Health and Care Bill

Committee (8th Day)

My Lords, before we commence proceedings on the Bill, I will outline the plan for today. We will shortly begin the eighth day in Committee on the Bill. There is no other business, but we will take a short break around 2 pm. We will sit until 7 pm. At the outset, I thank the staff of the House for supporting this additional lengthy Friday sitting, both those here in the Chamber and those who do the enormous amount of work that goes on behind the scenes to get the House up and running.

I fear that noble Lords know what I will say next. I do not want to deny the House the fullest chance to scrutinise this Bill. As over 40 hours have been devoted to that end, not even my fiercest critics could say that time for debate has been curtailed. However, we still have a lot of amendments to get through. I know, based on the experience of last Wednesday, that good progress can be made. I know that the Front Benches will work to ensure that their contributions are concise and to the point and I hope that all noble Lords will do the same.

We should perhaps bear in mind the late, great Nicholas Parsons and make our speeches without repetition, hesitation or deviation and perhaps for just a minute. This is a self-governing House, so all I can do is ask and implore noble Lords to respect the conventions and courtesies of the House to ensure effective and efficient scrutiny of this legislation.

My Lords, before calling the first amendment, I indicate that the noble Baroness, Lady Brinton, will be taking part remotely.

Clause 141: Provision of social care services: financial assistance

Amendment 237

237: Clause 141, page 119, line 17, at end insert— “(c) after subsection (2) insert—“(3) No financial assistance provided under this section may be used for the purposes of—(a) repaying debt;(b) paying interest on debt;(c) making distributions to shareholders.””Member’s explanatory statement This amendment ensures that financial assistance given by the Secretary of State is not distributed to shareholders or used to repay debt obligations.

My Lords, I will also speak to Amendments 238 and 239 in my name. Predatory and rent-seeking financial practices by investment firms and hedge funds, which are often based in tax havens and have extremely complex ownership structures, have placed unmanageable financial and human costs on the UK care sector. I first learned about this issue in 2016 from the brilliant Centre for Research on Socio-Cultural Change, which was then based in Manchester but is sadly no longer extant. Since then, the issue has become a staple on the pages of the Financial Times. If any noble Lord does not know about this issue, I urge them to look up “UK social care” on ft.com. They will see there a long string of stories from a publication that does not generally represent my side of politics saying how much of a problem this is.

I also note that, last week, the noble Lord, Lord Sikka, not currently in his place, initiated an Oral Question that highlighted some of the worst abuses in financialised care homes, from HC-One siphoning off 20% of its revenues to offshore affiliates through intra-group transactions to—as was highlighted by the noble Baroness, Lady Brinton, who may raise this again later—the industry average of 16% of the money going not to care but to the financial sector. The crisis is here and was further highlighted by the recent “Panorama” report.

What is lacking, however, and I have been looking for them since 2016, is solutions. How do we change this situation? It is worth pointing out that this is not how things have always been. Back in the 1980s, the NHS was generally known as a world leader for geriatric care, as it was then known, picking up half of the care sector for older people. In 1982, there were only 44,000 private care home beds. By 1994, there were 164,000. The number of charity, non-profit, local authority beds plummeted and the private sector came in or displaced the public.

My Lords, the noble Baroness, Lady Brinton, is taking part remotely. I invite her to speak.

My Lords, I support Amendments 237, 238 and 239 in the name of the noble Baroness, Lady Bennett of Manor Castle, which aim to ensure that private providers are regulated, especially those using obfuscatory financial structures, instruments with inter-company loans and large amounts of debt. They should be fully transparent about those arrangements. She was right to highlight the excellent reporting of the Financial Times on this, along with the financial editors and journalists of other papers.

The typical small business social care home owner does not fall into the category I have just described. The problem in the sector is the private equity providers who decided to start buying up care home groups because they felt that the assets could be milked to provide healthy-looking returns for them. This differs from those homes borrowing in order to, perhaps, buy new homes to enlarge their group; what is happening here is purely financial instruments to benefit the directors and investors. Typically, private equity-backed providers spend around 16% of the bed fee on complex buyout 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.

