Insolvency Warning as Care Providers in England Face Financial Pressure from Rising Costs
Insolvencies and restructuring activity are expected to increase in early 2025 as businesses struggle with rising cost pressures, industry experts have warned.
Surging business costs associated with the autumn Budget are predicted to hit sectors such as the care sector particularly hard.
The warning comes as official data revealed a 13% monthly rise in company insolvencies in November, although the figures remained lower than the same period last year, according to the Office for National Statistics.
Nicky Fisher, immediate past president of R3, the UK’s insolvency and restructuring trade body, and a partner at Herron Fisher, said: “Our members are telling us that inquiries from directors increased in November, as they looked to understand more about their insolvency or restructuring options and discuss their financial concerns ahead of January.
Key findings from a recent survey by the Care Provider Alliance showed that the potential impact of the budget measures include:
- 22% are planning to close their businesses entirely.
- 77% will have to draw on reserves.
- 64% will have to make staff redundant.
The survey echoed concerns from other parts of the care industry that some care homes would be put at risk of closure, whilst others will have to reduce their capacity in order to cut costs, at a time when the demand for social care is growing.
Analysis by the Nuffield Trust also confirmed that the adult social care sector in England faces a challenging financial landscape, with independent care providers expected to face an additional £2.8 billion in costs by 2025-26, again attributed to wage and tax increases outlined in the recent Budget.
The analysis reveals that nearly 18,000 independent care providers are set to encounter significant financial pressures. A £940 million increase in employer national insurance contributions (NICs) and a £1.85 billion rise due to the higher national living wage (NLW) are expected to disproportionately affect smaller providers, which form the majority of the sector.
Only the largest operators, approximately 2% of the market, may have the financial resilience to manage these increased costs. Many smaller providers, operating on narrow profit margins, face difficult decisions that could threaten their survival.
Based on this, the trust calculated that authorities would need to find an extra £2bn to cover
The Nuffield Trust estimates that councils will need to secure an extra £2 billion to help cover these rising costs in the next financial year. Without significant government intervention, the report warns of potential market-wide repercussions.
The Nuffield Trust highlights the risk of a cascade effect, where financial instability leads to widespread provider closures. This would have “real and devastating consequences,” particularly for those already dependent on care services, disrupting their lives and leaving others unable to access or afford the support they need.
The Trust’s findings underline the urgent need for additional government funding to prevent systemic collapse in the adult social care sector, a situation that could leave vulnerable individuals and families without critical support.
