How much is lost to financialisation in adult social care and nurseries

This research analysed  the finances of thirty-two of the largest operators in the adult social care sector (12) and nursery care sector (20) and found that the twenty-five for-profit providers (of the thirty-two) have £984m in excess spending (relative to the seven not-for-profits) on non-frontline costs i.e. spending in excess of the not-for-profits on directors’ remuneration, finance costs, rent, and – in the case of adult social care – pre-tax profit. This total excess spending was made up of £848 million in adult social care and £134 million in nursery care. 

These areas of spend include legitimate costs but are vulnerable to profit extraction by for-profit operators through techniques better known as financialisation. Indeed, this analysis finds that for-profit firms that are owned by an investment firm spend considerably more on these non-frontline costs: the difference often comprising rent and finance costs to related companies (i.e. ones sharing the same owners).

This siphoning of non-frontline costs squeezes spend on already low income staff and raises concerns about the value for money and sustainability of care systems increasingly dominated by these forms of business models.

Families and public bodies are under persistent budgetary pressures and new investment is needed to meet future needs. However, the largest expanding businesses tend to be financialised meaning that they squeeze staff and favour higher fee-paying customers. Their expansion is neither going to relieve the financial pressures on payers nor equitably address the shortage of places across the UK.

These findings raise the question of how best to fund the investment needed to meet future demand? A rising cost of borrowing puts an increasing floor on the minimum returns for investment and hence fees that an expanding provider can charge. As the care system is an essential social infrastructure there are unanswered policy questions around how best to cost-effectively fund expansion and which organisations are best placed to carry this out.

See coverage of our report in The I Paper here.