The care home funding shortfall has left self-funders paying a ‘hidden tax’ of £1.3bn to keep the sector ‘afloat’, analysts reveal.

According to the healthcare market intelligence provider LaingBuisson, residential care homes in England currently need to charge fees of between £590 and £648 per week.

However, the average fee paid by English councils for residential care of older people was just £486 per week in 2016/17.

LaingBuisson estimates this means residents who pay from their own finances are filling a funding gap of £1.3bn a year.

‘The entire care home sector for older people is being kept afloat through cross subsidies from the 40% of care home residents who pay privately,’ said William Laing, LaingBuisson founder and creator of their Care Cost Benchmarks toolkit.

‘The £1.3bn can equally be viewed as a hidden ‘care tax’ that government and councils are content to see private payers contributing to keep mixed funding homes in business,’ Mr Laing continued.

‘This ‘care tax’ equates to about £8,000 a year on average per privately paying care home resident.’

He warned this would only increase in April 2017 ‘as care home owners seek to recover increased costs.’

Responding to these findings, Margaret Willcox, president elect of the Association of Directors of Adult Social Services (ADASS), said: ‘These findings reflect universal concerns about the escalating social care crisis, resulting not least in councils struggling to meet rising costs.

‘Councils are doing all they can to protect adult social care but reductions in funding and the cost of the National Living Wage, while welcome, means many providers are finding it hard to recruit staff, especially in home care in those areas of high employment.’

Ms Willcox noted that an ADASS survey recently found around two-thirds of councils have had residential and nursing home closures, and more than half have had care providers hand back contracts.

The Local Government Association (LGA), responding to LaingBuisson’s report, warned that social care faces a funding gap of £2.6bn by 2020 and called for new Government funding.

‘The historic underfunding of adult social care is impacting on the cost and quality of care and access to it,’ said Cllr Izzi Seccombe, chairman of the LGA’s Community Wellbeing Board.

‘The consequences for the provider market are particularly acute and the gap between what providers say they need and what councils are able to afford is now at breaking point.

‘Without urgent and genuinely new government funding more providers will leave the publicly funded care market or go out of business completely.’

Cllr Seccombe also warned of the creation of a two-tiered system ‘between those able to choose and pay for their own care, and those reliant on increasingly overstretched council-funded care’.