William Eichler 14 May 2018

Social care crisis leads to over 80% rise in care home insolvencies

The funding crisis in the social care sector has resulted in a dramatic increase in the number of private care providers entering insolvency, a new study reveals.

There has been an 83% rise in the number of care home businesses entering insolvency, from 81 in 2016/17 to 148 in 2017/18, according to the accountancy firm Moore Stephens.

The social care sector is under a lot of pressure due to an increase in demand, a lack of public sector funding, and increasing staff costs.

According to the Competition and Markets Authority (CMA), there was a £1bn shortfall in public sector funding of care homes in 2017.

Professor Martin Green, chief executive of Care England, recently described the fees offered by councils to independent providers as ‘paltry’.

The cost of providing a high standard of care has also increased over the years.

The National Living Wage was £6.70 three years ago. It is now £7.83.

Moore Stephens estimated the average residential home now spends 52% of its turnover on staff.

‘Care homes should be benefiting from the demographics of the UK - an ageing population. But they are not,’ said Lee Causer, a partner at Moore Stephens.

‘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.’

Responding to the report, Cllr Izzi Seccombe, chairman of the LGA’s Community Wellbeing Board, said: ‘Councils are protecting services that care for older and disabled people and are working extremely hard to ensure that every pound is spent efficiently and effectively.

‘But councils can only do so much 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,’ she continued.

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

The LGA has estimated the care home sector faces a £2.3bn funding gap by 2020.

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