A Lucrative Industry

The use of the term ‘leaks’ implies that this is an accidental and unavoidable phenomenon, but the truth is that it masks a deliberate and concealed strategy of profit extraction and aggressive tax avoidance employed by private equity-owned social care providers via complex and confusing company structures. Indeed, according to the CHPI, £261 million of the annual income received by the 26 largest care home providers in the UK goes toward paying off their debts – but 45% of this is payments to related, and often offshore, companies.

Many of these companies structure UK investments through subsidiaries in tax havens as a way to avoid paying taxes on profits generated from UK operations. A recent report by CICTAR, a global corporate tax research centre, found that three UK care home companies—Sunrise, Gracewell, and Signature Senior Living (all owned by Revera)—charged residents more than £225 million in fees in 2019, but reported little or no profit in the UK and even claimed multiple tax credits.

A typical example is HC-One, which became the UK’s largest care home company in 2017 following the purchase of 122 BUPA homes for £300 million.  The company is owned by FC Skyfall LP which is registered in the Cayman Islands, and backed by private equity funds Formation Capital, Safanad Limited, and Cavendish Court. It operates a complex and confusing financial model which involves the sale-and-leaseback of property as a means to release money and leverage profit from debt.

Since its formation in 2011, HC-One has paid no corporation tax in the UK and actually received net tax credits worth £6.5 million between 2014 and 2018. Despite posting year-on-year losses, the company paid out more than £48.5 million in dividends in the two years prior to 2019 – but last year, while frontline care workers were forced into poverty when they had self-isolate on statutory sick pay, the company sent a begging letter to the government asking for a corporate bailout.

Until the issue of profit extraction—predicated on the systematic suppression of pay and conditions of staff and an erosion of care standards—is removed from the sector, then any increase in funding will simply exacerbate the problem long-term and represent little more than an increased public subsidy to profiteering care companies.

An Impossible Consensus

The scale of the problem facing social care is so gargantuan that various commentators and politicians, including Rishi Sunak, Matt Hancock, and the Prime Minister, have argued that a cross-party consensus is required to deliver change. A cross-party consensus involving a reactionary Conservative Party, however, is neither likely nor desirable and will never deliver for care workers or the people they care for.

The Tories are suffering policy paralysis around social care because their preferred solution—a cap on care costs—conflicts with their ideological commitment to the primacy of private property and the their current electoral strategy of targeting traditional Labour heartlands. While a cap on care costs may not require those in need of care to sell their home in London or the South, due to disproportionately high property prices, that is not the case elsewhere in the UK.

Furthermore, as Theresa May learned in the 2017 general election, the Tories are all too aware that a botched social care policy could undermine their electoral base.

Care workers and service-users have suffered because government policy—including one-off grants during the pandemic and the social care council tax precept—has focused on crisis management and short-termism. Furthermore, as is the case with the council tax precept, this policy has shifted blame and responsibility for the social care crisis from central government on to local authorities.

Social care is a clear area of vulnerability for the Tories. According to a YouGov poll after the Queen’s Speech, 57% of the public have little or no confidence in the Conservatives’ ability to deal with our social care crisis.

That means the government’s long-term inaction on social care provides an opportunity for bold and progressive local authorities to fill the vacuum and deliver radical change within the social care sector, without having to wait for a social care white paper, increased funding, government action, or a fanciful cross-party consensus.

Local Alternatives

Some local authorities have taken the first step by signing UNISON’s Ethical Care Charter—to deliver improvements within homecare for workers and service-users—and many have taken further steps to improve employment standards across their commissioned providers. In the North West, for instance, Cheshire West and Chester, Oldham, Rochdale, Manchester, Salford, Stockport, and Tameside councils have all taken action to deliver wage rises above the National Minimum Wage for their authority’s care workers.

All are commendable commitments, but much more needs to be done as many providers still refuse to adhere to minimum standards or refuse funding increases which are conditional on providers giving wage rises to their workforce.

As an absolute minimum, councils need to be more ambitious and robust in their commissioning requirements, monitoring, enforcement, and sanctioning of contracts. Councils have the ability to make specific requirements in their commissioned contracts, via pre-qualification criteria and through social value weighting, that providers must pay the Foundation Living Wage, offer occupational sick pay schemes, pay full rates for all hours worked (including sleep-ins), and recognise and negotiate with trade unions. All of these commitments, although more expensive, can be delivered within the current funding envelope if the practice of profit extraction is removed from the sector.

Even with the strongest political conviction, and with the best contractual arrangements in place, there will still be unscrupulous employers that refuse to adhere to minimum standards – and that requires local authorities to look beyond the current model of delivery and develop in-house alternatives for the public delivery of social care. It remains the only way to remove the profit motive from the sector.

A number of local authorities, including Halton and Trafford, have stepped in to take over care homes while Plymouth Council recently announced that it is creating its own in-house care company.

Last week’s local and regional election results—in places like Wales, Salford, and Preston—demonstrated a potential road to redemption for the Labour Party where it embraces progressive and transformative local policies – and social care should be at the very forefront of this radical policy agenda.

Ahead of the local elections in Salford, 56 of 60 Labour Party candidates signed an election pledge run by Salford UNISON branch and the Stand Up for Social Care Campaign which committed candidates to deliver the Foundation Living Wage for all care workers, sleep-ins at the FLW rate, holidays based on normal pay, occupational sick pay, and publicly delivered social care.

They are bold and ambitious commitments, but City Mayor Paul Dennett has already committed to creating an Insourcing Commission that will specifically look at bringing social care in-house. Andy Burnham, the Mayor of Greater Manchester, has also committed to delivering the Foundation Living Wage for all care workers in Greater Manchester during his second term.

We cannot afford to wait for government action on social care. Local government is an untapped potential for radicalism, and we need to call on Labour councils to step up to the plate, to stand with workers in struggle, and to take action now to improve social care through strengthening and improving commissioning standards and by developing in-house alternatives.