The care home sector is suffering from a £1bn funding shortfall because councils are not paying high enough fee rates, an extensive review into the sector finds.

The Competition and Markets Authority (CMA) has today published its final findings following an extensive review into the residential care home sector which was launched last December.

The CMA’s financial analysis found a funding shortfall for the sector of £1bn a year across the UK. It argues this was because councils were paying fee rates for the residents they fund which are below the costs of care.

This has forced care homes to rely on self-funders who pay on average £44,000 per year — 40% more than those paid by councils.

‘Care homes provide a vital service to some of the most vulnerable people in our society. However, the simple truth is that the system cannot continue to provide the essential care people need with the current levels of funding,’ said CMA chief executive, Andrea Coscelli.

‘Without substantial reform to the way that councils plan and commission care, and greater confidence that the costs of providing care will be covered, the UK also won’t be able to meet the growing needs of its ageing population.’

The Authority’s report also warned the basic information and support needed to help people choose a care home is often not available, and the systems for redress and feedback for residents and their families need to be improved.

‘It is essential that residents and their families can make informed choices, understand how these services will be paid for, and be confident they will be fairly treated and able to complain effectively if they have concerns,’ said Mr Coscelli.

‘We are now calling on care homes, councils and Government bodies to help people navigate what can be a confusing system.’

Responding to the publication of the CMA’s findings, Cllr Izzi Seccombe, Chairman of the Local Government Association’s (LGA) Community Wellbeing Board, said: ‘The findings of the CMA’s review show the stark reality of the social care crisis and the urgent need for genuinely new funding and long-term reform of the sector.

‘This is yet another powerful warning that many care homes are not sustainable.’

‘Already we are seeing an unfair, unequal two-tier system emerging between those able to choose and pay for their own care, and those reliant on increasingly overstretched council-funded care that is struggling to meet people’s needs as a result of chronic underfunding of adult social care,’ Cllr Seccombe continued.

‘Councils have been doing all they can to protect services that care for older and disabled people and will continue to do so, including provision of information and advice to help people make decisions about how their care needs can be met.

‘But they can only do so much, with an estimated £1.3bn funding gap between what providers say they need and what councils currently pay. This is an immediate gap that is impacting on the system today, and part of a wider annual £2.3bn shortfall that adult social care will face by 2020.’