Southern Cross Care Homes

Earl Howe Excerpts

Tuesday 12th July 2011 Lords Chamber

[The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)]

My Lords, I shall now repeat as a Statement the response given earlier today by my honourable friend the Minister for Care Services to an Urgent Question tabled in another place on Southern Cross Healthcare. The response was as follows.

“As the House will be aware, Southern Cross has been working with its landlords and lenders to agree a restructuring process to secure a viable way forward for the future. The Government have made clear, as I set out to the House on 16 June, that our overriding concern is the welfare and safety of the 31,000 residents in Southern Cross’s care, and we expect all parties to work together to secure a consensual, solvent restructuring of the business that meets their collective responsibility to secure the welfare and care of those residents.

When I last updated the House on 16 June, Southern Cross, its landlords and its lenders had announced the previous day an agreement to work through, over a period of four months, arrangements for a consensual, solvent restructuring. Yesterday’s announcement was one step in that ongoing process, and discussions continue to resolve the remaining steps.

I know that there has been some concern about what yesterday’s statement may mean, and that residents and their families—as well as staff—are anxious to know what will happen. Let me repeat the assurance I have given to this House before: whatever the outcome, no one will find themselves homeless or without care. We will not stand by and let that happen. We have worked and will continue to work with the Association of Directors of Adult Social Services, the Local Government Association, the Care Quality Commission and others to ensure that there is an effective response to any potential disruption to the continuity of care, and that all residents are protected. A consensual restructuring that assures a smooth transition to new arrangements will mean that those contingency arrangements will not be needed, and that is what we want to see.

Let me reassure the House on some of the questions that I know honourable Members may have. First, yesterday’s announcement—which stated that at the end of the restructuring process the Southern Cross corporate entity would cease to exist—has no effect on the provision of care or the operation of care homes. Southern Cross remains in operation, and will continue to operate all its care homes until any transfer to new operators takes place.

Secondly, the transfer of care homes to alternative operators will be a managed process that ensures the continuity of services. Yesterday’s statement makes clear that care home staff will transfer on their current terms, and the service that residents receive should be unaffected by the transfer. All parties involved in the negotiations have given a clear commitment that continuity of care will be paramount in this process. Local authorities are already working to ensure that they can assist in the smooth transfer of arrangements of homes in their area, and the department has been working with ADASS and the LGA to support that.

Thirdly, no transfer will take place without the new operator being approved and registered by the Care Quality Commission. There has been speculation that companies with no experience in the care sector will take over the running of homes. That will not happen. Alternative operators will need to be reputable and experienced companies which are able to satisfy the CQC that they are capable of delivering high quality care and meeting all regulatory standards. The CQC will not drop its standards in ensuring that requirements are met. I understand that each of Southern Cross’s landlords are settling their arrangements as to which care home operator to work with, and that is an essential part of the discussions that are ongoing. That will cover all landlords, so that there is a clear way forward for all homes.

Finally, I can assure the House that the Care Quality Commission has been working with Southern Cross, landlords and other stakeholders for several months to ensure the smooth transition of services and has processes to deal with re-registration and undertake the essential checks needed as a priority. It is having ongoing conversations with Southern Cross, landlords and other providers on the timing of applications.

Our priority as a Government is to ensure that the current problems with Southern Cross are resolved and that a sustainable way forward can be secured. But as the Prime Minister has previously stated to the House, we are also clear that we will take action for the future to ensure there is proper oversight of the social care market. The Health and Social Care Bill allows us to extend to social care—if we decide that it is needed—the financial regulatory regime we are putting in place in the NHS. However, regulation is not the only solution. We will approach this in a measured way and as part of wider reform in the social care market to ensure that we do not face a similar problem in future.

I said that yesterday’s statement from Southern Cross was one step in an ongoing process over the coming weeks and months. Until all future arrangements are settled, Southern Cross will continue to operate and provide care in all its care homes. It is only at the end of the process, when all transfer arrangements have been completed, that Southern Cross as an entity will cease to exist. By then, all homes will have a clear plan for future operation and for the continuity of services into the future.

What we now want to see is a swift conclusion to these important discussions, to offer reassurance and certainty to residents and their families. I want to reassure the House that the Department of Health has been and remains fully engaged, and senior officials are in daily contact with all the parties to ensure that the interests of residents are at the forefront of all discussions. The Government will continue to keep close contact with all involved in the process, and I will continue to keep the House informed”.

My Lords, that concludes the Statement.

--- Later in debate ---

[Earl Howe]

My Lords, I am grateful to the noble Baroness for her comments and questions. She asked a number of the latter. I hope I can answer most of them. It is important to appreciate that this is a managed process. The announcement that the Government made last month of a four-month restructuring window still applies, and we are at the first major stage of that process. Therefore, anxieties about the welfare of residents are misplaced because this is not a case of the collapse of Southern Cross. It is still very much a managed and solvent restructuring that is going on.

