Care home insolvencies up 83% as funding shortfall hits £1bn

There has been an 83% rise in the number of care home businesses entering insolvency according to analysis by Moore Stephens, which says the sector has been struggling since the government cut local authority funding during its austerity drive and warns further funding is urgently needed

The firm’s figures show an increase in care home failures from 81 in 2016/17 to 148 in 2017/18.

Moore Stephens says a number of recent high profile and complex care-home insolvencies have caused mainstream lenders to be more cautious of providing low cost funding to the sector, while the Local Government Authority (LGA) says that the care home sector faces a £2.3bn funding gap by 2020 and a Competition and Markets Authority (CMA) report highlighted a £1bn shortfall in public sector funding of care homes in 2017.

Moore Stephens says that the cost of providing a high standard of care has also increased markedly over the years. Research suggests the average residential home now spends 52% of its turnover on staff costs, and homes have been hit by the increase in national living wage rates.

Lee Causer, partner at Moore Stephens, said: ‘Care homes are not receiving enough local government funding to sustain the profit margins necessary to run a successful business.

‘Many companies are finding it difficult to cope with the rising costs associated with the care industry.

‘Without additional income, care homes will not be able to offer the levels of care required whilst remaining solvent.’

Cllr Izzi Seccombe, chair of the LGA’s community wellbeing board, said councils were working ‘against a backdrop of chronic underfunding of adult social care, which already accounts for more than a third of councils’ total budgets’.

‘We estimate that government funding to councils will have reduced by an estimated £16bn between 2010 and 2020.

‘Rising demand and increasing cost pressures means many councils are having to make significant savings and reductions within adult social care, which is impacting on an ever more fragile provider market.

‘Both councils and providers are in clear agreement about the scale of the challenge the system faces, and the need for genuinely new funding,’ Seccombe said.

Report by Pat Sweet

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