Swedish government strikes deal with Left to limit welfare profits

Reuters News
Posted: Oct 06, 2014 8:09 AM

By Johan Sennero and Niklas Pollard

STOCKHOLM (Reuters) - Sweden's government said on Monday it had struck a deal with another party to limit the profits of companies that provide welfare services, dealing a blow to the private equity sector while shoring up support for its first budget.

The minority center-left coalition of Social Democrats and Greens agreed to demands by The Left to restrict private welfare profits - a key condition to get the non-government party to support the budget bill, due in 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.

But scandals such as the bankruptcy of the largest chain of private schools, private equity-owned JB, has led to growing calls to rein in the sector, with the Social Democrats pledging 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.

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. Private equity firms in the sector include EQT and Nordic Capital.

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.

"In the end, the losers here are the patients and users."

Once the final proposal is ironed out, 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; Editing by Alistair Scrutton and Robin Pomeroy)