services in the coming year would be noticed by the public.
  • 10 local authorities said they were concerned they would be unable to deliver the legal minimum service for residents.
  • Last year, Northamptonshire county council was given special permission to sell its head office and rent it back after running out of money.
  • Several other authorities have warned they are close to collapse.
  • 8 in 10 senior council decision makers believed the current system for council funding was unsustainable.
  • 82% were considering commercialising council services to raise extra money
  • and 57% wanted to sell council assets.
  • Children’s services and education were the top immediate financial pressures, for the second year running.
  • Adult social care is still under severe strain

Four out of five English councils are investing in commercial developments to supplement their revenue this year to compensate for central government funding cuts.

The government’s annual funding settlement for local authorities, outlined in December, assumed that every council in England would implement the maximum 4.99% council tax increase, including 2% ringfenced for adult social care, in 2019-20. Analysts say that would add around £80 to the annual average bill for a Band D, mid-market, home — currently £1,671. An additional £24 can be added to the charge to fund the local police force.

But the Local Government Association said the tax rise would not be enough to prevent service and job cuts after eight years of austerity. It said councils would have lost almost 60% of their central government funding between 2010 and 2020 and face an overall funding gap of £3.2bn in 2019/20.

Jonathan Carr-West warned: “In the future, care for the elderly and vulnerable children could be funded from shopping centre investments and car parks, which carries significant risk if the economy tanks.” This year’s government spending review would, the survey warned, be “make or break” for vital local services.

 

 

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Closer to home: spotlight on combined authorities and elected mayors – democratise!

A reader brought to our attention the recent article on transport by Richard Hatcher. Before we focus on this, we set it in the context of his reflections on combined authorities for thoughtful people in the seven CAs already established and a further seven proposed – read in detail here

Why government – and employers – want a directly-elected mayor

A directly-elected mayor is a presidential form of local government, accountable only in direct elections every four years with no right of removal.  It means the government can deal with a single leader and one not tied to local political parties as a council leader is – an arrangement that suits the private sector too. Directly-elected mayors offer the possibility of a Tory mayor, or at least an independent, being elected in Labour-dominated urban areas. And they are ideally suited to the media’s fondness for reducing politics to personalities.

Democratise the Combined Authorities: London has an elected Assembly – why not the West Midlands?

 

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Richard Hatcher points out on BATC’s website that there is a precedent, the scrutiny arrangements in London: “There ongoing public accountability of the directly elected mayor and the Greater London Authority is ensured by a directly elected London Assembly.  The London Assembly has 25 elected members. They are not just existing councillors drafted onto a Scrutiny Committee, they are elected by citizens who vote for them specifically because they are going to fight for their interests. And they aren’t just reactive to policy, they act as champions for Londoners proactively investigating concerns through not just one but 15 issue-based committees and raising their findings and their policy demands with the Mayor and with the government itself”.

The Constitution of the West Midlands Combined Authority (WMCA) does not exclude the option of an elected Assembly, Hatcher asks “If it’s right for London why isn’t it right for the West Midlands?”. Three principles are laid down and seven positive steps – read on here.

Scrutiny?

His article written earlier this month describes the WMCA Scrutiny Committee as being ‘seriously incapable’ of carrying out that responsibility: “The Scrutiny Committee only has 12 councillor members. It is scheduled to have only four meetings during the year, for two hours each.  It is inconceivable that the Committee can engage with the huge range of activities of the WMCA, select issues to scrutinise and carry out a serious process of scrutiny in that time. (Each set of documentation for the monthly CA Board meetings typically amounts to a hundred pages or more, let alone those from the other dozen or more committees.)”

Be aware of conflicts of interest

The Scrutiny Committee allocates 3 places to representatives of the 3 Local Enterprise Partnerships (LEPs), the employer-led bodies representing business interests. Hatcher comments: “This is an extraordinary decision which seems unique among Combined Authorities”. For example, there are no LEP representatives on the Greater Manchester CA Scrutiny Committee. The House of Commons Public Accounts Committee report into devolution and Combined Authorities, published in June 2016 said:

“It is alarming that LEPs are not meeting basic standards of governance and transparency, such as disclosing conflicts of interest to the public.

LEPs are led by the private sector, and stakeholders have raised concerns that they are dominated by vested interests that do not properly represent their business communities”.

So far two of the three LEP places have been taken up by named representatives. One is Sarah Windrum, founder and CEO of Warwickshire technology company The Emerald Group, on behalf of the Coventry and Warwickshire LEP. The other is Black Country LEP Board Member Paul Brown, Director of Government Services for Ernst & Young, a global accountancy company.

Ernst and Young serves as auditor and tax adviser to Google, Apple, Facebook and Amazon – the businesses which have come under the most fire for avoiding taxes. As its website says, it is closely involved in the formulation and delivery of policy “across a wide range of central Government departments”.  Given the controlling role of government in the WMCA, Hatcher thinks it inevitable that Paul Brown, as Director of Government Services, would be exercising scrutiny on behalf of the CA over policies which his employer, Ernst and Young, would have been involved in formulating and delivering.

Other members of the Black Country LEP have a direct interest in investment in land for construction. The Chair of the BC LEP is Simon Eastwood, Managing Director of Carillion Developments, Carillion Plc. Carillion plc is a British multinational facilities management and construction services company with its headquarters in Wolverhampton. It is one of the largest construction companies operating in the UK. Among its projects in the West Midlands is the redevelopment of Paradise Circus in Birmingham city centre. Read on here.

Hatcher concludes: “In the absence of an elected Assembly, the Scrutiny Committee is the only instrument of public accountability of the WMCA. Its credibility depends on there being no suspicion in the public mind that there are actual or potential conflicts of interest. For that reason we believe there should be no representatives of LEPs on the Scrutiny Committee”.