Long-term care

The long-term care sector is an example of what happens when government loses control of the providers of a service. Almost the entire social care sector, residential and home care, is privatised; these companies have to make a profit from service users or face bankruptcy. The privatisation of social care was supposed to lead to better care and more choice for people; what it has led to is a system of declining care standards, widespread financial instability, poorly paid staff, and money siphoned off to tax havens.

There are six major issues for this sector, according to the King's Fund:

• Access: means testing, unmet need and selling homes to pay for care
• Quality of care: 15-minute care visits and neglect
• Workforce pay and conditions: underpaid, overworked staff
• Market fragility: care providers struggling to stay in business
• Disjointed care: delayed transfers of care and lack of integration with health
• The postcode lottery: unwarranted variation in access and performance

The government has established a commission, led by Baroness Louise Casey, to set out recommendations for a ‘fair and affordable’ social care system. The commission began its investigations in May 2025.

Whatever the outcome of the commission, it is difficult to reconcile an industry whose leading companies are paying directors millions, and making large profits for hedge funds and private investors, often based overseas, with one that is justified in receiving more money from taxpayers.

In an article for the Guardian in August 2021, Christine Corlet Walker of the Centre for the Understanding of Sustainable Prosperity at the University of Surrey notes:

"the financial structure of many of these companies means that the crisis in social care in the UK does not have just one cause, nor one simple solution. Chronic underfunding, an ageing population, the Brexit-induced labour shortage and the devastation wreaked by Covid-19 have all played a part. But the problems forcing the care system to the brink of collapse don’t just come from a series of exogenous shocks – they are internal too. The very structure of the sector is unstable."

In the paper Careless finance: Operational and economic fragility in adult social care authored by Christine Corlet Walker, Angela Druckman and Tim Jackson, at the University of Surrey, the authors conclude that:

"adult social care is ill-suited to being operated as a market, for four specific reasons. First, it has limited scope for labour productivity growth. Second, local authorities have the power to set prices unsustainably low. Third, there is an inherent lack of consumer access to information about price. Fourth, consumers have scant ability to express preference and exercise choice about providers. These factors place social care in acute danger of predatory financial practices."

Profiteering

The vast majority of care homes are now owned by private companies. In a Panorama programme in December 2021, Jeremy Hunt, former health secretary, said that finances of some of the UK's biggest care providers should be investigated by the competition watchdog. Three of the UK's biggest care home groups are owned by private equity companies and are saddled with significant amounts of debt. The Panorama programme focused on HC-One. The programme reported that HC-One has a web of more than 80 companies in its structure. Some of them own the physical care home properties, others run the care parts of the business. But there are many more companies with less obvious functions. Several of those at the top of the structure are based overseas in the tax haven the Cayman Islands.

In December 2021, iNews reported on the pay discrepancy between staff and directors for the four largest for-profit care home providers, by number of beds, which are owned either by private equity companies, hedge funds or offshore investment firms. The analysis of their accounts show large gaps between executive and employee pay, even among those businesses that cut executive pay during the pandemic. For example, Barchester, owned by Jersey-based investment firm Grove Ltd, pays its care staff between £9 and £10 per hour, with a carer working 36 hours per week on £18,820 per year while Barchester Healthcare’s 2020 accounts show its highest paid director earned 120 times more at £2.27m.

Care UK while owned by private equity firm Bridgepoint Capital, increased overall director remuneration from £2m to £3m in 2020, its accounts show. Its highest paid director for the period received £900,000, which was the same level as in 2019, but one of its care workers earned £18,720 per year on a 36-hour week. This suggests its highest paid director earned 48 times more last year, according to Care UK’s accounts.

In February 2022 The Times reported that Caretech Holdings, the UK’s largest private provider of children’s care homes, sent more than £2 million to its founders’ offshore company in the Caribbean while accepting huge sums in government Covid support. The company had posted soaring profits in the past two years despite having care homes that are among the worst-rated in the country. The company, whose income is largely taxpayer-funded through local authority payments, recorded an operating profit of £79.5 million in its last accounts, up 49% year-on-year.

Historical Financial Instability

Since 2010, government reductions in local government funding has been a primary austerity measure. All local authorities have sought to cope with the resulting funding crisis by reducing the fees paid to care providers in both the residential and the home care sector.

In the residential sector, the private companies have tried to claw back profits in several ways, including charging much higher fees to users who pay privately and reducing the number of staff, sick pay, break times and training. Self-funding residents are paying on average 43% more than state-funded patients for the same care. This disparity in payment means that a two tier system is operating, with residential care homes reluctant to take too many state-funded patients.

Many companies in the residential care sector, in an effort to increase their profits, have resorted to complicated business models backed by private equity and are now reliant on risky financial structures. This leaves them exposed to collapse, with damaging consequences for care home residents.  One example of this is the 2011 collapse of Southern Cross, a large national care home provider which had 9% of the market nationally, although within the northeast, Southern Cross accounted for around 30% of all care home places. The company's collapse risked the care of 37,000 people.

