The Centre for Research on Socio-Cultural Change has published a challenging paper analysing the financial structures of the biggest five care home operators in the UK.
Its report: Where does the money go? Financialised chains and the crisis in residential care, makes the case for these operators, which account for close to 20% of all care home beds in the UK, conducting a coordinated campaign to extract higher fees from local authorities, while paying their financial backers annual returns of 12% on their investments.
It also suggests that their financial affairs are organised in a way that minimises tax liabilities.
CRESC has conducted considerable research into the financial affairs of Four Seasons Health Care, HD-One, Bupa Care Homes, Care UK and Barchester. The facts of its case are, broadly, not likely to be disputed.
It is common knowledge that the biggest groups amassed their holdings of care homes by raising money from private investors. These investors, naturally, wanted a return on their investment, and the 12% yield on capital, while not universally true, is a reasonable ballpark figure.
It is also true that, like almost every commercial enterprise, these large chains have accountants that work within the law to minimise their corporation taxes. Debt and debt repayments on any company’s balance sheet will do this.
Where I part company with the CRESC analysis is in its tone, which appears intended to turn public opinion against these groups, and the conclusion that they are only complaining about fees from local authorities because their funky financing and demands from faceless investors is forcing them to.
The reality is that there are major players in the care home business that have built up their portfolios in times of abundant and rising local authority spending, and now find themselves operating in a prolonged period of austerity.
While it may be reasonable to criticise the way deals were structured and contracts created in the first place, it does not mean these companies are being anything other than truthful when they describe the difficulties in which they find themselves.
Let’s go back a decade or two and consider an alternative universe where these major operators were not able to raise the capital to invest in creating hundreds of care homes.
In this scenario, local authorities would have been forced to continue running the majority of care homes directly, and we all know how well that was going.
The CRESC concludes that outcomes for the elderly and for taxpayers would be better were it not for private investors saddling the biggest operators with debt. I do not think this is proven.
The CRESC implies that these major operators should stop bleating about fees and that their investors, rather than local authorities, should pick up the slack. This may be desirable, but it is not grounded in the reality of how capitalism works.
If you want to ensure people keep investing in care homes, the last thing you should do is demonise those that have already invested.