Care home business insolvencies jumped by 18 percent in the past year

The number of care home businesses falling into insolvency has jumped by 18%, with 47 care home operators in England and Wales becoming insolvent last year, up from 40 in the previous year.

Research by accountant Moore Stephens found that care home businesses insolvencies have risen by 34% over three years, when there were 35 insolvencies in 2012/13.

Local authority spending on care homes continues to fall, with estimates suggesting that there will be a £2.9bn annual funding gap in social care by the end of the decade, according to data published by the Local Government Association.

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The Government’s introduction of a mandatory national living wage from April 2016 is set to further increase pressure on the care homes sector as staff costs will rise, Moore Stephens predicts.

It is also increasingly difficult to find finance for the sector, with Moore Stephens suggesting that the financial restructuring of the Four Seasons group, Britain’s biggest care home operator, is having an impact.

Mike Finch, Moore Stephens partner, explains: “Care homes have come under increasing financial strain and, with a sharp increase in their wage bill, many more risk being pushed to breaking point.

“With funding from local authorities contributing a substantial amount to the revenue of care homes there is understandable concern of the impact any further spending cuts would have on the sector. This is especially important as the cost of care in the UK remains high.

“Although legislation giving local authorities powers to increase council tax by 2% to help fund social care is a step in the right direction, there is real concern that this will not meet the spike in demand caused by the UK’s aging population.

“The cost of dealing with regulations in the care sector has been rising with residential care homes spending roughly 16 man-days a year dealing with inspections and 25 man-days a year handling information requests.

“Many care homes have also lost control over their increasing property costs by selling ownership of the property they occupy to an investor and then renting the property back from the same investor with pre-agreed rent increases they can no longer afford.”

With the UK’s aging population predicted to rise by 12% – or 1.1m – between 2015 and 20204, local authority funding is set to be stretched further causing many care homes to come under increasing financial strain and face closure.

“The inevitable upheaval caused by closing care homes would clearly be unwelcome to pensioners, especially if they are still residents in the facility,” says Mr Finch. “If care home closures continue at the current rate, then questions regarding the duty of care to any residents still in situ will doubtless arise.”

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