The noble Baroness asked me about the landlords. It is not for the Government to liaise with all the landlords directly but they are all represented on the restructuring committee, working to develop a plan for the future. Local authorities and the CQC will link as necessary with all the landlords as they take through their plans for the future management of homes. I am advised that the CQC understands that the Southern Cross landlords’ committee wants the handover of care home properties to take place at the end of September. The CQC is co-ordinating its activities to ensure that regulation does not prevent the handover across England. I hope that reassures the noble Baroness that nothing is going to happen tomorrow. It is very much part of a planned and structured process.

The noble Baroness asked about care homes that were in debt. Many companies, in all sectors, may have some degree of debt, quite obviously—this is a normal part of business, not necessarily a concern. We are clear that Southern Cross’s particular business model—not owning but leasing nearly all its properties—is a unique model and that is what has given rise to its particular problems.

The noble Baroness asked about the consequences of the landlords taking back their properties. The department is very clear that it expects all parties to maintain service continuity and quality of care while the restructuring process is ongoing. Our principal concern, as I have said, is for the safety and well-being of the residents. CQC will pay particular attention to any care homes where there is a concern that quality may be at risk or inadequate. It does have the resources to do this. It has indicated that there is not a problem in that sense. CQC has regular dialogue with Southern Cross at corporate level in addition to the attention it gives to individual services. We have emphasised to CQC the importance of ensuring that Southern Cross homes continue to comply with regulations and safety and quality requirements. Of course, we expect CQC to take the necessary action if it finds, for example, that staff reductions are affecting safety and quality of services.

The noble Baroness asked about government money for Southern Cross. Southern Cross is not asking for a bailout. It is looking to resolve its problems and it is for the company, its landlords and those with an interest in the business to put in place a plan that stabilises ownership and operation of the care homes. That process is happening and we must let it continue.

A number of providers that will acquire Southern Cross homes are already registered with the CQC as care providers in their own right, such as Four Seasons. There are established processes in place to allow these providers to extend their current registration to take on additional care homes. That process, assuming that it occurs, is relatively straightforward. Providers who are not known to or registered with the CQC will require a full application that will be subject to full scrutiny and a determination of fitness to provide the service. This cannot be a case of companies registered overseas suddenly becoming care home operators—that will not happen. Any new operator must demonstrate that they are fit and proper people to conduct this type of business and prove that to the CQC. Each landlord will be required to ensure that it has arrangements with a reputable and capable operator which can meet the CQC’s requirements. This is what the companies are now resolving as restructuring discussions continue.

It is also important to emphasise that while the CQC is committed to ensuring continuity of care, it will not lower the regulatory bar or reduce the rigour of registration. CQC’s principal concern is the safety of service users and it will not compromise on the standards that are required. At the same time, we expect that local authorities will ensure that any transfer or new arrangement to provide care for residents takes place smoothly and with continuity of care for service users assured. We are talking to the Association of Directors of Adult Social Services, the Local Government Association and, of course, the CQC, as I have mentioned, to ensure that robust local arrangements are in place.

Finally, the noble Baroness asked about the staff and their legal position. This is not a matter that the department can comment on directly, but staff are protected by the relevant employment law. I understand that Southern Cross has undertaken in a letter to care staff that they will be transferred under their existing terms to new operators under TUPE. That is our understanding of the position.

[Earl Attlee]

My Lords, perhaps I may remind the House of the benefits of short questions which will enable my noble friend the Minister to answer as many questions as possible.

--- Later in debate ---

[Earl Howe]

My clear understanding is that many homes will continue in operation with the same staff, and that the residents of those homes will therefore not be required to move. We hope most earnestly that no resident of any Southern Cross care home will be required to move. I am not aware of the precise situation in the north-east of England, but my noble friend’s comments suggest to me that there is no undue cause for concern in that part of the country. The plan certainly would be, as far as possible, to maintain the residents in their current homes, and they should notice no difference in the quality of care that they are receiving.

To the extent that residents are required to move—and as I have said, we hope that that will not be necessary—yes, of course there will have to be a process of monitoring the welfare of those people in those circumstances. The duty to do that falls primarily on local authorities, where they are the commissioner of the care, but I have absolutely no doubt that the CQC will wish to add to that oversight. I believe that it is too soon to speculate—because we are not sufficiently far down the restructuring process—on the extent to which residents will be disrupted, but the number of homes that do not in the end prove viable as businesses will emerge in due course.

