Social care systems in three regions of England are being deprived of millions of pounds as private companies extract large profits, with much of it going to firms owned by private equity or based in tax havens.
Analysis in a new report by charity Reclaiming Our Regional Economies found that private care companies operating care services in three regions – the North East, South Yorkshire and the West Midlands – extracted £256m in profit between 2021 and 2024, with more than a third going to providers owned by private equity firms or companies based in tax havens.
The report states that:
“Politicians and pundits tell us that there simply isn’t the money to invest in social care and that we can’t afford to borrow more to build a better system” .
“The truth is that money exists in the care system but too much of it is leaking out. Instead of simply being provided as a public service, systems of care have gradually, over time, come to function more like a commodity or a product to be bought and sold.”
The report – Ending Extraction in the UK Care System – is part of a partnership between Centre for Local Economic Strategies (CLES), the Centre for Thriving Places (CTP), Co-operatives UK and the New Economics Foundation.
The authors call for greater scrutiny of local authority care expenditure, legal limits on extraction, and procurement reform. It also calls for higher wages for care workers and greater regional cooperation among strategic authorities.
‘While executive pay booms, frontline workers receive little more than the minimum wage. While local government and central government struggle to pay the bills to meet increasing demand, private company profits continue to rise.’
Care services are attractive to private companies because they generate steady government-funded income. Local authorities have a legal duty to organise care services, and as there are few local authority-owned services, private provision is often the only option. Companies have found it a very attractive market, particularly those backed by private equity, which are adept at extracting profits through complex corporate structures and tax havens to pay less tax and maximise returns.
The report notes that the profile of investors and company owners in the social care sector shows it is “increasingly favouring types of firms most focused on profit extraction.”
Profteering
Profit is extracted in a number of ways, including complex company ownership, debt repayments and dividends. The report notes that “increasingly, care companies have to generate enough revenue to provide care, but also to service their debts to external investors (e.g. banks) and ‘internally’ to their owners or investors.”
The report analysed the complex web of companies and finances that often underpin private companies that hold contracts to provide services, including children’s homes, adult social care, and SEND provision.
In 2024 alone, £3.8bn was spent by local authorities in the three regions analysed in the report to fund these care services.
An analysis of profits made by care providers over the three years to 2023/24 found that over £256m of profit was made, with more than a third (£87.7m) of all profits made by care providers owned by private equity companies or with parent companies based in tax havens.
Over the three year period, a total of £45m was paid in dividends to shareholders and £33.6m in interest on debt, up to 60% of which went straight to companies owned by private equity and based in tax havens.
The report notes that directors of these companies were often earning more than 10 times the average wage, and in some cases 60 times, whereas frontline care workers were frequently paid below the living wage.
Not a new issue
This is not the first investigation into profiteering in the care industry, which has been almost wholly privatised for a number of years now. In 2022, the involvement of private equity in children’s social care, which includes fostering, children’s homes and other services such as residential school places, was the subject of damning investigations by the Competition and Markets Authority (CMA) and the Local Government Authorities (LGA), and also by the Observer.
The March 2022 report by the CMA noted that the UK has “sleepwalked” into a dysfunctional market for children’s social care with local authorities forced to pay excessive fees for privately run services that often fail to meet the needs of vulnerable children. But the companies, themselves, are making huge profits with the profit margins “higher than expected”, according to the competition regulator. The profit was not being invested in the staff at the companies as the report noted that despite the high levels of profit, wages had not risen nor had there been more investment in training.
The March 2022 analysis by the LGA, compiled by Revolution Consulting, found that eight of the 10 largest providers of children’s social care now have some kind of private equity involvement.
The report highlighted concerns over the standard of care and over the level of debt taken on by some of the groups. Nine of the top 20 providers had more debts and liabilities than tangible assets.
Spreading to the NHS
It is not only the care industry that is attractive to private equity companies, any sector that is backed by the state and therefore with a guaranteed income is a target. This is certainly true of the NHS, where private equity is targeting several different sectors, including diagnostics, dentistry and ophthalmology. In mental health services, in particular, the lack of beds and facilities in the NHS due to years of underfunding, means that awarding contracts to the private sector is the only option.
Two of the largest companies in the mental health sector, The Priory and Active Care Group, are both owned by private equity.
One of the largest companies in the area of community care – HCRG Care – which also has a number of GP surgeries, is owned by private equity.
The CLES report into the care sector calls for a number of measures to prevent this extraction of profit, including for the government to set legal limits on profits being made from public services, as well as greater scrutiny of where local authorities are spending their money. Both of these moves would also help prevent a repeat of the care sector situation in the NHS.
Government action?
Back in March 2023, prior to election Wes Streeting was reported to be considering a move to ensure that private equity-run care homes will be stripped of public sector contracts if they failed to meet quality and value-for-money standards. Streeting told the FT that care providers would need to demonstrate they paid “their fair share” of tax in the UK. With the Care Quality Commission given powers to require state-funded providers to maintain a “safe” level of reserves to ensure financial stability, Streeting said. These changes have not materialized to date.
Also before the 2024 election Labour suggested a change in the tax position for private equity investors. An analysis by the Treasury found that the UK’s top private equity dealmakers earned £5bn in carried interest in 2022, that’s just 3,000 people.
Carried interest is the cut of gains private equity investors make on successful deals and it has come under increasing scrutiny in the UK. Labour pledged in its election manifesto to close the “loophole” involving private equity, whereby carried interest is treated as capital gains rather than income for tax purposes.
Recent proposals to reform the taxation of fund managers have disappointed critics. Initially, changes were suggested that would tax carried interest at an effective rate of 34.1%. While this rate represents an increase compared to previous tax rates, it still falls short of the 45% additional rate imposed on higher-income earners.
Industry lobbying?
In June 2025, following consultations on the proposed tax regime, the Treasury announced it would no longer pursue modifications. Notably, one change would have made it more challenging for executives to qualify for the 34.1% rate. Another proposal involved a co-investment requirement, under which executives must invest a minimum amount of their own money into their funds. The decision to abandon these has raised questions about the government’s commitment to equitable tax treatment for fund managers.
The FT reported that these new concessions to private equity firms followed warnings that the reform would damage British competitiveness.
Talking to the FT, Dan Neidle, founder of the think-tank Tax Policy Associates, said the government concessions represented a “significant climbdown” by ministers, and the industry’s “highly organised lobbying effort” had “got some big wins”.
He added that
“the government has dropped the requirement for ‘co-investment’ means that people can continue to invest a nominal amount, receive a massive return, and achieve that discounted tax rate.”
So to date, little has been done to rein in the business practices of private equity companies, and they will continue to target healthcare firms, which in the UK inevitably means firms that either have contracts with the NHS or are interested in gaining such contracts.
As the report highlights for local authorities, ICBs will continue to pay money to companies owned by predatory firms, such as those owned by private equity, and these companies will continue to extract millions in dividends and debt repayments, with much of it leaving the country for tax havens.
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