Living Wage costs put care homes under 'considerable financial strain'

Around one in eight care homes are at increasing risk of going insolvent within the next three years, according to accountancy firm Moore Stephens.

Research suggests that care homes in the UK have been under “considerable financial strain” in recent years due to rising costs and a lack of funding from local authorities, despite growing demand for places at care homes.

The introduction of the Living Wage in April 2016 has also increased the financial pressure, particularly on smaller care homes.

Mike Finch, restructuring partner at Moore Stephens said: “It’s become increasingly difficult for care homes, particularly smaller providers, to keep up a consistently high level of care whilst breaking even or worse, remaining solvent.

“The introduction of the Living Wage has increased the financial pressure on care homes to even higher levels, and this is only likely to continue as the Living Wage keeps increasing to reach the target of £9 by 2020.”

He added: “This is creating an unsustainable situation in a lot of care homes, where more staff are needed to cater for the increase in demand but the money simply isn’t there to cover rising staff costs.”

Moore Stephens estimates fees paid by local authorities in England to care homes have dropped by nearly a fifth since 2010, with councils now facing a £1.9bn funding shortfall for social care.

A report published by the Care Quality Commission (CQC) in October 2016, also voiced concerns over the sector, citing difficulties retaining staff, financial pressures and increase in demand as particular drivers for care homes to close.

The report highlighted that 2,444 residential care homes closed from October 2010 to December 2015 – with 1,433 being smaller care homes.

Moore Stephens have suggested that although steps are being taken to improve funding to adult social care through the Government’s Better Care Fund, and the option for local authorities to raise council tax by two per cent, many care home providers are concerned that this “will not go far enough.”

Mr Finch added: “Cuts to local authority fees have meant that care homes have had to cope with an increasing proportion of the financial burden.

“When a care home does go insolvent it’s important that administrators move quickly in order to avoid any disruption to residents.

“The administrator’s work will typically involve restructuring the care home owner’s debt and examining the selling of assets such as surplus property.

“It’s also vital that care homes receive the funding they need to employ the right levels of staff and offer sustainable high-quality care to their residents.”