[Lord Campbell-Savours]

My Lords, first, I noticed that the noble Earl did not respond to the question asked by my noble friend on the publication of the names of the property companies that stand behind many of these homes. Will a special regime be introduced by the CQC of random unannounced visits for homes managed by property companies? It is important that we get an assurance that it will carry out random unannounced visits as against other forms of visits which are possible. Secondly, given that Regulation 13 of the CQC registration regulations 2009 requires a service provider to,

“take all reasonable steps to carry on the regulated activity in such a manner as to ensure the financial viability”,

of the operation, who then is going to monitor compliance with Regulation 13? Should we not now have—set and enshrined in some regulatory arrangement —some authority given the power to seek to secure compliance, or are we simply going to leave it to an offence, as the noble Earl has referred to in an Answer he has given to me, whereby no one is actually monitoring these matters?

[Earl Howe]

First of all, the CQC is an independent body; it is not under the jurisdiction of Ministers, and it must be free to organise itself as it sees fit. I cannot undertake on its behalf that it will perform random unannounced visits. It does, however, do that as a matter of course, and it generally does so on a risk-based basis so it would surprise me if, where the CQC saw that there was an enhanced risk to residents, it did not make it its business to perform inspections. Looking ahead into the medium term, should the Health and Social Care Bill pass through Parliament, as the Government propose, local HealthWatch will be in a position to enter and view care homes, as LINks are at the moment, but I believe that HealthWatch will be, in most areas at least, in a better position to undertake such inspections on a random basis.

The financial liability will of course not be the province of HealthWatch, but any concerns about the welfare of residents would be subject to the powers of HealthWatch to refer up to HealthWatch England, and in so doing, through HealthWatch England to the CQC. The financial viability of care homes is of course a live issue. I have commented on this in the past, and we are certainly considering whether Clause 57 of the Health and Social Care Bill could be used to extend the regulatory regime that we are proposing for the NHS to care homes. That is something that we will need to discuss because it would amount to a regulatory burden on care homes. Nevertheless, I do not belittle the issue. My ministerial colleagues in the Department for Business, Innovation and Skills are looking at the issue of private bodies that provide publicly funded services and whether there are implications in the sense that the noble Lord has indicated.

[Lord Elystan-Morgan]

My Lords, has the Minister considered the legal question of fraudulent trading, which seems to be apposite not only to the case of Southern Cross, but indeed—according to the comments made by the noble Baroness, Lady Thornton—to other care companies as well? Does the Minister recollect that exactly 50 years ago, in a case called Wellfield, this House, sitting in its judicial capacity, defined fraudulent trading as a situation where the directors of a company continue trading, knowing that there is a risk that debts will not be able to be cleared as they arise? Bearing in mind that as far as Southern Cross is concerned, many months ago, it announced that it would not be able to pay its tax liabilities, nor indeed to pay more than 70 per cent of the rents due to lessors, would it not seem that there was a clear breach of what is now Section 993 of the Companies Act 2006?

[Earl Howe]

My Lords, my advice is that Southern Cross is not insolvent in either sense of the word. Its assets, I am told, exceed its liabilities, and it is able to meet its commitments as they fall due, thanks to the agreement reached between the company, its landlords and its bankers. The process announced on 15 June is the key to this: the company’s restructuring committee is developing a plan to stabilise the ownership and operation of Southern Cross care homes. We expect, as I have said, that there will be an orderly process of reassigning homes to landlords and new operators. That process will take place between now and October, during which time continuity of care will be maintained. Nothing that I have said changes the outlook for the medium term, and I believe that we can say, and that the company can say, that insolvency is not an issue at present.

[The Lord Bishop of Manchester]

My Lords, for all the assurances that the Minister has given, and for all his obvious sensitivity to the issues that many residents face, the truth remains that a lot of people in these care homes feel themselves at present to be in an extremely vulnerable position. In these circumstances, does he feel that the level of salary and bonuses that some directors have is appropriate, and would he like to comment, in the light of what he said earlier about financial implications, on whether or not that is an area that in future he would feel needs to be examined more carefully?

[Earl Howe]

I am grateful to the right reverend Prelate. I do not think any of us feels comfortable if the directors of struggling companies take substantial bonuses. I have to say that I do not have a briefing on whether the directors of Southern Cross have taken substantial bonuses in recent months, but I shall make it my business to try to ascertain that. But of course the right reverend Prelate is right to say that we must be clear that the stability of care homes, looking after frail, vulnerable, elderly people, should not be put at risk by mismanagement. I am afraid that Southern Cross has been a story of mismanagement since it was established in its present form.

[Lord Beecham]

My Lords, my noble friend Lady Thornton referred to the fact that the owners of many of these properties are offshore companies. Is the Minister comfortable with the fact that according to a claim by the GMB union, some 336 of these care homes—just under half the total—are owned by companies outside the UK, with 325 of them registered in tax havens? Does the Minister agree, as I asked yesterday of his ministerial colleague about the Statement on the White Paper on public service reform, that the high proportion of residential care places managed by Southern Cross—some 18 per cent of the total of places, with roughly a further 18 per cent managed by another five companies—does not represent diversity of provision and increases the risk of things going seriously wrong on a large scale, as has happened in this case? Does that not lead to the possible conclusion that to talk about diversifying without any indication of a limit on the number of places that might be operated in a field like this needs to be rethought?

