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

Big care home chains have told the public about a crisis in social care which they blame on not receiving enough money from local authorities, who pay for half of care home beds.

However, a report released today shows that putting more state money into the system is no solution because care chain owners are adept at taking money out.

This new report from the Centre for Research on Socio-Cultural Change uses follow the money research to answer questions about where exactly state money goes within the system.

The report argues that big care home chains are trying to persuade the state to pay a higher price which will protect them from the losses that are an ordinary risk of capitalist business. More broadly, the financialised chains are partly the authors of their own misfortunes and are passing on social costs because of an underlying problem: the techniques of debt-based financial engineering were originally developed for high return and high risk activities, but are here being applied inappropriately to a capital intensive, welfare activity, like care homes, whose characteristics should make it low return and low risk.

Professor Karel Williams, Alliance Manchester Business School, and senior author, said: “We brought together academics from five universities to work on a public interest report which for the first time, allows ordinary people to engage with the financial and organisational issues that are crucial to the future of adult care. Our research shows how and why the public 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.”

“The report illustrates argument about debt based financial engineering through detailed analysis of the largest chain Four Seasons, which is owned by Terra Firma private equity, and controls 23,000 beds. 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 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 care home chains, the report argues for a sustainable alternative.

Professor Williams added: “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%. This means the care home system could be improved, while investors received a competitive rate of return on their investment

“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. “

[NB] Average local authority fee in 2014 was £511 a per week across 12 County Councils for a residential bed (without nursing) in a care home, according to Laing Buisson (2015)

Read the report: Where does the money go? Financialised chains and the crisis in residential care >>

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For more information contact Professor Karel Williams