November 6, 2012 : The great care home giveaway: Tory council calls in the private sector

admin's picture

Suffolk County Council has agreed a multimillion pound deal with the private sector to take over its care homes amid fresh calls for financial regulation to protect elderly residents.

The council’s 16 aging homes will be closed by 2015 and 10 new homes (and wellbeing centres) built – giving the county 104 extra beds to help meet growing demand.

The first five will be built and owned by Schroders UK Property Fund – who will lease the homes back to Care UK. The land is being given to Schroders for free by the council with unrestricted freeholds.

The 25-year contract gives Care UK, owned by private equity giants Bridgepoint, guaranteed payment for 370 of the 680 new specialist beds by the council from 2015 - whether occupied or not, at an agreed price structure not made public.

The current care staff jobs and terms and conditions are guaranteed for only six months.

The Tory-led council estimates the deal will save it £11.5 million over 25 years. The management consultancy by KPMG and set-up costs totalled £1.7m, with an additional £9.3m for ‘transitional costs”; Care UK stand to make £257million.

Suffolk is the latest cash-strapped councils looking to the private sector to build and run care homes in an attempt to save money and increase capacity.

Care UK is one of 10 major providers that dominate the private care home sector – accounting for 25 per cent of all beds across Britain.

Yesterday The Independent and Corporate Watch revealed that six of the biggest care home owners have combined debts of almost £5bn, but the corporate veil makes thorough scrutiny of finances difficult.

Care UK took over 27 Southern Cross homes after it collapsed last year and is expanding fast. Last month the company hired Jim Easton, a former senior NHS figure involved in the government’s multi-billion pound efficiency drive, as its managing director.

Bridgepoint bought Care UK in 2010 (when it was publicly listed and debt-light) in a deal financed by a £250m bond.

Care UK's total (internal and external) debt is £480m, according to the holding company’s most recent accounts. The bond is rated as “junk” by Moody's - “speculative and subject to credit risk”. The annual interest rate of 10 per cent on the bond and a staggering 16 per cent on other debts contributed to a £64m loss in 2011.

Transparency issues were raised at a Suffolk council scrutiny meeting last week. The committee upheld the original decision but an official admitted that information regarded as sensitive by private companies is not released by the council under the Freedom of Information Act.

Suffolk Council said the free land and long contract were essential in securing the deal, which will see £60m invested in new homes and keep bed prices affordable. It said provisions are in place in case Care UK “suffers financial instability”. The deal has been welcomed by local MPs Tim Yeo and Ben Gummer.

Maureen Byrne, a town councillor where one of the current homes is based, told The Independent: “It feels like the county council are giving away the Haverhill family silver and the numbers we’ve seen just don’t add up. People are really worried about standards deteriorating, because the priority will be to save money for shareholders.”

If Schroders decide to sell the homes in the future, the council says it will have power to veto any new leases proposed by new landlords if the rents are not affordable - details were not provided because of “commercial confidentiality”.

Justin Bowden from the GMB Union said: “When a deal seems too good to be true, then it usually is.”

Sarah Pickup from ADDAS said: “Right now the key to managing risk for local authorities is having flexibility written into these contracts because look at how fast the world is changing.”

Suffolk Councillor Colin Noble rejected concerns about a lack of transparency: “This process has been the subject of on-going scrutiny. I am confident that this deal represents long term stability and security for our residents.”

A Care UK spokesman said: “Consistency of quality is the key issue facing the sector and this is not determined by ownership structure… The financial structure of providers is rigorously scrutinised by any public sector body looking to enter into a long term contract and the process is wholly transparent.”