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Southern Cross

Volume 728: debated on Thursday 16 June 2011


My Lords, I shall now repeat as a Statement the Answer given earlier today by my honourable friend the Minister for care services to an Urgent Question tabled in another place about the steps that the Government are taking regarding Southern Cross Healthcare. The Statement is as follows.

“The Government have made it very clear that the welfare of residents living in Southern Cross homes is paramount. We appreciate that recent events and media speculation have caused concern to residents in Southern Cross care homes and their relatives and families. I very much regret that. I would like to assure everybody that no one will find themselves homeless or without care. The Government will not stand by and let that happen.

Department of Health officials have been in frequent contact with Southern Cross’s senior management over the last three months and that will continue. We are engaged with the company, the landlords and lenders and are monitoring the situation closely. The Government are acting to ensure that all parties involved are working towards swift resolution, with a comprehensive plan for the future which must have the welfare of residents at its heart. It is for Southern Cross, its landlords and those with an interest in the business to put in place a plan that stabilises the business and ensures operational continuity of the care homes. That work is happening and we must let it continue. Let me be very clear: this is a commercial sector problem and we look to the commercial sector to solve it. All the business interests understand their responsibilities. The Government are also working closely with the Association of Directors of Adult Social Services, the Local Government Association, local authorities and the CQC to ensure that robust local arrangements are in place to address the consequences in the event that the company’s restructuring plan failed to put the business on a stable footing.

Yesterday, a meeting took place between Southern Cross, lenders and the landlords’ committee. They agreed to work together to deliver a consensual solution to the company’s current financial problems over the next four months. They also made clear that the continuity and quality of care to all 31,000 residents will be maintained and every resident will be well looked after. This is a welcome development and the Government are encouraged by this positive agreement by the main stakeholders. The exact details of the restructuring plan over the next four months will be set out over the next few days and the following weeks. The Government will continue to keep close contact with the process. I will keep the House informed.

Local authorities have a duty to provide care to anyone who has an urgent need for it. All parties are aware of their roles and responsibilities should that happen and will take decisive action to ensure that no resident is left homeless or without care. The statement released yesterday provides further reassurance that the continuity of care of the residents is at the centre of the consensual restructuring agreement”.

That concludes the Statement.

My Lords, I thank the noble Earl for repeating the Answer to the Question raised in the other place. While news of yesterday’s agreement is welcome and will, I hope, reassure Southern Cross’s residents and their families, a number of questions arise.

First, it is understand that Her Majesty’s Revenues and Customs is a major creditor. Has it been involved in the discussions and is it comfortable with the outcome to date? Secondly, will the Government ensure that both they and the Local Government Association—representing the interests of many of the residents, including but not limited to those who are publically funded—will be involved in any further discussions over the future of the company’s operations? Thirdly, what steps if any have the Government taken or will they take in relation to the company’s workforce, for whom this is also a most anxious time? According to today’s Times, 42,500 of them have already had their contracts ripped up and are facing the prospect of 3,000 jobs being lost.

As for the underlying, systemic issue, do not these events underline the folly of the previous Conservative Government in effectively driving local authorities out of the provision of residential care by deliberately financially disincentivising such provision in favour of the private sector? Can it be healthy for five or six private companies to dominate the market to the extent of around 36 per cent, with Southern Cross alone supplying 31,000 out of 170,000 places? Is it not totally unacceptable for frail and vulnerable elderly people to be treated like commodities, to be bought and sold as part of some ingenious financial engineering?

Did not Mr Hammarberg, the Council of Europe Commissioner for Human Rights, have a point, as reported in the Telegraph, when he singled out for criticism the UK model of privatised social hair combs—sorry, I meant to say care homes; I am not too familiar with combs these days. He went on to say that privatisation, “is not the solution”, with a high number of privatised care homes in crisis. Is he not right to express concerns that,

“the quality of services in these homes had ‘deteriorated to a worrying degree’”,

and that companies,

“running the care homes have reduced services in order to remain solvent”?

