A litmus test of civilisation is the way a society values its most vulnerable members. By that standard, England is lagging miserably in its treatment of the old, young adults and children in nursing and care homes. According to a report out today, nearly half of those looking after the first and third fail to meet national minimum standards on giving medication, while the figure for the second is nearly 40 per cent.

Nothing surprising here you might think but the comment from the Daily Telegraph above was written over five years ago. The “today” was 7 Februrary 2006.

And things have got worse since then. The exposure by Panorama on 31 May of what can only be described as torture of mentally disabled and autistic people at Winterbourne View Care Home in Bristol is only the nastier tip of a very murky iceberg. Since then 4 staff have been arrested and another 13 suspended. The Care Quality Commission is now investigating the other 30 homes run by the parent company Castlebeck. Other scandals have followed. Less heralded was another Panorama investigation on 9 April which revealed that firms offering “care in the home” for the elderly got the contracts on a bidding basis – and those who offered the lowest bid costs to councils unsurprisingly got the contract. One firm in South Lanarkshire (Domiciliary Care) bid close to £9 an hour for such a “service”. Not surprisngly its low-paid workers could not cope as they had no time to complete the supposed schedules leaving immobile aged people alone for 24 hours stretches. Another firm assigned jobs on a daily basis in a car park.

Care of the elderly has never been great in this society but the reasons for its catastrophic decline over the last 20 years are to be found in the same roots as the banking crisis – speculation. This has come out most clearly with the final announcement of the collapse of Southern Cross

Southern Cross: An Age Old Problem of Profit

Southern Cross was Britain’s largest care home provider for the elderly with 31,000 residents in 752 homes, and 44,000 employees. It has now walked out on this “business”. Commentators have blamed rising costs, rising demand from an ageing population and years of under paying by Local Authorities. All of course are happening but the economic collapse is creating a perfect storm and some of the poorest and most vulnerable people are about to be caught up in it.

It is worth looking closely at Southern Cross, if only because it’s a good example of how morally and economically corrupt capitalism is.

Southern Cross was set up in 1996 and grew rapidly through a series of speculative takeovers and new builds. From the late 1990’s, because Local Authorities no longer ran their own care homes themselves they became the biggest ‘client’ of private care operators, with up to 80% of care homes being taken up by people who came from Local Authorities and the NHS. However following the economic crash and the massive cuts in Local Authority budgets, Local Authority admissions declined by 15% in the first half of last financial year and Southern Cross saw its revenues drop 3% to £464 million in the first half, as overall occupancy declined by 3% to just under 87%. In some places occupancy is just 50%. Rent has also gone up 2.5% in the last year.

Not surprisingly then, when Southern Cross bosses spoke of ‘a critical financial condition’ as it unveiled a £311 million loss in the six months to March 31, its share price went from £3 to £1.30 overnight. (Ten years ago shares were worth £6. As we write they’re worth ten pence.) Emergency measures to try and avoid full scale collapse so far have resulted in an agreement that the company underpays its rent by almost a third until the end of September in a bid to buy time, promising a share of profits (should these emerge). Staff and residents have been warned that homes could close or be ‘offloaded’ to other operators with 5,500 residents potentially affected. 3,000 job losses were also announced.

Southern Cross bosses have largely blamed their crisis on the inability of Local Authorities to pay the ‘going rate’ for care of the elderly. However, passed-on cuts in funding is not the sole explanation of the crisis.

Profit before Care

As Nick Louth in MSN Money on 2 June showed the origins of the crisis go back some time.

The roots of this scandal aren't hard to find. The huge international investors behind the care home scandal saw what they thought was a golden opportunity when Britain's care home provision was largely moved from local authorities to the private sector two decades ago.
They saw an apparently guaranteed stream of fees provided by local authorities and a growing demographic that would boost the number of those aged 75 or more to 7.1 million by 2083 from 3.5 million in 2010. They also saw the rising values of the property these residents owned, which would underwrite an escalating level of fees.
Best of all, investors saw that the provision of those services could be made from large properties, many in the well-heeled south east, which would grow and grow in value and provide ideal security for bank lending. It also coincided with the expansion of the EU, which would allow an extra stream of those willing to work for low wages.

In 2007, the peak of the frenzy, there were 121 takeover deals worth £5.7 billion.

A sure winner, Southern Cross was soon bought by the private equity arm of the German bank WestLB for £80million in 2002 before being sold to US private equity firm Blackstone for £162 million. It then expanded rapidly. Like other equity firms (KKR, Permira, TPC, CVC, BC Partners amongst others) Blackstone had massive tax incentives to heap debts on enterprises. Borrowing was incredibly cheap and this gave the financial incentive to strip the assets from a business by replacing it with debt. The resulting business would pay very little corporation tax. In some cases they paid none at all because the interest of the debt was deductible from profits. And if the debt finance was used to pay dividends, those dividends would be tax free, similar to offshore tax havens. When the private equity firms did pay out gains from the buying and selling of businesses in their funds, those gains were taxed at incredibly low rates.

