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Care homes in crisis as revised figures reveal surge in insolvencies Care homes in crisis as revised figures reveal surge in insolvencies
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The care home industry is in an even worse financial state than feared after a revision of government data revealed that nearly 100 more such businesses than previously thought have collapsed since 2010.The care home industry is in an even worse financial state than feared after a revision of government data revealed that nearly 100 more such businesses than previously thought have collapsed since 2010.
The release of the figures has heightened calls for Philip Hammond, the chancellor, to offer financial support to care homes in the autumn statement.The release of the figures has heightened calls for Philip Hammond, the chancellor, to offer financial support to care homes in the autumn statement.
A total of 380 care home businesses have been declared insolvent since 2010. This is 98 more than previously thought after the Insolvency Service revised its figures to show that the number of insolvencies between 2010 and 2013 was nearly double the previously stated number – 212 up from 114. The Insolvency Service said this was due to an “error in data processing” that saw the residential care home businesses classified as “social work activities without accommodation”.A total of 380 care home businesses have been declared insolvent since 2010. This is 98 more than previously thought after the Insolvency Service revised its figures to show that the number of insolvencies between 2010 and 2013 was nearly double the previously stated number – 212 up from 114. The Insolvency Service said this was due to an “error in data processing” that saw the residential care home businesses classified as “social work activities without accommodation”.
Care homes are enduring an unprecedented squeeze on their finances. The amount that councils pay towards fees for residents is falling while costs – particularly staffing overheads – increase. Four Seasons, the biggest care home operator in the country with more than 400 properties, recorded a pre-tax loss of £264m last year. Care homes are enduring an unprecedented squeeze on their finances. The amount that councils pay towards fees for residents is falling while costs – particularly staffing overheads – increase. Four Seasons, the biggest care home operator in the country with more than 400 properties, recorded a pre-tax loss of £264m last year, which includes a write down of the value of their care homes.
Martin Green, chief executive of trade body Care England, said the government has already received warnings about the state of the industry from the health and social care services regulator. He said: “The perilous state of the care sector is well known and has been clearly stated by the Care Quality Commission, who described it as at a tipping point. What we need is the government to put an immediate £1bn in new funding in the autumn statement to stabilise the sector and to give breathing space for the development of a long-term funding solution.”Martin Green, chief executive of trade body Care England, said the government has already received warnings about the state of the industry from the health and social care services regulator. He said: “The perilous state of the care sector is well known and has been clearly stated by the Care Quality Commission, who described it as at a tipping point. What we need is the government to put an immediate £1bn in new funding in the autumn statement to stabilise the sector and to give breathing space for the development of a long-term funding solution.”
The government data shows there has been a surge in insolvencies in the care home sector from 32 businesses in 2010 to 74 in 2015. Another 34 failed in the first six months of 2016. These businesses range from families running one care home to nationwide operators.The government data shows there has been a surge in insolvencies in the care home sector from 32 businesses in 2010 to 74 in 2015. Another 34 failed in the first six months of 2016. These businesses range from families running one care home to nationwide operators.
FRP, the accountancy firm which uncovered the revision in the government data, said the surge in the number of insolvencies only revealed part of the financial problems in the industry. FRP Advisory, the consultancy firm which uncovered the revision in the government data, said the surge in the number of insolvencies only revealed part of the financial problems in the industry.
Chris Stevens, partner at FRP, said: “Corporate insolvencies only tell part of the picture as many care home closures or business failures occur via receiverships – processes where lenders can often take control of premises owned by sole traders or partnerships in financial difficulty. We know receiverships are also on the rise in the care home sector.”Chris Stevens, partner at FRP, said: “Corporate insolvencies only tell part of the picture as many care home closures or business failures occur via receiverships – processes where lenders can often take control of premises owned by sole traders or partnerships in financial difficulty. We know receiverships are also on the rise in the care home sector.”
Seperate figures from insolvency agency Opus has found that roughly a third of the remaining 18,000 care homes in Britain are at risk due to their financial health and 13% are “zombie operators” that pay more in interest and servicing their debt than they make in profits.Seperate figures from insolvency agency Opus has found that roughly a third of the remaining 18,000 care homes in Britain are at risk due to their financial health and 13% are “zombie operators” that pay more in interest and servicing their debt than they make in profits.
Last year George Osborne, then chancellor, gave councils the power to increase council tax by 2% – a so-called “precept” – to help fund care homes and social care. However, industry leaders claim more needs to be done to offset rising costs, which were exacerbated by the introduction of the national living wage in April, which means everyone over the age of 25 must be paid at least £7.20 an hour.Last year George Osborne, then chancellor, gave councils the power to increase council tax by 2% – a so-called “precept” – to help fund care homes and social care. However, industry leaders claim more needs to be done to offset rising costs, which were exacerbated by the introduction of the national living wage in April, which means everyone over the age of 25 must be paid at least £7.20 an hour.
Tim Hammond, chief executive of Four Seasons Health Care, said: “A further social care precept of at least 2% or some equivalent measure is essential to mitigate the additional impact of the anticipated increase in the national living wage from April 2017.Tim Hammond, chief executive of Four Seasons Health Care, said: “A further social care precept of at least 2% or some equivalent measure is essential to mitigate the additional impact of the anticipated increase in the national living wage from April 2017.
“Fees that local authorities pay for care home places have reduced by 5% in real terms the past three years. The introduction in 2016 of the national living wage, against a backdrop of the existing underfunding, threatened to bring about a collapse in the sector. Where councils raised the precept and passed it on, it helped to some extent to mitigate those additional costs. Furthermore, there has not been any major public resistance.“Fees that local authorities pay for care home places have reduced by 5% in real terms the past three years. The introduction in 2016 of the national living wage, against a backdrop of the existing underfunding, threatened to bring about a collapse in the sector. Where councils raised the precept and passed it on, it helped to some extent to mitigate those additional costs. Furthermore, there has not been any major public resistance.
“Looking to the longer term, there is need to ensure that social care funding is sustainable. The precept did not meet the full additional cost of the living wage and it doesn’t begin to address the existing chronic underfunding that remains a threat to the viability of the sector.”“Looking to the longer term, there is need to ensure that social care funding is sustainable. The precept did not meet the full additional cost of the living wage and it doesn’t begin to address the existing chronic underfunding that remains a threat to the viability of the sector.”