Tuesday, June 07, 2011

Private sector bad; public sector worse

All the criticism around Southern Cross is aimed at the American private equity firm Blackstone, which bought the business in 2004, floated it on the stock market two years later and sold all its shares in 2007 at a huge profit. But what none of these complains seems to recognise is that a seller needs a buyer. If it was such an asset-stripping scam, how come investors put money into it? The new owners are not entirely stupid, are they? If between them they found £425 million to buy Southern Cross, they must have thought there was money to be made despite the sale of the company’s properties. If blame is being handed out and everyone is looking for a greedy villain, surely the buyers and owners today are more culpable than the people who sold them the business.

Opponents of the private sector are rubbing their hands with glee over the potential collapse of Southern Cross, the largest provider of old people’s homes in the country.

The company crisis has led to demands for the Government to step in and rescue the business in much the same way as it was forced to bail out the banks in the depths of the recession.

It would be mad to do so. The taxpayer cannot be expected to step in every time some badly-run business gets into trouble.

And while this is not a particularly good advertisement for private-sector provision of public services, it doesn’t mean the State has to run things.

It’s not a good time for the private sector. Apart from concern over any collapse of Southern Cross, there’s the BBC’s exposure of a care home for people with learning disabilities and autism.

“Panorama” revealed “torture” by staff at Winterbourne View in Bristol, the police have been called in and the owners, Castlebeck, say they are “shocked, disgusted and ashamed” by what’s been going on.

Meanwhile the “Financial Times” says care at one in seven privately-run homes is “poor” or only “adequate” compared with one in 11 in the public and charity sectors.

Critics are queuing up to attack the private sector for putting profits before patients, for inadequate levels of care and for threatening old people with being turfed out of their homes – and with some justification.

The Southern Cross debacle is based on an over-expansion in the days before the recession, when the company in effect borrowed to expand.

It provides care for 30,000 old folk in 750 homes and is now desperately trying to cut its rent by 25 per cent to stave off bankruptcy.

It may succeed because the owners of these properties have been enjoying over-the-odds income from the company for some time and if they rejected the move they would probably end up even worse off.

There is a danger, though, that even this rescue won’t succeed and Southern Cross will go to the wall. The company’s share price has already plummeted. It’s now worth about £12 million compared with £1.1 billion in 2008.

Clearly the business is deeply flawed. The expansion plans drawn up at the height of the Brown-Blair boom have been blown out of the water. The company is struggling to keep afloat.

The people who run Southern Cross are not victims. They are guilty of bad planning and abominable business skills. They wouldn’t make it past round one of “The Apprentice”.

But if the company does go broke, that doesn’t mean its homes have to close. It doesn’t mean the public sector should step in. And it doesn’t mean the taxpayer should be expected to cough up even more money.

Southern Cross, like Castlebeck, relies on the taxpayer for its income anyway. It’s a substitute for council-run care. It has a secure income as long as it can provide good care for old people.

If it went into administration, other companies would want to snap up its empire at knock-down prices. It would be a valuable opportunity for a buyer which wasn’t too greedy or reckless.

The residents themselves, elderly, frail and settled in their homes, would not necessarily see any difference at all.

The worst thing for them would be months of uncertainty over the fate of the roof over their heads.

The private sector stands accused of poor levels of care. But the Government has armies of inspectors responsible for ensuring standards are maintained.

If they are inadequate then the Government, as the ultimate paymaster for these businesses, has sanctions it can impose. If Government inspectors are failing, they must share the responsibility for low standards – just as bank regulators were asleep on the job.

Of course, a case like Winterbourne View is unforgivable and, for all we know, it may not be an entirely isolated incident.

But care, whether of the elderly, children or people with mental disabilities, is fraught with difficulties. Among the hardest tasks is recruiting and keeping genuinely caring members of staff.

Low pay is part of the problem – if employers insist on cutting wages to the bone they shouldn’t be surprised if the only people who will work for them are the desperate or the dubious.

All of this makes the Government’s plans for more private-sector provision in the NHS look even more controversial.

Yet there is nothing wrong with the profit motive itself. Companies can make decent returns on their investment while at the same time providing good quality care for their customers. There are many excellent private homes for the elderly.

We would be in terrible trouble if we reverted to the old “public sector good, private sector bad” attitude of the taxpayer-funded classes.

At the Alexandra NHS hospital in Redditch the Care Quality Commission found patients weren’t even given water to drink – something I know to be true because doctors there turned their backs on me when I was searching for a tap to fetch water for one of their parched patients.

And that’s in the public sector.

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