Question proposed, That the clause stand part of the Bill.

We come to yet more important clauses: clauses 49 to 53 are on provider failure and clauses 54 to 58 are on market oversight. I want to make some general comments on the new provider failure regime to be put in place through the Bill. I will come on to our amendments in the next debate, but it is important to have a brief discussion about these clauses.

Hon. Members may be aware that this is the first time that a national regime on provider failure in the care sector has been introduced. It emerged following the collapse of Southern Cross. The right hon. Member for Sutton and Cheam was involved in its development and he will be far more aware of all the details of how that was dealt with.

The Bill rightly seeks to put in place a mechanism to attempt to prevent such large-scale failure happening again and ensure that the local councils who commission and pay for care services, families and users know that there is a proper process in place to ensure that people have continuity of care and are not left high and dry if there is a failure. The amendments aim to ensure that the regime works as effectively as possible. It has an important new role for the Care Quality Commission and some new roles for local councils. I want to ensure that the CQC has all the powers it needs to take on that new role. I thank the Minister for paying attention to that point as his Whip tries to speak to him.

The new failure regime is welcome and necessary because we have seen quite a bit of change over the past eight to 10 years in the care provider market. Some of those changes may have accelerated since the financial crisis and the credit crunch. We have seen quite a lot of consolidation of care home providers into some very large providers. That is partly to try to make economies of scale. There has also been increasing involvement from private equity and venture capital companies with some very complicated financial structures. The real concern among many people, as we saw in the case of Southern Cross, is that while the private equity company made a huge profit, it put in place a flawed financial structure and put some vulnerable elderly people at risk when it failed.

Let me briefly remind the Committee what happened in the case of Southern Cross. When the company collapsed it was the UK’s largest private care provider with, I think, 30,000 people receiving care in 750 homes. Many were concentrated in the north and north-east of England. When the company finally collapsed it caused real distress to the residents, their families and many of the staff working in those homes. The collapse of Southern Cross revealed some fundamental flaws in the private equity sale and leaseback model and raised serious questions about whether that kind of financial structure and many other complicated financial structures are too risky for what are essentially care services looking after very vulnerable people.

The American private equity firm Blackstone Capital Partners bought Southern Cross care homes in 2004. The same year it also bought Nursing Home Properties whose business included leasing care homes to providers; Southern Cross was its biggest tenant. Southern Cross then began a period of rapid expansion, buying up lots of homes, then selling them off and leasing them back at high rents. Blackstone certainly thought that this was a good market to be in: the population was ageing; more and more people would need care homes and this sale and leaseback model was a way for it to make a big return on its investment.

In 2006 Blackstone floated Southern Cross on the stock market and sold it for a profit of £500 million, tripling its original investment of £160 million. It also sold Nursing Home Properties to an investment fund, Three Delta. Southern Cross, and Blackstone when it was involved, had assumed that the fees from councils would keep on rising but when council funding started to be squeezed after the credit crunch the company started to get into trouble because it was not getting the fees it expected and the high rents it owed could not be met.

Southern Cross, I should note, was particularly reliant on local government funding. Only 20% of its residents were self-funders compared with a national average of 40%. But there was another issue: its occupancy levels were falling. I understand that that is because the care homes were not as good as some other places, and older people went elsewhere, and also because more people were receiving care in the community and at home—which we all consider a desirable goal. When the company noticed that occupancy levels were falling it did not invest in improving the homes. It may have been more concerned with keeping profits high.

There are still many care providers owned or backed by private equity and other venture capital and parent companies. An investigation by The Guardian in November  2011 found that more than 200,000 vulnerable people were being cared for in residential homes, or their own homes, by companies owned or backed by such private equity companies. I do not say that all those residential homes are at risk as Southern Cross was, or that all the complicated financial structures behind the providers are similarly risky. The difficulty is that it is often complicated to see what the deals are, who is involved in them, how they are structured and whether they are really safe and sustainable for the future.

