In this update of our company investigation on Mitie, we found that:

• In the last financial year, it reported a record annual turnover of around £4 billion, up 58% since 2021.
• Mitie runs 50% of the Home Office’s migrant detention facilities. It also supplies the guards that enforce Home Office deportations. Earlier in 2022, Mitie was investigated for “suspected anti-competitive conduct” after winning yet more lucrative detention deals, although this investigation is now closed.
• Mitie’s largest single shareholders, Stephen and Caroline Butt, donated £52,000 to the Conservative Party between 2015 and 2021.
• It has had a track record of paying low wages and attempting to pay workers less than minimum wage, especially when it worked in the business of care homes.
• A huge area of profit growth comes from the chilling push towards increased surveillance technology across many sectors.

Do you have any information you’d like to share about Mitie? Get in touch!

Business basics

In the 2022 financial year, Mitie Group Plc recorded a record annual turnover of around £4 billion, up 58% since 2021. Just over a third (38%) of its sales are to business customers. Mitie’s customer range is vast, ranging from retailers including Co-op, Sainsbury’s, Morrisons and Ikea, to the BBC, major banks, defence companies and a raft of government departments. Profit and shareholder returns have been rising, in part through securing significant government contracts during the pandemic, and also since it bought Interserve for £120 million in 2020. This year has seen the company secure £2.1 billion in new contract wins, more than in the past three years combined.

Mitie employs around 72,000 people. Its head office is in London, with regional offices around the UK. According to the 2022 annual report, it has some small subsidiaries registered in other European countries, in Africa (Nigeria, Kenya, Ghana) and in the United Arab Emirates. However, over 95% of its turnover comes from the UK.

Profit margins differ between Mitie’s business areas but detention is amongst the most lucrative. The company’s services are grouped into several divisions. These are, in order of revenue in the 2022 annual report:

• Business Services (£1.5 billion). This division delivers security, cleaning and office services. It generated £429 million from Covid-related government contracts providing testing centres and security in quarantine hotels. It also began a contract worth over £53 million in September 2022 to provide security services at Home Office ‘contingency accommodation’ centres. It recently launched ‘Mitie Intelligence Services’, which allegedly “integrates intelligence, technology and people”. Key clients for this sector include the BBC, B&Q, Marks & Spencer, BAE Systems and Transport for London. See below for more detail on this sector.
• Central Government and Defence (£669 million). Mitie continues to win lucrative government contracts. This includes maintenance for “1% of the UK land mass” reserved for defence training. Mitie also has a contract with the DWP ‘helping’ people who lost work during the pandemic.
• Communities (£460 million) This division focuses primarily on healthcare, education and is providing an increasing number of outsourcing services to universities.
• Technical Services (£973 million) Working mainly in the private sector, but since the buyout of Interserve this division is now picking up PFI contracts. According to Mitie, this sector provides clients with “solutions to their Green Energy, Decarbonisation, Connected Workspace and Mobile Telecoms challenges”.
• Specialist Services (£373 million).  Specialist services’ operating profit is 8.8% – the highest for all divisions. The majority of this comes via Care & Custody providing “public services in immigration, criminal justice and secure healthcare”, revenue for which has increased by 25% to £136 million. The Care & Custody sector has contracts worth nearly £518 million on the order book, up from almost £445 million in 2021.

It’s pretty much certain that most people in the UK will shop at, or use services that help keep Mitie’s profit margins up.

Cashing in on Covid

Mitie cashed in on the pandemic when it was in big financial trouble. But when Covid hit, Mitie’s fortunes turned around. It sucked up lucrative government contracts and managed to halt profit warnings.

Despite these lucrative contracts, workers at a Mitie test centre caught Covid in January 2021, raised the alarm and questioned safety measures. The firm claimed that it followed test and trace guidance and the site was deep cleaned. Meanwhile, Mitie also provided cleaners to hostels for Southwark Council who worked for poverty wages without adequate PPE. And despite raking in millions from Covid-related work, in November 2021 it slashed workers’ guaranteed pay by a third at mobile test and trace units. This came only weeks before the World Health Organisation classified Omicron as a variant of concern.

Even post-pandemic, Mitie’s record 2022 turnover was still boosted by nearly £48 million from ongoing Covid-related deals.

Key Issues

Detention profiteering: “Mitie Care and Custody”

The scale of Mitie’s immigration work makes the company one of the most significant profiteers from the UK border regime. Although it may not like to highlight its detention and deportation work, Mitie has been actively pursuing new contracts in this sector. The new deportation “escorting” contract doubled revenues in the area, and it continues to scoop up new detention centre contracts as they come up for re-tendering. Yet, the company is so vast that this segment still only represents about 3% of Mitie’s total revenue.

Nevertheless, revenue for this work has grown by 25% over the past year due to new or renewed immigration contracts. As of November 2022, Mitie runs the following immigration detention centres:

• Dungavel: a former Scottish prison which was converted into a detention centre in 2001. It has a capacity of 125 people and has been run by Mitie since 2021. According to the company’s latest annual report, the £66m contract runs for 8 years.

• Harmondsworth and Colnbrook: rebranded as ‘Heathrow Immigration Removal Centre’, now a single migrant mega-prison. With a capacity of 965 people, Mitie doesn’t like to call this a prison and instead describes it as the “largest immigration removal centre in Europe”. Its contract, awarded in 2014, has been extended to November 2023. It may extend still further to a maximum of 11 years, for a total of £248.9m.

• Derwentside: Originally known as Hassockfield, Derwentside is an 84-bed women’s holding centre near Newcastle which opened in 2021. Mitie’s £16.6m contract began in June 2021 and lasts until June 2023.

Campsfield detention centre in Oxford, also formerly run by Mitie, closed in 2018. However, the government recently announced its intention to reopen the site in late 2023 at the earliest. Whether Mitie will snap up the contract again remains to be seen.

In May 2018, the company won a £514m “escorting” contract, which runs until 2028. Its job is to supply guards to enforce each deportation from the UK and move migrants between detention centres and prisons. The work also includes the management of short-term holding rooms at ports, airports and immigration reporting centres; as well as contracts at short-term Home Office managed residential holding facilities such as Manston in Kent and Larne House in Northern Ireland.

Mitie security guards at Manston

Mitie also supplies custody officers to a number of police stations in Leicestershire and Northamptonshire, and while it does not currently run any regular prisons, it does provide “facilities management”, such as cleaning and catering. The company​​​ says these contracts involve working closely with the Home Office, “to help deal with the challenges in immigration services, including the ramp-up of services to deal with the increasing volume of small boat arrivals on the South Coast.”

As well as profiting from immigration services, the Care and Custody division has been milking the police custody cash cow further. In 2022 alone, it secured one contract of over £57 million for healthcare provision to South West police and another up to £7 million for “healthcare and forensic services within custody” with Derbyshire police.

Mitie, along with Interserve, now has a potential stake in contracts worth £4 billion as part of the Prison Operator Service Framework. As a result, it added ‘justice’ to the Care and Custody package and hopes to secure a share of £2.5 billion “from a buoyant pipeline including prisons management, a key growth market in the Justice sector”.

Technology

Like other outsourcers, Mitie has a double incentive to increase automation of its services: to cut labour costs and to compete with rivals by offering new “high tech” services. And as Mitie’s security contracts increase everywhere – from hospitals to university campuses and from shopping malls to refugee camps – it’s also carving out a chilling name for itself in surveillance technology.

In 2021, it bought Esoteric a “niche provider of leading counter espionage and specialist surveillance countermeasure services”. As a result, Mitie now owns:

The only UK company to be accredited by the National Security Inspectorate for both electronic sweeping and covert investigations… The acquisition builds on Mitie’s existing capabilities as the UK’s leading provider of technology and intelligence-led security services.

Alongside Esoteric, buying up Interserve has enabled Mitie to secure even more ‘intelligence-led’ contracts for Mitie Security, including “AI CCTV and facial recognition”. In 2021, the company also “introduced an industry-first Data-Sharing Agreement” allegedly to allow “retailers to share data on shoplifters, helping to tackle prolific offenders and organised crime groups more effectively”. Mitie’s huge investment in this area of technology alongside its presence in nearly every public space we enter, becomes more concerning by the day.

In June 2022, Big Brother Watch filed a legal complaint with the Information Commissioner after it emerged that 35 Southern Co-ops were using facial recognition in their supermarkets. This “Orwellian in the extreme” technology was provided by “surveillance firm Facewatch”. It is no surprise perhaps that Mitie has previously worked with Facewatch to develop CCTV for security in retail spaces. As a Big Brother Watch report on facial recognition highlights, although increasing surveillance from facial recognition threatens everyone’s civil liberties, it also discriminates against people of colour and women disproportionately. Facial recognition cameras in supermarkets may be just the tip of the iceberg since Mitie’s most recent annual report acknowledges the introduction of “cutting edge technology” – including facial recognition – for “existing and prospective customers”.

Another high-profile development has been the use of cleaning robots. Mitie has publicised the use of these in big contracts including Birmingham Airport,  Heathrow Airport and Hinchingbrooke Hospital. It introduced “autonomous scrubber-dryer robots” along with an electronic meal ordering system to the John Radcliffe Hospital in Oxford. Elsewhere, Mitie has a partnership with Microsoft to work on using “Big Data” technologies in its facilities management and property services packages.

In 2019, CEO Phil Bentley acknowledged that the company’s “restructuring” and increased use of IT would “inevitably” impact some jobs. He continued:

That’s the reality. But that’s not the main story.

Does it mean fewer jobs or does it mean we are more productive and win more business? I’d like to think the latter.

“Moptimus Prime” cleaning robot at Hinchingbrooke hospital

In more detail

History

Mitie stands for the truly awful phrase: “Management Incentive Through Investment Equity”. It was started in 1987 in Bristol by two businessmen called David Telling and Ian Stewart. Its original business model was to buy 51% stakes to fund a range of companies, with the rest of the shares owned by the managers. Cleaning and “support services” were a focus, but Mitie has always had a loose range of business interests – basically, anything that looked like it could bring in a few quid.

Mitie’s detention “Care and Custody” business in fact started out as a car park company called Mitie Parking Services. But when a new director called Colin Sobell was appointed in 2009, the subsidiary changed its name and started chasing prison contracts. Sobell had previously run US prison company GEO’s UK operation, and before that worked for the detention company GSL (now part of G4S). Using his expertise and contacts, Mitie took the Campsfield detention contract over from GEO in 2011. Then in 2014, it won the Heathrow detention centres deal from Serco, suddenly becoming the UK’s biggest detention contractor. It’s been increasing and profiting from, detention contracts ever since.

This seemed easy enough in the pre-recession boom years when the rival outsourcing companies were all snapping up government services and busily expanding. Back in 2011, 37% of Mitie’s sales came from the public sector – another 34% from “energy services” sub-contracted from the big energy firms.

The wheels started to come off in 2015. Mitie got seriously stung by its ill-advised investment in the home care ‘market’. Mitie bought the Mihomecare business, previously called Enara, for £111 million in 2012, hoping to cash in on the ageing population. But in 2017 it sold it to a private equity buyer for a nominal £2, also handing over £9.45m to cover its losses. The business had depended on effectively paying care workers below the official minimum wage; now not only was the minimum wage rising, but Mitie was forced to actually pay it after workers campaigned and brought lawsuits. Mitie wasn’t able to pass on these rising costs to austerity-hit local authorities. Although the company now likes to emphasise that it has worked with the Living Wage Foundation since 2019, this wasn’t the case at that time.

Mitie people

Bosses

CEO Phil Bentley, a trained accountant from Bradford, was formerly Managing Director of British Gas (2007-13). He became well known to the media for giving frequent interviews where he was attacked for putting up household energy bills. He then left to become CEO of Miami-based telecoms firm Cable and Wireless. Bentley’s base salary is £900,000. But when you count his bonuses and pension allowance, he took home a hefty pay package of £3.8m in 2022. In fact, his profits have continued to rise, in 2021 he earned  £2.7m in 2021, up from £2m in 2021 following a £1.1m cash bonus and a £622,000 award from shares. Mitie’s latest annual report reveals that Bentley also owns stock shares valued at £1,800,000. However, a corporate data shows that the market value of his shares is £8.9 million.

Mitie’s links with the Conservative party are well known. Bentley’s predecessor was Tory peer, Baroness (Ruby) McGregor-Smith, CBE, who led the company for 10 years. MacGregor-Smith, an accountant, was recruited as finance director in 2002 and then made CEO in 2007. The first Asian woman to run a FTSE 250 company, she was later made a Conservative Baroness, and nicknamed the “prickly peer” by the Financial Times. Claiming to have a “passion” for outsourcing, she set out to grow the company with acquisitions and new contracts until it could rival the likes of Capita and her old employer Serco. McGregor-Smith was awarded her peerage in 2015 and left Mitie a year later. She now sits on the House of Lords Industry and Regulators Committee and was until recently President of the British Chamber of Commerce and a non-executive board member of the Department for Education.

Philippa Roe – aka Baroness Couttie – was another Tory Peer sitting at the top of the Mitie ladder; she passed away as we were writing this article. A non-executive director, Roe started her career in PR before moving into banking, where she enjoyed directorships at Schroders and Citigroup. From there she found her way into politics, serving as leader of Westminster City Council for five years as well as sitting on the London Crime Reduction Board. Both Roe and McGregor-Smith had unsuccessfully nominated themselves Tory candidates in the London mayoral elections.

Simon Venn is the company’s Chief Government & Strategy Officer and therefore presumably responsible for maintaining good relations with the state. Venn was described in a (now edited) page on Mitie’s website as “a senior advisor to the UK government”, who “was appointed in 2010 by the then Foreign Secretary, Sir William Hague MP, to sit on the Foreign & Commonwealth Office’s Overseas Business Risk (OBR) board”. Despite these apparently prominent roles, there is little publicly-available information on him. Like Bentley, he too served on the upper echelons of Cable & Wireless before that company got sold off.

Danny Spencer, has sat at the head of Mitie’s “Care and Custody” division for the past seven years. He is a former governor at HMP/YOI Littlehey in Cambridgeshire, and ex-Deputy Governor at HMP Liverpool.