The Answer to the Question proclaims:

“this is a commercial sector problem and we look to the commercial sector to solve it”.

Is that not too narrow—one might almost say, too much like an accountant’s view of the problem? Would not the Minister agree that this is first and foremost a health and social care issue? Is not the commercial aspect very much part of the problem? Does not this in fact send out warning signals in relation to the role of the private sector in the provision of healthcare and whatever emerges as the reborn Health and Social Care Bill?

Finally, will the Government support and encourage co-operative, mutual and third sector organisations to engage in the future running of at least some of the Southern Cross care homes, if the rescue package does not succeed? In the longer term and in any event, will they promote a mixed economy of such care provision across the country to include local authorities and the private, voluntary and community sectors?

My Lords, I am grateful to the noble Lord, Lord Beecham, for his comments and questions. He asked a number of the latter. First, he asked specifically about the HMRC. I asked that question myself of my officials. It is quite clear that any discussion with Her Majesty’s Revenue and Customs has to be a matter for the company. HMRC makes its own judgments in any discussions with companies. It is a separate statutory body; it may not be lobbied by another government department, nor is it at liberty to discuss the detail of individual company tax affairs with anyone outside HMRC. So it is very much in the hands of the company if it so chooses to enter into the kinds of discussions to which the noble Lord alluded.

The noble Lord asked whether the LGA would be involved in the discussions over the company’s future. As is clear from the Statement, we regard the primary agents in this matter as being the company, its landlords and the lenders involved. They are the people on whose shoulders a restructuring plan depends. Nevertheless, he is right to suggest that the LGA is important in this context; it is involved with the discussions that we have had and will continue to have for some time—not only with the LGA, but with ADAS and the CQC, as well as the representatives of providers—to work through and define better the responsibilities of each party involved, so that if problems arise at a local level, either in this context or in any other similar context, the response will be appropriate. It is important to have that clarity of responsibility.

The noble Lord asked about the Southern Cross workforce. The key point here is the safety and well-being of the residents. We tasked the CQC to enter into discussions with Southern Cross when it announced redundancies the other day. The CQC’s role is to ensure that all care homes meet essential standards of quality and safety and it has confirmed that it will continue to require Southern Cross to demonstrate that all its homes are meeting these essential standards. Any failure to do so may result in enforcement action. I cannot go beyond that and comment on the prospects for the continued employment of the current workforce. All I would say is that the agreement reached yesterday will dispel a great deal of the uncertainty that they must have been feeling in recent days, because we now have the prospect of stability and certainty over the next few months as Southern Cross continues as a viable business with the support of its lenders and landlords.

The noble Lord moved on to suggest that it was the policies adopted by a previous Conservative Government in encouraging a diverse and plural market for care home provision that has brought us to this pass. I am slightly surprised to hear him say that because I think that one benefit of that policy has been a much greater array of choice open to individuals than there was before—and indeed a choice not just of location but of quality. To cite the problems of Southern Cross as a confounding factor to that is, I think, unfair. The problem with Southern Cross is not the quality of the provision of care but its business model.

I do not think that there has been any suggestion that the residents of Southern Cross homes have, as a generality, been badly looked after; rather, the issue is that the business model that the directors of Southern Cross adopted was unsustainable. We hope that the restructuring that is now apparently in prospect will address that and that the company can carry on giving the care that it has always done to its residents. Nevertheless, as we said last week when we had a Question in your Lordships' House on this topic, and in reply to the noble Lord’s comment about individuals being treated as a business commodity—if I may rephrase his question—that is of course a distasteful idea. To the extent that that has happened, we must acknowledge it. All I would say is that it has not affected the care that those residents have received. If it has disadvantaged anyone, it has been the shareholders.

