New Public Interest report looks at the allocation of funds in care homes

Where does the money go when your local authority pays more than £500 per week for a care home bed?

Dr Luke Cowie and Professor Ian Rees Jones have been working with colleagues from five universities on a Centre for Research on Socio-Cultural Change (CRESC) public interest report which aims to help ordinary citizens for the first time to engage with financial and organizational issues that are crucial to the future of adult care.

The report titled ‘Where does the money go? The financialised chains and the crisis in social care‘ can be downloaded from the research reports page of the CRESC web site here.

‘It demonstrates that large corporate chains in the social care sector are using financial engineering to extract gains while dumping risks and liabilities on to the state.  We are delighted to have Joe Earle, Research Fellow Queen Mary and Westfield London who worked on the report, as a guest blogger to highlight these key findings,’ says Professor Ian Rees Jones.  Read the blog post here.

The big care home chains have told a story through the media about a crisis in social care which they blame on not enough money from local authorities who pay for more than half the beds; labour costs will rise with the higher minimum wage and the chains are threatening care home closures which would lead to bed blocking in the NHS.

However, this narrative oversimplifies the story: the issue is not simply how much money goes into adult care but where the money goes. Where does the money go is a new CRESC Public Interest report that uses follow-the-money research to track that putting more state money in is in itself no solution because the care chains owners are adept at taking money out.

The big chains are now trying to spook the state into paying a higher price which will protect them from the losses that are an ordinary risk of capitalist business. The care home chains should not be bailed out by the tax payer because that would represent the socialisation of losses after their privatisation of gains.

The financialised chains are partly the authors of their own misfortunes because the techniques of debt based financial engineering were developed for high return/ high risk activities but are here being applied inappropriately to a capital intensive, welfare activity like care homes whose characteristics should make them low return/ low risk.

The chains’ aspiration for high returns is institutionalised by the LaingBuisson benchmark price which sets a target return on capital of 11% in 2016 and 12% in previous years. This is calculated in a circular way on the basis of purchaser expectations when financialised purchasers buy homes at 8 or 9 times earnings; so that, if the Laing Buisson benchmark price was obtained, then the business would offer risk free profit for the private purchaser.

The argument about debt based financial engineering is illustrated through detailed analysis of the largest chain, Four Seasons, which controls 23,000 beds, is owned by Terra Firma private equity and is in some financial difficulty. The chain consists of 185 companies, tiered in 15 levels through multiple jurisdictions including tax havens which minimises tax liability for the owners and creates an opacity which is not in the public interest.

The accounts of one upper tier holding company (Elli Investments) raise all kinds of issues about what is going on. For example, media reports note £525 million of external debt; but Elli’s accounts show an additional £300 million of intra group debt charged at 15% which more or less doubles the annual interest bill (before profit can be made) to more than £100 million.

As well as developing a critique of the chains, this report argues for a sustainable alternative. The state should take the lead in social mobilisation of low cost finance for investment in care homes so that in adult care we can have welfare and 5% just like the Victorians in model dwellings aimed for philanthropy and 5%.

Beyond this we need social innovation for consistently better quality care. This requires experiment with imaginative rebuilding on a more domestic scale that breaks with the kind of group living formatted by the 50-70 bed home that suits the business models of the big chains.

Prof Karel Williams (Alliance Manchester Business School) and senior author, comments: ‘We brought together academics from five universities to work on a public interest report which allows ordinary citizens for the first time to engage with financial and organizational issues that are crucial to the future of adult care. Follow the money research shows how and why citizens should be sceptical of chain claims; and the report argues that cheap debt could and should be applied imaginatively to benefit all stakeholders not just the owners.’

A copy of the report can be downloaded from the research reports page of the CRESC web site at: