One in eight care homes risk insolvency within three years

Twelve per cent of care homes have at least a 30% chance of going insolvent within the next three years, according to research by Moore Stephens, the Top Ten accountancy firm.

Moore Stephens says that care homes in the UK have been under considerable financial strain from rising costs and a lack of funding from local authorities, despite growing demand for places at care homes. The company cites the introduction of the living wage, for increasing the financial pressures, particularly for smaller homes.

Moore Stephens also highlights government cuts to local authorities’ budgets, with estimates that fees paid by local authorities in England to care homes have dropped by close to a fifth since 2010, with councils now facing a £1billion shortfall for social care.

Michael Finch

Michael Finch

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.

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

“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 off of assets such as surplus property. It’s 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.”

Moore Stephens says 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.

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