The noble Lord suggested that because the Statement made it clear that we regard this as a commercial matter for the commercial organisations to solve, therefore this is not a health and social care issue. Again, that is a little unfair. The Government do not for one minute shirk their own responsibilities in this matter. We have been absolutely at the front in encouraging all parties to come together to reach this consensual agreement, to place the interests of the residents first and to put aside private interests and prejudices as much as possible. It is very encouraging that the statement issued yesterday did just that. There is consensus between the key parties that the interests of the residents are at the front of their minds. The restructuring is something that they are aiming to work through in as short a time as possible. I believe that that is cause for encouragement.

The noble Lord asked about the future and what might happen, not only in the case of Southern Cross but, I took him to mean, in the care sector generally. I am sure that as we go forward, if all goes well, we will see the kind of diverse market emerging in care home ownership that we have in domiciliary care where, as the noble Lord will be aware, there is a very diverse range of ownership by social enterprises, charities and private organisations of one kind or another that provide domiciliary care. There is scope to make the residential care home sector equally diverse over time. However, as we do that, we need to ensure that it is not just a diverse market but a stable one. I am the first to acknowledge that lessons will need to be learnt from this sorry episode over Southern Cross. If I have failed to answer any of the noble Lord’s questions, I shall certainly make up for that in writing.

My Lords, after 13 years of a Labour Government who were not in any way reluctant to diversify the residential care market, there is an even greater plurality of providers than there ever was before. One issue that has arisen out of this case is the capacity of the CQC to evaluate the stability and viability in the long term of a company that is owned by a private equity firm. That is a complex task that might challenge even the Financial Services Authority. Does the Minister agree that in order to reach the stable and viable market that he has suggested, there is a need to look at this in a much wider sense than just this case? Does he agree that the discussions that must inevitably follow the publication of the Dilnot inquiry in July should focus on the role of private equity-funded companies in the residential care market and, as he has also suggested, in the domiciliary care market?

My noble friend raises an important issue. As she knows, care providers have to be able to demonstrate to the Care Quality Commission that they have the financial resources needed to continue to provide services of the required quality. We have embarked on a wide-ranging programme of reform for social care. We are currently considering the Law Commission’s recommendations for modernising social care law and, as my noble friend mentioned, the report of the Commission on Funding of Care and Support is imminent. There are many lessons that have to be learnt from the events of recent weeks. We want to reflect on them as part of our wider reform agenda for social care.

On private equity finance, I simply make my own observation to my noble friend: I do not think that private equity finance is at the root of the problems that we have been seeing but the business model, which is rather a different issue. It was the choices and decisions made by the management of Southern Cross that made the business fundamentally unsustainable. I do not see that as a reflection directly on private equity providers. We have been clear that we were going to take action to ensure that there was proper oversight of the market in social care. That is why the Health and Social Care Bill specifically allows us to extend to social care, if we chose to do so, the proper financial regulatory regime that we are putting in place for the NHS. However, I suggest that regulation is not the only solution; we need to approach this in a measured way, not least because there are complex negotiations under way. We need to look at social care reform as a whole, which is exactly what we have committed to doing.

My Lords, on the question of the business model that the Minister just referred to, does not this whole sorry saga reveal how completely out of touch with the world of reality were the main board and executive directors of Three Delta, who advised the Qatar Investment Authority to spend billions buying property in the healthcare sector on the back of inflated and totally unrealistic rent levels paid by companies such as Southern Cross? Were the Qataris made aware of the huge risk involved? What were the so-called great and the good like Sir Peter Middleton, Nick Land, Sir Christopher Howes and David Mellor—a former government Minister—doing when any estate agent in the commercial property sector could have told them that the commercial care property market was both overgeared and overpriced?

Finally, will Messrs Scott, Murphy, Sizer and Colvin, formerly directors of Southern Cross, be prosecuted for insider dealing in Southern Cross shares when they privately promoted the sale of shares in the months immediately prior to their profits warning and collapse in the share price? Is this whole affair not riddled with greed and stupidity?

My Lords, I fear that I am unable to answer the noble Lord’s questions, for which I apologise, but I understand why he has asked them. If I have some concise answers that I can send him, I will certainly do so by way of a letter.