The whole thing of course was encouraged by then Labour Chancellor Gordon Brown who believed that it would make companies owned by private equity firms more efficient and would draw in valuable business for the City. In fact what happened was they sold out at the top of the market, banked the profits and ran. Blackstone was no exception. It did what other equity firms did. After selling the care-home group’s properties for a quick profit it sold Southern Cross in 2006 and walked away with bulging pockets. Between 2004 and 2007 the firm had tripled its initial £162 million investment. Southern Cross then leased back the homes, (once the property assets were safe from creditors). These were toxic leases since they contained a built increase very year (on the assumption that property prices would rise forever). To paraphrase Scooby Doo, they might have gotten away with it if it hadn’t been for the pesky financial collapse which meant Local Authorities and the NHS were forced to tighten their budgets in the wake of severe spending cuts, and, no longer able to prop up the house of cards, it has now collapsed.

Southern Cross is not alone. In 2007, at the peak of the care home speculative frenzy, there were 121 takeover deals worth £5.7 billion. Nick Louth (quoted above) gives a summary

Care Principles, which runs secure units for people sectioned under mental health legislation and for others with learning difficulties, has been under the control of its bankers, Barclays, since 2009.
The company was sold by one private equity firm to another in July 2007. The sellers, 3i, managed to squeeze £270 million for it in a sale to Three Delta, an investment fund backed in part by the Qatar Investment Authority. The price was so high that one lawyer involved, Chris Hale, told the Financial Times: "This was probably the most highly-leveraged deal I was ever involved with."
Three Delta had already been paying big money for other companies in the industry. In August 2006 it bought up Four Seasons Health Care, which looked after 20,000 people.
However, the largely debt-funded deal became too onerous for Four Seasons. It defaulted in 2009 with £1.3 billion owing after a failed attempt to tie up with the Priory Group, famous for its drug and alcohol rehabilitation clinics. Four Seasons is now run by its lenders, including the taxpayer-controlled Royal Bank of Scotland.
The Priory ended up being bought early this year by Advent International, a firm that had already paid £300 million for a company called Craegmoor in 2008 from LGV Capital, which is the private equity arm of Legal & General insurance. Craegmoor, which runs care for those with mental health problems, remains heavily in debt.

The whole care system is in meltdown. Southern Cross management though don’t need to worry since they sold their shares in 2007 making millions in profit. Now it has folded and dumped its workers and clients on its landlords. However this is a bit like Pontius Pilate washing his hands. Some of Southern Cross’s landlords operate their own care homes. One of these is Four Seasons, one of Southern Cross’s nearest rivals which as we stated above went to the brink less than two years ago and only survived when its banks (led by RBS) cut by half the £1.6bn they were owed. And of course it means that landlords now owe hundreds of millions of pounds to the banks, including Lloyds and RBS which, in turn, were themselves very recently on the verge of collapse. And the problem does not end there. Some landlords have so far proved untraceable (money laundering criminals or tax dodgers or whatever). Most Southern Cross workers are in the GMB union. In an effort to find out who will be paying their wages it has had to resort to the Land Registry to try to find out who now owns the homes. It has identified over who owns 600 of the 752 homes but Southern Cross is refusing to hand over details of any ownership. And over half of the landlords are based “offshore” in places like the Cayman Islands so are unlikely to be traced. Workers and residents of these homes have been told precisely nothing.

Who Cares? Not Capitalism

In the wake of this mess the Government has suddenly decided we all need to pay for our care in future and is looking at a number of options, from private insurance to making us pay outright, capping the bill at £35,000 (to protect the middle class and their property). Whatever happens it looks like millions of us face a very poor, underfunded and insecure old age in a system which is itself sick and getting sicker.

We began this article with a quote from the Daily Telegraph

A litmus test of civilisation is the way a society values its most vulnerable members.

What is failing here though is not a “civilisation” but a mode of production based on profit. When Marx wrote in the Communist Manifesto that the bourgeoisie wherever it had got the upper had “had left remaining no other nexus between man and man than naked self-interest” he could have been describing the capitalist so-called care system. What’s at stake is the care of vulnerable people, some coming to the end of their lives, some born disabled, most of whom (unlike those who run equity firms) actually have paid taxes all their lives and are now being asked once again to pay for the mistakes of a system rotten to the core. The cut backs had already caused suffering to residents before this debacle. Workers in Southern Cross care homes have described how overworked, underpaid staff, many paid just one penny over the minimum wage, are desperately trying to care for vulnerable elderly residents, with management using emotional blackmail to get staff to cover shifts. Staff have told of not having the time to sit and chat with residents for a few minutes, of food budgets being cut, of having to cover medical help, of residents having to pay for necessities, of staff being moved from one home to another at short notice with new contracts and how if they refuse they could be sacked without redundancy pay. They have told of the impact uncertainty and insecurity is having on staff and elderly residents alike. The job cuts to pay for this mess include 300 nurses, 1,300 care staff, 400 domestic workers, 700 catering staff and 250 maintenance workers. All are due to be gone by October and currently 31,000 elderly people are living in limbo.

Here we should also not forget the silent scandal of all those unpaid carers (some of them children) who look after relatives with hardly any support from society. Capitalism has already created the technical means for a society of abundance. The problem is that is operates only for surplus value (profit) and not for real human values. The abundance ends up with the social parasites and the problems in the hands of those who work for them. In a sane society we would all work less leaving us more time for real human relations. Care would be the cooperative responsibility of the whole community not just a firm out to make a profit. In a future society every vulnerable person would be cared for by the community in ways which were less alienating and less based on impersonal relations. Care could be different but it would take a real revolution to achieve it.

No doubt there are more dramatic examples of the way our current profit system is incompatible with the needs of humanity, but for now, the care home mess is a pretty good one.