These kinds of buyouts are also associated with an 18% increase in risk of bankruptcy for the target company. In the case of Four Seasons Health Care, heavy debt payments contributed to the company’s collapse into administration in 2019. Two of the other largest care home providers in the UK, HC-One and Care UK, have also undergone leveraged buyouts and, as a result, their corporate group structures remain saddled with significant debts. Some of these types of company are also struggling to provide the best possible care with their overall CQC scores—so it is affecting the lives of the most vulnerable patients.

The Office for National Statistics says that 63% of care home residents are paid for by the public purse. Surely the Government must have a duty towards the public purse. It is not acceptable for the public purse to pay for these complex financial arrangements that are intended to provide not care or capital for the growth of a care business but purely a larger return for directors and shareholders. These amendments would provide for transparency and accountability and an assurance that the public purse and the private payer are not being taken for a ride.

My Lords, I support these amendments from the noble Baroness, Lady Bennett. I thank her for putting them forward. The care sector is both complex and very little understood. Back in 2020, there were approximately 15,000 care homes in the UK, run by approximately 8,000 providers. Some were very small; others were providing very large networks of homes—it is a mixed economy. These figures are a couple of years old but, at that time, 84% of homes were run by the private sector, including by private equity firms, both British and offshore.

Funding is a complex mix of private funders, local authorities and the NHS. I was very grateful to the noble Baroness, Lady Bennett, for highlighting the work that the Financial Times has done, because I was first alerted to this issue by an investigation that the paper did back in 2019 which revealed how Britain’s four largest privately owned care home operators had racked up debts of £40,000 per bed, meaning that their annual interest charges absorbed eight weeks of average fees paid by local authorities on behalf of residents. Many have argued, and I absolutely agree, that this sort of debt-laden model, which demands an unsustainable level of return while shipping out profits of 12% to 16%, often to tax havens, is entirely inappropriate for social care.

I want to make it clear that I do not have an ideological problem with the private sector being involved in the care sector and providing care homes—provided that they are good quality—but I have a real problem with the financial models used. Most fair-minded people in this country, not least those whose loved ones are in care homes, would, frankly, be horrified if they knew how the money—either theirs, if they are self-funded residents, or indeed the money of hard-pressed local authorities—was being used and where it was being siphoned off to.

I greatly support amendments to increase transparency and reporting. Frankly, I would like to see the regulator being a lot tougher and a lot more proactive in this area, so I very much support the review in the amendment put forward by the noble Baroness.

My Lords, I support the thrust of the amendments laid by the noble Baroness, Lady Bennett. I fully agree with her that there is a systemic problem in the care home sector.

In 1991, the community care Act reforms meant social care was transferred from a public sector function—or NHS function when it came to nursing homes—to what was called a mixed market. But, having observed the worsening care crisis, the financial engineering, the periodic failure of large care home operators and the inadequacy of regulation or oversight of their financial backing, I cannot help but urge my noble friends on the Front Bench to look urgently at the need for much greater controls. Southern Cross and Four Seasons Health Care have been in and out of insolvency or near bankruptcy for the past few years, but there are still inadequate controls on their ownership structure.

I am sure that my noble friend will cite the market oversight scheme, established by Sections 53 to 57 of the Care Act 2014. However, after being involved in the Southern Cross problems in 2011 and the Four Seasons near-collapse in 2016, it is clear to me that the system is inadequate. The regulatory oversight of this system, which is responsible for the lives of some of the most vulnerable people in our country, has no control of the financial models that are used to back the operators of those homes. A care home operator can take in a resident and promise to house them for the rest of their life, but there is absolutely no requirement for them to have the resources, in particular the equity resources rather than being laden with debt, to provide security that those obligations can be met. Compare that with an insurance company which promises, in the form of an annuity, to pay a pension to somebody for the rest of their life. Those products have stringent reserving requirements and the financial models behind someone who sells annuities ensure that there is security for the promises being made. When it comes to the market oversight scheme, it is very much a case of stable doors. The scheme has to warn a local authority only when a company is approaching failure. There is no proper early-warning system. Indeed, there is no reserving required for some kind of financial buffer to ensure that care home operators have resources to withstand unexpected pressures or sudden changes that might arise.