Although the company looks set to achieve the dubious ‘Amazon of FM’ accolade, Mitie would likely prefer not to be reminded about Alloni’s tenure. He left Mitie with immediate effect in April 2022 following a “confidential plea bargain with the U.S. Department of Justice”. Although the investigation is ongoing, it relates to a leak of confidential documents alleging that between 2011 to 2019, telecoms giant Ericsson continued and extended its work in Iraq by paying bribes to the Islamic State and engaged in widespread corruption in ten countries. After the International Consortium of Investigative Journalists (ICIJ) shared the leaked documents, Ericsson acknowledged “‘corruption-related misconduct’ in Iraq and possible payments to Isis”. Alloni was president of Ericsson’s North Africa division from 2010 and then a chief operating officer in charge of “all Ericsson’s operations in [the] Middle East” until 2013.

Shareholders

Corporate databases show that (at the time of writing), Mitie’s largest single shareholder is Silchester International Investors LLP owning 12.8%. The Silchester investment group, an international equity fund based in Mayfair, is ultimately controlled and owned by Stephen and Caroline Butt. Silchester International Investors LLP, dubbed the “quiet investors” has a diverse investment profile which, until recently, included Morrisons supermarket. In 2021, as the largest shareholder, 17 Silchester partners cashed in almost £111 million in dividends after the supermarket’s record sales during Covid-19.

According to its 2022 accounts, Silchester Partners Ltd reported a 16.7% jump in profits and a turnover of £128.6 million.  That year alone the Butt couple were paid a dividend of at least £69 million from the Silchester group. It’s no surprise that Stephen Butt – a former Morgan Stanley director – is now one of the UK’s richest fund managers according to The Sunday Times. Dabbling in philanthropy, the Butts are very giving: together donating a total of £52,000 to the Conservative Party between 2015 and 2021, with Caroline Butt alone donating £32,000. The rest of Silchester is owned by British and international backers, and the fund is known for making long-term investments in companies.

Next up is major global institutional investor Fidelity, which owns 10.7% of shares via Fidelity International Ltd and another 5.3% through FMR. Headquartered in Bermuda, a corporate paradise with no corporate tax, Fidelity is no doubt maxing out on its dividends from Mitie’s shady dealings. Ultimately run and owned by Abigail Johnson, the granddaughter of Fidelity’s founder, Johnson has a net worth of around $20 billion (£17 billion) and is listed by Forbes as the 72nd richest person in the world.

Like other PLCs, Mitie is mainly owned by international institutional investment funds. In 2018, when this profile was first published, shareholders were jumping ship as Mitie was in financial trouble. Around this time Fidelity reduced its stake from 9% in 2017. But Silchester was busy adding to its shares, spotting a lucrative opportunity – and it was proved right. At the time, Silchester already had a bigger stake than is usual for a single shareholder to have in outsourcing companies like Mitie.

In 2022, Mitie shared its record turnover with shareholders. Despite a dividend break in 2021, in the tax year ending in March 2022, shareholders secured dividend payments of £5.7 million. Meanwhile, Mitie’s directors discussed a further £19.5 million dividend payment in their AGM in June to keep shareholders sweet. The next company target is a 30-40% dividend payout for shareholders, up from 20% in 2022.

Finances

Outlook and strategies

Mitie currently earns nearly half its turnover through lucrative government contracts. These now total over £2.3 billion compared with over £1.7 billion from non-government contracts.

After its home care losses (see below), Mitie shifted its focus towards “core” Facilities Management (FM) business. Its model aimed to try and get companies to buy an “integrated” package of more services, and for longer contract periods.

So now, rather than just outsourcing particular jobs like cleaning, maintenance or security, Mitie advises companies on how it can take over running all their FM needs. It also brought in “new technology and analytics”.  The acquisition of Interserve in 2020 means Mitie is now one of the UK’s largest FM companies, since it retained 90% of the former Interserve contracts. In 2019, Carlo Alloni – ex-managing director of Mitie’s Technical Services division – openly stated Mitie’s intention to become the “Amazon of FM”. (See below for more detail on Alloni.)

In the latest annual report, Mitie boldly declared that since 2021, its new strategy is “focused on accelerating growth, enhancing margin and improving cash generation, underpinned by ‘capability enablers’”. What this actually means is huge executive bonuses and benefit packages alongside rising dividend payouts for shareholders.

For Mitie, climate catastrophe, ongoing wars and the spiralling cost of living crisis simply open new paths to profit. The Mitie leadership team openly admits that the government’s “decarbonisation agenda” and increased defence spending offer “good momentum” to “accelerate growth”. And, as the most recent financial accounts note:

Following the significant rise in gas and electricity costs, Technical Services is benefitting from increased activity in all areas of decarbonisation, including solar power, LED roll-outs, air source heat pump installation and electric vehicle charging projects.

Profit and growth:

Business is now booming. In 2022, Mitie’s record revenue of £4 billion created an operating profit of £167 million and a free cash flow of £133 million.

But prior to the pandemic, the company was on shaky ground. Until 2015, Mitie grew steadily, and in the previous five years made a constant overall operating profit margin of around 6%. Then trouble hit, and the company issued four profit warnings between March 2015 and January 2018. Although it reported profits in 2015/6, revenues were starting to fall, and it reported a loss in 2016/7. The company’s turnover shrunk from £2.4 billion in 2015 to £2.1 billion in 2017. Meanwhile, 2017/8 results showed that although turnover increased slightly to £2.2 billion, helped by new contracts, they actually made an overall loss in their accounts.

A number of official investigations were launched into aspects of Mitie’s previous financial reporting. Mitie’s 2017 accounts had to recalculate the figures it originally gave for 2016, recording its revenues and profits as lower. In 2016, the Financial Conduct Authority (FCA) investigated the timing of Mitie’s profit warning announcements. Another watchdog, the Financial Reporting Committee (FRC), opened an investigation into the “preparation and approval of the financial statements” for 2016 (now closed), and another into the auditing of Mitie’s 2015 and 2016 accounts by Deloitte.

Mitie Scandal Sheet

Mitie is not as high profile as its notorious rivals G4S and Serco. Most of its work has been in less controversial cleaning and maintenance, or for corporate clients. Though, this looks set to change as it pursues more profitable opportunities in detention and security.

(2022) Manston migrant camp hit the headlines after refugees – including children – were held for long periods in “terrible” and severely overcrowded conditions. Human rights campaigners and lawyers have now called for a public inquiry into the site following allegations from refugees about “systemic” abuse, violence and ill-treatment from staff. Complaints also flag “significant failures of planning and management” at the Home Office site.

(2022) The Competition and Markets Authority (CMA) launched an investigation into Mitie for “suspected anticompetitive conduct” following the award of yet more lucrative immigration detention deals. In December 2022, the CMA “provisionally” closed this investigation.

(2022) Allegations that Mitie Care and Custody staff sent racist messages in a WhatsApp group chat led to a Home Office investigation. Comments reportedly targeted Syrian refugees, Chinese people, Dianne Abbot and Priti Patel.

(2021) The company made millions from Covid-19 contracts. At its Inverness testing site, a “catalogue of failures” by the company contributed to staff falling ill.

(2017) Financial investigations: The Financial Conduct Authority (FCA) investigated the timing of Mitie’s profit warning announcements in 2016. Another watchdog, the Financial Reporting Committee (FRC), opened an investigation into the “preparation and approval of the financial statements” for 2016, and another into the auditing of Mitie’s 2015 and 2016 accounts by Deloitte.

(2017) Mitie exits home care: Mitie eventually sold its MiHomecare business at a loss – after paying £112 million for it in 2012. One reason for losses was that it had finally been forced to pay staff the minimum wage.

(2015) MiHomecare scandal: Mitie’s home care business was hit with investigations and lawsuits after failing to pay carers the minimum wage and cutting short care visits. At least four local authority customers had raised concerns about care standards, while the Care Quality Commission (CQC) had rated at least one Mihomecare as “inadequate”.

(2015) Hospital failing standards: within months of winning a cleaning and catering contract for Royal Cornwall Hospitals, Mitie’s pay was docked for repeatedly failing to meet standards.

(2015) Harmondsworth conditions exposed: secret filming inside the Mitie-run detention centre, as part of an investigation by Corporate Watch, showed the misery inside after Mitie took over, cut services and increased bang-up hours under its new contract.

(2011) Campsfield: hunger strikes, suicide, and fire. There are plenty of horror stories from Mitie’s management of the Oxfordshire detention centre; we told some in this 2014 report.

Campsfield after the 2013 fire

Company addresses:

HQ and general enquiries: The Shard, Level 12, 32 London Bridge Street, Southwark, London, SE1 9SG

Tel: 0330 678 0710 Email: info@mitie.com

Regional offices:

1st Floor, The Chocolate Factory, Somerdale, Keynsham, BS31 2GJ

35 Duchess Road, Rutherglen, Glasgow, G73 1AU

650 Pavilion Drive, Northampton Business Park, Brackmills, Northampton, NN4 7SL

NB: unless other sources are stated, information comes from the company’s annual reports and accounts. The latest information can be found here on its website.

This article was updated on 18 January 2023 to address concerns flagged by Mitie’s PR department and to reflect the fact that Mitie is responsible for the management of security at Manston detention camp, not the whole site.

See also: 2015 profile from The Bristol Cable

The post Mitie detention profiteers: 2023 company profile appeared first on Corporate Watch.

We ask: who is profiting from supplying our energy? How much are the bosses getting paid? and how have these companies been cosying up to government?

We hope that our research can be a useful resource for those organising towards a mass non-payment of energy bills.

We will be releasing our alternative company profiles of the Big Six energy suppliers in reverse order over the coming weeks. You can see our profiles on Scottish Power and EDF here. Next up? 

No.4 Octopus Energy

Octopus Energy Ltd is the fourth biggest energy supplier in the UK currently controlling around 11% of the energy supply market. It is the newest supplier in the big six, trendy enough to be reviewed by Vogue and posed as a ‘solution’ to “a broken, inefficient market”.

Originally launched in the UK in 2016, Octopus Energy Group Ltd now operates in 13 other countries with 23 million customer accounts. Its model is supposedly a “cheap green energy system” funded by “high sums of investment”.

But the Octopus name is not limited to the energy market. In 2018, it was listed as managing over £7 billion in assets with over 50,000 investors, Since then, it’s continued to grow, Octopus now operates eight distinct businesses: Octopus Energy, Octopus Investments, Octopus Healthcare, Octopus Ventures, Octopus Real Estate, Octopus Moneycoach, Octopus Renewables, Seccl and Octopus Wealth.

According to co-founder Christopher Hulatt, the group takes a holistic approach: “by building companies with one purpose – the relentless pursuit of ‘better’.” But better for who? Better for the pockets of Hulatt and wealth investors or for energy customers…Suffice to say, this isn’t covered in the Octopus Energy Ltd podcast on the Energy Crisis.

How many UK energy customers does Octopus Energy have?

Electricity (excluding pre-payment): 3.1 million

Gas (excluding pre-payment): 2.7 million

Who owns it? 

Touted as an “independent supplier” by Forbes. Octopus Energy is in fact part of a group, that is ultimately owned by OE Holdco Ltd. 

At the start of the tax year in April 2022, OE Holdco Ltd, a UK-based holding company, was owned by the co-founder of Octopus Energy, Christopher Hulatt. But mysteriously, since the end of September OE Holdco Ltd has no listed owner. Hulatt and Octopus co founder Simon Rogers remains two of the three directors of OE Holdco Ltd, the third directorship is held by Octopus Company Secretarial Services Ltd.

OE Holdco Ltd was formed back in March, at the same time as families around the UK were plunged further into the cost of living crisis. Already by September, it has become the ultimate parent company of the Octopus Group. It’s certainly one to keep eye on when annual accounts are due.

Is Octopus Energy suffering as a result of the cost of living crisis? 

It doesn’t seem so, in fact, Octopus Energy appears to be going from strength to strength. According to the company’s accounts from 2021, it recorded record revenues of £1.9 billion in 2021 with profits at £25 million. Bouncing back from a loss of £47 million in 2020. 

The Octopus Group, with its fingers in many pies, celebrated a revenue of £2 billion in 2021,  £800 million more than in 2020, a 62% increase.

Whilst the ultimate parent company OE Holdco Ltd is too new to file accounts, the Octopus Capital Ltd’s accounts for 2021 show that energy supply is the key moneymaker for the group, accounting for 85% of the total turnover. The group is also expanding internationally through acquisitions in Japan and the USA. The cherry on the cake is that the Group paid dividends of £17.7 million in 2021 in comparison to £3 million in 2020 highlighting that right now business is booming for the Octopus Group, despite the ongoing cost of living crisis.

Who runs it?

Legend has it that Octopus was started in Chris Hulatt’s bedroom, when Hulatt, Simon Rogerson, and Guy Myles founded the company in 2000. Hulatt and Rogerson remain at the top, while Myles left in 2014 to set up a financial investment company.  

Day to day, Hulatt specialises in two things: hunting for investments for Octopus worldwide and cosying up to the UK government through meetings with politicians and ministers. A Cambridge graduate, Hulatt owns over 75% shares of Octopus Group Holdings Ltd and is the director of 30 companies on Companies House including Octopus Energy Ltd. With no official position apart from ‘co-founder’ Hulatt’s salary from Octopus businesses is difficult to measure. But what remains certain, is that Hulatt is not feeling the bite from the energy crisis: with a net worth of £276 million. Outside of the Octopus business, Hulatt is the Chairperson of Enthuse, a digital donation tech company, and the non-executive director of ClearlySo an investment bank. 

Simon Rogerson is the chairperson of Octopus Investments, the CEO of both the Octopus Group and OE Holdco Ltd. He is listed as the director of 26 companies and was educated at the University of St Andrews. Rogerson is likely to have taken home at least £663,000 in 2021 as the highest-paid director of Octopus Capital Ltd. But Rogerson’s pockets go a lot deeper than one remuneration. According to business information databases, Rogerson owns 11% of shares at his workplace, making him the biggest single shareholder of the Octopus Group. Rogerson’s net worth is as high as £229 million. 

