CORDER’S COLUMN: Attacking capitalism in care homes will backfire

Rob Corder

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.

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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.

Tags : BarchesterBupa Care HomesCare Home FinanceCare Home NewsCare UKCentre for Research on Socio-Cultural ChangeFour Seasons Health CareHC-One
Rob Corder

The author Rob Corder


  1. Surely just as important – for non-chain homes, arguably more important – is the study’s challenge to the orthodoxy of the LaingBuisson model, particularly how return on capital is calculated. What about giving William Laing a right of reply?
    ‘The technical justification for a higher price is provided by the LaingBuisson model which tells us, for example, that in 2015 provincial local authorities are paying £104 less than the cost of residential care, and £152 less than the cost of nursing care per week? These figures are not so much scientific facts about actual costs in the sector but political claims about the world as the chains would like it to be. But they are important because they circulate widely and have been generally accepted as rigorous and objective in court cases about the inadequacy of local authority fees. They should not be believed but are curiously revealing.”

  2. I agree with Rob Corder’s comments about the CRESC report and it was surely apparent to many of us in the sector that some of the more exotic and highly leveraged funding arrangements over the last decade were over ambitious and unsustainable in a market dependant largely on local authority funding. Whilst probably being correct in respect of the fragility of these funding arrangements and the (relatively) limited use by major providers it nevertheless cannot ignore either the authoratative data produced by Laing and Buisson nor the widespread recognition by the vast majority of independent operators that Local Authority funding in the main is now at true “below cost” levels across the country. The fact that large providers may now be struggling as a result of sophisticated financial engineering is their particular problem and ,other than in the event of collapse, is of little relevance to the reality of the broader market in terms of the real danger posed by huge disparity between LA fee levels and an open market fee structure that is currently only sustainable by disproportionate self funder fee levels and top -up contributions.

  3. I agree with both Rob Corder’s and Bob Delaney we are going through very challenging times at the moment. But in the cold light of day we have to recognize that we have an increasing aged population and a decreasing amount of care homes that are being forced out of business by the dictated monopoly purchasing power of the under funded Social Services. We have Hospitals on “Black Alert” full to the brim with Elderly Patients who do not need clinical care. Hospitals are more like Hotels for the elderly at the moment we need the NHS to contract with Private care homes but we cannot build new Homes at the speed required to meet demand . So what is the contingency plan for the inevitable ?

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