My Lords, I support the thrust of the amendments laid by the noble Baroness, Lady Bennett. I fully agree with her that there is a systemic problem in the care home sector.
In 1991, the community care Act reforms meant social care was transferred from a public sector function—or NHS function when it came to nursing homes—to what was called a mixed market. But, having observed the worsening care crisis, the financial engineering, the periodic failure of large care home operators and the inadequacy of regulation or oversight of their financial backing, I cannot help but urge my noble friends on the Front Bench to look urgently at
the need for much greater controls. Southern Cross and Four Seasons Health Care have been in and out of insolvency or near bankruptcy for the past few years, but there are still inadequate controls on their ownership structure.
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I am sure that my noble friend will cite the market oversight scheme, established by Sections 53 to 57 of the Care Act 2014. However, after being involved in the Southern Cross problems in 2011 and the Four Seasons near-collapse in 2016, it is clear to me that the system is inadequate. The regulatory oversight of this system, which is responsible for the lives of some of the most vulnerable people in our country, has no control of the financial models that are used to back the operators of those homes. A care home operator can take in a resident and promise to house them for the rest of their life, but there is absolutely no requirement for them to have the resources, in particular the equity resources rather than being laden with debt, to provide security that those obligations can be met. Compare that with an insurance company which promises, in the form of an annuity, to pay a pension to somebody for the rest of their life. Those products have stringent reserving requirements and the financial models behind someone who sells annuities ensure that there is security for the promises being made. When it comes to the market oversight scheme, it is very much a case of stable doors. The scheme has to warn a local authority only when a company is approaching failure. There is no proper early-warning system. Indeed, there is no reserving required for some kind of financial buffer to ensure that care home operators have resources to withstand unexpected pressures or sudden changes that might arise.
I think it is time that we looked carefully at the requirements placed on care home operators. The need for transparency is important. I do not have a problem with offshore companies that make profits if they offer good services, or with private equity and hedge funds that deliver good returns to their shareholders. However, I do have a problem if those companies are taking advantage of some of the most vulnerable people in our society without proper oversight or controls. For example, in the case of Four Seasons, once the company was on the verge of collapse the CQC’s only option was to close it down, which is the last thing you would want it to, and, when the restructuring occurred, there was no ability for the regulator to insist on equity financing, so we still have very heavily debt-laden companies in an environment, of course, where interest rates are heading upwards. So I urge the Minister to consider this carefully before Report. I hope that we can introduce some proper controls. I will be looking to try to bring this back on Report.