Whatever new regime the Bill establishes, we must make sure that the Care Quality Commission will be fully able to assess the financial structures behind many care providers. I am not sure at the moment that the Bill is strong enough in that respect. We must get the regime right. We know from the latest budget survey of the Association of Directors of Adult Social Services that more than half of directors expect providers in their area to face financial difficulty in the next two years as a result of local authority budget savings. There is nothing new about providers closing and leaving the market; but with a market increasingly consolidating into larger providers with potentially risky financial structures behind them, and while there is also a big squeeze in local authority budgets, we must get the system right. We are here to protect vulnerable elderly and disabled people and their families.

In the Bill, responsibility for financial oversight is given to the Care Quality Commission. The Government consulted on that and put forward two options. One was that the responsibility should be given to Monitor, which currently regulates foundation trusts; the other was that it should go to the CQC. The Government decided it was best to go with the CQC. Perhaps the Minister will say something about that decision. On balance I think that it was probably right.

Essentially, the CQC will have to draw up a list of the most difficult-to-replace providers in England. The criteria that will be used to determine which they are have not yet been specified, but the consultation suggests that they will include how big they are and whether they are concentrated in particular areas or in particular specialist care services.

If it is suspected that a provider may be at risk of failing, the CQC will be able to arrange for an independent person or body to carry out an audit or review of its business activities. If necessary, the provider can be required to come up with an action plan to eliminate the risk of failure, and the CQC can require its co-operation in developing the plan and getting CQC approval. That raises a tricky issue: if the CQC’s belief that a provider is at risk of failing becomes public, councils may decide not to send anyone there. Will the Minister comment on whether that will be likely to push a provider towards failure?

Meanwhile, the Bill will put local authorities under a duty to ensure that adults’ needs for care and support will continue to be met when a provider regulated by the CQC fails, even if the person in question does not meet the eligibility criteria or is a self-funder.

The CQC’s new role is huge and crucial. As I have said many times, it already has a huge amount on its plate, inspecting all hospitals, GPs and social care providers for quality of care. At the moment, the CQC has no expertise in insolvency or in understanding the different,  complicated financial structures of some private equity or venture capital companies that back providers. How will it get that expertise? When will it get it by? What resources does it have to buy in expertise and advice? It is extremely difficult for many experts in the City to understand all the different questions and issues.

When the CQC suspects that a provider will fail and puts in an action plan, how will it deal with local councils thinking, “Oh my goodness, do we really want to keep on sending people there?” Would the CQC be likely to precipitate failure? There are questions. I understand from speaking to the CQC that the new chief inspector of social care will put all that in place. The Minister understands that this is a big, complicated, new and different role that the CQC does not have experience of doing. How will it get experience, when will it do it by and what are its resources?

I shall turn briefly to the three issues with the new role for local authorities. First of all, the CQC is drawing up what I understand will be called “market stability plans”, which are being developed by the Association of Directors of Adult Social Services and the Institute of Public Care. How do we ensure a stable market if we think there is a difficult-to-replace provider? It is important that the CQC works with local councils on developing market stability. What guarantee can the Minister give that it will do so?

Secondly, local authorities need to work proactively to prevent failure in their local markets, not simply prepare contingency plans for when things go wrong. That point relates back to the parts of the Bill about proper diversity of provision. Obviously, we do not want anyone to be at risk of failure. How will local councils make the situation work?

My third point is an issue raised with me by the Local Government Association and ADASS. Everything I have just said is about the big providers, but most experience of local councils is of when smaller providers fail. Local councils need to ensure that they work proactively to prevent such failures. Are the Government considering providing more tools to local councils, so that they can work to prevent problems in the first place? The regime is important for dealing with failure, and we must get that right, but how do we ensure the regime works to prevent the failure in the first place? That is the end of my comments. If the Minister can bear to respond to my questions, I would be grateful.

Before the Minister replies, I call Paul Burstow.

I am grateful to be called. The shadow Minister asked about the CQC’s competence and whether it has the expertise. This is an opportunity for me to put on the record my appreciation of one of the key figures who managed the scenario that unfolded with Southern Cross, and that is David Behan, who at the time was the director general in the Department of Health responsible for adult social care and much more besides. I must say that it was absolutely brilliant how he gripped and managed the issue and advised Ministers at the time. The insight that he gained from the experience of dealing with probably the biggest ever collapse of a care business  means that we have somebody at the helm of CQC who has an understanding of the issues and knows who to go to for the additional expertise that he needs.

