GMB comment on Southern Cross care homes announcement of £300m loss in interim results today

19 May 2011

How much longer must the 31,000 Southern Cross residents, their families and the 44,000 staff have the sword of Damocles hanging over their heads before government steps in, takes Southern Cross by the scruff of the neck and restores confidence and calm asks union.

Justin Bowden GMB national officer for members at Southern Cross commented on the £300m lossses announced by Southern Cross to the Stock Exchange this morning.

Earlier this week GMB responded to report in the media yesterday that up to 200 care homes could be closed and that 50 were unfit for use as company seek to raise £100m to prevent collapse. See GMB website for release dated 16th May. See note 1 below for one report. Last week the company announced that landlords have been asked to agree to a 4 month deferral of 30% of the current rent charge with effect from 1 June 2011. See note 2 below for a copy of that statement.

In March 2011 Southern Cross said its current rent burden was unsustainable and that it intends to step up discussions with landlords to seek lower rents. Overcharging on rent amounts to £60 per week per care home bed and totals £100 million a year.

On 14th April the company held a first meeting with its principal landlords to discuss the financial restructuring of the business. The meeting, attended by 20 of the Company's landlords, representing 92% of its homes, clearly outlined all of the options available to landlords. On May 12 there was a second meeting. Landlords were asked to agree to a 4 month deferral of 30% of the current rent charge with effect from 1 June 2011. The Company said it had the support of QIA owned NHP, the Company's largest landlord and the other principal landlords to form an official committee to act as an efficient conduit for the restructuring discussions and to ensure that negotiations continue to progress in a timely manner. This committee will be chaired by Daniel Smith of Grant Thornton.

The published accounts of Southern Cross show that in 2010, Southern Cross paid £248.3m in rent to the owners of the all properties in the UK. GMB estimated that the company paid an average rent per bed to landlords of £6,444 in 2010. 300 of the care homes are owned by the Qatari Investment Authority (QIA).( See contact details below for QIA media agency)

On 16th March the Prime Minister told MPs that he would ask the Minister of Health to urgently investigate the risks posed to the company by the unsustainable rent burden. It was later confirmed that Southern Cross was in talks with officials from the Department of Health and from the Department of Business Innovation and Skills. The talks are about maintaining proper standards of care for 31,000 elderly residents in 750 care homes as the company face severe financial difficulties due to sky high rents charged for buildings it uses as care homes. See copy of Ministers letter in Note 2 below. The full list of the 27 Southern Cross care homes in East Anglia is set out below.

When on 14th March 2011 Southern Cross said its current rent burden was unsustainable GMB expressed fears that elderly residents face the prospect of being made homeless as the company struggles to pay sky high rents on the freeholds of the buildings it uses as care homes.

GMB has staged demonstrations against the Qatari Investment Authority (QIA), which owns Harrods, over the failure of the QIA to cut the sky high rents charged on the Southern Cross care homes and the continuing tax avoidance on the income from these rents as the funds are channeled to off-shore tax havens. The public funds intended to pay for the care of the UK elderly in Southern Cross care homes are being used to pay the interest on £1,100m bonds raised by the QIA when they bought the care home buildings from a private equity company in 2006. See notes to editors for details.

There are 10,000 GMB members employed by Southern Cross to staff their care homes. The majority of these staff are paid the National Minimum Wage (NMW) and the majority have had their pay frozen.

Justin Bowden GMB National Officer said "The company have 750 care homes with 31,000 elderly and vulnerable residents. The company is seeking rent cuts of 30% from landlords to bring rents down to market levels. Rents are £100m a year, or £60 per bed per week too high and are unsustainable. The Qatari Investment Authority (QIA) with 300 homes is the biggest landlord but has failed to act until now.

How much longer must the 31,000 Southern Cross residents, their families and the 44,000 staff have the sword of Damocles hanging over their heads before government steps in, takes Southern Cross by the scruff of the neck and restores confidence and calm?

These are real people, needy and vulnerable, not pawns in some big business game of commercial chess. Government cannot dismiss the situation at Southern Cross as a "commercial" problem between commercial interests. This is an essential public service in a dog's dinner of mess and, in spite of the best efforts of Southern Cross to put right this privatisation and private equity catastrophe, an end to the uncertainty is nowhere in sight. The overpaid landlords must be given an ultimatum to accept market rates or government must intervene.

Left to their own unchecked, unregulated devices, privatisation and private equity have ripped the guts out of Southern Cross. Anyone wondering what David Cameron's privatised NHS has in store for the future, need look no further than Southern Cross and the care industry.

The 750 plus care homes run by Southern Cross are not factories that are failing from lack of demand but are an essential part of every community which now face ruin due to the combination of privatisation and private equity"

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