Greg Jackson is the CEO and founder of Octopus Energy Group. Jackson is likely to be earning a salary upward of £169,000 as the highest-paid director of Octopus Energy Group Ltd. Celebrated in iNews, Jackson was seen as a bit of an angel after he gave up £150,000 in autumn 2021 “when the energy crisis began to bite”. But despite a relatively low salary he’s well-placed to make such a “selfless act” because Jackson’s 6% stake in the renewables branch of Octopus means he’s estimated to be worth around $300 million (over £265m).

Aside from Octopus, Jackson is the chairperson of Consultant Connect UK, a private tech business profiting from NHS privatisation through referral management.  

The Octopus add-on? Kraken Technology 

In addition to cashing in on supplying energy, the Octopus Energy Group has another trick up its sleeve: Kraken Technology – which is part of the Octopus Energy Group

Kraken Technology provides data services to manage energy usage. Kraken’s platform manages “billing, payments, meter data management, CRM, customer communications, digital self-service, contact centre telephony, industry and market connections (and more)”. It appears that through Kraken Technology services Octopus has made a name for itself in the playground of the Big Six, even convincing its competitors like EDF and e.on to buy up its license. Now, 40% of the British market is licensed to Kraken.

Does the company avoid paying taxes? 

Octopus Energy seems to be in the clear. But it’s one to look out for, as OE Holdco is yet to publish its first set of accounts, and has no publicly registered owner.

Moreover, the majority of companies owned by Octopus Investments Ltd are registered as LLPs, which fall under a different tax system in that the LLP itself is not taxable, untaxed profits are distributed to members who then pay tax through a self-assessment tax return.

The Octopus Group certainly doesn’t shy away from speaking about business tax to the government. In May 2022, Octopus Group attended a meeting on business taxation at the HM Treasury with Lucy Frazer MP alongside Uber and BP amongst others.

Political donations in the UK 

In 2018 Octopus Investments Ltd donated £12,500 to the central Conservative party. Co-founder, Christopher Hulatt, donated a further £2,500 to the party’s local branch Hitchin & Harpenden (Hulatt’s home constituency) in 2019. 

Hulatt’s donation was questioned after Open Democracy revealed Octopus Investments was selected to manage the HM Treasury-owned UK Infrastructure Bank’s new £100m “sustainable infrastructure fund”. 

Does the company have close relationships with the government? 

Yes. As Octopus co-founder Christopher Hulatt put it: “I spend most of my time focusing on…maintaining strong relationships with the UK government and MPs”. 

In October 2020, Rishi Sunak alongside Boris Johnson appear to have done PR for Octopus Energy, promoting the company in an official 10 Downing Street video at the Octopus Energy HQ. Between 2020-2022 Octopus had four meetings with former UK prime minister Boris Johnson. This included one solo meeting to discuss energy technology and sustainability in October 2020 as well as a further 125 meetings with ministers to discuss energy: retail, innovation, efficiency and security. 

In 2018, Hulatt spoke at the Conservative party conference as part of an event on ‘Boosting Consumer Capitalism’ organised by the right-wing Adam Smith Institute. Fellow speakers included Hulatt’s local Conservative MP, Bim Afolami, and Conservative MP John Penrose.

In 2020, Hulatt was part of the Unlock Britain Commission set up by the aforementioned Bim Afolami to produce a report for the Social Market Foundation to design “10 transformative policies for Britain after the Coronavirus crisis”. Other advisors included top figures from ASOS Plc and PwC. 

In 2021, Hulatt led a training on “How to build a nation of entrepreneurs” with Conservative MP and Minister of State for Local Government and Building Safety, Paul Scully as part of The Entrepreneurs Network (TEN). 

Last but by no means least, at the end of September when Octopus changed things up, Stuart Quickenden was brought on board as a director for the Octopus Group. Quickenden was a board member for the Department for Business, Energy and Industrial Strategy (BEIS) between 2017 to 2020. So no doubt he will have some useful contacts to make Octopus Energy’s relationship with government even cosier. 

Company addresses

Octopus Energy Ltd, UK House, 5th floor, 164-182 Oxford Street, London, W1D 1NN

Ultimate parent company: OE HOLDCO LTD,  6th Floor 33, Holborn, London, England, EC1N 2HT 

Correction 12/12/22: The original article implied Rishi Sunak had involvement in the selection of Octopus Investments to manage the sustainable infrastructure fund. This was inaccurate and has now been corrected.

The post Heat the Rich? Part three: Octopus Energy appeared first on Corporate Watch.

The ongoing cleaners’ campaign targets both the Hospital Corporation of America (HCA), the healthcare giant which runs the private hospital, and Compass Group, the company outsourced by HCA to provide cleaning staff to LBH. Many of the cleaners at LBH are organised with the Independent Workers’ Union of Great Britain (IWGB).

This article is part of a series supporting the cleaners’ struggle.

Headquartered in Surrey, Compass is a global outsourcing company and the world’s largest caterer. It profits from pretty much every sector it can: defence, catering, education, healthcare, leisure – you name it. Much like Serco, Capita and Carillion, it thrives as more public services are privatised.

Compass has been associated with numerous controversies. Like other multinational companies with many subsidiaries, the scandals it is embroiled in don’t always name the beating heart: Compass Group.

One of Compass’ specialities is scandals. For the full list read below, here are just a few:

• In 2006, Compass settled up to £40 million out of court after it was accused of attempting to bribe a UN official to award the company catering contracts worth in excess of $350 million (£188m).
• In 2012, Compass Group subsidiary Chartwells was forced to pay $18 million to New York state, as well as $19.4 million to Washington DC in 2015, for financial mismanagement and late, spoiled and poor quality school catering.
• In 2021, the same Chartwells was embroiled in the infamous school meals scandal in the UK where it was revealed that it cashed in whilst providing meagre sub-standard food boxes to schoolchildren.
• Unite, one of the biggest trade unions in the UK, christened ESS – another Compass subsidiary – as “Britain’s most heartless employer” in a dispute where outsourced cleaners and catering staff at the Ministry of Defence faced false redundancy in a “fire and rehire” manoeuvre.

Contents

• What is Compass Group?
• Who’s in charge?
• Who owns Compass Group?
• Chartwells: Compass’ school meal scandal
• Working for Compass: conditions and resistWhat is Compass Group?ance
• Compass scandals worldwide
• Where’s the Living Wage?
• Conclusion

What is Compass Group?

Compass Group operates across 45 countries. According to its website “food is our core competence” but the group, via subsidiaries, operates a wide range of services across various institutions, including prisons, schools and the military. The group is split into five different sectors: Business & Industry, Healthcare & Senior Living, Education, Sports & Leisure and Defence, and Offshore & Remote.

Compass was created in the UK by Jack Bateman in 1941 under the name Factory Canteens Ltd. Part of its business was to feed British munitions workers who were promised one hot meal a day by law. In 1960 it was acquired by conglomerate Grand Metropolitan, after which it was known as Grand Metropolitan Catering Services. Subsequently, there were many more mergers and acquisitions with other companies (full list here). In 1987, the company was relaunched as Compass Group and was listed on the London Stock Exchange the following year as Compass Group PLC.

The US is Compass Group’s top market, making up 59% of Compass’ annual revenue in 2020. By comparison, its second-biggest market was the UK, which generated 8% of total revenues. As of September 2020, Compass’ annual reserves were at £20.2 billion.

These days, Compass is keen to keep its image in check. The Group boasts about its inclusivity and diversity and presents itself as a living wage employer (see below for more on this). In 2021, it announced it would go net-zero by 2050.

Compass in UK healthcare

LBH cleaners are part of Compass’ Healthcare & Senior Living business, a sector that generates 33% of the Group’s annual revenue according to the 2021 annual report. HCA outsources LBH cleaners via Medirest, part of the Compass Group UK’s healthcare branch. Medirest employs 7,500 people across 20 different NHS Trusts. The Compass private hospital subsidiary promises patients an exclusive “experience”:

“Medirest Signature is our private healthcare solution that can be tailored to the needs of hospitals, health centres and care homes. We prepare freshly cooked food using the finest ingredients and deliver a high level of service. It’s the small touches that patients expect in private healthcare, an experience that reaches the standard of a five-star hotel.”

Compass may be patting itself on the back, but Marino Giraldo, a LBH cleaner, described an experience far from five star for both workers and hospital clients:

“We have to work with human stools and blood and there is no appropriate way to deal with them, we have to reuse material to get rid of them or clean them up.

Due to the lack of staff, we have been forced to work extra time so our working hours are not respected.”

Compass’ profits from UK healthcare don’t stop with HCA’s outsourcing or private healthcare. Even in an NHS hospital, you’re likely to be adding a few quid to Compass’ coffers. Medirest Steamplicity operates cleaning, security, and catering in NHS hospitals. It also oversees Compass’ lucrative Healthcare Retail gig where Costa Coffee, Starbucks, M&S Food and many more outlets in NHS hospitals are licensed by Compass. Effectively Compass makes money from staff and visitors needing something to eat or drink in hospital shops, cafes, or vending machines.

As Compass cashes in on the UK healthcare industry, it is clear it cares more for the health of its bank account than its workers. LBH cleaners (and Medirest workers across the UK) are paid poverty wages and work without proper PPE or sick pay, despite the Coronavirus pandemic.

Who’s in charge?

Dominic Blakemore took over the reins of Compass in January 2018 as the Group CEO. Blakemore has his fingers in several other pies as the director of the London Stock Exchange and part of the governing council at University College London, his former university.

Blakemore was shamed after the backlash over the free school meal scandal, when it was revealed that he received a £4.7 million pay package while schoolchildren were left hungry. It emerged that in at least some cases, the company may have been spending less than half their allocated budget of £10.50 per child, per week, when a mum bought the same items from her local supermarket for £5.22. Since the scandal, Blakemore took a salary cut, that is to say, he now earns a base salary of £1 million a year. In 2021 Blakemore was paid a total of £3.2m, including bonuses. That puts Blakemore’s earnings last year as 170 times higher than than the annual salary of a cleaner outsourced by HCA to Compass Group.

Alongside Blakemore – at the top of Compass – is Ian Meakins, the Board Chair since December 2020. Meakins is also the non-executive chair of Rexel SA, a French electrics company, selected and recommended by the Department of Education to sell the pricey (rated 5th most expensive on Which?) ‘air-cleaning’ units to fight the spread of COVID-19 in schools.

Cambridge- educated Meakins has had a long stint of being at the top of the ladder. He has been a CEO for over 20 years, at Ferguson PLC, Travelex and Alliance UniChem. Meakins also previously worked at Bain & Company, the parent company of Bain Capital, which was previously a key HCA shareholder (see more in our profile on HCA here).

Meakins’ predecessor, Paul Walsh (who stepped down in 2020) was formerly part of David Cameron’s business advisory group and is a board member at FedEx and McDonald’s.

Another key player is Steven Cenci, the newly-instated Compass Group Global Healthcare Lead, who oversees the LBH cleaners. Up until April 2022, Cenci was the UK manager for Hospitals & Senior Living for twenty years. During his time at the helm, there were multiple campaigns led by unionised workers exposing Compass’ exploitation and demanding an end to poverty pay in Compass’ health subsidiary Medirest (see below for the details). It remains to be seen if Russell Blake – his replacement in that role as of April 2022 – will cough up worker rights and fair pay. Only time will tell.

Who owns Compass Group?

Beyond the boardroom, owners can often swing decisions. A corporate database shows the biggest shareholder, BlackRock – world’s biggest asset manager – only holds 10% of the company. So no shareholder has majority ownership, and therefore control of the company. Other investment firms such as Artisan Partners and Invesco Advisers, each own 5% each.

Other noteworthy investors – despite only owning a very small percentage of shares – are governments, including the UK, Japan, South Korea, Liechtenstein and Norway. The Norwegian government often boasts about its “no tobacco or guns” ethical investment policies, and yet continues to invest in Compass Group with its track record of worker exploitation. Another interesting shareholder is the Mormon Church of Jesus Christ of Latter-Day Saints. Various state governments also hold shares, such as Quebec and California.

Chartwells: Compass’ school meal scandal

The school meals scandal which Compass subsidiary Chartwells was embroiled in started when Louisa Britain’s (@RoadsideMum) tweet exposed one of the company’s sparse free school meal packages during the pandemic.

The company was eventually forced to apologise after footballer Marcus Rashford stepped in to criticise the unacceptable amount of food. The criticism had a certain sting as Chartwells was a signatory of Rashford’s campaign to end food child poverty.

The scandal pushed Compass and its subsidiary into the limelight. It didn’t take people long to find out that in 2021 Chartwells was the UK’s largest school meal provider and that between 2016 and 2021 it had earned nearly £350m in primary school catering contracts. This is despite the fact that the company had already been exposed for providing cheap, sub-standard meals to schools back in 2005.

The 2005 scandal led Channel 4’s Jamie’s School Dinners to campaign against Scolarest, another Compass subsidiary, for feeding the now-infamous Turkey Twizzlers to schoolchildren. At the time, the controversy led to promises that the government would investigate the amount paid per child to outsourcing companies for school meals. Yet over a decade later, the problems remain the same. As so often happens when corporate , the Scolarest brand quietly faded into the background, while Chartwells took its place, enabling Compass Group to continue profiting from primary school catering.

Between the Turkey Twizzlers and last year’s school meal scandal, there were two further blunders. In 2011, inspections of Chartwells “found 18 notable health and safety violations, serious enough to cause food poisoning” in London schools. Just two years later, in 2013, Chartwells was at the centre of the horse meat scandal. The company was accused of illegally failing to declare horse meat in a range of food, including burgers with up to 30% horse meat sold at 13 sites, including two secondary schools.

