Residential care in crisis – following the money
December 14, 2021
The residential care system looks after over 400,000 of the UK’s most vulnerable people.
There are some 5,500 care providers, operating over 11,000 care homes. 41% of residents pay their own fees (self-funders), 49% are paid for in part or totally by local authorities and the remaining 10% are funded by the NHS.
The residential care system, as well as other aspects of social care such as care at home, has been chronically under-funded since government austerity measures following the global financial crisis slashed local authority budgets and forced them to cut the fees they pay to care home providers.
A two-tier system
There is effectively a two-tier system because local authority fees are loss-making (by approximately £200 per resident per week), so that self-funders are charged a significant premium to cross-subsidise these losses, generate profits and fund continuing investment in care standards.
The market is dominated by four large care home chains, who between them have 10% of total residential places. Three of these (HC-One, Four Seasons and Care UK) are owned by offshore private equity investors. The fourth (Barchester) is also owned offshore by a small group of wealthy private investors but does not operate under the typical debt-driven private equity funding model.
Financialisation of residential care
There have long been accusations that the ‘financialisation’ of residential care through the involvement of purely financial investors and in particular private equity houses has led to excessive and dangerous debt burdens within the sector, which borrows a total of over £6bn.
There also persistent suspicions that funds are being diverted away from front line care to be paid offshore to reward investors. This can be through dividends, management fees, above-market interest rates and artificially high rents. One effect of these financial arrangements is to reduce the tax paid by care home operators to HMRC in the UK, while these rewards are tax free in the hands of the investors.
Lack of transparency
Another serious concern is the lack of transparency over the finances, complex corporate structures and ultimate ownership of the major care home chains. This effectively denies self-funding residents and their relatives the opportunity to see how the high fees they pay are spent or to assess the financial stability of the individual home they choose.
Opus and senior adviser, Nick Hood have campaigned on these issues for a number of years, pressing for greater transparency and the reduction of financial risk in the sector. We have been pleased to work for some years with the Financial Times and most recently with the BBC Panorama programme to bring these issues to the attention of the wider British public.