Multinational care companies are the real winners from
Johnson’s new tax
An extra £12bn a year will do nothing to fix the mess of England’s privatised care system – but it will benefit big providers
Allyson Pollock is clinical professor of public health at Newcastle University
14 September 2021
The government’s health and social care levy bill is being rushed through parliament today, in one day and with minimal parliamentary scrutiny. The bill would create a new tax to generate additional funding of around £12bn a year for health and social care, but does nothing to address the mess of England’s privatised care system and its fundamental weaknesses. Put simply, the bill is just a massive bailout for multinational care companies.
Social services for community and long-stay care in the UK are among the most privatised and fragmented in the western world – even more so than in the US. Local authorities in England commission most of their care services from private providers, of which there are 14,800 registered organisations providing care across 25,800 locations. This situation arose as local authorities, facing budget shortages and central government-imposed regulatory and financial incentives, sold off their care homes and turned to outsourcing. Scotland and the other devolved administrations face similar structural issues.
According to a study by the Competition and Markets Authority carried out in 2016 and updated in 2018, the care homes industry alone was worth around £15.9bn a year in the UK with 5,500 different providers operating 11,300 care homes for older people. In 2020, there were more than 456,000 care home beds in England, with local authorities and the NHS combined having closed and sold off an equivalent number during the preceding decades. For-profit providers, many of them large multinational chains, own 83% of care home beds with a further 13% provided by the voluntary sector.
At the same time, government funding for local authority adult social care in England fell by 55% in 2019-20 compared with 2010-11, resulting in a 29% real-terms reduction in local government spending power. By 2019-20, local authority net spending on care was £16.5bn, 4% lower in real terms than in 2010-11.
But lack of funding is only part of the story – just as crucial is the loss of accountability for the enormous public expenditure since outsourcing became prominent. Unlike in the US, where the 2009 Nursing Home Transparency and Improvement Act mandated greater transparency regarding where taxpayer funds were spent, in response to cases of hidden profit extraction from care homes, the UK has no such legislation. In fact, it is virtually impossible to track where our public money is going.
Here, companies and their shareholders have squeezed spending on services and staff and found myriad ways to disguise and conceal profits.
For example, care is highly labour-intensive and in NHS and local authority-provided care services around 80-90% of annual revenues were spent on staff costs. A recent National Audit Office report covering England shows how companies have slashed staff costs since then: more than half of the large for-profit care home providers surveyed spent considerably less than 60% of annual revenue on staff. Studies in the US show for-profit operators generally have the lowest staffing levels and consequently poorest quality of care and worse outcomes, including deaths.
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Furthermore, care home chains have engaged in financial engineering using complex corporate structures with hundreds of connected companies registered in multiple tax jurisdictions to conceal profits and engage in tax avoidance. Many have set up elaborate sale and leaseback arrangements, loading the company with debt and paying exorbitantly high interest charges – as high as 10-15% (often to the parent company).
This is simply following standard profit incentives: the industry reportedly expects a 12% return on capital invested in the residential care sector. According to the NAO survey, 23% of for-profit care home providers and 44% of for-profit care-at-home providers reported a return of more than 10%.
Take Southern Cross and Four Seasons, which went into administration in 2011 and 2019 respectively under the weight of debt, leaving tens of thousands of residents stranded and holding the government to ransom. Four Seasons had 200 companies arranged in 12 layers in at least five jurisdictions, including several offshore territories. HC-One, the biggest care home owner and one of the buyers of collapsed chain Southern Cross, has 50 companies, six of which are registered offshore. Care provider trade bodies often claim that providers cannot afford to pay above minimum wage, but HC-One paid out £48.5m in dividends to shareholders in 2017 and 2018, despite declaring a loss year on year. It has paid no corporation tax and received tax credits from HMRC.
Chain owners combine financial engineering with political lobbying. Many MPs and peers have extensive links with the industry, including receiving donations. That is largely how they get away with shifting the risks and costs on to residents, staff, the state and private payers.
This blatant profit extraction from a vital service directly affects access to care, quality of care, and contributes to an overall lack of improvement and innovation in the care sector.
The overall quality of the care system is clearly declining. The number of older adults receiving local authority-funded care in England fell by 26%, from more than 1.1 million in 2009 to around 850,000 in 2013-14. According to the NAO there has been a tightening of local authority eligibility criteria, long delays in assessing eligibility, and inconsistent and inequitable application of criteria. Fewer people’s needs are being met, with all too often inadequate services, all being being provided by too few underpaid and overworked staff.
All in all, the Centre for Health and the Public Interest estimates that around £1.5bn leaks out of the system every year. It points out that this money ends up listed as “dividend payments, net interest payments out, directors’ fees, and profits”. And crucially, “not going to frontline care”.
The new levy proposed by the government would raise £1.4bnannually for
social care only to see it misused in the same way. This is all of a piece with
the tens of billions of pounds squandered on contracts for privatised testing
and contact tracing, unused Nightingale and private hospitals, and contracts
for PPE. Public money has been drained away with little effect, and hasn’t
benefited those it was supposed to help.
Despite the pressing need, government proposals do not make for a radical plan for social care – and now the health and care bill 2021-22 sets the NHS on the same trajectory, turning over public money and decisions about public expenditure as well as staff and services to multinationals.
It is all a far cry from Bevan’s vision of publicly funded, publicly accountable, public provision of cradle to grave care, which was enshrined in law in 1946. The shredding of these principles began in earnest with the NHS and Community Care Act 1990, which removed long-term care and community care responsibilities almost entirely from the NHS and has continued ever since.
A national care system would begin to reverse this slide, and ensure that the costs of care are funded and distributed equitably. By returning private care provision to public hands we could ensure accountability, quality of care, and prevent public money from passing to private shareholders and investors. As it stands the national insurance levy is a bailout for these debt-laden, profit-seeking companies – parliament must oppose it until a real sustainable long-term plan for care is in place.
Allyson Pollock is clinical professor of public health at Newcastle University
and author of NHS plc: the Privatisation of Our Health Care