Chartwells’ catering scandals aren’t confined to the UK. In 2012, Compass Group was forced to pay $18 million (approximately £14 million) to New York state after an investigation found Compass overcharging for meals in 39 schools and public lunch programmes over seven years. In 2015, a whistleblower revealed Chartwells was providing insufficient and poor quality food to schools across Washington, DC. The whistleblower lawsuit resulted in Chartwells being forced to pay $19.4 million (£15.4 million) compensation to Washington, DC.

Working for Compass: conditions and resistance

In 2021 Compass subsidiary Medirest won Best National Support for Key Workers at Springboard Charity awards, Steven Cenci the UK manager for Hospitals & Senior Living at the time said:

“Our people are at the heart of all that we do. We strive to ensure our colleagues always feel valued”

But for Marino Giraldo, Cleaner at London Bridge Hospital and member of the IWGB Cleaners and Facility branch, profit not workers at the heart of Compass operations:

“We have had to face members of the management that treat us with disdain and disrespect, if we raise our concerns we get moved especially new members of staff, or reprimanded, this is a struggle that is ongoing and we demand this to stop. We are treated as second class citizens.

We had to fight through unionisation to get something required by law for people who work in the health system which is the vaccines for immunisation. Up to date, new people that happen to join the team are not offered vaccines.”

The cleaners currently earn £9.69 p/h, according to Giraldo. They are seeking a pay increase from HCA (which contracts Compass) to £12.50, and proper sick pay.

The IWGB’s Cleaners and Facilities branch’s ongoing campaign joins a history of resistance by hundreds of Medirest workers in the UK. Their aims have been to end two-tier pay systems (where outsourced workers get a lower pay rate for the same work as in-house workers) and to improve Compass Group’s exploitative working conditions:

• Back in 2011, 180 porters, caterers and cleaners hired by Medirest for £6.35 an hour took strike action at Wycombe and Amersham NHS hospitals in Buckinghamshire. The workers, organised with Unison, had been demanding the basic NHS pay rate and standardised terms and conditions such as holiday and sick pay since 2006.
• In 2012, 30 outsourced cleaners in Addenbrookes Hospital in Cambridge staged protests against a 21% pay cut. Medirest, their employer, undercut other bidders by promising a £600,000 discount on cleaning services at the hospital. 50% of Medirest’s proposed discount was budgeted by cutting cleaners’ wages.
• In 2014, 150 GMB members at Ealing NHS Hospital Trust called off a strike after winning an end to a two-tier pay structure. This resulted in Medirest workers’ wages increasing by 15% as they joined NHS staff on £7.31 an hour, as well as gaining two extra days’ leave.
• In 2019, Unison cleaners, caterers, porters, and security members in two Liverpool hospitals won a pay rise following a 14 day-long strike after Medirest refused workers an 82p hourly pay rise to match their NHS colleagues.

Medirest is not the only branch of Compass synonymous with worker exploitation. Compass’ treatment of workers was used as a case study for the UK’s controversial fire and rehire policies in a parliamentary debate. Compass introduced a policy forcing hundreds of outsourced workers at the Ministry of Defence to accept either a wage cut or risk immediate job loss. The policy drew criticism from Labour MP Grahame Morris, who made a statement in parliament:

“Fire and rehire is not restricted to the aviation sector, although there are some terrible abuses in that sector. ESS, part of the multi million-pound Compass group, has been branded Britain’s most heartless employer by Unite, due to the manner in which it is treating staff working on Ministry of Defence bases.”

The exploitative work conditions faced by Compass Group employees are documented by the UK employment tribunal records where individual workers have brought cases of unfair dismissal, age discrimination, and breach of contract.

Furthermore, the poor working conditions employed by Compass Group are not limited to the UK. In 2014, when Compass first entered the Australian healthcare sector, the Australian Workers’ Union produced a fact sheet detailing Compass’ shoddy track record in providing public services worldwide. The union’s factsheet traces how Compass Group’s takeovers in Canada, the US, and Ireland routinely fired and rehired staff on contracts with fewer benefits, up to 50% lower wages, and lower job security.

Where’s the Living Wage?

Against the backdrop of multiple strikes around second-tier pay and low wages, in November 2020 Compass Group bragged about its newly-awarded status as a Recognised Service Provider by the Living Wage Foundation. The current living wage is £9.90 in the UK and £11.05 in London. Receiving the news Robin Mills, the UK and Ireland Compass director declared:

“By tackling low pay head-on, together we can make a real difference to the lives of our people and in turn their families.”

However, six months later the IWGB cleaners campaign revealed that Compass workers are still not being paid a living wage. Cleaners are campaigning for £12.50 p/h but are currently paid £9.69 p/h more than £1 short of London Living Wage. So what’s the small print? Compass will only pay its workers a living wage if its “client” pays, demonstrating the lengths Compass is willing to go to pretend that labour exploitation is a thing of the past.

Compass scandals worldwide

As though exploiting workers wasn’t enough, here is just a brief history of contract breaches, lawsuits and payouts by Compass Group to hush up scandals over the last 16 years:

• In 2006, Compass Group hit the headlines after allegations emerged of “an illegal conspiracy” to bribe a UN official to give the company contracts to feed (so-called) UN peacekeepers in conflict zones around the world, worth in excess of £188 million. It was forced to settle the case out of court for around £40 million.
• In 2008, Eurest Dining Services, a Compass catering subsidiary in Canada, served food with traces of the listeria bacteria in seven prisons in Ontario province in Canada.
• Between 2008-2009, Compass was linked to regular outbreaks of Clostridium difficile in Canadian hospitals. Investigations also revealed that Compass employees lacked proper training and protective equipment.

Conclusion

Far from being an innocent bystander, Compass Group’s objective to make money in every sector is demonstrated by its long history of cutting corners through two-tiered pay, fire and rehire policies, sloppy health and hygiene, and providing poor quality, insufficient meals.

Has the Group changed? Clearly not. Compass is eager to pocket the cheques from public institutions such as schools and councils. But ploys like waving around a Living Wage Accreditation or pledges to end child food poverty mask the reality of a company profiting from child hunger and poverty wages for its staff.

Time and time again workers have taken on Compass Group and won, solidarity with the LBH campaign!

Appendix:

The Compass Group’s headquarters can be found at:

Compass House
Guildford Street
Chertsey
Surrey
KT16 9BQ
UK

The post Broken Compass: the scandals of Compass Group appeared first on Corporate Watch.

HCA is the world’s largest private healthcare company, as well as being both the UK’s and US’ biggest private hospital group. It runs London Bridge Hospital (LBH) as a for-profit business, as well as five other central London hospitals and partnerships around the UK.

Many of the cleaners at LBH are organised with the Independent Workers’ Union of Great Britain (IWGB). They are currently demanding fair pay, accusing their employers of failing to provide proper personal protective equipment (PPE) and bullying those who speak out.

Corporate Watch has investigated HCA and its business model, to provide information for action for the cleaners’ ongoing campaign.

In summary:

• HCA made billions from the pandemic in the US and the UK, yet it wouldn’t even supply workers with adequate PPE, let alone pay them properly.
• The pandemic created a perfect storm for the Tories to push more privatisation through the backdoor while ‘selling’ it as a strategy to help a broken NHS.
• Despite a huge government payout, HCA beds were greatly underutilised during the pandemic, resulting in the NHS terminating its contract only months later.
• Now, with NHS waiting lists at an all time high, it’s boosting profits further. The NHS has been forced to pay HCA millions for critical life-saving treatments for cancer patients. Meanwhile, record numbers of people who can afford to are paying the company privately for routine treatments.
• HCA has a long history of relationships with politicians who have pushed privatisation.
• Labour Party leader Keir Starmer has received donations from a HCA shareholder, who is a member of the House of Lords.
• Some NHS consultants are making money from shares in HCA, further undermining the integrity of the NHS.
• HCA has a documented history of fraud, negligence and malpractice: do we really want these people to run our healthcare?

This company profile shows that HCA’s agenda is to continue expanding and profiting from private healthcare, both in the US and the UK. HCA maximises its profits by hiring outsourced and underpaid workers, and cutting costs at the expense of workers’ and patients’ safety.

Henry Chango Lopez, IWGB General Secretary, told Corporate Watch:

“While HCA has made millions in profits during this pandemic and claims to value its employees, it treats its outsourced cleaners like second-class workers. Outsourced cleaners are overworked on poverty wages and are forced to work while sick because they cannot afford to take time off without proper sick pay. They also face unequal terms and conditions, worse treatment, being denied access to on-site medical care and other benefits enjoyed by directly-employed colleagues.

Their workers are not prepared to accept this discriminatory treatment any longer from such a prestigious corporation. They have launched their campaign at London Bridge Hospital with the support of their union – the IWGB, and will fight until they get the benefits, the dignity and respect they deserve.”

Unlike many healthcare companies, HCA managed to increase both profits and turnover throughout the pandemic. In fact, the company has seen its profits skyrocket as a result of Covid-19: company records show that in 2021, gross profits were up to nearly $50 billion. It reported turnover of $58.8 billion and a net profit of $7 billion.

A 2022 report from Service Employees International Union (SEIU), the largest US healthcare union, hit the nail on the head when it explained that as HCA profits soar, thousands of employees struggle on “poverty wages”.

Contents

– What is HCA?
– Who profits?
– Frist fortunes
– Pandemic profiteering, lack of PPE and union-busting
– New allegations of fraud
– Lobbyists and lurkers
– HCA in court
– Conclusion

What is HCA?

In the US, Hospital Corporation of America runs 182 hospitals in 20 states. It makes twice the profit of the US’ three other largest publicly-traded hospital companies combined. During the pandemic, its profits also soared above other private hospital groups.

HCA began operating in the UK in 1995 and now runs 30 UK facilities. The company is expanding its reach in the country, with a new joint venture partnership to build a $100 million hospital in Birmingham slated for completion in 2023.

HCA outsources the employment of the vast majority of its cleaners at LBH to Compass Group. Ultimately, because this deal saves it money.

The company has been plagued by scandals, including being implicated in “the longest and costliest investigation for health-care fraud in U.S. history”: it was forced to admit overcharging the US government for Medicare/Medicaid healthcare cases. In 2002, after pleading guilty, it paid over $2 billion in fines, the largest corporate fine in US history.

HCA has been expanding in the UK since 1995. Here is a list of its main UK facilities:

This global healthcare giant is now moving in on our NHS. It was one of several private healthcare companies paid millions by the British government to expand capacity during the pandemic. Yet most HCA beds remained empty. With further Covid waves looming, the NHS was compelled to end its agreement with HCA because, allegedly, HCA was demanding too high a fee while its beds weren’t being filled. Yet as waiting lists (for both planned and emergency operations) soared, this change meant the NHS paid further millions in vital treatments for critically ill patients. It also enabled HCA to lure thousands of people who could afford to pay into its hospitals for more routine surgery. Double whammy.

Meanwhile, the government is pushing through legislation that will make it easier for private healthcare companies to profit even more as the NHS continues to break.

Who profits from HCA?

In the UK, HCA operates through a complicated system of subsidiaries which eventually lead back to US-based HCA Healthcare Inc. The largest shareholder of the ultimate owner is a company called Hercules Holding II LLC.

In 2005, HCA was forced to pay $20 million to shareholders who sued the company following claims of insider trading and inflating share prices. The following year, HCA management and Hercules Holding II LLC, which was “a consortium of private investment funds including Bain Capital Partners LLC, Kohlberg Kravis Roberts & Co. and Merrill Lynch Global Private Equity”, bought HCA.

Since then, the investment companies (Bain, KKR and Merrill) have cashed out their shares, leaving the billionaire Frist family—who founded HCA—as the sole owners of Hercules Holdings. Other shareholders of note include BlackRock and Vanguard, two of the world’s biggest investment funds which exist only to earn more money for the super-wealthy.

HCA may not pay its workers well, but things are different if you’re a director or shareholder. In 2020, HCA’s current chief executive Samuel Hazen earned $30.4 million. Hazen’s net worth is at least $137 million, and over $100 million of this comes from HCA shares. Despite taking a salary dip in 2019, his total compensation package was 556 times more than the average earnings ($54,651) of HCA employees. Indeed, the US executive management team and most directors are also HCA shareholders. Many are also multi-millionaires with wealth boosted significantly by their HCA shares.

In contrast, Jamelle Brown—a technician for HCA in Kansas City—reportedly earned just $13.77 (£10.48) an hour, and 1,000 times less than Hazen’s salary. In 2020, he caught Covid at work. On his return, he was named ’employee of the month’ which came with a ‘reward’: a $6 coupon to spend at the hospital canteen. The SEIU report also notes that although 43% of HCA’s 2020 revenue came from Medicare and Medicaid:

“since 2010 HCA has diverted over $29 billion to the pockets of rich investors like Bain, KKR, Merrill Lynch and the Frist family.”

Another shareholding director is Nancy-Ann DeParle, who joined in 2014. She previously worked for both Bill Clinton and Barack Obama and was credited as one of the key players of the Affordable Care Act (ACA). Also known as ‘Obamacare’, the ACA gave millions of uninsured American people access to health cover. But although DeParle may sound on paper like an altruistic supporter of cheap healthcare, the truth is far shadier. Before heading to the White House, DeParle was director of several corporations that were investigated, and in some cases found liable, for corruption, bribery or negligence. She stepped down from these directorships upon appointment to the White House, having earned millions from companies that would benefit from Obamacare. DeParle’s career has continued to flip-flop between the White House and then back to making millions from private healthcare companies.

Given HCA’s landmark Medicare fraud case, DeParle’s role suggests a clear conflict of interest.

Other directors’ previous positions read like a roll-call of honour of capitalist ‘greats’:

• Meg Crofton: Disney World
• Bob Dennis: McKinsey & Co.
• Charles Holliday: DuPont, Shell, Bank of America
• Hugh Johnston: PepsiCo, Microsoft Corporation
• Michael Michelson: Kohlberg Kravis Roberts
• Wayne Riley: Vertix Pharmaceuticals, Compass Pathways
• Andrea Smith: Bank of America

In the UK, the majority of the management team appears to have strong medical, rather than business, backgrounds. Although Andrew Coombs, the UK’s HCA commercial director, previously worked for AXA. As the Palestinian campaign for Boycott, Divestment and Sanctions (BDS) notes:

“AXA’s investment in Israeli banks that finance Israel’s illegal settlements makes it complicit in grave violations of international law”.