I think that the noble Lord and I agree that we are looking at a fundamentally unsound business model. As I understand it, it is a unique business model in the care home sector, where a deliberate decision was taken for the company not to own its own care homes but rather to pay the rent on them. The market clearly moved against it in more than one sense. The company’s problems are partly attributable to the occupancy levels of some of their care homes. Southern Cross occupancy levels have gone down, I understand, more than those of other care homes. It is not about fee levels; other providers of residential care are not in the same position as Southern Cross. I believe that Southern Cross’s problems relate to the rental agreements—the leases—that they entered into. It is those things that the restructuring aims to fix.

My Lords, I thank the noble Earl for his Statement. I listened carefully to what he said about the need for clarity on where responsibility lay. He also stated that there were lessons to be learnt. Will he say when the Government will conclude their review of these lessons, and when and how they will make them public? With the imminent privatisation of the Royal Mail, which has a lot of property worth quite a lot of money, will the Minister say whether some lessons learnt in this exercise might be useful in the context of ensuring that we do not run into similar problems there?

My Lords, I would love to be able to comment on the Royal Mail, but noble Lords will be sorry to hear that I have not received the necessary briefing. On the timescale of our review, as I indicated to my noble friend Lady Barker, there are a number of elements to our review of social care policy. One is the Dilnot report, which we are expecting at the beginning of July. Another is the Law Commission report. However, a third is undoubtedly the lessons learnt from this episode. It is fair to say that it would be rash of me to give the noble Lord a date on which we will conclude all three strands of that review. It is likely that we will be able to be more definite later on this summer.

If it becomes clear within a reasonable time that Southern Cross and others are unable to put the business on a stable footing, what will then happen, primarily to the residents but also to the workforce? Can the Minister suggest what he has in mind as a fallback position?

My Lords, the Department of Health is being very clear with the company that we expect it to maintain service continuity and quality of care while the restructuring process is going on. As I have said, our principal concern is for the safety and well-being of the residents of the care homes that might be affected. The CQC will pay particular attention to any care homes where there is a concern that quality may be at risk or inadequate. We are continuing to talk to ADASS, the LGA and the CQC to ensure that contingency plans are in place which will allow for the continuation of care under any eventuality. If the noble Lord will forgive me, I would rather not be drawn into hypotheses as to what might happen if the restructuring does not take place. We must encourage the company to believe that that is the prime and sole option before it. If there is ever a question of a change in the arrangements for providing residential care to any resident of a Southern Cross care home, or indeed any other, the rights of those residents remain absolutely clear in law. The duties of local authorities are absolutely clear in law. I believe that all residents in Southern Cross’s homes can rest assured that local authorities are well seized of those duties and processes.

My Lords, the Minister has reassured the House that he does not see Southern Cross as the first of many providers to go into crisis. Can he share with the House the advice that he has had to enable him to give us those assurances that Southern Cross is not just the first of a number of providers to go into crisis?

My Lords, I cannot issue a government guarantee on the continuing business health of every single care home provider in the country; that would be extremely rash. Of course, we know that over the years some providers have gone out of business. What we are seeing in the country at the moment is much more of a trend towards looking after people in their own homes rather than in residential settings. At the same time, the market is doing the opposite because there are more and more elderly people requiring care of some kind. This industry is not going to disappear overnight or, indeed, at all. Over the indefinite future we will require a residential care home industry, particularly as the number of elderly continues to increase. The key will be to ensure that the quality of provision is maintained. Competition will undoubtedly remain, but it is a telling indicator of the current state of the market that there is an overprovision at present of about 50,000 care home places nationally. That perhaps is a sign that local authorities are successfully meeting the wishes and needs of their service users in providing care in the settings which most people want; namely, their own homes.

My Lords, what safeguards are being put into place so that this situation does not happen again in other care homes and possibly in hospitals?

