Finance: It's out with the old...

Private homes might be able to offer care for the elderly more cheaply than councils. But is it the best way forward?

ISLINGTON'S PENNEFATHER residential home is about to be demolished. It will be replaced by residential care housing, built to a higher standard and run by the Notting Hill Housing Group instead of Islington Borough Council. A similar transformation is happening across much of the country.

For years residential care and nursing homes have been run by local authorities as Cinderella services, badly managed, often employing poorly qualified staff, with buildings falling into disrepair. Frank Dobson, Secretary of State for Health, earlier this week moved to counter this situation with plans for national standards and tough inspection processes.

Because the councils and central government have under-funded the service, the homes have often had empty beds, while nearby hospitals suffered bed- blocking, full of patients who would be more suitably cared for in nursing homes.

Change is being brought about through the often reluctant acceptance by councils that residential care can be achieved more cost-effectively by outside bodies. Recent months have seen a rash of transfers. In April, Surrey County Council announced that it had signed the biggest-ever social services Private Finance Initiative (PFI) deal, when it agreed to hand over 17 care homes to Anchor Trust, one of the country's largest housing associations, specialising in working with elderly and disabled residents. About 840 residents have been transferred, along with 700 council staff. Anchor has pledged to take on a further 140 care staff.

Refurbishing and rebuilding the homes is costing Anchor about pounds 29m. The purchase has been funded from Anchor's reserves, and any income generated in the future - Surrey is guaranteeing to purchase 80 per cent of beds - will go towards further investment.

Another radical Conservative-controlled council, Westminster, is also well advanced with a major PFI residential homes scheme. The Delaware Resource Centre in Paddington is being demolished, to be replaced by a new residential care and nursing home.

Westminster is delighted with the arrangement. "The old home was a typical Fifties-built institution," said Terry Cotter, the borough's head of social services contracting. "It did not reach [current] registration standards. We wanted a brand new, state-of-the-art home in its place.

"We only have two nursing homes [in the borough] and we have a lot of people who need nursing care. So we had to place people out of the borough, which has not been popular with residents or with [council] members. Now we will have local nursing home care."

Westminster's partner is the private contractor Haven Healthcare. Many other councils, such as Islington and Surrey, are preferring to contract with established housing associations. English Churches, Sanctuary and John Grooms - which is acting as adviser to Notting Hill on the Pennefather development - are all keen to take on residential care transfers from local authorities.

"There are a number of further deals in the pipeline," said Roger Mortimer, social services finance policy officer of the Local Government Association. "A number of authorities are actively preparing schemes. Many authorities feel that if they can't own their own residential homes they would prefer to see them in the not-for-profit sector."

Stephen Duckworth, a policy officer with the National Housing Federation, which represents housing associations, agreed. "For housing associations with a strong interest in the elderly end of the housing spectrum it is a natural extension of their business development. Given that the PFI model is being adopted by local authorities it is natural for registered social landlords to be the partners. Many councils would prefer them to the private sector."

Mr Duckworth added that housing associations are also in a good position to raise finance in the market. Although they are competing against other PFI proposals such as school redevelopments, their guaranteed income streams make them attractive borrowers.

Nick Salisbury, head of the PFI unit at Barclays Bank, agreed. "Specialist housing groups are bidding for residential homes," he said. "Local authorities realise that they can't afford to bring their residential homes up to standard, and housing associations are a natural partner for them."

But the private sector is also in a strong position to take advantage of the market, Mr Salisbury added. Investors were now much more willing to purchase the expensive fixed assets under a sale-and-lease-back arrangement, leaving small businesses able to run their own residential and nursing homes.

This view was endorsed by Richard Ellert, chief executive of Nursing Home Properties, a leading company in the sector.

"The total number of beds has fallen by 2.5 per cent since its peak two years ago, but occupancy rates are much higher in purpose-built homes," he said. "There is a two-tier market, with new homes replacing old homes. There are 7,000 beds a year being built, and 15,000 a year being closed."

Mr Ellert added that development of new nursing and residential homes would not solve the NHS's bed-blocking crisis. Only amalgamating NHS and social services' budgets for care for the elderly would solve that problem, he argued. Loudand repeated noises from Frank Dobson make it clear that releasing elderly patients from hospitals and transferring them into residential and nursing care is a priority.

If anyone can ease the log-jam, surely it is the man with a reputation as a political bruiser.