Cable: No bailout for Southern Cross

By This Is Money
Updated: 10:58 EDT, 9 June 2011

Business secretary Vince Cable has ruled out coming to the rescue of beleaguered care home firm Southern Cross.

Job cuts: Southern Cross is planning to slash up to 3,000 posts across the group

He told the House of Commons the government would not bail out the company, claiming it had 'a failed long-standing business model'.

Yesterday's announcement by Southern Cross that it plans to slash up to 3,000 jobs prompted demands that the Government intervenes with immediate financial support.

However, Mr Cable said today: 'There is no way we can bail out the company.

'But what I am doing is that I have asked my officials to look carefully at the business models of companies that do provide public services and to ensure that they are stable and the sector regulators responsible for them are able to act appropriately.'

Mr Cable and Commons leader Sir George Young also moved to allay MPs' fears that as many as 31,000 elderly people could be left homeless when the company closes some of its homes.

'The residents will be given priority and the Government will take responsibility to ensure they are protected,' said Mr Cable.

He said his department had been in touch with Southern Cross's banks to ensure that the 'process of managing their credit in this critical period is properly managed so that it happens in an orderly way'.

Sir George said later that local councils had the powers needed to intervene when necessary.

He added: 'We have been working very closely with the LGA (Local Government Association) and with the Association of Directors of Adult Services to ensure that arrangements are in place in the event of any need.'

'The 1990 Community Care Act gives local authorities all the powers they need to intervene if necessary. Whatever the outcome, no one will find themselves without care.'

The redundancies at Southern Cross represent more than 6% of the workforce at the firm, which is trying to stave off bankruptcy.

It faces breaching financing agreements with its banks and is underpaying its landlords - without their consent - by 30% between June and September.

The firm is also reportedly planning to offload some 200 of its care homes as it struggles to avoid collapse.

Labour MP Nick Smith said there was 'public outrage at the quick-buck strategy at Southern Cross' after it emerged the private equity house Blackstone borrowed heavily to buy the company, before selling off its assets to landlords and then leasing the premises back.

The model was successful until the credit crunch struck in late 2007 shortly after Blackstone sold its remaining stake in the business, which had quadrupled since it bought the firm in 2004.

But with the downturn came rising borrowing costs, reduced fees from local authorities amid public spending cuts and soaring rental bills.