Despite challenges in the sector, Anna Hart, partner at DAC Beachcroft and author of the recent Social Care: 2020 and Beyond report, explains that there are significant opportunities for investors
The social care sector has been under pressure for years: even before Covid-19, there were concerns about fragmented delivery of services, scarcity of funding, and extra pressure from an increase in demand for longer-term care. These issues were set against a shortage of people wanting to work in social care as a result of low wages and difficult working conditions, more recently Brexit, and limited career progression opportunities.
The pandemic has compounded these issues and heaped yet more cost onto social care providers as they continue to work within the usual regulatory requirements and CQC quality domains, whilst managing additional Covid-related operational risks: including increased costs for PPE and consumables, more staff training and support, as well as the longer-term costs of redesigning and rebuilding care services to address long-term infection control requirements.
A reassuring long-term view
But as highlighted by one of our report’s contributors, there are a number of long-term investors entering the social care market, including major insurance providers and pension funds. This is not only positive because they will bring with them financial and operational resources and encourage strong quality and governance standards across their investment portfolio, but it is illustrative of the strength of opportunity that exists within the sector – these investors are in it for the long haul and recognise the long term trajectory for growth. Institutional investors such as those mentioned will need to understand the significant operational and compliance risks and ensure the governance systems they implement are robust in maintaining high standards of quality and safety and generate positive relationships with the sector regulators to ensure their investments thrive over the long term.
This is hugely reassuring at a time of ‘existential crisis in social care’ – as described by one of the seven contributors to the report.
Having absorbed huge costs in the wake of the Covid-19 pandemic, investment, innovation and legislative change is needed now to ensure the sector survives.
Another contributor to the report felt that all of the current pressure might mean some smaller care operators struggle to survive in the market, and therefore acquisition opportunities for organisations looking to grow their portfolio will be ripe.
There was a general feeling of optimism when it comes to investment opportunities, and that any effect on margins as a result of the increase in operational costs and reduced occupancy, will be short-term. Although some contributors also felt that any medium-term impacts from Covid-19 were more difficult to predict; including whether persistent rising costs will need to be passed on as fee increases or absorbed in some other way, particularly in relation to contributions currently paid from public funding, which is, of course, already stretched significantly as a result of pandemic spending.
While several of the contributors recognise that the sector has taken a hit in public perception as a result of press stories around infection management during the early part of the pandemic, there is an overarching sense in the sector that lockdown has exacerbated
many older peoples’ fear of loneliness and isolation, and some may now feel that this is the time to consider a lifestyle change and be part of a community, such as a residential home or retirement village.
In the UK there are still massive gaps in the level and type of services required to meet the full array of demands of an ageing population, but these gaps are the areas that bring the biggest investment opportunities – both in the traditional care home sector, as well as emerging sectors such as retirement villages.
Retirement villages are a model which currently represents just 0.6% of older person housing and care provision in the UK, compared to 6% in Australia.
To allow investment in these newer developments to flood through, the contributors did note that there needs to be changes to planning and leaseholder regulations. One particular contributor cites the government’s Leaseholder Enfranchisement report as an example, highlighting that this could have a negative impact on the retirement village sector because it has wrapped up retirement sector leasehold with the general leasehold sector, despite them being very different models.
This could create challenges in terms of investors coming into the sector, but there is hope that the government will recognise and correct the situation so that developers and investors feel more confident in dedicating resource in this area.
Housing with care
One of the report’s contributors stated that they would like to see more people able to choose the housing with care option, and to see more commitment to thinking about longer-term public health and social issues in commissioning so that more housing with care can be created.
The future of this particular model over the next few years is, they say, linked to how much the government wants to take forward the wider leasehold reform agenda, as specific provision is needed for housing with care. The contributors made it clear that community organisations must not be swallowed up in the broader leasehold reform agenda, and that the relationship is really different from that of a typical leaseholder and freeholder.
The County Councils Network also wants reforms to incentivise and accelerate the development of housing with care. In a report published in June and co-authored with the Associated Retirement Community Operators (ARCO) it calls for the introduction of a new planning classification called C2R, to incentivise the development of retirement communities.
This would better enable local councils to include retirement communities in their local plans, whilst reducing complexity and confusion around planning for these types of specialist developments.
To encourage closer working between district councils, responsible for planning, and county councils, responsible for health, in two-tier areas, the report suggests setting up a health and housing funding pot to support the development of affordable retirement communities, as well as establishing a framework for more collaboration between all parties involved.
Social care reform
The government has made much of the heroism of health and social care workers during the pandemic and has promised bold steps to solve the social care problem which successive governments have dodged.
The pandemic has highlighted how essential social care is, working alongside the National Health Service and, according to a number of contributors to the report, has perhaps softened public opinion on paying more for services: they talked favourably of the creation of a National Care Service (NCS) as one route for change.
Whatever reform looks like, it is clear that it will need an equitable, sustainable funding stream, perhaps from a variety of sources.
They suggested a number of funding options: tax on the over-40s, a hypothecated tax or additional National Insurance, or raising money from reducing the amount the state contributes to pensions.
Although they also cautioned that any reforms must ensure that financial considerations don’t overshadow quality of services, ‘leading to a rush to the bottom’. All interviewees support this view, that the social care sector itself must play a key role in determining the structure, role and powers of any National Care Service created.
Social return on investment
Any funding system needs to recognise the social value of the sector and consider the benefits and outcomes, as well as the cost. A hypothecated tax is a good idea, say our report contributors but the devil will be in the detail in terms of implementation and how the funds are allocated – centralised or localised – and it will need a plan that mirrors and complements the work of the NHS. They also say that an NCS would need a politically accountable central body ‘which might not necessarily own local delivery but should own the points system that evaluates who gets care and who doesn’t’. In that way, ministers would have a degree of accountability and they would have to own the strategic aspects.
This central organisation could take on the current CQC inspection role, with the CQC itself analysing performance data and policing it. One contributor states that ‘Technology could be used to indicate performance and figures used could allow the CQC (or a replacement body) to take a risk based, rather than calendar, approach to inspection’.
Given that the British government has an 80-seat majority, radical reform could be possible. One contributor makes this point clearly when they say ‘It could be Boris Johnson’s legacy to be the first prime minister in 25 years to actually tackle social care provision. Let’s hope he grasps it’.