I think it is time that we looked carefully at the requirements placed on care home operators. The need for transparency is important. I do not have a problem with offshore companies that make profits if they offer good services, or with private equity and hedge funds that deliver good returns to their shareholders. However, I do have a problem if those companies are taking advantage of some of the most vulnerable people in our society without proper oversight or controls. For example, in the case of Four Seasons, once the company was on the verge of collapse the CQC’s only option was to close it down, which is the last thing you would want it to, and, when the restructuring occurred, there was no ability for the regulator to insist on equity financing, so we still have very heavily debt-laden companies in an environment, of course, where interest rates are heading upwards. So I urge the Minister to consider this carefully before Report. I hope that we can introduce some proper controls. I will be looking to try to bring this back on Report.

My Lords, I will take to heart the strictures of the Government Chief Whip and see whether I can speak in a minute without repetition. Way back in the 1970s, I was chair of social services in Sheffield, at a time when all residential care was under the auspices of the local authority. We then believed that what we were doing was in the interests of the people being cared for, the families that required support and the care workers. I want to make a very simple point: as well as the taxpayer being exploited, as well as those being cared for being exploited, we are also seeing the exploitation of workers on the lowest possible pay whom we are desperately trying to recruit, and we owe it to all those people to get this right.

I thank my noble friend Lord Blunkett for speaking very briefly and giving us some very wise words. The noble Baroness, Lady Altmann, is absolutely right that the system is inadequate. I am grateful to the noble Baroness, Lady Bennett, for tabling these amendments and opening up this discussion. They address the issue of ownership of the organisations that provide social care. We know that almost all social care provision, residential and domiciliary, is not in the public sector and has not been for some time. We also know that the current system is wholly dysfunctional, as the noble Baronesses, Lady Bennett and Lady Brinton, said. It does not work for the service users, for the staff or even for the providers, which go bust fairly regularly, as the noble Baroness, Lady Altmann, described. Of course, it used to be a money spinner for hedge funds and others that got involved to asset strip and leverage profits and remuneration at the expense of service users, both individual self-funders and taxpayers and ratepayers who were paying for other residents.

I have always taken the view that this sector would benefit from an enormous influx of social enterprises and co-operatives. Where social care, domiciliary care and residential care are provided through social enterprises, community enterprises and co-operatives, they are sustainable, they keep their staff and they invest their surpluses back into their social purpose, so everybody gains. To suggest that the Government will fix social care through this legislation is laughable, because the existing market solution cannot be fixed. So we have sympathy with these amendments and fully understand the intent that the noble Baroness, Lady Bennett, outlined for us.

I am interested to know how the Minister will respond, because it is quite clear that something must happen in this sector because it is so unsatisfactory. I suspect that if the Government are not going to move on this, we may have to return to this later in the Bill.

My Lords, I appreciate the way that the noble Baroness, Lady Bennett, introduced these three amendments and I am grateful to her for the clear explanations she gave for them. I will take them sequentially, beginning with Amendment 237.

This amendment seeks to place restrictions on the power for the Secretary of State to provide financial assistance to bodies engaged in the provision of social care services. It would prevent use of the power for the purposes of repaying debt, paying interest on debt and making distributions to shareholders.

To begin with a general but important point, it is incumbent on all Ministers and public servants to ensure that public money is used effectively for the greater good, and that purpose is implicit in the power contained in Clause 141. However, I fear that this amendment could make the proposed power unworkable in practice. If we look at the way the amendment is worded, any adult social care provider with a trade creditor of any kind would be caught, as would any organisation with an overdraft facility designed to support day-to-day working capital. A company’s working capital, by its nature, is money that is used to fund day-to-day operations in general, and one cannot associate a particular pound with a particular business activity. Furthermore, any private company would be prevented from paying dividends, as it would be logically impossible to disassociate the long-term effects of the assistance from the ability of the company to pay such dividends.

The pandemic has demonstrated the need for speed and flexibility in providing support to the care sector. We do not intend to use the power in the way the noble Baroness fears, but we have designed it in such a way as to provide the maximum flexibility to respond in times of crisis; each individual case will be considered on its merits. Placing additional restrictions through this amendment would impede our activity to provide emergency support to critical providers.

I listened with care, as I always do, to my noble friend Lady Altmann and what she said about companies with debt on their books and the financial risk associated with this. I will lay out for the Committee that, to mitigate the risk posed by debt and other financial pressures in the sector, and above all to ensure that people’s care is not interrupted due to provider failure, we have had in place for a number of years, as my noble friend mentioned, the market oversight scheme, operated by the CQC, which monitors the financial health of the largest and most difficult-to-replace providers in the adult social care sector.