Number of care homes going out of business doubles in a year

THE number of care homes going bust has nearly doubled in a year, official figures show.

Experts said the new living wage had led to a sharp increase in costs which also threatened standards of care.

The number of residential care businesses entering insolvency during the year to April rose to 148, up from 81 the previous year, the figures show. The first quarter this year had the highest rate of insolvency than in any previous recorded quarter, with data suggesting up to 44 businesses had gone bust.

Separate research, by Opus Restructuring and Company Watch, found that a quarter of the 2,500 home care firms could be at risk of insolvency. Moore Stephens, an accountancy firm, said the cost of providing quality care had risen, in part because of the introduction of the national living wage two years ago.

As of April workers aged 25 and over must be paid a minimum of £7.83 an hour. Staffing costs were identified as one of the pressures on social care, with experts warning that some businesses risk becoming over-reliant on expensive agency staff as they struggle to recruit quality full-time employees.

While higher pay could attract more staff, some businesses struggle to stay afloat because local authorities underpay for their council-funded residents. A study by Natwest last year found that staff costs in nursing homes run by small and medium businesses had reached 55 per cent of turnover. Business experts usually recommend firms aim for between 15 and 30 per cent.

Lee Causer, of Moore Stephens, said care homes should be benefiting from 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,” he said. “Many companies are finding it hard to cope with the rising costs of care. Without the additional income, care homes cannot offer the levels of care required, while remaining solvent.”