The number of care home businesses entering insolvency has leaped 83% because of ongoing pressures in the sector, research by accountancy firm Moore Stephens has shown.
In 2017/18, 148 businesses went into insolvency compared to 81 in 2016/17 as the financial effects of reduced public funding, increased demand and high staffing costs took effect.
The sector faces a £2.3bn funding gap by 2020, the Local Government Association estimates, while the Competition and Markets Authority reported a £1bn shortfall in the public sector funding of care homes last year.
Staff shortages remain a top concern for providers with the average residential home now spending 52% of its turnover on extra workers to meet shortfalls, particularly in the nursing profession.
The rise in the National Living Wage in April has also put strain on care home companies’ profit margins, while the possibility of rising interest rates could add more strain.
High-profile care home insolvencies have also made lenders more cautious about providing low-cost funding to the sector, Moore Stephens suggests.
Lee Causer, partner at the accountancy firm, said: ‘Care homes should be benefiting from the demographics of the UK – an ageing population. But they are not. [They are not] receiving enough local government funding to sustain the profit margins necessary to run a successful business.
‘Without additional income, care homes will not be able to offer the levels of care required whilst remaining solvent.’
Responding to the figures, the Independent Care Group, which represents care home providers in York and North Yorkshire, said the figures were evidence of a growing crisis in social care and has called for urgent government action to tackle the problem.
Its chair Mike Padgham said: ‘These figures come as no surprise, we have been warning for years that the £6bn cut from social care would eventually see more and more care homes closing – and here we have the evidence.
‘Some 1.2 million people in this country are now going without the care they need – this is our mothers, our fathers, aunts and uncles – and unless action is taken this will very soon be us. We now face a further £2.3bn funding shortfall and that is going to mean more and more people not getting the care they need.’
Since 2013, according to the Care Quality Commission, the net number of care homes has fallen by 1,239 – with 3,283 having left the market and only 2,044 having entered it.