The Guardian view on the care home sector: trouble looms as rents rise | Editorial

When Britain’s largest attraction location operator, Southern Cross, collapsed successful 2011, it heaped worry connected aged residents and ignited a statement astir nan domiciled of backstage finance successful nan sector. The institution had sold disconnected astir of its freehold properties to landlords, leaving it pinch a £230m yearly rental bill. Many of these properties were locked into 30-year leases pinch expanding rents. The bulk of nan company’s income came from local authorities, truthful erstwhile councils clamped down connected spending, Southern Cross buckled. “This exemplary doesn’t activity done difficult times,” its main executive said.

Those times look to person returned. A new report warns that nan UK attraction strategy now risks sleepwalking into a situation of rising costs because of really attraction homes are financed. Investors are piling into nan sector, and person spent an estimated £7.5bn buying up healthcare properties complete nan past 5 years. The authors estimate that up to half of for-profit attraction location groups are leasing their homes from landlords. This is simply a ticking timebomb, they argue: arsenic rents emergence successful statement pinch inflation, immoderate attraction location operators whitethorn person to summation their fees, moreover while landlords’ profits soar. They estimate that attraction location landlords are making £515m successful profit annually.

There is simply a consequence that a two-tier strategy is being created, wherever able areas pinch much privately funded residents – who tin spend to salary higher fees – pull much investment, while poorer areas are near behind. In 2017, nan Competition and Markets Authority warned that companies were building astir each caller homes successful areas wherever they could pull much self-funded residents.

Care location operators that waste their properties to investors are locked into rental contracts that emergence annually pinch inflation. If ostentation remained low, nan risks of this exemplary would beryllium minimised. But precocious ostentation is creating a vulnerable business that makes failures much likely. The 2014 Care Act enabled nan Care Quality Commission to pass section authorities successful England astir homes that are astatine consequence of failure. In reality, this is for illustration watching a slow-motion car crash. The CQC has nary powerfulness to intervene to forestall failures, aliases to restrict companies from siphoning money retired of nan system.

In England, debates astir really to amended societal attraction statesman and extremity pinch funding. Cuts to section authority budgets person squeezed nan sector. But providing much backing without addressing nan financial gymnastics that underpin galore ample attraction companies would beryllium for illustration putting h2o into a leaky bucket. Rising rents whitethorn unit attraction location operators to find different ways of reducing costs by cutting staffing levels. The unit of gathering rental payments whitethorn spot immoderate companies time off nan assemblage – forcing aged residents to move. There are already not capable care location beds to meet nan needs of an ageing population, raising questions astir nan viability of a exemplary that prioritises investors’ profits.

Labour has pledged to make attraction companies financially sustainable and “kick out” those that are “leeching” money retired of nan sector. Another solution would beryllium for ministers to support a argumentation of section proviso and let councils to get to put successful attraction homes. In 2021, erstwhile presented pinch grounds that up to a 5th of fees astatine 1 attraction location institution were spent connected paying disconnected debts to its investors, Jeremy Hunt described nan leakage arsenic nan “unacceptable look of capitalism”. Mr Hunt is now chancellor. He is successful a position to hole this – and he should do so.