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The failure of privatised adult social care in England: what is to be done?

1. This report looks at the growth in the market in adult social care in England and the problems which have resulted from this. It makes a number of recommendations to address the worst aspects of privatised provision.

2. The report finds that around £24 billion a year is spent on adult social care in England , most of which is spent on older people receiving care either in their own homes or in a residential or nursing home. The state, through local authorities, spend. £14 billion a year on adult social care, although cuts to local authority budgets over the past decade has led to a decline in the number of older people receiving state funded care services. As a result, there has been a growth in the number of older people who fund their own care, with many of these private payers subsidising the care costs of those paid for by the state – in some cases paying 43% more for their care than local authorities are charged.

3. The vast majority of both home care and residential care in England is now provided by private companies. A significant number of care home providers are large chains which are backed by private equity and are reliant on risky financial structures, leaving them exposed to collapse, with damaging consequences for care home residents. Although local authority budgets have been drastically cut by central government – forcing them to reduce the amount they pay to private providers – private providers can still achieve significant rates of return on their capital investment, 12% is normally expected. This is despite the fact that adult social care is essentially a low-risk sector – in other similarly low-risk sectors a 5% rate of return is considered reasonable.

4. Both the quality of care in adult social care and the terms and conditions of the workforce have declined over the past two decades as a result of privatisation. The report also shows that turnover rates are higher, and rates of pay considerably lower, in the private care sector than in the public sector. In addition, 41% of community-based adult social care services, hospice services and residential social care services inspected by the Care Quality Commission since October 2014 were found to be inadequate or requiring improvement.

5. In order to address the failures of market provision the report looks at three possible options – ‘‘market shaping’, ‘‘market regulation’’ and ‘‘replacing the market’’. Whilst the Care Act 2014 provides local authorities with powers and duties to ‘‘shape’’ the market locally in order to achieve better outcomes this remains unachievable, given the current budget restrictions and the heavy reliance of local authorities on private providers to deliver services. Market regulation has been the approach adopted by the government, and the recent introduction of a market oversight role for the Care Quality Commission – to identify private care home providers which may be facing financial collapse – is an acknowledgement of the precarious nature of the care home market. But it provides no powers for the regulator to intervene to prevent a company collapsing, merely an early warning system for local authorities who may be affected. Similarly the government’s introduction of a ‘‘fit and proper’’ person test. for directors of private companies applies to members of the boards of providers of adult social care has also had little impact on the potential for market failure in the care home sector, or on the pervasiveness of poor standards.

6. The report looks at other measures which could be introduced to bring about more effective regulation of the market such as a transparency test – whereby the contractual arrangements with a private provider should be fully open; an accountability test – whereby the local electorate could demand the ending of a contract with a private provider if there are concerns about performance; a workforce test – whereby the contracts with private providers would have to include requirements guaranteeing certain terms and conditions of the workforce, and collective bargaining rights; and a taxation tes. whereby private companies in receipt of public service contracts would be required to demonstrate that they were domiciled in the UK and subject to UK taxation law.

7. Whilst recognising the difficulties involved in replacing private provision by state provision, the report concludes that it would be possible to introduce a ‘‘preferred provider’’ policy, whereby local authorities would give preference to either their own provision or provision by the voluntary sector or user-led organisations. Similarly local authorities could require the return on capital achieved by private providers to be capped to a maximum of 5%. This would reduce private equity investors’ interest in adult social care provision and help re-balance the market between state, voluntary and private provision.

8. The report recommends that the following policies should be considered by the government:

i) Where a public body has a legal contract with a private provider, the contents of that contract should be fully transparent.
ii) The ownership details of companies providing public services under contract to the public sector should be available for public scrutiny.
iii) Private companies in receipt of public services contracts should be domiciled in the UK and subject to UK taxation law.
iv) Consideration should be given to giving local electorates powers to call to account any provider judged to be providing an inadequate service.
v) All providers should be required to comply with minimum standards of workforce terms and conditions and to accept collective bargaining rights.
vi) There is scope to impose a contract on private companies that places an upper limit on what constitutes a reasonable return on investment. This scope should be exploited.
vii) Organisations with a social purpose should be defined as the preferred providers of care and support services.
viii) Steps should be taken to rebuild provision capacity in the statutory and not-for-profit sectors.