October 6, 2014 / 12:12 PM / in 3 years

Swedish government strikes deal with Left to limit welfare profits

STOCKHOLM (Reuters) - Sweden’s government will limit the profits of private companies providing social services, it said on Monday, after striking a deal with a left-wing party to secure support for its forthcoming budget.

The minority centre-left coalition of Social Democrats and Greens agreed to demands by the Left Party to restrict the profit private firms can make in welfare and education - a key condition to get the non-government party to support the budget bill, which it will present in the coming weeks.

Decades of deregulation have opened up Sweden’s healthcare, schools and nursing homes to for-profit private companies, some of them owned by private equity firms. Private industry, which accounts for around 15 percent of the sector, immediately criticised the profit cap plan, saying services would suffer.

Concerns over private involvement in traditionally public sector fields have increased in recent years. The bankruptcy of the largest chain of private schools, private equity-owned JB, led the Social Democrats to pledge to “do away with the gold rush”.

“We need to put our welfare sector in order and that is what we aim to make sure happens,” Social Democrat Prime Minister Stefan Lofven told a news conference.

Left Party economic spokeswoman Ulla Andersson said the new rules would mean most surpluses generated by private players in welfare would have to be reinvested in the business and profits from sales of such businesses would also be curtailed.

“Some private equity companies will probably get a hiccups today, and so they should. It will no longer be possible to enrich yourself on the Swedish welfare,” she said.

Investor AB, the investment arm of Sweden’s powerful Wallenberg family and owner of school firm Kunskapsskolan and care provider Aleris, defended the role of private players.

GREAT UNCERTAINTY

“The immediate impact of this is that hundreds of thousands of patients, students, parents, family members and employees now have to live in great uncertainty about what will happen to their school, health clinic or nursing home,” Investor CEO Borje Ekholm told Reuters.

“A better solution would be to put quality in focus. The private players often perform better in terms of quality than the alternatives.”

The new rules have yet to be defined and will not be in place until 2016 at the earliest, giving private firms more than a year’s grace period.

The details to be hammered out include how to ensure adequate staffing levels as well as possible suitability tests for private welfare players.

Of the roughly 600 billion crowns ($84 billion) Sweden spent in 2012 on welfare services, around 15 percent went to private sector providers, according to official figures.

Sweden’s Association of Private Care Providers said the decision on profit curbs was founded on “myths and anecdotes” and would have a direct impact on 10,000 small businesses.

“Private care givers will not dare develop their business, and employees with ideas about how to improve the operations will not dare to start their own business,” Hakan Tenelius, head of business policy at the association, said in a statement.

Once the proposal is finalised, the government will present a bill to parliament but it will require support from at least one of the centre-right opposition parties to pass, leaving its future far from assured.

Anna Kinberg Batra, economic spokesperson at the Moderate Party which has long championed private players in areas such as welfare, said Lofven’s bargain with the Left created “years of uncertainty” for private companies and people relying on them.

Additional reporting by Johannes Hellstrom and Rebecka Rooos; Editing by Alistair Scrutton and Robin Pomeroy

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