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British care home crisis raises doubts on strategy

LONDON--The financial problems of Britain's biggest retirement home operator have left 31,000 residents fearing for their future and ignited a debate about relying on the private sector for public services.

Southern Cross has caused shockwaves after deciding to cut rental payments to landlords by a third for the next four months as it struggles to meet a 230 million pound (262 million euro, US$378 million) annual rent bill on its 750 care homes.

British Prime Minister David Cameron was forced to step in and offer a “guarantee” that Southern Cross residents — representing one in 10 of all elderly people in care — will not lose out if the firm collapses.

Cameron's spokesman said they would be able to stay in their present homes or move to another facility.

The company's financial woes also sparked a protest from the GMB trade union, which represents around 12,000 members working in Southern Cross homes.

GMB warned that the homes “are not factories facing closure, they are a vital part of the social fabric of every community.”

The union demonstrated Thursday outside a meeting in London of private equity firms including Blackstone, which acquired Southern Cross in a buyout in 2004 and financed its rapid expansion.

The problems have focused attention on the retirement home sector, which is set to grow as Britain faces up to a rapidly ageing population, with the number of over-85s projected to increase to 3.5 million by 2030.

For the past 20 years, the operation of care homes has increasingly been handed over to the private sector and two-thirds are now privately owned.

The remaining third are controlled by public health bodies and non-profit organizations.

Commentators compared the government's position to the Southern Cross crisis to the state bailout of struggling British banks in 2008 — “some private enterprises are just too important to fail,” said The Independent newspaper.

The timing is unfortunate for Cameron, whose coalition government of Conservatives and Liberal Democrats has proposed increasing the use of private health care providers in a sweeping review of the vast National Health Service.

The government has already had to tear up its original proposals in the face of opposition from the Liberal Democrats and health professionals.

Campaigners Age UK said the Southern Cross crisis was plunging residents and their families into deep anxiety and expressed concerns that the quality of care they receive could deteriorate if the financial problems worsen.

Southern Cross expanded fast by selling the leases of its care homes to investors attracted by rents which rose year after year.

But it has suffered from rising costs linked to the economic slowdown in Britain and the government's program of public spending cuts, which have led councils to place fewer residents in its homes.

The company warned it was in a “critical financial condition” as it unveiled a 311 million pound loss for the six months to March.

Founded in the mid-1990s, Southern Cross had 40 homes by 2000 but expanded rapidly with Blackstone's help.

It floated on the stock market in 2006 and Blackstone sold its stake, making around 2 billion pounds. Blackstone says it has had no control over the company since then.

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