One in six care homes on 'the brink' of going bust

One in six care homes are at risk of failure with more than 1,200 care home firms in ‘financial distress’, say accountants.

Accountancy firm Moore Stephens analysed 7,497 care home firms listed by Companies House for the year ended 27 July 2017 and has found 1,210 ‘financially stressed’ care providers.

The figures, accountants warn, point to a rise in the number of care homes at risk of insolvency with 16 per cent under threat - up from 12 per cent a year before.

‘Heading back to the brink’

Lee Causer, restructuring partner at Moore Stephens said: “Too many businesses in the care home sector are heading back to the brink.

“The mixture of rising costs, cuts in funding and an aging population has created a volatile situation, with many companies now showing signs of significant financial stress.”

Increasing staff wages

A major contributor for the rise in the risk of failure has been an increase to the National Living Wage (NLW) last April, which Moore Stephens said placed a heavy burden on care home companies’ profit margins. The NLW increased to £7.50 per hour (6.4 per cent above National Minimum Wage) last April and is scheduled to increase to £9 per hour by 2020.

More staff needed but Brexit sees less EU staff coming to work

A growing use of agency staff in care homes, due to difficulties in retaining and recruiting skilled staff has also been blamed for pushing costs higher. According to NatWest: Care Home Benchmarking Report, staff costs at care homes have reached an all-time high of 55 per cent of turnover due to the increased reliance on agency workers

Mr Causer said: “Due to the aging population, extra staff are needed at care homes in order to keep up with the demand, but many care homes just don’t have the budget for extra staff. This has made it increasingly difficult for care home companies to offer a high standard of care- whilst remaining solvent.

“Commentators have also speculated that the debate over the post-Brexit free market of labour has already reduced the number of EU staff willing to relocate to the UK to work in the sector.”

Councils to slash social care budgets to make £824m savings in 2017/18

A "persistent lack of funding" from local authorities to the social care sector has also put pressure on care homes, with councils taking an axe to their social care budgets, despite the need for care homes to meet the needs of a growing population.

According to the Associate Directors of Adult Social Services, English councils plan to make £824m of efficiencies in their social care budgets in 2017/18, despite the Government promising an extra £2bn over the next three years in social care funding.

He added: “Concerns have also been raised that private care home providers unable to make a profit will hand back contracts to local authorities. It’s critical that care home companies receive the funding they require in order to offer the highest standard of care possible.”