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Care home sector ‘leaking’ hundreds of millions of pounds to offshore investors

Consumers Feel The Pinch With Christmas Around The Corner

A major study has found the care home sector is leaking £1.5bn each year with hundreds of millions of pounds going to offshore investors.

The report by the Centre for Health and the Public Interest (CHPI) calls for the radical restructuring of the UK care home sector to ensure more money goes to frontline services and for the government to use public money to build new care homes.

Vivek Kotecha, CHPI Research Manager and author of the report, said: “Our research shows that some of the largest care home businesses are extracting a lot of profit disguised as rent and loan repayment costs. This makes it hard for local authorities and individuals to know how much extra funding the industry actually needs and how financially sustainable it really is. Without transparency over profitability and costs, any additional funding is unlikely to deliver either an improved level of care or value for money.”

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The report says that out of a total £15bn annual income, an estimated 10% (£1.5bn) leaks out each year in the form of rent, dividend payments, directors’ fees and profits.

For small and medium-sized care home companies £7 of every £100 goes to profit before tax, rent payments, directors’ remuneration, and net interest paid out. For the 18 largest for-profit providers the level of leakage is more than double at £15 out of every £100 received.

The CHPI argues a significant amount of money would be available for frontline care if illegitimate leakage in the form of high debt payments and rental payments was substantially reduced.

It says seven of the 18 largest for-profit providers spend between 15% and 32% of their revenue on rent payments, totalling £264m a year. This stands in marked contrast to the eight largest not-for-profit providers, which spend an aggregate of 2% of their income on rent, totalling £25m a year.

Additionally, 16 providers have rental arrangements with related companies, which is likely to represent a form of hidden profit, the CHPI says.

Across the 26 largest care home providers a total of £261m they receive to provide care goes towards repaying debt. Out of this £117m are payments to related companies which is a known way of avoiding tax and hiding profits, the report comments.

The study shows the problem is especially acute for for-profit care home providers which are owned or backed by private equity, which have borrowed £35,000 for each care bed they own, and pay interest costs of £102 per bed per week, meaning 16% of the fees paid to these providers by local authorities or individuals for residential care goes towards paying off debt. Additionally, £104m (53%) of the annual debt repayments made by the five largest for-profit (private-equity owned) care home providers are to related companies, many of which are registered offshore, the report reveals.

The report highlights that six of the 26 largest providers have owners registered offshore in tax havens. This includes four out of the five largest for-profit private equity owned or backed providers, and two out of the 13 largest for-profit non-private equity providers.

Recommendations by the report’s authors include establishing a Care Home Transparency Act along with a strict financial regulatory regime. The authors also urge the government to make low-cost capital available to local authorities, the NHS, and small and medium-sized companies to build new care home capacity.

 

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The author Lee Peart

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