Until 2018, AXA also invested in Elbit Systems, Israel’s largest privately-owned arms and ‘security’ company.

From 1995 – 2001 Selvavinayagam Vireswer, currently HCA’s vice president of development, worked for management consultancy giant McKinsey & Co.—notorious for “giving bad advice and working with corrupt entities”. In 2001, Vireswer worked for a year in government under Tony Blair at the Forward Strategy Unit. He was there as warnings grew about Blair’s private finance initiative (PFI), which pushed more public services into private ownership for profit and started the onslaught of outsourcing giants.

Concerns have been growing in the UK about potential conflicts of interest given that NHS consultants can refer patients to private hospitals that they also own shares in. In 2019, the Centre for Health and the Public Interest (CHPI) drew attention to the rising income of consultants with stakes in private hospitals. Among the companies concerned was HCA, which co-owns The Christie Hospital in Manchester, where oncologists had earned millions from investments in HCA. In January 2022, a new CHPI report found that London NHS trusts paid HCA £36.4 million for cancer treatments between December 2020 and November 2021 after ending its agreement with HCA. As the NHS became overwhelmed with Covid patients, there was an acute shortage of beds, particularly for cancer patients needing urgent care. But it’s worth noting that HCA also held “joint ventures with 120 medical consultants” working at these same NHS hospitals. Those consultants earned income from HCA share dividends, on top of fees for treating private patients, an NHS salary and any additional fees paid to them by HCA.

The investigation also revealed that:

• HCA has the UK’s biggest number of consultants with joint NHS/private stakes;
• HCA dominates access to 80-90% of private chemotherapy treatment in Central London;
• Between 2015 and 2020, consultants earned an estimated £31.3m from joint HCA/NHS ventures. Most of this (over £25 million) went to those with stakes in HCA.

Although the revolving door between the government and HCA is more discreet in the UK than the US, Corporate Watch has found that Labour peer Lord Clive Hollick is an HCA (and KKR) shareholder. In 2020, he donated £50,000 to Labour leader Keir Starmer, and has a long record of donations to the Labour Party and to right-wing Labour MPs. He’s seemingly unaware of HCA’s treatment of employees and claims to support gig economy workers.

Frist fortunes

HCA was founded in 1968 by Thomas Frist, Jr. and Sr., and Jack Massey (who also co-owned Kentucky Fried Chicken). The co-founders saw the potential to generate wealth from healthcare. According to the SEIU:

“Thomas Frist, MD, and his co-founders were inspired by ‘seeing what Holiday Inns 10 years before had done in changing basically the travel industry.’ HCA did change the hospital industry. Prior to HCA’s creation, the hospital industry had long been dominated by nonprofits.”

The Frists own the largest stake of HCA shares. According to Forbes, the family’s net worth at the time of writing is $21.3 billion. Between 2020 and 2021, the family’s wealth nearly doubled. Although founder Thomas Frist Jr. no longer holds an executive position at HCA, sons Thomas and William (Bill) Frist sit on its board of directors.

In 2005, when HCA was accused of insider trading, Bill Frist was a long-standing Republican Senate Leader who’d considered running for president. His political career seems ‘almost’ magically charmed.

Following the Medicare scandal, the Frists escaped any criminal charges. George Bush Jr. was in the White House at the time and reportedly:

“dictated the Justice Department deal with HCA that let the crooks escape jail just as Frist was being anointed the Senate’s majority leader. A pure coincidence in timing, of course.”

In 2005, analysis of Frist’s voting record revealed a “pattern of supporting bills that benefit HCA”. During his time as senator, Frist was also implicated in pushing through legislation to protect pharmaceutical giant Eli Lilly from lawsuits over links between its Thimerosal vaccine and autism “and other neurological maladies” in young children.

Bill Frist also has a history “of race-related controversy”. He was accused of making racist remarks on a campaign tour in Tennessee during his first run for public office in 1994. He’s also openly opposed gay marriage.

HCA lobbying funding has continued to grow since 1990, totalling over $3.2 million in 2021. Although HCA donated $169,798 to Joe Biden in the 2020 election, it also hedged its bets with a $74,870 donation to Donald Trump.

Pandemic profiteering, lack of PPE and union-busting

HCA’s profits have increased since the Covid-19 pandemic. One might think this is because HCA hospitals treated increasing amounts of people suffering from coronavirus. But the reality is somewhat more complicated. In fact, the company has received large Covid-19 bailouts in the US and UK, while at the same time cost-cutting on PPE for workers, and clamping down on worker organising.

In March 2020, NHS England “block booked almost the entirety of the private hospital sector’s services, facilities and nearly 20,000 clinical staff” to expand capacity during the pandemic. This was not just to treat Covid-19, but to enable urgent care—such as cancer treatment—to be provided while the NHS scrambled to address the pandemic.

HCA received the fifth-largest contract for beds and staff from NHS England (NHSE) and was paid over £150m to treat NHS patients between March 2020 and March 2021. It also received about £3m in furlough payments from the UK government during the first eight months of 2021.

The company was one of eight private healthcare providers paid a total of £1.69 billion by NHS England for bed capacity during the pandemic. But this billion-pound payout didn’t translate into significantly higher capacity for the NHS. In fact, overall “private hospitals delivered 0.08% of COVID care”. Out of an estimated 8,000 private beds, the highest number ever occupied by Covid patients on one day was only 78.

And by August 2020, the NHS reportedly ended its contract with HCA and two other providers owing to the lack of beds filled and the fees that the companies were demanding.

Following the end of the contract, there was said to be a “real and imminent threat to London’s ability to perform cancer surgery.”

HCA made profits of $3.75 billion in 2021. Yet cleaners at HCA’s London Bridge Hospital had to go through the pandemic without even basic protections. The cleaners launched their campaign complaining of woefully inadequate PPE, unsafe working conditions and the lack of proper sick pay. Ramona Marredo Mendez, a cleaner working for HCA subcontractor Compass, told Freedom News in February 2022:

“We risk our lives working here. The managers have sent us to clean areas full of infected people without PPE. When I caught covid at work, I was forced to isolate for two weeks without the sick pay that directly-employed workers get. The pay is already so low, I can’t afford to take two weeks off on £96.35 a week. When I asked Compass for support in accessing the statutory sick pay, they did nothing so I ended up at home for two weeks with no money.”

A glance at LBH’s reviews on the Indeed ratings site shows that these concerns are widespread. Reviewers mentioned difficulties in taking annual leave, long working hours, difficulties with “dealing with the supervisors”, bad management, rubbish pay, lack of progression, “class culture”, bullying and low pay. Workers used the reviewing platform branded hospital management “terrible” and “despicable”.

The story is similar in the US, where nurses and other workers spoke out about the lack of PPE in several HCA hospitals during the pandemic. Outcry over worker safety in HCA hospitals there increased in 2020 following the deaths of nurses Celia Yap-Banago and Rosa Luna, who worked at HCA hospitals in Kansas City and California, respectively. Both had contracted coronavirus, despite the alarm having been raised about the lack of PPE at work.

But HCA executives’ attention was not on Celia and Rosa, it was on crushing workers’ organising. Instead of responding to the wave of criticism and discontent by taking proper steps to ensure worker safety, HCA hired professional union busters—reportedly costing $400 an hour—to break proposed union actions by nurses in North Carolina. This followed “widespread complaints over cuts in staff, poor communication, and lack of access to basic supplies and PPE”.

HCA received billions in Coronavirus Aid, Relief, and Economic Security Act (CARES Act) payments as a result of the pandemic. As profits grew, it was then able to return $6 billion of this in a stunning PR stunt, while it cut costs in areas directly affecting workers.

LBH cleaners protesting at HCA’s offices. Image: IWGB

HCA and backdoor NHS privatisation

The pandemic, and the toll it has taken on the NHS, has created a perfect storm for the Tory party to extend healthcare privatisation through the back door, creating even greater profits for private healthcare giants. Not only had HCA already earned billions in revenue, it was perfectly poised to step in and profit further from a decimated NHS, exhausted staff and rising waiting lists for vital treatment.

Before the pandemic, HCA reportedly carried out “virtually no work” for the NHS. But it’s used the pandemic to increase all NHS activity, especially in London where it runs six private hospitals and a large portfolio of private healthcare partnerships and clinics. London NHS hospitals’ increased reliance on private healthcare providers such as HCA has raised alarms about “backdoor privatisation” of the NHS. Allyson Pollock, a clinical professor of public health at Newcastle University said:

“Covid has been very much used as a cover for shrinking NHS care and expanding private healthcare provision.”

After the NHS ended its emergency contract with several private healthcare firms in 2020, including HCA, struggling NHS hospitals in London were forced to buy “£36m of cancer care, cardiology and other services directly” from HCA. This spending was in addition to HCA’s chunk of the £2 billion that was initially paid by NHS trusts to private hospitals in 2020. It was also the first time the NHS paid large sums to outsource complex treatments rather than more routine operations.

With waiting lists at breaking point, this is an issue that’s growing. A 2021 survey by openDemocracy revealed that doctors and NHS staff have already advised “one in five” patients to go private to get the treatment they need. And HCA is set up to step in.

The pandemic created a perfect window for HCA which had been moving in on lucrative cancer treatments for a long time. Former HCA special advisor Karol Sikora helped set up London Cancer Group, described as “the largest UK cancer network outside the NHS”, in HCA’s London hospitals. A high profile anti-lockdown campaigner, Sikora also has a long history of pro-privatisation, anti-NHS campaigns. In 2017, Sikora called the NHS “the last bastion of communism” on Newsnight. He’s also linked to Reform, a think-tank funded “by leading outsourcing corporations”. Now director of Rutherford Health, Sikora recently proposed “the biggest public-private partnership in NHS history”and is advising Reform about ‘What’s Next for the NHS’.

A 2021 CHPI report called ‘For Whose Benefit’ analyses the government’s growing use of private hospitals in 2020, which it tried to pass off “as a strategy for alleviating the burden on the NHS”. It found that:

• Government funding guaranteed private hospitals an income which buffered them from financial losses during the pandemic.
• Although private hospitals were initially paid to take the strain off NHS hospitals, very few beds were used and government figures over the exact costs remain hidden.
• So-called elective surgery is non-urgent surgery. It’s here that NHS waiting lists are soaring. Yet, during the pandemic, private hospitals carried out 45% less NHS-funded elective care than in the previous year—the very thing they were supposedly paid to do.
• The deal ultimately benefited private hospitals more than the (already) broken NHS and paved the way for them to increase profits further.
• When the NHS ended its contract with HCA, this benefited the private hospital sector further. It was able to step straight in to perform planned surgeries for additional money—as more people paid for private treatment—because of the huge backlog of patients needing treatment during the pandemic.
• By January 2021, HCA “was performing twice as many self-pay hip surgeries, cataracts and abdominal operations as it had carried out in the previous year”. Only now, these are funded by patients who could afford to pay, leaving those who can’t on ever-rising waiting lists.

HCA has fingers in other profit pies in the UK, too, because it also owns HealthTrust Europe. Listed as an NHS partner, it has £1 billion in purchasing power to provide “procurement and related services”.

All this comes as the Conservative Party is pushing a new Health and Care Bill through the final stages of parliament. Critics say that the Bill is set to continue “the dismantling of the NHS… by adopting more features from the US health system”. HCA—and other US-owned healthcare giants—will profit even more from a struggling NHS. Although MPs and the government insist the bill isn’t about privatisation, the British Medical Association said it would likely “do more harm than good” and make “it easier for private companies to win NHS contracts without proper scrutiny”. The bill contains a sweeping array of amendments designed to benefit private healthcare providers and insurers.

openDemocracy explains that the Bill will also push more people toward private healthcare, while those who can’t afford it are left dealing with a broken NHS and spiralling waiting times.

One key part of the new legislation is to extend Integrated Care Systems (ICS). In theory, these give patients easier access to a range of services in their community: merging health, mental health, social care etc. Extending ICS regions across the UK sets up a system to pay per head providing healthcare from a set pot of funds. But this actually means the less they provide, the more surplus or profit they make. And as NHS for Sale notes, there’s no legislation to prevent private companies running, or bidding for, large chunks of ICS. Critics have warned that the true remit of ICS is to embed “private companies in running the NHS together with digital and data systems imported from the US healthcare market and insurance firms”. Over 200 companies are now accredited with NHS England to support ICS dealing with data and digital systems, many of which are US-owned giants.

Privacy concerns have been raised in the US after HCA signed a deal with Google to develop “healthcare algorithms” by selling access to patients’ medical records.

This all comes amid growing concerns over ways the government used Covid to increase digital surveillance. A 2021 report on surveillance in the UK explains that not only did the government share NHS Test and Trace App (downloaded by over 20 million people) data with police, it also “made deals with private companies” so they had access to it.

Although there’s no mention of HCA (yet), the accredited list includes companies linked to its shareholders and IT is clearly a growth industry for HCA. Given the healthcare giant’s UK dominance and recent deal with Google, it’s not a stretch to assume that it may soon line up to grab more profits.

With a current Tory majority of over 80, the Bill will almost certainly pass. There’s not much hope that the House of Lords will make meaningful amendments either as a significant number of peers (from all parties) have private healthcare interests and business links to private companies. As noted above, HCA shareholder Lord Hollick has already donated significant amounts to Starmer. There’s little chance that the Labour Party will offer serious opposition, as it’s not only backtracked on pledges to end NHS outsourcing to private companies, but Starmer has also defended employing a private healthcare lobbyist. Meanwhile, the UK’s largest union Unite has cut funding to Starmer’s Labour in disgust over lack of support for workers.

For a detailed timeline about the history of NHS privatisation, read this article from Your NHS Needs You.