The reasons for the Southern Cross failure were many, but all related to the fact that as a private company it needed to make a profit.  The company's finances involved a complex mix of creditors, property investors, bondholders, banks, shareholders and landlords and the think-tank CHPI notes that as the company struggled with debt and a reduction in income there was "a reduction in property maintenance, which in turn led to lower occupancy; loans attracting higher interest rates because the company no longer had properties against which to secure loans; a fall in market confidence and the share price; and poor management and quality of care, which led to adverse inspection reports and further decreases in occupancy levels." As it was a private company, the local authorities had no control over the situation, all they could do was try and pick up the pieces after its final collapse.

In the end other private companies took over the contracts, however the main company that picked up the contracts, Four Seasons, was also on the brink of financial downfall by the end of 2017. The uncertainty around the company was only relieved when it struck a deal with US private equity investors and deferred debt payment. Financial stability didn't last long as in March 2019 Four Seasons went into administration. It was reported that this move will not affect the residents lives or the staff as there are no plans to close its 322 care homes.

The instability of the social care market continues. A survey of nearly half of the local authorities in England who commission social care found that 77% experienced provider failure in 2015/16 and 74% believed another failure was going to be likely in the following year.

In November 2016, a report by OPUS found more than one in four care homes across the UK will be facing a financial crisis over the next three years; this means that more than 6,000 care homes could close if they are not rescued by a new owner. The study looked at 6,178 operators that run 96% of the UK’s care homes, looking after 300,000 elderly and vulnerable residents. The report also noted that 751 operators (12%) are ‘zombie’ companies with higher liabilities than the value of their assets. Between them they have a negative equity of £167 million; this figure has risen by 53% since March 2014. The OPUS survey did not cover 750 care homes owned by three private equity companies, including those run by Four Seasons, HC-one and Barchester. These companies are owned by offshore companies and comprehensive financial data was not available. If these companies have been included the sector's financial health would have looked even worse.

The financial stability of the care home companies show no signs of improving. Private equity firms view social care as a lucrative market and have amassed huge amounts of debt buying up care homes. This could easily trigger a financial crisis that would leave local authorities to pick up the pieces, as with Southern Cross in 2011.

In March 2019, accountancy firm BDO reported that more than 100 care home operators collapsed in 2018, taking the total over five years to more than 400. Its report warned that as homes closed many patients would have nowhere else to go but hospitals.

In October 2019. the Guardian reported on documents leaked from the CQC on the financial state of Advinia, a company that had grown to 10th in the English care home market via the acquisition of 22 BUPA homes in April 2018. The CQC is concerned about the company's cash flow and ability to pay its debts. In late August 2019, the CQC warned over 150 local authorities in England and Scotland that Advinia was not cooperating in a financial investigation and the CQC could not give the company a clean bill of financial health. The local authorities now have to decide whether to use the company as a provider or not. According to the leaded documents, Advinia is not cooperating with the CQC and there are also concerns about the “competency and capabilities” of Advinia’s finance department as the company has had four finance directors over five months. 

With the sector facing financial problems, the quality of the care that they provide to residents has been found to diminish – the facilities deteriorate, staffing levels are reduced and additional ‘services’ for residents, such as outings and entertainment, are cut back.

Research by Which (click here for Infogram) showed that the care homes owned and ran by private equity firms were among the worst in terms of CQC ratings of inadequate or requiring improvement.

Financial instability is also a major problem in the home care market. In 2017, a report produced by the Local Government Unit think-tank and Mears, one of the leading home care providers, concluded that the home care business was on the brink of collapse; companies were either going bankrupt or pulling out of contracts. Mears reported that it is losing £3 million per year on its home care business and is now pulling out of some local authority contracts and being very wary about bidding for new ones.

In March 2017, an investigation by OPUS, Company Watch and BBC Panorama found that care firms have cancelled contracts with 95 councils, saying they cannot deliver services for the amount they are being paid. The research also found that 69 home care companies had closed in the preceding three months and one in four of the UK's 2,500 home care companies is at risk of insolvency. In March 2017, Mitie sold its home care division to specialist healthcare investor Apposite Capital for just £2; Mitie bought the division for £111 million in 2012. Mitie blamed cuts to payments by local authorities and the increase in minimum wage.

In October 2018, the CQC took the unprecedented step of writing to 84 local authorities with concerns for the financial stability of Allied Healthcare and its ability to continue to provide home care services past 30 November 2018. The CQC warned that as many as 9,300 elderly and vulnerable people are at risk of losing their home care services. The CQC was concerned that Allied Healthcare would not be able to make a loan payment due at the end of November. The company was saved from going into administration by its sales to Health Care Resourcing Group for an undisclosed sum in December 2018.

Home care companies had sought to maintain profitability by the adoption of the flawed ‘task and time’ model with units of as little as fifteen minutes care per client imposed in order to reduce costs. This approach received considerable criticism, however, and statutory guidance introduced in 2015 stated that this short time was not appropriate. Despite this guidance, in February 2018, a report by the disability charity Leonard Cheshire found that around 20,000 people still received visits of 15 minutes or less.