Inequality, instability and the financialisation of social care in the wake of Covid-19

How is social care affected by COVID?

The COVID-19 pandemic has put the UK social care sector in the spotlight. Care providers have been under immense strain, and some residential homes are facing financial ruin due to falling levels of occupancy and rising costs. Many have called for increased government support. But adult social services were already in crisis pre-pandemic, fragmented after three decades of privatisation and underfunded following ten years of austerity measures imposed on local authorities.

The fees paid by local authorities are below cost and are subsidised by self-funders. Over the past decade, the share of residential care costs funded by private individuals increased from 45 percent to 51 percent. While inadequate funding has put pressures on social care, this is only part of the emerging crisis in the sector. Our working paper explores the extractive practices of some investors in social care and highlights the dysfunctional outcomes and inequalities created by the structure of UK care services.

Making money out of care

Thousands of adult social care providers operate in the UK, in residential and domiciliary settings, often on a not-for-profit basis and mostly on a small scale. But from the mid-1990s, entrepreneurial investors began to build up chains of care providers. Some large-scale operations have emerged, frequently owned by private equity and hedge fund investors. These have adopted several means of boosting shareholder returns that are not in the public interest, explored below.

First, costs are kept low. Social care is labour intensive, employing around 900,000 people. This work has long been undervalued and Covid-19 has drawn attention to the poor working conditions of the mainly female workforce. Care workers have been at the frontline of the pandemic, often lacking protective equipment and with significantly higher mortality rates than the rest of the population.

Second, some of the largest providers of residential and domiciliary care are owned by specially created companies registered in tax havens, thereby avoiding both tax and scrutiny. The parent companies of HC-One and Akari Care Ltd are registered in the Cayman Islands. Other providers are owned by companies registered in Jersey, including Four Seasons Health Care Barchester Healthcare and Excelcare Lifeways.

Third, residential care has links to real estate, offering scope for profits through rent and capital gains. Some providers have separated the ownership of property from the provision of services into independent companies. In 2011, Southern Cross collapsed after expanding rapidly under the ownership of private equity investor, Blackstone, which set up such a “sale and leaseback” arrangement, but the practice continues.

Such structures allow funds, and profits, to be relocated within corporate structures and offer additional advantages for property owners registered in tax havens. During 2018, Care UK paid rent of £5.2m to Silver Sea Holdings Ltd, a company apparently based in Luxembourg, and owned by the same parent private equity shareholder, Bridgepoint. But such financial flows can be difficult to trace through complex intercompany transfers via offshore jurisdictions. 

Fourth, some providers are heavily indebted. In part, these debts are related to the buying and selling of investments in “leveraged buyouts”. Refinancing can mean that part of the cost to the investor of buying the care provider company then sits with the care home chain itself. Debt levels are highest in private equity-owned care provider chains. High debt levels lead to high interest payments and these the reduce tax liabilities of the investors.

The biggest four residential care providers pay around £239m a year in interest  on their combined debts of £2.2bn, amounting to borrowing of £56,000 a year per resident. Shareholder returns are boosted further where the debt is owed to a related company or to shareholders, especially if this is at high rates of interest. The UK’s largest domiciliary care provider, City and County Healthcare Group, owned by private equity firm Graphite Capital Partners, has liabilities over £180m including shareholder loans, some of which are at 10 per cent interest. Voyage Care and Alina Homecare have similar debt structures with high cost shareholder loans. Highly-indebted care providers are particularly vulnerable to downturns in occupancy or fee rates with only a small buffer to deal with any changes in financial flows.

Finally, private equity investors often aim to restructure businesses to sell them on for a profit. In part, this is achieved just by increasing the size, of the business, by buying up small providers (known as ‘bolt-ons’). The continued existence of numerous small enterprises in a fragmented sector offers opportunities for growth. The CQC notes considerable  “churn”  in the domiciliary care market. Social care provider services, or segments of these, are frequently bought and sold as ownerships are moved around investor portfolios. 


UK social care services were inadequate before the arrival of Covid-19.  Declining service provision resulted in extensive informal care. The pandemic has created new pressures and residential care providers now face an acute financial crisis as occupancy rates have plummeted. But the narrative of a sector deprived of funding misses some of the subtleties of the extractive practices of investors. A two-tier system is emerging as new investment prioritises self-funded residents, targeting wealthy areas, resulting in “care deserts” in some parts of the country. Meanwhile some self-funding households face mounting social care debt

The structure of social care is driving inequalities across multiple dimensions, such as through poor working conditions, disparities in regional services, and for those that fail to meet the restrictions of tightly means-tested access. Precarious employment conditions often persist alongside high returns for investors, even where care providing companies are making losses.

There is a high risk that bailout funding will fail to reach front line workers and instead melt into debt interest and offshore rental payments. This is an opportunity to curtail investors’ extractive practices, and create a more robust and equitable system of caring for the most vulnerable in our society.

Dr. Jasmine Gideon is Reader in Gender, Health and International Development in the Dept of Geography, Birkbeck, University of London. 

Dr. Kate Bayliss is a Research Fellow in the Department of Economics, SOAS, University of London.

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