Photo by Ehimetalor Akhere Unuabona on Unsplash

New allegations of fraud

There’s another big reason to worry about HCA’s intrusion into our tax-funded NHS. Despite settling the huge Medicare fraud case in 2000, an SEIU investigation analysing Medicare data and lawsuits involving HCA has revealed its booming profits and huge investor payouts may yet again “originate, in part, from apparent fraud” by “routinely” admitting patients for spells in hospital “regardless of medical need”.

Alongside this, the pattern of HCA’s callous quest for profit echoes the same complaints of IWGB workers at London Bridge Hospital. The investigation found that HCA’s hospital markups are at least twice the cost of actual care yet, at the same time, it:

“pays tens of thousands of its employees poverty wages, and staffing levels in its hospitals lag the national average by about 30%, despite the fact that higher staffing levels are associated with better patient care. Given this unbridled pursuit of profit over all else, it should be no surprise that HCA’s profits are astonishingly strong…”

The LBH worker’s challenge to HCA abuses is hugely important. If not stopped, the healthcare giant looks set not only to treat more employees badly, but potentially to siphon off more of the NHS’s limited funds wherever it can.

Lobbyists and lurkers

Private healthcare companies in both the UK and US are notorious for lobbying activity.

HCA was part of the Private Hospitals Alliance (formerly known as H5). This UK-based lobby group launched in 2010 at the same time as the government’s NHS White Paper, Equity and Excellence: Liberating the NHS. This time-frame also coincides with HCA International donating £17,000 to the Conservative Party.

As we have seen above, HCA shareholder Lord Hollick was busy bankrolling right-wing Labour figures prior to the last UK general election. Since then he has made a sizeable donation to Labour leader Starmer.

From 2015 to 2016, HCA used consultant lobbyists Burson Cohn & Wolfe. The company has a long history of working with repressive regimes, major polluters and pretty much every dodgy company going.

HCA’s public relations are currently handled by the PHA Group. The largest shareholder of PHA group is Monaco-based, multi-millionaire Simon Dolan who also owns Jota Aviation—involved in delivering PPE. Dolan is also behind anti-lockdown group Keep Britain Free, which took the government to court over lockdown measures.

In the US, there has been a huge increase in the amount HCA has spent on political lobbying in recent years, in particular since 2019. In 2021, unionised workers in the US called for HCA to suspend political donations after evidence emerged that HCA had donated to many of the Republican politicians implicated in the Capitol siege.

HCA in court

There have been a large number of UK employment tribunal hearings against the company, including cases for disability discrimination, sex discrimination, unfair dismissal and breach of contract.

In the US, HCA has a long track record of being embroiled in fraud cases. These include:

• 2000: HCA pled guilty in the Medicare/Medicaid fraud case, and eventually paid $2 billion in fines in 2002.
• 2005: Accusations of insider trading and fraud led to a large court case and a $20 million payout by HCA to shareholders.
• 2012: A scandal erupted concerning unnecessary cardiac procedures being carried out on patients at HCA hospitals. This is one of the many scandals which have been brought to light by whistleblowers. Whistleblower Justice Network wrote at the time: “with the ever-growing healthcare fraud crisis that seems to plague the nation, HCA and its subsidiaries commonly find themselves in hot water”.

The NHS For Sale? campaign also makes the point that these US fraud cases show that HCA isn’t fit to run hospitals in the UK. It writes:

“The major concerns with HCA International revolve around the behaviour of its parent company in the USA, which has been found guilty of large-scale fraud over the years, and has been the subject of an extensive investigation by the US Department of Justice into the company’s practices.”

The company consequently paid the US government over $2 billion in fines for defrauding its healthcare programmes.

Conclusion

From corporate fraud to worker exploitation, HCA is a capitalist giant with a shocking track record. Now, it’s hovering like a vulture to pick the flesh of our broken NHS and boost its profits further. And it’s been enabled every step of the way by successive governments that are hell-bent on privatisation.

The pandemic created a perfect storm for politicians to sell the lie that private healthcare companies—like HCA—are helping to relieve pressure on the NHS with empty promises that it will always be ‘free at the point of use’. The terrifying truth is, that in post-lockdown UK we’ve now got a two-tier health system. Those who can afford private insurance and treatments are the only people who can pay their way out of impossible waiting times. Meanwhile with limited funds, NHS professionals are forced to pay the likes of HCA to save critically ill patients. This adds more to HCA’s billions; a company most people may not have yet heard of. Solidarity with IWGB workers and their campaign is vital because it shines light on what increased healthcare privatisation actually looks like. That picture is shocking. We need to fight to change it.

For more information on the ongoing London Bridge Hospital cleaners’ campaign, see the IWGB.

The post HCA: Promoting US style for-profit healthcare in the UK appeared first on Corporate Watch.

In late March 2020, Dignity Plc were on the wrong end of a string of angry messages from members of the public who had received advertising leaflets through their letterboxes. The leaflets read “Save money and protect your loved ones with a Dignity Funeral Plan”. At the very top of the page a brightly coloured offer boasted a “£100 off Discount ends 30 April”.

As the UK headed into coronavirus lockdown, the timing could not have been worse. One user commented: “@Dignity_UK you despicable beasts. Mass posting flyers through doors on the first day of lockdown is abhorrent and you should be ashamed!!!!” Another highlighted the emotional impact on local residents: “#badmarketing you couldn’t make it up […] It’s really upset some elderly residents”. Several people bemoaned ‘profiteering from misery’, accusing Dignity of “callous commercialism” and stating: “Absolutely disgusted […]. We are in lockdown and this is posted to our house and to pensioners’ bungalows! Putting people’s lives at risk for profiteering! Sickening practices.”

Dignity was put on the back foot immediately, issuing repeat apologies and promising to stop all marketing activity, as citizens from far and wide lambasted their advertising strategy. One user contributed their photograph of the funeral leaflet to a separate thread – “compiling a list of people to avoid after we return to normal. The c**ts list!” – a thread kicked off with Virgin tycoon Richard Branson, Mike Ashley of Sports Direct, Wetherspoons owner Tim Martin and celebrity chef Rick Stein, each included for their appalling treatment of staff during the economic downturn.

Who are Dignity Plc?

Let’s roll back 12 months. Following a mild winter, in May 2019 Dignity expressed concerns that a shortfall in projected death rates in the first quarter of 2019 was hurting their underlying profits by nearly £7m. Deaths were down 12% for the period, leaving the firm hoping things would “improve” in the second half of the year. Using language many people might not readily or comfortably associate with death and dying, they accepted:

“Operating performance in the first quarter was below the board’s expectations as a result of the significantly lower than expected number of deaths. Funeral market share and average income were in line with the board’s expectations.”

As the world continues to make sense of the Covid-19 crisis, it has brought attention to a whole range of commodity networks, supply chains, and labour processes that usually go unseen or are taken-for-granted. We are often better able to see how things work when they stop working. Or, in the case of Dignity’s mistimed marketing, when business as usual is out of tune with the mood music of the day.

So, what, or who, is Dignity? Dignity Plc, to be more precise, is the UK’s largest “single” funeral provider. It is currently the only publicly listed UK funeral provider on the stock market, with reported annual turnovers of £324m and £316m in 2017 and 2018 respectively.

Dignity has over 350 subsidiary companies within its somewhat dizzying corporate structure. Many have names such as ‘Dignity Services’, ‘Dignity Limited’, ‘Dignity Finance Holdings Limited’, ‘Dignity Finance plc’, ‘Dignity Holdings No.2 Limited’, ‘Dignity Holdings No.3 Limited’, etc., but most are funeral directors that Dignity has bought out, retaining their original trading names such as ‘G.M. Charlesworth & Son Limited’ or ‘F.E.J. Green & Sons Limited’, in a bid to keep the family-run traditional high street feel. Many such funeral directors have premises in several locations, meaning Dignity control over 700 individual funeral branches – with plans for further expansion.

Crematoria ownership represents significant capital accumulation for the corporate group too. By June 2018, there were 293 crematoria in the UK — 183 operated by local State authorities and 110 by private companies. Of these private companies, Dignity is again the largest operator with 46 crematoria. And these expanding operations mean Dignity has been building up a considerable real estate portfolio, ‘driven by the need to meet shareholder and investor expectations in terms of profit and growth’.

As with many other publicly listed companies, Dignity’s listed shareholders include many of the big investment funds that own most of the world’s capital – the likes of Standard Life, Aviva, Barclays and Blackrock.

But Dignity plc’s largest current shareholder, with 26% ownership, is a smaller specialist UK investment manager called Phoenix Asset Partners. Based in Barnes, West London, Phoenix is headed by founding partner Gary Channon, who had his “investing epiphany” after reading US billionaire investment guru Warren Buffet.

Channon’s claim to be the Warren Buffet of Barnes is boosted in a glowing recommendation from the Financial Times’ Investors Chronicle magazine, which says Phoenix’s UK investment fund has “smashed the total return of the FTSE All-Share since its launch in May 1998.” Channon’s strategy is to buy chunks of a small number of UK listed companies he believes are going cheap – “good companies that can be bought for less than half their so-called ‘intrinsic value’ due to short-term problems.”

Gary Channon, the Warren Buffet of Barnes

Dignity’s troubles

Unfortunately for Phoenix, Dignity hasn’t yet made the expected turnaround – according to Investors Chronicle, the company has been a “major drag” on Phoenix’s overall performance. With many other shareholders pulling out, the market value of the company has collapsed – Dignity’s share price had fallen to a quarter of its peak 2016 level by 2019.

Again, one of the main reasons Dignity had given for its declining profits before the pandemic was a falling death rate. On top of that, the company has faced increasing competition, including what the Evening Standard described as a “price war” with its main rival, Cooperative Funerals. This has pushed the company to start cutting prices on its cheaper funeral products.

Then there is the fact that Dignity is saddled with heavy debts. At the end of 2019, the company owed £542 million to the bond market. This, plus its other liabilities, were actually worth more than its assets, which is never a sign of financial health. Dignity borrowed heavily to fund its buyouts of local funeral directors and crematoria, and to climb to the top of the industry. This strategy worked out so long as prices and profits kept rising – but makes the company vulnerable if the market turns.

Finally, there is a big unknown that may have spooked investors: two ongoing regulatory investigations into the funeral industry.

In March 2019, off the back of a preliminary consultation in November 2018, the Competition and Markets Authority (CMA) announced it would be launching ‘an in-depth market investigation into the funerals sector’. This will investigate the soaring cost of funerals over more than a decade, and current ways of operating by business providers of these services. Then in June 2019, in light of accusations of ‘high pressure’ and ‘bullying tactics’, the UK Treasury announced plans to seek to regulate funeral service providers through the Financial Conduct Authority (FCA).

The results of both investigations were due for completion and release in late 2020, but have been delayed for the time being due to the Covid19 pandemic.

Clive Wiley, chairman of the board

The high cost of dying

As Dignity and its shareholders complain about price cuts and dropping profits, we need to put those complaints against a longer-term backdrop. Prices and profits in the funeral trade soared for more a decade from the early 2000s until the late 2010s. The average cost of a funeral is now many times higher than it was 20 years ago, and this cost has largely been driven, and pocketed by, funeral companies.

In March 2019, the CMA published a detailed “Funerals Market Study” as part of “phase one” of its investigation. This set out some key points, including that:

“Over the past 14 years, the price of the essential elements of a funeral is estimated to have grown by 6% annually, twice the inflation rate over this period.” (p.6)

The study further concluded that:

“for a considerable number of years the largest firms of funeral directors have implemented consistently large annual price increases, without reference to underlying operating cost pressures.” (p.6)

Since 2002, Dignity maintained a company policy of increasing their prices by 7% annually (p.99-100). One reason the companies have been able to get away with this relates to the nature of their product. According to the CMA study (p.100), only 8% of bereaved families “shop around” for alternatives.

For the companies, this long boom of rising prices has meant extremely high profit margins. The CMA study compared the profits of Dignity and other big UK operators with equivalent companies in Europe, the US, Canada and Australia, for the four years between 2014 and 2017. It found that profit margins (before deductions) in these regions were between 19-26% on average. Some were much lower. For example, Ahorn AG in Germany and the Park Lawn Corporation in Canada were 6-13%. In contrast:

“Dignity’s profit margins have been 36-38% in all years, so more than 10% higher than international benchmarks. [..] Dignity’s margin appears to have been significantly higher than both international benchmarks and larger UK companies in the funerals sector.” (p.123)

But while funeral profits were being driven up to finance the asset growth and accumulating debts described above, many of the households paying for them were facing the violent impacts of austerity. Basic average funeral costs are now over £4,000, or more than £9,000 when professional fees and discretionary extras such as memorials, flowers, and catering costs are considered – compared to around £1,900 in the early 2000s. For many, the inability to pay these rising costs means the growth of personal debt and funeral poverty. This trend is one example of a much broader serious problem in society today – the transference of corporate debts into personal bank accounts.

As the CMA study notes (pages 20-21), total funeral expenditure varies very little by average household income: households earning over £100,000 per year do not pay 10 times more than households on less than £10,000. In 2017, the total expenditure of a family in the lowest 10% of the population by income was £11,050. This means that a “basic” funeral could cost nearly 40% of the total year’s budget – higher than total spends for food, energy and clothing combined (at 26%).

In short, this morphing of the market hits working-class families, exacerbating income inequality and compounding existing poverty in the UK.

Dignity have responded to this problem, in their own way, by promoting a range of budget alternatives through their sister brand Simplicity Cremations – again, readers may have noticed their avid marketing campaigns. Simplicity provides direct cremations without the added extras associated with an expensive “send off”. Like other Dignity products, they also offer pre-need payment plans – a major point for regulatory scrutiny at the heart of recent investigations.

Despite these efforts, and being able to stake their claim as the largest provider, Dignity are lurching from one crisis to another. Their CEO Mike McCollum recently left the company with immediate effect and their profits have actually fallen during the pandemic as they are unable to sell the full range of service extras that some of these profits rely on. After almost two decades of extortionate price increasing – “a core part of Dignity’s strategy for a considerable period of time” (CMA study cited above, p.99) – the inherent contradictions of exponential growth and driving capital accumulation alongside debt accumulation look like they are finally taking their toll. This period has also served as a painful reminder to so many mourners that what they miss most at the funerals of their loved ones is not the expensive funeral service add-ons, but their family and friends.

