The adult social care market is ‘broken’ with services now bought at prices that are unsustainable, a damning report has warned.

A study by the LGiU think-tank and care provider Mears Group this week concluded the care market was being ‘held together by hope and goodwill, but that can only hold for so long’.

It calls for a long-term injection of cash into the market, asks councils to consider a minimum price for hourly homecare and urges an end to ‘stop-gap’ solutions from Whitehall.

The study was published hours after a Panorama investigation revealed that 95 councils have had care contracts cancelled by their providers – often because suppliers cannot provide basic services on the budgets sought by hard-up local authorities.

It read: ‘Local authorities that commission care are having their budgets slashed so mercilessly that they being are faced with a stark choice: ration care further or pay for care at a rate so low that care businesses will limp along until they can go no further.’

Alan Long, executive director at Mears Group, revealed his firm was currently losing around £3m a year on care services.

Mr Long estimated Mears needs around £15.91 per hour to cover the full cost of homecare – yet claimed some councils were offering £12.50 per hour.

‘It would be impossible to do that without breaking the law or using bad practices like call cramming,’ he said.

Mr Long said that the margins for many providers were now so low that smaller firms were folding – with threats hanging over the sector’s larger companies.

‘I think we’re about to see another Southern Cross, but for homecare,’ he warned.

Izzi Seccombe, chairman of the Local Government Association’s community wellbeing board, urged ministers to focus their promised social care green paper on long-term funding solutions.

‘With councils facing further funding pressures and growing demand for support by the end of the decade, this is the last chance we have to get this right,’ she warned.