No bank-style bailout for Southern Cross

The announcement by Business Secretary Vince Cable came as First Minister Alex Salmond insisted that councils could step in to take control of the company's homes if it folded.

But Mr Cable warned that there would be no bank-style bail-out for the company, which runs 750 care homes for the elderly across the UK, including 98 in Scotland where it cares for 4,700 residents.

His comments came as SNP health secretary Nicola Sturgeon told MSPs that the Scottish Government could play no part in the finances of the company, although it and councils were ready to help if the company collapsed.

In the Commons yesterday Labour MP Nick Smith pressed for a UK government bail-out of the company.

He added that there was "public outrage at the quick-buck strategy at Southern Cross" after it emerged the private equity house Blackstone borrowed heavily to buy the company, before selling off its assets to landlords and then leasing the premises back.

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

But with the downturn came rising borrowing costs, reduced fees from local authorities amid public spending cuts and soaring rental bills, which have now forced the company to announce plans to shed thousands of jobs.

Mr Cable told the Commons he would not be bailing the company out, claiming it "had a failed long-standing business model". Mr Cable said: "There is no way we can bail out the company. But what I am doing is that I have asked my officials to look carefully at the business models of companies that do provide public services and to ensure that they are stable and the sector regulators responsible for them are able to act appropriately."

He added that he had asked for other care home providers to be examined to find out the scale of the problem in the sector.

In First Minister's Questions Mr Salmond was pressed by Scottish Labour leader Iain Gray to act on the issue.

Mr Gray said: "If these Southern Cross care homes face closure, surely the simplest and best plan would be for local authorities to take over the running of them to ensure that continuity of care.

"The First Minister could give certainty to concerned residents and relatives right now by committing to that and promising councils the resources to do it. Will he do that?"

Mr Salmond said: "The certainty and reassurance for relatives is that there will be continuity of care for all people affected by Southern Cross. The presumption will be they'll stay in their present care homes. Local authority control of the homes is certainly one option of a range of initiatives being considered."