£115m of Budget cash for social care will go to investors in five biggest firms

• Giant care providers dominate sector and send 29p of every £1 in public money to their private investors
• A fairer business model would free up nearly £53m to go to delivery of care instead of investor profits, providing over 117,500 extra beds
• New Economics Foundation calls for 5% standard return on investment as part of real reform of the care sector

Over £115m of the £2bn pledged to social care by the Chancellor in the Budget will go to investors and shareholders in the five largest care providers, according to fresh research by the New Economics Foundation.

A fifth of all publicly funded care homes in the UK are provided by the five biggest chain companies. These providers’ business models offer big returns to investors, taking up 29% of their costs —the second-biggest drain on their expenditure after staff wages.

That translates to £115,116,407 of the money pledged in the Budget for social care going to shareholders and bondholders in just the five biggest care providers.

Researchers from the Centre for Research on Socio-Cultural Change (CRESC) have shown that big care providers expect to offer 11% returns to investors. This contrasts with other low-risk sectors like food where 5% returns are more normal.

If the five biggest care providers offered a more appropriate 5% return, that would mean an extra £53m of this week’s Budget handout being freed up to deliver care rather than being channelled to investors. And that would equate to over 117,500 desperately needed beds in the social care sector.

Marc Stears, Chief Executive of the New Economics Foundation, said:

“Everyone knows our social care system desperately needs cash. But far too much of the £2bn the Chancellor promised on Wednesday will go straight into the pockets of private investors rather than to the beds and services people need.

“The government could put a stop to it now by making sure big care providers offer more reasonable returns to their investors. That way more of the much-needed cash promised this week would go towards frontline services. It’s time we built a care system that puts people, and not investors, in control.”

Low-quality care

Large chains are failing to deliver the quality of care people need. With the aim of maximising returns, many squeeze their staff and seek to optimise the number of beds —not to provide the best setting for care but to ensure staff costs and overheads can be kept to a minimum.

Big care providers favour 60 – 70 bed care homes. Research from the Care Quality Commission shows care homes of 10 beds or fewer tend to achieve better care outcomes.

The New Economics Foundation is calling for:

• A cap on returns for investors in care providers, to be set at 5% as default with the Care Quality Commission empowered to lower or raise this to take account of individual circumstances
• Councils to be allowed to borrow from the Public Works Loan Board to build and refit care homes to let at moderate rents to organisations delivering high-quality care
• Government to support development of a network of small care providers owned and controlled locally

Sarah Lyall, Social Policy Lead at the New Economics Foundation, said:

“Our social care system will soon be dominated by a handful of chain care providers offering low-quality care. We deserve better than this investor-driven factory farm operation. Unless we take action now, millions will end up suffering at the hands of a system that values neither our dignity in old age nor our lifelong tax contributions.

“While the extra funding for social care is desperately needed, we urgently need to do the hard work of reforming how care is delivered. The government’s review of social care must set out how we can support a network of smaller care providers, putting dignity back into the services our friends, neighbours and relatives depend on.”

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** Spokespeople available for interview **

Notes to editors

1. The New Economics Foundation is the UK’s only people-powered think tank. The Foundation works to build a new economy where people really take control. www.neweconomics.org

2. Methodology: The Centre for Research on Socio-Cultural Change (CRESC) calculated the proportion of the total costs of large chain providers that is accounted for by capital costs. Source: http://www.cresc.ac.uk/medialibrary/research/WDTMG%20FINAL%20 – 01‑3 – 2016.pdf.

We recalculated this proportion to take account of new advice from LaingBuisson (reducing expected return on capital from 12% to 11%) and applied this to the money committed in the Spring Budget 2017. We have assumed that 100% of the money pledged in the Budget will go towards residential care.

3. The five largest providers of social care are: Four Seasons Healthcare, Bupa Care Homes,HC-One Ltd, Barchester Healthcare and Care UK.

4. The Care Quality Commission’s registration data, reported on in their 2015/​16 State of Care report, shows a 12% drop in the number of small residential homes (1 to 10 beds) and a 27% rise in large homes (50 beds or more) since 2010. Since smaller homes perform better overall, the CQC are closely monitoring the trend towards larger homes to assess the impact on quality. http://​www​.cqc​.org​.uk/​c​o​n​t​e​n​t​/​s​t​a​t​e​-​o​f​-care

5. A recent ethnographic study of UK residential care documented the erosion of pay and conditions in care homes following takeover by large corporate owners. Changes included restricting annual leave, removing sick pay, reducing the numbers of qualified nursing staff, increasing resident-to-staff ratios, moving to unpaid online training to be completed at home instead of built-in professional development, removing paid breaks and no longer paying for time spent in handover meetings at the start and end of shifts. (Source: Burns, Diane., Hyde, Paula and Killett, Anne, (2016), ​‘How financial cutbacks affect the quality of jobs and care for the elderly’. Industrial Labor Relations Review: Vol 69, Issue 4.)