16 per cent of care homes at risk of failure

16 per cent of care home companies in the UK are showing warning signs that they are at risk of failure due to financial distress.

The percentage of care homes showing signs of financial distress has increased over the last 12 months, Moore Stephens, an accountancy firm, has found.

Last year, 12 per cent of care homes in the UK were at financial risk. This year, 16 per cent are.

The company examined 7,497 care home companies and found that 1,210 were in financial distress. It said the government’s proposals to raise the national living wage of £7.50 an hour to £9 an hour by 2020 would place a huge strain on many care-home businesses. Their average staff costs have already reached a record 55 per cent of turnover.

Healthcare regulators and charities have repeatedly warned that the situation is unaffordable but local authorities in England are preparing to cut £824 million from their social care budgets this year.

Lee Causer, restructuring partner at Moore Stephens, said: “Too many businesses in the care-home sector are heading back to the brink. The mixture of rising costs, cuts in funding and an ageing population has created a volatile situation, with many companies now showing signs of significant financial stress.

“Due to the ageing population, extra staff are needed at care homes in order to keep up with the demand, but many care homes just don’t have the budget for extra staff. This has made it increasingly difficult for care-home companies to offer a high standard of care while remaining solvent.

“Concerns have been raised that private care-home providers unable to make a profit will hand back contracts to local authorities. Commentators have also speculated that the debate over the post-Brexit free movement of labour has already reduced the number of EU staff willing to relocate to the UK to work in the sector.”