The main downfall of Southern Cross was old-fashioned economics and not privatisation. It is too simplistic to suggest that public ownership would have prevented such an outcome
Southern Cross’s travails highlight the downside of the provision of public services from private companies – they can go bankrupt like any other company and this causes disruption.
Yet, there has been a lot of naïve comment about how this has been caused by private companies needing to make a profit, when in fact this is not necessarily the case.
Southern Cross has serious financial difficulties because its income does not cover its costs. Is this a private sector problem? Hardly – just look at the government deficit of over £140bn for proof that it can happen in any sector.
Let’s get back to the important issue of caring for the elderly though – some commentators are saying that if this were brought back into public ownership, it would all be smelling of roses.
What people conveniently forget is that Southern Cross and the myriad of other profit-making companies that run our care homes have invested heavily in recent years to develop modern facilities. They try to offer services and a lifestyle that our retired population require and rightly deserve in the 21st century.
The public sector had been guilty of chronic underfunding and this would only have been worse if the private sector had not taken up the challenge. However, such investment requires a return and an incentive – which is why Southern Cross entered into a sale and lease-back of its homes.
For those that think something was amiss here, you’ll find sale and lease used all the time in the property industry – this isn’t a Machiavellian plan unleashed on the elderly.
Wait – what about the Big Society? Couldn’t we persuade the staff and employees who already provide these essential services to form ‘mutuals’ and run these homes on a not-for-profit basis? Surely this is a better way forward?
As I mentioned earlier, the main downfall for Southern Cross is good old-fashioned economics – the service costs more to run that the income it brings in. If this had befallen a mutual, the same outcome would have occurred and where would a mutual raise the capital necessary to develop more care homes to meet an ever-increasing demand?
Where this occurs in a public body, the damage is less visible but still there, as resources would be diverted from other areas to make good the shortfall. Indeed, while no one welcomes the disruption and danger to residents, at least the problem is out in the open and being resolved.
One can debate Big Society, free enterprise or traditional state provision. What we really need to protect the rising number of vulnerable elderly residents though is a satisfactory model that balances financial discipline with the need for high minimum standards and stability.
Tim Care is a Partner in the Public Services team at Dickinson Dees
