Care home insolvencies rise amid council funding pressures

The number of care home insolvencies increased by almost a fifth last year amid a fall in local authority funding, a new study has revealed.

A total of 47 care homes became insolvent in England and Wales, up from 40 in the previous year and 35 in 2012/13, said accountancy firm Moore Stephens.

Further cuts in local authority spending, coupled with the introduction of the national living wage, will heap further pressure on the sector, said the report.

Mike Finch, of Moore Stephens, said: “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 ageing population.”

The report said it was increasingly difficult to find finance for the sector following the restructuring of the Four Seasons group, Britain’s biggest care homes group.

Four Seasons is poised to report a dramatic fall in earnings this week as the company’s creditors prepare to begin negotiations over a potential debt for equity swap.

It is understood that annual earnings at Four Seasons, owned by private equity giant Terra Firma, could plunge by as much as 34% to £42 million when it releases results next week.

The company, which houses 20,000 elderly residents across 450 homes, is struggling under £525 million of debt and faces interest payments of more than £50 million a year.

Justin Bowden, GMB national officer, said: “This rapid rise in care home closures is the cumulative effect of year upon year of underfunding and there is much worse yet to come.

“GMB has been warning for years that failing to fund the care sector properly would lead to a loss of beds, while our elderly and vulnerable have to be cared for somewhere and so will end up in the NHS when there is nowhere else to go.

“It costs about £225 to keep someone in hospital for a night and £80 in a care home, yet only a handful of councils pay that amount so it is no wonder care companies are going bust.

“The sheer financial stupidity of government refusing to fund the care sector properly is coming home to roost.”

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