Under the Care Act 2014, it is the responsibility of local authorities to shape their local markets, which are largely made up of privately owned and third sector services. No assessment of the impact of private equity on the sector has been made, but, as of December 2021, 84% of care providers are rated “Good” or “Outstanding”. The market oversight scheme mitigates the risk of a sudden failure of potentially difficult to replace care providers.
My Lords, I thank the Minister for that reply, which is really unsatisfactory because private equity is a disaster for the care home sector. To take one example, HC-One, which is the largest care home operator, is siphoning off 20% of its revenues to offshore affiliates through intra-group transactions, leaving very little for front-line services. Since 2011, it has declared a loss every year except one and paid no corporation tax but paid dividends of £48.5 million. Can the Minister explain why the Government tolerate such abuses? When will there be an independent inquiry?
We value the role of independent and third sector care homes. It is important that we have that right mix. Some private companies will include private equity, and it is important not to tar all private equity with the same brush. Private equity plays a role in many companies in turning them around and retaining jobs. The important thing for us is that, if any companies are potentially in financial trouble, we have the market oversight scheme to ensure that, if they go bust, there is an ability to transfer patients elsewhere.
My Lords, front-line carers often get paid around £9 or £10 an hour, and it is hard to survive on that. Yet last year, Barchester Healthcare’s CEO collected 120 times more than his care staff. What proposals does the Minister have to ensure that public moneys paid to private care homes are used to improve care and staff welfare and not siphoned off to fat cat executives?
The CQC has a role in making sure that the care provided to care home residents is of satisfactory quality. As I said, 84% of care providers are rated good or outstanding. The market oversight scheme examines companies that could potentially be in trouble and keeps a close eye on them. There are six stages in the market oversight scheme to make sure that we manage that.
My Lords, I am sure that the noble Lord, Lord Sikka, is aware of the major benefits to our economy and the provision of social care contributed by the UK’s successful private equity sector. Private capital is driving the development of the UK’s world-leading technology sector and powers the growth of the UK’s dynamic new businesses. I have been chairman of the EIS Association for some 10 years. EIS has been a significant source of risk finance for new and small businesses. Is the noble Lord, Lord Sikka, aware that 32,965 companies have received £24 billion of EIS funds since EIS was introduced?
I correct my noble friend: his question should be directed towards me. I am not sure whether the procedure allows me to delegate the noble Lord, Lord Sikka, to answer the question—I will have to find out.
The private sector, the third sector and private equity play an important role. The most important thing is the quality of care that patients get and making sure that we have a market oversight scheme, so that if any companies are potentially in trouble, we can manage that, if they go under.
My Lords, the noble Baroness, Lady Brinton, wishes to speak virtually, and I think that this is a convenient point to call her.
My Lords, typically, private equity-backed providers spend about 16% of the bed fee on complex buy-out debt obligations. The accounts of Care UK show that it paid £4.1 million in rent in 2019 to Silver Sea Holdings—a company registered in low-tax Luxembourg—which is also owned by Care UK’s parent company, Bridgepoint. Given that the ONS says that 63% of care home residents are paid for from the public purse, does the Minister not think that private equity providers should be subject to a financial code of conduct?
What is important is to make sure that we have continuous and high-quality care for patients. Therefore, where there are concerns about the financial stability of any company, whether it is funded by private equity or otherwise privately owned, it is important that we have a system to make sure that we manage that. If a company goes under, there is the ability to transfer patients to high-quality care. The important thing for us is the quality of care for patients—it is important that we put patients first.
My Lords, last year, during the pandemic, the business that my noble friend has referred to, HC-One, paid 10%—nearly £5 million, tax free—of those dividends to its financial controllers, who are holed up in the Cayman Islands. At the same time, it was given almost £20 million from the Government’s infection control fund to help it through the pandemic. Clearly, people’s pockets are getting picked here. If ever anything called for an independent inquiry, it is this behaviour by private equity businesses. Such behaviour is concerning the Bank of England: the Financial Stability Report shows that the level of leveraged debt that these businesses have is a threat to our economy.
The noble Lord makes an important point about the level of debt, but I am sure he is aware that a number of private companies operate with levels of debt. As we saw in the financial crisis, the issue is whether that debt is sustainable. The noble Lord, Lord Sikka, who is an accounting standards expert, understands all of the issues around IFRS 9 and all of the downsides to that when sufficient provision is not made for debt.
My Lords, the Minister’s predecessor in this role repeatedly told the House that there was nothing wrong with the business model for the care home sector, despite record numbers of closures—particularly of small, independent homes, which are the backbone of residential care—and the dire financial problems that they face, with councils unable to pay going rates for staff pay and residents’ fees. This is all compounded by the pandemic. The Centre for Health and the Public Interest estimates that around £1.5 billion leaks out of the health system each year, listed as
“dividend payments, net interest payments out, directors’ fees, and profits”.
Should this not all be going to front-line patient care?
I am sorry if people do not agree with that, but the quality of care that patients receive is the most important thing. As of November 2021, 84% of all social care settings were rated good or outstanding by the CQC. For most people, the experience of adult social care has been positive, but, clearly, the pandemic came. To mitigate the risk posed by debt and other financial pressures in the sector, the Care Quality Commission operates the market oversight scheme, which monitors the financial stability and sustainability of the largest and potentially most difficult to replace providers in the adult social care sector.
My Lords, of course the quality of care is very important, but, at the moment, it is being provided at the expense of the exploitation of workers, who are paid £9 to £10 an hour. How many noble Lords in this House would have been happy to live on that for the whole of their lives?
The noble Baroness raises an important point about the pay of staff. One of the things that we are looking to do with social care staff is to make sure that it is an attractive career and to persuade all providers to try to pay their staff a more sustainable wage. That is why we invested money into social care. We also must make sure that we get away from the situation where some private providers effectively subsidise state-funded providers, and make sure that they receive a suitable return.
My Lords, on a number of occasions, the Minister has referred to the fact that, if these complex financial arrangements go wrong, we have the ability to transfer patients. Would he acknowledge that, when patients are forced to be transferred, the shock is too much for some of them and they die or suffer significant health damage?
I will look into that. I thank the noble Baroness for raising that important point. As I have said a number of times—noble Lords are probably bored of hearing me say it—we take the quality of care seriously. We know that the social care sector has been, frankly, abandoned for far too long, which is one of the reasons that we have brought forward the Health and Care Bill, to make sure that we have integration across the whole of people’s life path and that they are not just forgotten towards the end of their lives.
My Lords, is the social care sector not one in which mutuals and charities are more appropriate providers than private equity companies? My family has benefited enormously from an excellent charity running a number of care homes, but I am conscious that some charities have moved out of the sector. Would the Government not like actively to encourage non-profits to be involved more widely in this sector?
The noble Lord makes a very important point about mutuals: they play an incredible role. Indeed, at the founding of the NHS, one of the sad things was that the state pushed out many mutuals. The number of friendly societies and mutuals went down. It is important that we make sure that we have enough mutuals in the economy.