Tuesday, 12 July 2011

It's All in the Timing

The timing was exquisite. Just as prime minister David Cameron was on his feet and extolling the virtues of privatising further swathes of public services, the nation was absorbing the news that the largest private provider of care homes in the UK was packing up. Southern Cross serves as an absolutely perfect example of what can happen if public services end up being treated as businesses or 'investment' opportunities. 

I absolutely loved it when a spokesperson for the private care home sector had the audacity to say on the radio that "the problem was that fees paid by Local Authorities for looking after the elderly had not gone up." Err no, the problem is that 751 care homes that used to be owned by Southern Cross were sold off to asset strippers who pocketed the £1billion pounds and saddled the management with rent bills instead! According to him, the public sector should be paying the inflated rents due to property speculators.

We all know that publication of the Public Services White Paper has been delayed for months due to spirited opposition from Lib Dems inside the coalition government. It's a really confusing mix of trying to encourage 'localism', which many feel is no bad thing, with doctrinaire insistence on breaking up public services such as probation. This, despite Cameron saying that public services "are the backbone of the nation."

Well I think the public are going to take some persuading that the Southern Cross debacle is anything other than a stark warning of further disasters to come and that would be inherent in this sort of public service 'reform' plan. Pictures of the elderly and frail being moved out of their care homes as they inevitably close over the next few weeks will quite rightly further embarrass the government and should serve to nicely highlight the differences between public and private service.


  1. Sorry, Jim, but that's an overreaction and scaremongering. Patients are highly unlikely to actually be turfed out of their beds.
    Nor is the 'problem' as simplistic as you would like it to be. I'm sure the "asset strippers" have their part to play, but if the business model relies upon increasing numbers of clients at increasing fees (basic costs of employing staff and other supplies are certainly going up), and these aren't happening, then you can't dismiss these - they are, too, part of the problem.

    Tim Worstall has a more succinct summary of the likely outcome - in essence, that the buildings are best used as care homes, and those pesky asset stripping rent-taking thugs will just have to take a hair cut on their rental income.



  2. @Anonymous

    JB did not say "Patients" would be "turfed out of their beds" - he referred to "Pictures of the elderly and frail being moved out of their care homes..."; that will happen as it has happened before (yes, in public care as well as private) and there are plenty of photographs of such transfers taking place, including "emotional"(sic - you forgot to say JB was being "over emotional", by the way) ones of distressed residents.

    However, instead of Comment-Arguing over current developments, I suggest it would be more instructive to look at the roots of the problem (and it is a problem, not a "problem"): The failure to anticipate the care demands created by a longer-living population, despite a working model - what became known as The Welfare State - being planned and developed between fifty to one hundred years ago to address this issue and other welfare ones and how that model was undermined by politicians (aided and abetted by civil servants) offering the people Jam Today and the people accepting that Jam, regardless of the warnings by the first planners of The Welfare State and their successors of what this would mean for future generations.

    Probation (the main subject of JB's blog), as a part of that Welfare State (as well as the Penal State), has had a similar history of politicians, civil servants and the people they serve avoiding any difficult questions and answers (JB has patiently been telling us just how inadequate as adults so many of his clients are - why, in one of the most socially advanced and sophisticated, richest countries in the world, should this be, now, in the twenty-first century?).

    I've made a long Comment to state that the current "problems" (sic) with Care, Probation and other Services (note initial capital) were entirely predictable and were foreseen by the Welfare State's proponents as well as its opponents.

  3. Just to be clear about Southern Cross, my main point is that the company was bought by asset strippers who duly sold the freeholds and pocketed the proceeds. Clearly by saddling the management with rent payments, where previously there had been none, completely changed the economics of the business.

    Just like the banking crisis, this only became a major problem when the 'good times' came to an end. In the case of Southern Cross, it was not achieving 100% occupancy and failure to increase fees sufficiently in order to pay the increased overheads that now included rent. But the real point is that it had been stripped of all assets and therefore had no room for manouvre, apart from not paying the rent of course. It seems that things were so bad the landlords refused to take a 'haircut'.

    The proceeds of selling the freeholds was not re-invested in the business but was treated as an 'investment' by it's then owners rather than a service. They simply took all the cash and moved on to another project. They are the real villains of the piece and you can bet the government is working on ways to stop it happening again.

    All lessons to be learnt as the present government seeks to persuade us that the private sector is 'good' and the public sector is 'bad'. The private sector always has another agenda of course - the making of profit which is inherently at odds with providing a public service in my humble opinion.

    I wouldn't normally stray so much into the political arena, but feel it is necessary as clearly the public service ethos which I hold dear is very much under threat and needs all the support it can muster.

    Thanks for commenting,


  4. "Just to be clear about Southern Cross, my main point is that the company was bought by asset strippers who duly sold the freeholds and pocketed the proceeds. Clearly by saddling the management with rent payments, where previously there had been none, completely changed the economics of the business."

    Excuse me, but that's insane.

    If you own the buildings then you've got to make enough profit to cover the rent anyway. Because you've got to make a profit on the capital you've invested in buying the homes. If you run the care homes you've got to make a profit to cover the capital used to run he care homes.

    You've got to make two sets of profits: the profit on he capital for the buildings and the profit on hte capital used to run them.

    Just because the two are inside one company doesn't mean that you don't have to worry about that first profit.

    To put the same point another way.

    Here's a building that costs £1 million. You also need £1 million in capital to be able to run a care home in it (just imagine: what you need to pay wages before the LA pays you and so on and on).

    So, let's say you rent the building for £100,000 a year and use your £million to run the home. So, how much profit do you need to be making is the average profit on capital is 10% (made up number, as an example).

    And if you use £2 million in capital, £1 million to buy the home and £1 million to run it, now how much profit do you need to be making?

    Well, actually, in both cases, you need to be making the same amount of profit. £200,000. £100,000 as the normal profit on the £1 million to run the home and £100,000 as the profit on the £1 million to buy a home: whether you pay that second £100,000 as rent to someone else who bought the home or you keep it yourself because you did makes no damn difference at all.

    There's still £2 million in total being used to run the home so the total profit needed is still £200,000.

  5. Tim,

    Thanks for that. All I know is that £1billion was taken out of the company called Southern Cross when the freeholds were sold. I'm a humble public servant but there seems to be a connection between that and the company subsequently becoming non-viable.