Living wage and Brexit ‘force 1 in 6 care homes to brink’
One in every six care homes for older people is at risk of failing and closing down because of rising costs and lack of funding, according to a report by accountancy firm Moore Stephens.
It found a “persistent lack” of local authority funding is pushing care homes closer to the brink of failure and also blamed the requirement to pay care home staff a living wage. Moore Stephens found 16 per cent of care home companies in the UK are exhibiting warning signs they are at risk of failure – an increase of 4 per cent in a year.
It blamed the lack of council funding because of Government cuts and said this had placed ‘considerable pressure’ on care homes. Local authorities in England are cutting £824m from social care budgets in the current 2017/18 year despite government promises in the last budget of an extra £2 billion over the next three years in social care funding.
Moore Stephens said the increase to the National Living Wage (NLW) in April 2017 had placed a “significant burden on care home companies’ profit margins.”
The NLW increased to £7.50 per hour (6.4 per cent above National Minimum Wage) in April, and is scheduled to increase to £9 per hour by 2020. The report said staff costs are at an estimated all-time high of 55 per cent of turnover and are hurting the profit margins of the companies that own them.
For Moore Stephens, Lee Causer 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 aging population has created a volatile situation, with many companies now showing signs of significant financial stress.
“Due to the aging 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- whilst remaining solvent.
“Concerns have also been raised that private care home providers unable to make a profit will hand back contracts to local authorities,’ he continued. “It’s critical that care home companies receive the funding they require in order to offer the highest standard of care possible.
“Commentators have also speculated that the debate over the post-Brexit free market of labour has already reduced the number of EU staff willing to relocate to the UK to work in the sector.”
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