Need for systemic change

Soon after Dignity received the above barrage of criticism we outlined at the start of this article, the UK government introduced the Coronavirus Act 2020. Nestled among a raft of emergency changes to existing legislation are a series of “temporary” changes to the funeral industry, which will continue to “have a significant impact on what happens to the dead and how funerals are conducted in the coming weeks and months”.

As well as family-only funerals with limited attendance, this includes a more flexible approach to registering deaths, scrapping inquests for suspected Covid-19 deaths, and multi-organisation provision for transporting and storing growing numbers of bodies which would otherwise overwhelm existing mortuaries. While these are emergency measures, which must subject to ongoing scrutiny, they do nothing to address long-standing issues within the industry including poor working conditions and inadequate protection for workers.

Similarly, we can ask whether the CMA and FCA investigations will even begin to satisfactorily address all the issues of cost, profit, competition and exploitation that shape the industry. At best, these investigations aim to ensure the industry is ‘fair’ under the rules of the market itself – there is no hint of any significant or radical challenge to the way funerals are marketised, financialised and provided.

The funeral industry is a peculiar space that provides a vital frontline service every single day. Without serious systemic change, there will be no end to the vulgarity in profiting from death that people now recognise more acutely. While not at all downplaying the seriousness of the Covid-19 crisis, we want to raise broader questions about unfettered corporate freedoms to profit from … well, strictly anything, including death, at all times, both in the midst of a global pandemic and beyond.

The post “You despicable beasts”: Dignity Funerals and commodified death in the spotlight appeared first on Corporate Watch.

The latest accounts of England’s nine water and sewerage companies show their highest paid directors shared £11 million between them last year.

Our research, commissioned by the GMB union and released by them earlier this week, shows water companies have paid their bosses £70 million in the last six years.

Click here to read our analysis of bosses’ pay after a similar exercise last year.

The post Water bosses’ pay 2018 appeared first on Corporate Watch.

Priory Healthcare is part of the Priory Group, one of the UK’s biggest mental healthcare providers. An investigation by Corporate Watch into the Priory Group’s finances over the last ten years, suggests the fine will hardly make a dent in the huge profits and payouts its owners and bosses enjoy:

• The fine represents less than two days profit for the Priory group, which made an operating profit of £62 million in 2017, the last year for which results are available. The vast majority of this came from the NHS and Social Services.

• The Priory group gave its boss at the time of Amy El-Keria’s death a £458,000 ‘golden goodbye’ when he left that year – more than half again what the company was fined.

• Priory has paid out £171 million in interest to its owners Acadia Healthcare in the two years since the US company bought it.

• Advent International, the US investment firm that previously owned Priory at the time of Amy’s death, made a £375 million profit when it sold the company in 2016.

• In the year Amy El-Keria died, Priory received a £1 million tax rebate back from the government, thanks in part to a Channel Islands tax avoidance scheme set up by Advent.

We put all these points to Priory. They did not dispute the figures but made a series of points, summarised below.

Priory Hospital Ticehurst House, priorygroup.com

‘I will not stop fighting until this stops’

Amy El-Keria was found hanged in her room at the Priory’s Ticehurst hospital in East Sussex in November 2012.

Last month, the company was fined £300,000 after pleading guilty to a criminal charge brought by the Heath and Safety Executive for breaching the Health and Safety Act.

After the sentence was passed, Amy’s mother Tania El-Keria said:

“This was Amy’s first ever hospital admission. She was alone, far from her home and her family. By day two she had been restrained by staff. She went on to be restrained many more times including on the day before her death, with forced sedative injections applied against her will.

“The night Amy was found staff didn’t have a key to open her locked door. A healthcare assistant entered but didn’t have a radio and ran out leaving her hanging. Staff were not trained in basic life support and for 10 minutes she was left lying on the floor until the duty doctor arrived and started CPR.

“My 14 year old Amy was put alone, unconscious in an ambulance. No-one went with her to hospital and no-one bothered to tell her family what was going on until many hours later. This is not what care looks like.”

An inquest jury in 2016 had previously found neglect and failing by Priory contributed to Amy’s death. These included inadequate levels of staffing and training.

The charity INQUEST says it knows of at least six other young people who have died while receiving Priory mental health care. In an ITV documentary released after the sentence, an undercover reporter revealed “serious failures of care” in Ticehurst, including a teenager spending weeks wearing just a blanket.

Tania El-Keria called Priory “morally bankrupt” and said:

“They continue to take large sums of public money, allowing our children to suffer by placing profit over safety. This cannot be allowed to continue, and I will not stop fighting until this stops.”

Understanding the Priory group

The Priory prosecution was the achievement of six and a half years of hard work by Amy’s family and INQUEST. As is typical with prosecutions of companies, no individuals were charged, with the company itself being held accountable.

The fine decided on by the judge to punish the company, taking into account Priory’s guilty plea and steps made to improve the service, was £300,000.

Priory Group logo, priorygroup.com

What effect will this have on the company and the people who ultimately control it? First off, let’s be clear what we mean when we say the Priory group.

The company prosecuted was called Priory Healthcare Ltd. This company runs Ticehurst hospital, where Amy died, as well as another 11 hospitals facilities registered with the Care Quality Commission, plus six “wellbeing centres”.

However, the Priory group is a much bigger organisation. It runs a variety of services in addition to hospitals like Ticehurst, including residential schooling for children with autism, and nursing or residential care homes (through the Partnerships in Care brand). It cares for more than 30,000 people each year across 450 sites.

Ultimately, it’s the overall profitability of the group as a whole that Priory bosses and owner are most bothered about. And the £300,000 fine imposed by the judge, following appropriate law and regulation, hardly makes a dent in those overall profit figures.

Record fine, bumper profits

The fine was based on Priory Healthcare Ltd’s turnover of £133 million in 2017 (the latest year for which results are available).ⁱ

The overall accounts of the Priory group show its total revenue was almost six times higher: £797 million in the same year. The vast majority of this was from the public purse: £418m from the NHS and £302 million from Social Services.

After the costs of running its services were taken off, Priory was left with an operating profit of £62 million. That works out at around £170,000 a day.

The fine for Amy’s death therefore represents less than two days of profits.

The previous year was even more lucrative for Priory: revenues of £824 million and profits of £84 million.

Those at the top of the company have been made rich. Company accounts show the – unnamed – highest paid director was paid £502,000 in 2017 and £1.6 million the year before.

But the biggest beneficiary has been US company Acadia Healthcare, which bought Priory in early 2016. In just those two years, Acadia has received £171 million from Priory.

To see how that’s happened, we need to delve into another complicated financial web.

Enter Acadia

Acadia paid £1.5 billion to buy Priory from another US firm – Advent International (more on them below) – at the beginning of 2016.

Acadia logo, acadiahealthcare.com

Acadia put £500 million of its money into shares in Priory and lent the company the remaining £1 billion – at an interest rate of 7.4%, paid annually. As a result, Priory’s accounts show it has already paid out £171 million in interest to Acadia in the two years since the acquisition.ⁱⁱ

Not all of this is profit as Acadia is using some of this to pay interest to its own lenders. Acadia borrowed around two thirds of the money it needed to buy Priory in 2016 from banks and other lenders. The final third was raised by issuing new shares that it then sold to investors, in return for stakes in the company (and thus a share of future profits).

Reeve B Waud, waudcapital.com

Acadia’s annual financial reports show the company is paying much lower rates of interest to its own lenders. Corporate Watch calculations – summarised belowⁱⁱⁱ – estimate Acadia pays out around £40 million a year on the money it borrowed to buy Priory.

In 2017, that may have left Acadia with around £45 million from its investment. That’s 150 times more than Priory was fined for the part it played in Amy El-Keria’s death – and money that could have been invested in the care its patients depend on.

Acadia runs over 200 addiction and mental healthcare facilities in the US and Puerto Rico. It was set up in 2005 by Waud Capital Partners, the investment firm of tycoon Reeve Waud, proud owner of a multimillion dollar mansion in estate in the state of Maine). The company is now owned by huge investment firms such as T. Rowe Price and Blackrock.

Advent’s bonanza

As described, Acadia bought Priory from Advent International, a US investment firm. Advent is a “private equity” firm that buys up businesses with the intention of running them for a few years then selling them for a profit. It has investments around the world, with Poundland and sofa retailer DFS two of the UK companies it has owned.

Advent owned Priory at the time of Amy’s death in 2012. It had bought the company in early 2011 for £925 million from the state-owned Royal Bank of Scotland and other investors including major Tory donor Lord Ashcroft.

As previously exposed by Corporate Watch, after buying Priory, Advent set up a tax avoidance scheme that saved Priory millions in UK corporation tax.

Advent is based in the US, but it owned Priory through different entities based in Jersey and Luxembourg, both of which have very low tax rates. When it acquired Priory, Advent lent its new purchase £130 million through the Channel Islands stock exchange, at a whopping 12% interest rate.

Advent logo, adventinternational.com

This interest was taken off Priory’s taxable profits each year, saving it millions in UK corporation tax. Thanks to a regulatory loophole called the Quoted Eurobond Exemption, the interest payments could be sent to the Advent companies that held the loan notes tax free.

Accounts filed at Companies House for 2012 show Priory racked up £24 million in interest to Advent in the year Amy El-Keria died. As that was taken off the company’s taxable profits, corporation tax of £6 million may have been avoided thanks to this scheme.

Priory’s tax bill was further cut under Advent by interest it had to pay on the almost £1 billion it had borrowed from banks and other lenders. This interest cost Priory £62 million in 2012.

Peter Brooke, Advent founder and chairman, adventinternational.com

The accounts for that year show it made an operating profit of £77 million. Yet once all of the interest to the lenders and Advent was taken off, Priory was able to declare a loss before tax of £11 million.

Instead of paying corporation tax that year, it actually received £1 million in tax back from the government. That same year Priory had received £395 million in public funding.

Company accounts for the five years from 2011 to the end of 2015 show Priory paid just £1.3 million in corporation tax during this period, after total operating profits of £245 million.^iv

Advent bought Priory for £925 million and sold it in February 2016 for £1.5 billion. At the time, the Financial Times estimated Advent’s profits from the sale at over £500 million. However, Priory accounts show it took on an extra £200 million in third party debt during Advent’s time, which would have had to be paid back at sale. As a result, Advent appears to have made a – still very substantial – profit of around £375 million from its ownership of Priory.

Costly compensation

The accounts show in 2012, the year of Amy El-Keria’s death, the highest paid director was paid £829,000. Of that, £458,000 is described as “compensation for loss of office”.

Although the accounts do not name him here, this must be CEO Phillip Scott as elsewhere they, plus other Companies House records, show he was the only director that left the group that year – on 28 November, sixteen days after Amy died. Scott had been in the news the year before as one of the private healthcare bosses who donated to David Cameron’s Conservative Party.

In response to this investigation, Deborah Coles, Director of INQUEST said:

“The marketisation of our mental health system enables companies to put profit over the safety of children in their care. The investigation by Corporate Watch raises serious questions about the Priory’s profits, a concerning level of which are gained from running NHS funded services.

“The lack of any independent system of investigation, allows the Priory to investigate their own actions. This meant it took six and a half years for their criminally unsafe practises to be exposed following Amy’s death. This dangerous and harmful situation continues to this day.

“We know there have been other child deaths involving the Priory. The damning evidence about systemic failings in care begs the question as to whether the Priory’s contract should be withdrawn and reinvested into specialist NHS services.”

Amy El-Keria, family photograph

Priory response

A Priory spokesperson told Corporate Watch it is usual business practice for parent companies to make loans to subsidiaries on which commercial rates of interest are charged. They said all significant tax matters have been fully disclosed and approved by HMRC regulations and practices and that HMRC have awarded Priory a “low risk” rating as a corporate taxpayer. They also said Priory services receive above-average ratings from the Care Quality Commission.

A Priory Group statement said:

“We remain absolutely focused on patient safety and will continue to work closely with commissioners and regulators to learn lessons from incidents and inspections quickly and ensure all concerns are addressed in a timely and robust way.”

Notes

The post The Priory Group: ‘morally bankrupt’ company makes millions for owners while young people die in its care appeared first on Corporate Watch.

So who are they? And how can they protect their position?

We’ve mapped out the ownership of both the nine regional companies and the overall national system, so you can find out which billionaire, bank, investment fund, foreign government or pension fund is cashing in each time you take a shower of drink a glass of water.

Click on the name of your water company to find out who it is owned by:

Anglian Water Northumbrian Water Severn Trent South West Water Southern Water Thames Water United Utilities Wessex Water Yorkshire Water

Many investors own stakes in more than one company. The table below brings those together and weights investors’ stakes by the value of the various water companies, which differ significantly in size. This shows the biggest water profiteers in the country as a whole and may be useful to people looking to link up local campaigns. Our research, conducted with the GMB union, has found that overall just 20 investors own almost two thirds of the supply.

Click here to jump straight to analysis below the table of who owns your water and how they may move against threats to their investments.

Top 20 water shareholders

Source: company accounts, annual reports, ownership documents and corporate databases

Click here to download a spreadsheet with the full figures and workings. Get in touch with any queries

Who are the shareholders and what power do they have?

First, we should note a couple of things we’re not doing here:

We’re not looking at tools or strategies available to people looking to end privatisation. Click here for an overview of the many, many areas that have sent companies packing in the last fifteen years.

And we’re not looking here at how the water supply should be organised – we’re just focusing on the players involved in the current, privatised system. Options range from ‘big state’ nationalisation to more local, less state-centred, supplies run by the people who use them. Click here for examples from around the world of supplies run with varying degrees of popular participation and the challenges involved.

The system Thatcher and Blair built

When we ask ‘who owns your water’, we’re really asking who owns the shares in the nine companies that provide water and sewerage throughout England (Scotland and Northern Ireland’s water supplies are publicly-run, Wales is not-for-profit – none have shareholders). This gives them control over the direction of those companies, and a right to receive cash returns from profits made (and how: £6.5 billion in dividends paid out between 2013 and 2017).