[Earl Howe]

I think the noble Lord and I are at one in wanting to see diversity of provision. The restructuring that I suspect we are likely to see emerge from this will result in just that, as a matter of fact. It appears that Southern Cross is to be split into a number of smaller enterprises, and that in itself should, we hope, lead not only to a more diverse arrangement but a more secure one. However, I do not take issue with the thrust of the noble Lord’s remarks at all.

On the issue of the ownership of some of these care homes, our concern as Ministers is not so much where the shareholdings lie as on whether that in itself has implications for the quality of the care that residents receive. I am not aware that that has been a factor. As long as the ownership of these care homes is legal and we are not seeing tax evasion as opposed to tax avoidance, to an extent it is not an issue for the Government. But it is something that is likely to be examined quite closely as the restructuring takes place.

[Lord Sutherland of Houndwood]

My Lords, I welcome the way in which the Minister’s Statement has given reassurance to those in care homes and their families. It is immensely important that we continue to do that. There is, however, a further area of reassurance that I hope the Minister will be able to say something about. We have reassured staff through TUPE that perhaps there is some protection for their terms and conditions, but speculation in the press today suggests that the cost of care in these homes might rise significantly because of a period of underinvestment. I hope that we can at least monitor any such rises to ensure that they are gradual rather than sudden and therefore financially debilitating.

[Earl Howe]

My Lords, the noble Lord, Lord Sutherland, makes a very good point. The advice I have been given is that during the restructuring process, the cost of care should not be a factor. While local authorities may have to revise their budgets, that should not result in disruption for residents.

[Lord Popat]

My Lords, does my noble friend agree that most of the landlords of these care homes were the former operators themselves, and therefore the transfer of registration by the CQC will be a very smooth process? However, we will end up with a few homes where the landlords might not want to take them back. Should we not have contingency plans for local authorities to rent such premises on a temporary basis until a permanent solution is found?

[Earl Howe]

My noble friend is quite right to say that it is indeed possible that landlords may not wish to take the properties back, but in that scenario it has been agreed that those landlords will look to partner with a reputable care home operator. So it might well be that a care home will join a consortium run by one of the major care home operators which is now in discussions.

[Lord Bilimoria]

My Lords, the Minister said that Southern Cross’s business model was unique, but surely it is not since so many care homes have been following the Opco/Propco model. Does the Minister therefore agree that it was possibly not just mismanagement that was responsible for this situation, but the fact that the business model which worked in the good times—the previous owners did very well out of it—is not working now? As the noble Baroness, Lady Thornton, said, several care homes are in difficulties. Does the noble Earl think that the cuts that are being made might have a role to play as well? Have the Government made a full analysis of the dire situation in the care home sector?

[Earl Howe]

Clearly, my Lords, before the Government produce a White Paper on social care a thorough analysis will be done, and we have the Law Commission report that will guide us in part. Southern Cross developed a business model that worked during times of increasing prosperity, when property values were buoyant and occupancy levels were similar, but it entered into contracts with its landlords which are proving unsustainable in the present climate. Demand for residential care is reducing generally. Not only are councils purchasing fewer care home places, but people are also opting for greater personalisation and more innovative approaches to providing care services, including being looked after at home. My advice is that the Southern Cross business model is unique. That may be—the noble Lord has considerable knowledge in this area—an overstatement and perhaps there are some care homes which are similarly structured, but it is certainly the largest and most significant model of its kind that we are aware of. From the advice I have received, I do not think we should be unduly concerned that other instances on a par with Southern Cross are likely to occur.

[Lord Hollick]

My Lords, I welcome the Government’s decision to prioritise sustainability because the demise of Southern Cross is a stark example of the dangers to sustainability of overly aggressive financial engineering: too much debt, too many unwise property deals and too many gullible banks; in short, too much avarice and not enough prudence. As the Government contemplate how best to regulate the financial aspects of this industry, how will they ensure that the new operators of Southern Cross care homes will be financially sustainable?

[Earl Howe]

My Lords, we are reverting to the question asked by the noble Lord, Lord Campbell-Savours. The CQC already has some duties to ensure that the care homes it registers are able financially to sustain their business, as well as simply providing a quality service. But this is clearly an issue that needs to be looked at. As I have mentioned, we are taking powers in the Health and Social Care Bill which potentially could see the care-home sector subject to the kind of financial regulation that we are applying to the NHS. This is a work in progress.

[Lord Campbell-Savours]

My Lords—