When care homes go bust, lives are broken

The current difficulties experienced by Southern Cross, the UK’s biggest care home operator, raise important questions for the entire care home sector as well as the Government and local authorities. By Arti Poddar

Southern Cross, as has been extensively reported, is in the process of trying to renegotiate with landlords the lease terms on its properties, with warnings that it could go into administration.

The big question is: what happens to the 30,000 or so vulnerable people in its homes if the business is unsuccessful in negotiations?

The implications are frightening: it is well documented that elderly people who regard their care home as a permanent place of residence are susceptible to enormous anxiety, which can have severe consequences when they are forced to move.

What will happen to them if care homes close? Will hard-pressed local authorities intervene? Can they afford to? Will the Government act? And how many elderly people will be so traumatised by the issue that their lives are put in jeopardy?

These are not idle speculations. The UK’s demographic profile makes it clear that people are living longer than in the past. The ticking time bomb of our increasingly ageing population could not be more dramatically illustrated than by the explosion in the number of people living to 85 and beyond.

This section of the population, which includes people who are most likely to need long-term care, doubled in the past 25 years according to the Office of National Statistics, (ONS) and is expected to double again by 2032 to around 3.1 million, putting an enormous strain on those who will have to carry the funding burden.

Since 2007, and for the first time, there are more people of pensionable age (over 60 for women and over 65 for men) than there are children under 16. The ONS reports that 9.5m people in the UK, or 16% of the population, are over 65, compared with 8.5 million in 1982. The number of people aged between 16 and 64 made up 65% of the 2007 UK population, but by 2032 that is projected to fall to 60%.

What is to be done about an increasing problem: private sector operators caring for elderly people unable to continue to trade?

For the care home sector, the lesson from Southern Cross should not go unheeded. Southern Cross, hitherto a successful business, has grown rapidly in recent years. To a degree, its growth has been as a result of leasing properties to open as new care homes, which requires less cash than buying them.

The downside is that landlords like to raise rents over a period of time. And when that coincides with a downturn in revenues because local authorities are finding it difficult to fund care home places, the result is pressure on care home operators. Add to this the recent VAT rise. Unlike most businesses, care homes are not able to recoup from the taxman the VAT they pay: instead, the 2.5% additional VAT is another added cost, alongside energy bills, food and transport.

Society cannot afford to function without a thriving private care home sector. At least those businesses which own rather than lease properties can avoid rent rises while enjoying low interest rates on borrowings.

Most businesses which fail do not have the responsibility of dealing in human lives. When those that do cease to trade they don’t see dealers moving in to buy up stock at discounted prices; they leave broken lives.

The issue has to be addressed to provide a clear and reliable safety net for vulnerable people and their relatives through a code of practice which can accommodate and resolve what may well become an increasingly common problem.

Arti Poddar is chief executive of Sterling Care Homes Limited and Lotus Senior Living Limited.