The UK’s biggest care home operators say that next month’s imposition of the National Living Wage coupled with a squeeze on funding from local authorities will make many of their homes unviable.
But research by a professor at University of Manchester’s Business School says that the way these companies are run is a far greater problem.
Peter Folkman, a venture capitalist and honorary professor at Manchester Business School, co-wrote a report that says that Britain’s biggest care home operators have loaded up their balance sheets with debt in a “casino-style” gamble on future income.
The report does not name the biggest operators, but alludes to the complaints hear regularly from the big four: HC One, Care UK, Four Seasons and Bupa about funding.
Rather than bailing out these privately-owned operators, the report argues, “big chain operators should be forced to take the consequences of their own actions”.
Their business model, including their financing and debt arrangements, is unsuitable for the social care industry that relies largely on taxpayer funding.
Speaking to the Financial Times, Karel Williams, professor of accounting and political economy at Manchester University, said the argument that the National Living Wage and the real-terms cut in local authority fees is driving operators out of business, is a “gross oversimplification” of the issues.
“They are trying to spook the state into paying a higher price for residential care which will protect them from the losses that are an ordinary risk of capitalist businesses,” he added.
The report suggests that repayments of £50 million per year on a debt of more than £500 million is just as significant to the financial performance of Four Seasons Health Care.