During the period when the Department was trying to manage the Southern Cross situation, we took insolvency advice and advice from those responsible for the banking sector. We sought to ensure that we had as rounded and as full a picture as possible. However, what made me want to get up and say how pleased I am to see these clauses in the Bill is how frustrating it was as a Minister at that time to go to the cupboard and basically find that there were no powers or tools to deal with the unfolding events. All that we had was the credibility of the parties involved, the Department’s ability to hold the ring and bring people together and the fact that there was a huge reputational risk at stake for the industry. That held people together and made them act in a way that largely led to the safe and successful winding down of the business and its being passed over to many other people.

I have a couple of questions for the Minister. The shadow Minister was right to make the point about prevention. As I understand it, that is another facet of clause 5: the market-shaping duty. It would be useful if the Minister could say a bit about how it will link with clause 5. Clearly, intelligence will be gathered through the discharge of the duties under clause 5. Will he also say a little about where we are with the work commissioned, if I remember rightly, from Oxford Brookes on supporting local authorities producing market intelligence or market position statements? Such documents are useful in understanding the shape and state of the market. With that, I look forward to his response.

I have things coming at me from every direction. I will try to keep this short so that we can complete debate on the clause before we finish. I think that everybody is probably in agreement.

On a point made by the shadow Minister and alluded to by my right hon. Friend the Member for Sutton and Cheam, preventing failure seems to be at the heart of the new provision. The fact that we can now monitor developments much more closely and have intelligence that we did not have in the past gives us the opportunity to prevent failure and to require steps to be taken to avert disaster in a way that has not been possible until now. My right hon. Friend was absolutely right in describing how bare the cupboard was when he was trying to respond to the Southern Cross disaster.

I agree with virtually everything that the shadow Minister said about the behaviour of some people in the sector and the extent to which financial arrangements or structures have been put in place that undermine the sustainability of good-quality care. I should make the point that the Care Quality Commission, in determining  whether to register a particular provider, will be able to examine the structures in place to determine whether there is a risk that the sustainability of those arrangements—the rent paid, for example—undermines high-quality care or puts it at risk.

The shadow Minister raised concerns about the Care Quality Commission and whether it will be able to manage the responsibility. I should say, incidentally, that in the meantime, the work is being done informally by the Department. Good arrangements are in place with large care providers to maintain a sort of monitoring exercise to keep an eye on any emerging problems so that action can be taken. When that is enshrined in legislation, we will ensure that the CQC has the funding and the time to recruit the expertise to enable it to carry out its functions. The threshold for entry to these arrangements will be set in regulations and will depend on the difficulty of replacing the service. We will consult on the regulations, and I understand that that will happen in May. There will be a further opportunity to scrutinise the rules and ensure that we get it absolutely right.

The shadow Minister asked why the Care Quality Commission was chosen. I think that aligning financial risk with quality makes the CQC absolutely the right choice. It gives the right body the opportunity to focus on the importance of sustainability, because of its link to high-quality care. The CQC will be able to give the intelligence to the local authorities, where homes might exist under a large and complex care provider, so that the local authority is pre-warned and can take action to prevent disaster from happening in its area.

I think that the provisions will substantially improve the protection that is available.

Will the Minister give way?

I will not, because I am conscious that I want to conclude the debate. I have been as generous as I can in giving way. These provisions offer a substantial advance in the ability to gain intelligence, to monitor and to take action to prevent disaster from happening in the first place.

Question put and agreed to.

Clause 49 accordingly ordered to stand part of the Bill.

As per our earlier agreement, we will deal in a single question with clauses 50 to 55, to which no amendments are tabled.

Clauses 50 to 55 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(John Penrose.)

Adjourned till Thursday 23 January at half-past Eleven o’clock.

Written evidence to be reported to the House

CB 20 Essex County Council

CB 21 Jon Clift

CB 22 Graham Carey

CB 23 Ian Judson