12% of care homes are at risk of going insolvent in the next three years

Reported in BTDaily Mirror, City AM and the BBC – 14.11.16.
As the National Living Wage increases, financial strain is likely to affect care homes. Our research has led us to advise that 12% have at least 30% chance of going insolvent in the next three years (1,584 out of a total of 13,261).
It’s no surprise that care homes in the UK have been under considerable financial strain in recent years due to rising costs and a lack of funding from local authorities despite growing demand for places at care homes. We reported on the issue in April, and it seems it has 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.

In particular, 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. It’s estimated that fees paid by local authorities to care homes in England have dropped by close to a fifth since 2010, and councils now face a £1bn shortfall for social care.
In a report in October 2016 by the Care Quality Commission (CQC), the regulator for health and social care services in England, voiced concerns over the sector citing difficulties retaining staff, financial pressure and increase in demand as particular drivers for care homes to close.
In their report the CQC highlighted that 2,444 residential care homes have closed from October 2010 to December 2015 – with the majority of those homes closing being smaller care homes (1,433).
No matter the size of provider, 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. 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.
If any of the issues raised affect your business and you would like to discuss further, or to receive more information please contact Michael Finch or Nick Warner.

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