Health and Care Bill

Debate between Baroness Tyler of Enfield and Baroness Brinton

Lords Hansard - Part 2 & Report stage
Monday 7th March 2022 Lords Chamber

[Baroness Brinton (LD) [V]]

I thank the noble Baroness, Lady Bennett, for tabling these amendments, slightly amended from Committee, and in particular for responding to the Minister’s concerns that the first amendment had perhaps been too broad and would catch the day-to-day business of companies. That cannot be said about Amendment 145.

I also want to pick up a point that the noble Earl made in Committee. He said:

“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.”—[Official Report, 4/2/22; col. 1161.]


Yet the Charity Commission does have the ability to intervene in the event that a charity, or series of charities stretches—shall we say?—those rules. Its Internal Financial Controls for Charities, CC8, provides very specific guidance. Indeed, in recent years, one charity, the Plymouth Brethren Christian Church, was investigated for a circular set of donations. Each donation to each different body was paid tax relief out of the public purse, coming back to serve the schools that the adults at the community church sent their children to. The way that was structured was similar to a financial instrument employed by the few companies that abused the funding they received from the public purse for social care.

The noble Earl also referred to the Treasury guidance Managing Public Money and Accounting Officer Assessments. I have been through that, too. It is very interesting and clear. Under the heading

“expenditure which may rely on a Supply and Appropriation Act”,

Managing Public Money lists

“routine administration costs: employment costs, rent, cleaning etc … lease agreements, eg for photocopiers, lifts”.

It does not say: “Re-charging sister/parent/daughter companies for large amounts of borrowing and the interest thereto”, which is what has been happening.

It is important that we start to debate how public funding is spent by these companies, particularly those overseas, when we cannot see how that money is spent. I also support the other amendments in the group, which ask for a review of financial regulation. It is interesting that the Treasury guidance refers constantly to the Nolan principles, which are absolutely vital in talking about transparency and responsibility when spending public money. These amendments might not be quite right to deliver that, but it would be good if there were a review under way.

The other thing we must have when these companies spend large amounts of public money is publication of their full accounts. They should not be able to hide behind very short, superficial accounts from overseas.

[Baroness Tyler of Enfield (LD)]

My Lords, I support these amendments tabled by the noble Baroness, Lady Bennett, as I did in Committee. In essence, they are about financial practices in the social care sector that I find completely unacceptable.

The social care provider market, as we all know, is complex, fragmented and too often inherently unstable. One of the causes of instability is financially risky behaviour by a small number of large, equity-backed, highly debt-laden companies in the residential care sector. This has resulted in some high-profile sudden exits from the market, such as Southern Cross and Four Seasons. The key point is that, in the event of the closure of a care home, the provider bears no responsibility for continuity of care. That falls on the local authority, with the direct impact felt by care home residents and their families. That just cannot be right.

It is also concerning that, in its 2021 social care market report, the NAO was unable to analyse the accounts of five of the large equity-backed providers because of difficulty in accessing their accounts. Of course, the issue of the lack of transparency over accounts, profits and shareholders is exacerbated when company ownership is offshore.

As the noble Baroness, Lady Bennett, explained, Amendment 147 seeks to require local authorities and other public bodies to commission care from non-UK domiciled companies only if they publish full accounts and offer transparency over their ownership. There is an interesting international precedent for the latter part of this. Indeed, in February 2022, the Biden Administration announced a set of measures around improving quality and transparency by requiring private equity firms to disclose ownership stakes in nursing homes.

I will finish by making a couple of broad points. For a measure like this to be implemented effectively, it will clearly be essential that local authorities are equipped with sufficient complex accounting knowledge to scrutinise the ownership and financial practices of a provider. Although this amendment would help ensure transparency and enable better scrutiny of offshore entities, I am conscious that complex ownership structures are not limited to companies owned abroad. I hope the time will come when this sort of financial transparency is extended across all providers, wherever they are based.

Health and Care Bill

Debate between Baroness Tyler of Enfield and Baroness Brinton

Committee stage
Friday 4th February 2022 Lords Chamber

[Baroness Brinton (LD) [V]]

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.

[Baroness Tyler of Enfield (LD)]

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.