Research by accountancy firm Moore Stephens has warned that 12% of care homes have a least a 30% of going insolvent within the next three years.
Moore Stephens says UK care homes are facing increasing financial strain as a result of rising costs and a lack of funding from local authorities.
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.”
The report says that fees paid by local authorities in England to care homes have dropped by close to a fifth since 2010 and councils now face a £1bn shortfall for social care.
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 2%, many care home providers are concerned that this will not go far enough.