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Business secretary describes financial turmoil at major care home provider Southern Cross as ‘shocking state of affairs’ The business secretary, Vince Cable, has asked officials to investigate the role of private equity firms supplying public services after describing the financial turmoil at Southern Cross, the country’s largest provider of care homes, as a “shocking state of affairs”. Cable also promised the GMB union that he would consider a motion, debated on the floor of its annual conference in Brighton, that the crisis at Southern Cross “should serve as a warning of what happens when we forget our basic approach to economic policy and the role of the state”. The GMB puts the blame for the plight of Southern Cross – the country’s biggest care homes company, which is responsible for looking after 31,000 elderly residents across just over 750 homes – on “scandalous financial engineering”. The union published a 61-page dossier on the troubles at the care group provider, which has announced that it will underpay its rent for the next four months as it struggles with a £230m annual rental bill. The dossier said major UK and US financial institutions were involved in buying into the sale and leaseback model for Southern Cross, which had now “blown up”. The union claimed rents for the care homes were £100m higher than they should be, and that this was at the heart of the current problems. The US private equity firm Blackstone is estimated to have made £600m in a four-year period on secret financial dealings on the care homes, which are now run by Southern Cross. The report said the “debacle” involved Jeremy Haywood, the permanent secretary to David Cameron, who was co-head of UK investment banking at Morgan Stanley. The company acted as financial advisors and lead managers during the sale. The dossier complained of a “lack of transparency” over who owns the care homes and the financial returns to the “ultimate owners” of the properties. Blackstone, meanwhile, had previously issued a statement denying that it had anything to do with Southern Cross’s problems. Cable – who was overseas on a trade delegation when the crisis began last week – indicated that he was looking at the general issue of private equity stakes in public service delivery. “I’ve asked my department to see whether there is an underlying problem with private equity companies supplying public services,” he told the GMB. “The provisional view is that this is very much a matter for the sector regulators – the care quality commission and Monitor – but I will continue [to see] whether we can pursue that further.” In comments that will raise eyebrows of Conservative cabinet colleagues, Cable also cited Liberal Democrat concerns about the “general lessons” of private sector involvement in delivering public services. He said they were “one of the reasons why the Liberal Democrats have taken a distinctive and tough line in privatisation in relation to the NHS”. Last week, the government gave reassurances that it would take steps to ensure there was “effective protection” for anyone affected by the Southern Cross problems. The emergency debate at the GMB conference ended with a call on the government to appoint a cabinet minister to help secure the future of staff and residents at Southern Cross. The union said it was time for a “fresh start” and a different social care model for looking after the elderly and vulnerable. In comments made after delivering a speech that prompted heckling over its warnings of possibility of beefed up anti-strike laws, Cable found common ground with the union as he agreed that “very compelling points” had been made by delegates during the debate. Cable told the audience there were “several issues” around private equity companies in the supply of public services, and said these should be looked at. “The basic reason why private equity flourished was because of favourable tax treatment given to loan finance,” he said. “The chancellor and I are both concerned about this distortion in the system and of course there was a lot of, frankly, tax dodging. “When we got into the coalition government, one of the things we insisted from day one was substantially increasing capital gains tax as a way of stopping the tax dodging that was going on in the private equity sector. “There are bigger issues here. I heard your debate, I heard your resolution and I undertake to take it back and look at very seriously at the proposals you made.” Helen Ewan, who works at a Southern Cross home in Mansfield, told the conference employees were having to work longer hours, being “blackmailed” by managers to cover for staff shortages. The GMB official Justin Bowden said the fate of 31,000 residents was “hanging in the balance” because profit had been put before people. “Time is long overdue for a new standard of care that guarantees the weak and vulnerable the dignity and respect they deserve,” he said. Vince Cable Trade unions Private equity Public services policy Older people Hélène Mulholland guardian.co.uk