2011 has been a tumultuous year in the entire financial world. However, some of the scandals which have been exposed have impacted particularly on the elderly.
For starters, in June, Southern Cross lept into the limelight, for all the wrong reasons. Southern Cross was a significant player in the Care Homes sector, with 752 care homes, and 9 per cent of the total market. In June, the headlines read: “Southern Cross is teetering on the brink of financial collapse.”
The seeds of their destruction had been sewn in 2007, when they decided to list on the Stock Market, and in the process sold most of their property freeholds, and then leased them back.
Rents were inflation-linked, and could only rise. With inflation rising, the consequence was an unsustainable £180 million going out each year in rent, which undermined the ability to invest in the homes.
Fundamentally, Southern Cross had set itself up as a property investment vehicle, with no real focus on management and quality. The very nature of their business model was flawed.
In July, Southern Cross was set to shut down, and trading in their shares was suspended.
Age UK said that despite the promise of continuity of care, “this has been a really worrying few months for Southern Cross residents and their families”.
John Mann MP called on the Government to intervene to make sure that care home residents were not forced to move. “Government intervention is needed now so that resident needs are put first, and to prevent an even greater disaster from unfolding.”
Some good news came for residents and their families, when on December 5 2011, the Government announced that all the homes formerly run by Southern Cross had been passed to new owners, and that none of the residents had lost their places.
The House of Commons Public Accounts Committee has now taken on board the severity of the risks to vulnerable people in this sector, and has said that “the Government should do more to monitor the finances of England’s care home companies. The continuing lack of checks could increase the chances of a similar crisis.”
Margaret Hodge MP, Committee Chairman, said: “No-one, Government or local authorities, really knows what is going on locally, or whether one provider is becoming too dominant. .
“Yes, I do think the collapse of Southern Cross was probably the first of others. We know that Four Seasons, who are one of the four biggest providers in the country, has got a current debt of one billion pounds. That’s a lot of debt to be carrying.
“Yet the department is not monitoring their financial health. … And the financial model on which Southern Cross was based just doesn’t work any more. … Southern Cross also depended on borrowing money cheaply. And that’s no longer available because of the global financial crisis.”
Paul Burstow MP (Care Services Minister) said “We want to make sure that there are sufficient safeguards in place to oversee care providers to protect people who rely on these essential services.”
Ministers said they would be looking to put forward plans in the New Year.