Thanks to the seriously radical way England’s water was privatised, the companies themselves own all the pipes, reservoirs, treatment plants and so on that together make up the water and sewerage system. Many other places just contracted out management of the system but this would have been far too half-hearted for the Thatcher government that pushed through privatisation in 1989.

To make the water companies even more attractive to global capital, the New Labour government decided in 2002 to amend the licences under which they ran the supply. As a result, the companies cannot lose those licences to a rival unless the government has given them “at least 25 years’ notice”. In the words of a paper from the University of Greenwich: “there is thus no prospect of any competition in the foreseeable future unless the laws are changed”.

This means anti-privatisation campaigns cannot just wait for the companies’ licences to end to replace them, as has happened elsewhere in the world. The current contracts have to be broken.

Added to this, the attitude of the regulator Ofwat hasn’t exactly been stringent. In the last thirty years, prices have been allowed to rise 40% above inflation.

So these companies have been extremely attractive to people looking for good investments for their cash. The big ones sit in the FTSE 100 list of biggest UK companies, valued higher than Marks & Spencer and other household names. Selling a product that everyone needs without facing any competition turns out to be a pretty good business model.

As with other privatisations, water was sold off with the spin that we could all own shares in the new companies. The ensuing ‘shareholder democracy’ would give us far more power to hold the companies accountable.

Thirty years on, almost two thirds (63%) of the overall supply is owned by just 20 organisations, each managing billions of pounds of investments across the world. In total, at least 85% is owned by so-called ‘institutional investors’. It’s not even possible for members of the public to buy shares in six of the companies as they have been bought out and taken off the stock market. Only Severn Trent, United Utilities and South West Water remain on the stock exchange (the latter through it’s owner the Pennon Group).

Let’s look at this bevy of investors in a bit more detail.

Super-rich dynasties

Northumbrian Water and Southern Water ‘customers’ will be glad to know they’ve been helping one of the richest families in the world get even richer. Sitting atop the overall list of water profiteers is CK Hutchinson group, the sprawling conglomerate run by the family of Li Ka Shing, at last count the 23rd richest person in the world. CK Hutchinson is run from Hong Kong but registered in the Cayman Islands, one of the many tax havens used by the group (click here for our investigation into their Northumbrian Water tax dodge).

Water isn’t the only UK business CK Hutchinson have cashed in on. As well as outright ownership of Northumbrian Water, plus a small stake in Southern Water, they have interests in energy (UK Power Networks, Northern Gas Networks, Wales and West Utilities), ports (Thamesport, Harwich International, Felixstowe), retail (Superdrug, The Perfume Shop, Savers) and the 3 mobile telephone network.

That gives them huge wealth but also provides a range of possible targets for campaigners looking to take back their water.

Meanwhile, anyone in Somerset or Dorset should get to know the Yeoh family. Their Malaysian-headquarted YTL corporation owns Wessex Water, among other investments in a vast investment portfolio (more details here).

The pillars of capitalism

All the investors we’re talking about here represent big capital of one sort or another. But some are really big. England’s water has attracted the biggest banks in the US (JP Morgan), Germany (Deutsche Bank), Australia (Commonwealth) and Switzerland (UBS), as well as some of the biggest money managers.

Blackrock is the world’s biggest investment fund, while Lazard, Hermes, Vanguard and the rest aren’t tiny (check the lists below to see which have stakes in your regional company). Blackrock manages assets worth around £5 trillion and has stakes in pretty much every big company and government you can think of, either through investment in company shares or corporate or government bonds (not to mention currency). Vanguard boasts around £4 trillion of wealth it manages, while Hermes’ and Lazard’s roughly £400 and £170 billion in assets aren’t too shabby.

For all their recent talk of ethical investment, they remain amoral institutions with one overriding priority: to maximise the returns to their investors. The bigger the returns, the bigger their cut. And they’re big: Blackrock’s CEO Larry Fink just joined the billionaire’s club.

Foreign governments and public pension funds

Hang on, a quarter of England’s water is publicly-owned! Well, sort of. A quarter is owned by public sector workers’ pension funds (mostly overseas), or foreign governments’ investment funds.

Pension funds managing the retirement savings of public sector workers have piled into most of England’s water companies. Most of these are from overseas, mainly Canada. The Ontario Municipal Employees Retirement System (OMERS), managing the pensions of public sector workers in the Canadian state, is the second biggest water shareholder, thanks to holding over a quarter of Thames Water, the biggest water company.

Whatever the ethics of their individual members, these are institutions that owe their financial success to sound capitalist principles. OMERS, for example, is a huge global investor that prioritises returns for its members. They also own ports across the UK, London’s City Airport, Scotland’s gas distribution and Camelot, the National Lottery operator. Each business is characterised by maximising profits and aggressive tax avoidance schemes that channel money offshore.

Public sector workers in the Canadian state of British Columbia also own a stake in Thames, while their counterparts in the Netherlands and the Australian state of New South Wales hold chunks of Thames, Severn Trent and Yorkshire Water.

Closer to home, local government pension funds in Greater Manchester, London, West Yorkshire, Merseyside and Lancashire together own 7.5% of Anglian Water (which provides to the East of England).

Taking their stakes without compensation would necessarily reduce the value of these pensions. Not necessarily a reason against doing that, but an issue to consider and prepare for.

Meanwhile, the UK state may not want much to do with England’s water, but others are only too keen to get in on the action. The Sovereign Wealth Funds of Singapore, China, Abu Dhabi and Kuwait all have stakes in companies, while the fourth biggest shareholder overall is the Canadian Plan Investment Board, the state-appointed social insurance programme.

Rounding out the list of the top 100 (detailed in the spreadsheet linked to above) are other, private, pension funds, plus the Universities Superannuation Scheme, which manages the retirement savings of UK university staff and which has a stake in Thames Water.

What’s the damage?

How valuable are the stakes this motley crew of investors hold? That depends on who you ask.

Estimates by the Social Market Foundation, in a report commissioned by four of the water companies, are predictably high – up to £44 billion across England. That’s based on what they would receive for them if they sold them willingly to other investors.

The We Own It campaign group, on the other hand, reckon they should be worth zilch, arguing that investors should receive no compensation, given the amount they have made over the years.

It’s a crucial question as paying shareholders the full whack they demand could damage the financial viability of the new service. We’re talking big money, especially when you start to combine investors’ stakes in different companies. At the top of the table, Li Ka Shing’s CK Hutchinson Holdings’ total holdings come to around £3 billion, taking into account stakes in both Northumbrian and Southern Water, for example.

To be clear: the figures below do not show the ‘real’ value of shareholders’ investments, simply what they feel their stakes are worth, and what they may demand if privatisation is ended (and of course, such demands can be resisted or negotiated).

Top twenty shareholders’ stakes in the overall, national supply, using valuation method favoured by water companies**

Tooling up

Shareholders are not likely to give up their water cash cow without significant compensation – or at least without a fight. So what do the shareholders have in their armoury? Let’s assume the usual tools that big corporations can call on for support in protecting their interests.

To start with, there are significant protections for shareholders in UK and EU law, and between them the companies and their owners must have some pretty slick corporate lawyers.

They’ll also have large political contact books ranging across the parties. Supportive think tanks and market analysts have already been trying to pick apart arguments made for ending privatisation.

And the regulator Ofwat is a product of privatisation. It was established in 1989 and is an integral part of the system. Whatever form a new service took, the role of Ofwat, if it still existed, would change significantly. As such we can assume it won’t be too keen on it ending, especially as it is currently chaired by Jonson Cox, the former boss of Anglian Water.

And if they face mass protests, as has happened elsewhere in the world. the companies and their owners will also be counting on support from the police and state security services .

And given some of the investors are themselves states, diplomatic trade-offs could also come into play.

More specific remedies that may be available:

Foreign treaties

Over three quarters of the shareholders of English water are based overseas. In many ways that’s by the by. What does it matter if the person ripping you off for your water is British or not?

But being based outside the UK can provide legal remedies unavailable domestically. So-called Bilateral Investment Treaties protect the rights of investors from one state investing in another. The UK has been a keen advocate of these (full list here) .

One notorious example of the consequences of these treaties was tobacco giant Philip Morris suing the government of Uruguay after it tried to restrict cigarette marketing, using a treaty signed between the US and Uruguay.

And they have been used to protect water profiteers too. Anglian Water was among a group of companies that used a Bilateral Investment Treaty to demand multimillion pound compensation after Argentina froze water rates following its 2001-2 financial crisis.

These treaties work both ways. Looking at the shareholders lists again, CK Hutchison Holdings Limited, YTL Corporation Berhad and the Sovereign Wealth Funds of Abu Dhabi and China may have access to such a treaty through the relevant country.

The newly-signed CETA deal between the EU and Canada also contains investor protection mechanisms, as, presumably, would any post-Brexit trade deals with the EU or the US. In such scenarios almost all of the major shareholders would have access to such mechanisms to delay things in courts for as long as possible.

Market power

As we’ve seen, English water is owned by a variety of big players in the global economy. How would they use their financial muscle? Many of the investment funds invest huge amounts in company and government bonds.

In the current economic context, a post-privatisation supply would likely look to fund itself by borrowing from the capital markets. But that would mean trying to raise capital from many of the same funds that are currently water company shareholders. Would Blackrock and the others play ball? Or would they refuse to lend, or demand higher interest rates – and tell colleagues in other funds to do the same? That would have knock on effects for the cost of the new supply.

Hands on the reins

A great strength of the companies’ position is they have control of the system. An obvious point, but it allows them to up their game whenever privatisation is questioned. Facing rising criticism, companies and the regulator have recently agreed to hold prices steady – or in some cases lower them – over the next five years. Shareholders of some of the companies, notably Thames Water, have even agreed to forgo dividends for the moment. How long this restraint lasts remains to be seen.

Who else is in the game?

Shareholders are just one of the groups that would lose out from an end to privatisation. Company management would fight hard to keep their social status and outsized pay packets (nine water CEOs made £58m in the five years between 2013 and 2017). So toowould the various analysts and trade bodies that have made their living from the water and sewerage ‘market’ over the last thirty years. Suppliers to the industry too.

England’s water supply is infamously loaded with debt as companies have funded investment by borrowing more. Anti-privatisation campaigns also need to consider how the banks and investment funds that currently lend the companies money would react to moves to end privatisation. What compensation could they demand, and how willing would they be to lend to the new supply? Similar questions arise to those in the market power section above, especially as some of the lenders may be the same institutions that own shares in the companies.

Individual company ownership tables

Anglian Water

Click here to go back to the top of the report

Northumbrian Water

Click here to go back to the top of the report

Severn Trent***

Click here to go back to the top of the report

South West Water***

Click here to go back to the top of the report

Southern Water

Click here to go back to the top of the report

Thames Water

Click here to go back to the top of the report

United Utilities***

Click here to go back to the top of the report

Wessex Water

Click here to go back to the top of the report

Yorkshire Water

Click here to go back to the top of the report

* As well as the nine companies detailed here there are six smaller companies that supply water (but not sewerage) to certain regions. Click on the links below to find out who they are owned by.

Affinity Water Bristol Water Portsmouth Water South East Water South Staffordshire Water Sutton and East Surrey Water

** Values listed here are how much the companies and shareholders may expect to receive, given historical sale prices, if they sold willingly in the market. They are calculated by adding a 30% premium to the current market value of the shares. Market values of the six companies’ shares that are not listed on a stock market have been estimated using the share prices of the three ‘publicly-listed’ companies, weighted by the regulator Ofwat’s estimation of the ‘Regulatory Capital Value’ of each company. See the spreadsheet for more details.

*** Severn Trent, South West Water and United Utilities list their shares on the London Stock Exchange. As such they each have thousands of shareholders. We have listed the top ten for each company here. See the spreadsheet, linked to at the top of the report, for the top 100.

Photo by pan xiaozhen on Unsplash

The post Who owns your water and how they’ll try to keep it appeared first on Corporate Watch.

According to an internal email sent to staff, Foster Care Associates’ founder Jim Cockburn is cashing out of the company, selling his stake to CapVest Partners LLP for an undisclosed sum.

Capvest currently holds a range of businesses from its exclusive Pall Mall address, including Rowse Honey, the Irish division of Jacob’s crackers, private hospitals, a Scandanavian rubbish collector and one of the leading meat processors in the UK – boasting “two abbatoirs slaughtering approximately 45,000 pigs a week”.

Exactly how this makes them suitable to organise foster care placements for vulnerable children remains to be seen.

A statement and Youtube video accompanying the email sent to staff explain CapVest is buying Cockburn’s majority stake in Core Assets Group Ltd, the parent company of Foster Care Associates. The current management team will stay in place and will keep the minority shareholdings they currently own in Core Assets Group.

Jim Cockburn founded the business with his wife Janet Rees (both pictured) in 1994. It has made them very rich. When we wrote our Foster Care Business report in 2015, Core Assets Group had paid out over £18 million in dividends in just the previous two years.

The man behind CapVest is Irish tycoon Seamus Fitzpatrick, reckoned to be worth €97 million. Other interests include Ireland’s only major gold mine.

Private equity firms buy out companies with the aim of building them up then selling them on for a healthy profit at a later date. In the past CapVest has built up then sold one of Europe’s biggest seafood suppliers and Punch Taverns, now the largest pub chain in the UK.

Expect Foster Care Associates to buy up smaller rivals over the next few years. They will have competition from other major foster care firms, the majority of which are also owned by private equity firms. More children are going into care and, even with austerity cuts, investors see foster care as a potentially lucrative ‘market’.

In response to the news, the Foster Care Workers’ Union, part of the IWGB, told Corporate Watch:

“Businesses like Foster Care Associates have made millions out of the cheap labour of foster care workers. Since the financial crash of 2008, the numbers of children going into care has drastically increased as families struggle to survive in poverty. Large investment companies such as CapVest are getting involved for the opportunity to make serious money from cheap labour. That’s money that could otherwise go into preventing children going into care and giving foster carers the respect and dignity that is well overdue.”

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