Record rise in number of care homes going bust

No less than 75 care home businesses failed last year and 421 have gone bust since 2010, according to Government figures.

Analysts at the consultancy firm FRP Advisory have been crunching numbers released at the end of April by the Government’s Insolvency Service. It found the number of care home company insolvencies have been steadily rising every year, up from 32 in 2010. They say care homes are the only industry in the UK to have endured rising insolvencies in the last seven years. The business failures coincide with seven years of Conservative party cuts to social care budgets.

Chris Stevens, partner at FRP Advisory said: “The care home sector is beleaguered due to all local authorities facing overall double digit budget cuts for this current financial year underway and beyond”.

With “often cuts of over 20 per cent to their social care provisions” he said “operators have limited abilities to increase their fees which currently for many are running below the true cost to the businesses of delivering appropriate care – all placing rising financial pressure on care sector operators".

Mr Stevens added: “At the greatest risk are care home operators catering for purely local authority funded residents where financial stress is most acute.”

40 per cent rise in ‘learning disability’ care homes failing

The biggest rise of care sector firms collapsing has been residential care homes specialising in learning disabilities, mental health and substance abuse with 14 going bust in 2016 - a 40 per cent rise, when compared to the previous year.

The number of care homes dealing with special needs that went bust rose from zero in 2010 to nine in 2013, six in 2014, 10 in 2015 and 14 last year.

Brexit effect

Some 20 care home businesses became insolvent in the fourth quarter of 2016 - the second full quarter since the UK’s EU referendum last June. Care home operators may be struggling to recruit and retain staff as many EU citizens are now re-evaluating the financial gain from staying in the UK when they have seen effectively a 20 per cent cut to their take-home pay and what they can send back to their families outside the UK.

More insolvencies expected

FRP Advisory predicts the “historically high volume of insolvencies across the care sector” will continue into the first quarter of 2017 with the fall in sterling against the Euro "exacerbating pre-existing pressure on staffing costs in a sector reliant on overseas workers to fill front line staff vacancies" and where margins have come under increasing pressure from minimum wage rises, pension costs and cuts in local authority funding.

Years of cuts to social care budgets in councils up and down the country by Conservative Governments, has led to care homes being offered low fees by councils while they swallow costs such as a higher wage bill following the Government’s the introduction of the Living Wage.

In some cases care homes have taken councils to the courts to challenge the low fees paid for care home beds. Following growing demand for more money for social care, Chancellor Philip Hammond announced in his Spring budget this year an extra £2 billion for social care in England for three years.

May – the force be with her?

Despite historic council cuts, the local elections on 4 May gave Theresa May’s Conservative party more power as opposed to punishment from voters at the ballot box.

By the end of May, the Competition and Markets Authority will have delivered its interim report into the care homes market.

The competition watchdog has been examining how the market works and whether there are breaches in consumer laws or unfair commercial practices. It has the power recommend to the Government and the sector that changes be made in the care home market.

Chris Stevens highlighted: "the ever weightier burden with increased regulation, often resulting in homes having to fund for both capital expenditure and higher overhead spend to ensure they continue to be compliant with regulators."