My Lords, I think I have already indicated that the Government are proactively engaged with all the key parties involved in this situation, not just Southern Cross but the LGA, ADASS, the CQC and others. The precise situation in which we find ourselves with Southern Cross is unlikely to arise again because my understanding is that the business model adopted by Southern Cross is unique. Nevertheless, every privately operated residential care home business will, no doubt, have its own level of business risk, whatever that may be—either slight or something rather less slight. However, the alternative that the noble Lord, Lord Beecham, seemed to desire was a return to the state provision of care homes. The noble Lord is shaking his head, and I am glad of that, because I think neither his party when in government, nor certainly ours, would wish that on the public. I think that all of us believe in choice for the individual, and this is what the current market provides. Nevertheless, there are risks.

The noble Baroness asked about hospitals. To the extent that NHS care is delivered in independent settings, a business risk is inevitably associated with that. However, we are clear in the Health and Social Care Bill that there needs to be a system whereby essential services are protected for the benefit of patients. When the Bill reaches us, we will no doubt debate those provisions.

I am sure that the noble Earl will be assured that my noble friend did not imply or say what the noble Earl thought he said. It is really important for us to focus on the business side of this issue and the economics of how it is run. The noble Earl is absolutely right to say that there is no complaint at all—in fact, all the carers of residents in those homes are distressed because they may be moved from somewhere that has taken care of their people. It is important, therefore, that none of us loses sight of the real issue—the care of these people, which has been good. Otherwise, the home would be in a very different state and, God forbid, we would be having a very different discussion if the issue was the care of the residents rather than the economics of running the home.

How deeply is the Care Quality Commission involved in this? My own trust has been talking to the CQC because, as the noble Earl will know, there are knock-on effects for hospitals all around the country when those homes are under threat, and on what might happen to elderly people who would normally be discharged from hospitals into those homes. We should all please remember—I am sure that the noble Earl is remembering—that the patients really matter in this, and we should ensure that we get them into safe places where they are looked after. The economics of this are very important, and I am not in any way dismissing that, but we need to measure that up against the care that has been provided for those people in Southern Cross homes, and, I hope, will continue to be provided. The care is valued. It is about the market that goes on out there, and any of us would be foolish to suggest that there is an alternative.

I am grateful to the noble Baroness, and I am also clear about the position of the noble Lord, Lord Beecham. She is of course right. Our first concern should be for the safety and welfare of residents. That is why, as I said earlier, some time ago we asked the Care Quality Commission to engage in close discussion with Southern Cross when the news of the impending redundancies was made public. We did that precisely to ensure that standards would not be compromised. My understanding is that there are no concerns on that front. Southern Cross has, in that sense, behaved impeccably in ensuring that residents have not suffered, other than from the inevitable uncertainty that the publicity over this matter has generated. Going forward, the principles that the noble Baroness has articulated are absolutely right. However, she would agree with me—as I think she did—that questions need to be asked about the financial models adopted by care homes or, indeed, by any independent business providing public services.

Were we not told after Jon Manel of the BBC's exposure of what was going on in care homes in 2008 that lessons would be learnt and that there would be a review; and was not an inquiry set up by the department at the request of the then Minister, the noble Baroness, Lady Thornton? Were we not given assurances that that would not happen again? Is not the reality that these reviews and statements about lessons to be learnt all end up in the long grass, because this area of care is basically out of control?

I do not agree with the noble Lord that this area of care is out of control. The situation that arose at the time to which the noble Lord refers was of quite a different nature from the one we are looking at at the moment. As I recall, it was about the quality of care delivered in particular care homes. We now have the CQC, which is responsible for policing quality of care across the NHS and social care. The previous Government put that arrangement in place. We are content with it. We think that the arrangements are robust. The CQC does very good work.

Of course, with the best will in the world, mistakes occur. One can easily point the finger at the CQC. As I said, in the case of Winterbourne View, that would be an easy but unfair thing to do. All that the CQC can be expected to do is to take a snapshot at any given moment of what it sees and hears. When I say that lessons need to be learnt, I reiterate to the noble Lord, Lord Campbell-Savours, that my counterpart in the Department for Business, Innovation and Skills is considering the lessons to be learnt about the business models that apply not just to the care home sector but generically where public services are provided.