UK Care Homes Sector At Crossroads As Post-Pandemic Pressures Pile Up

The UK care home sector is at a crossroads wards Blair Milne, a restructuring and insolvency partner with accountancy firm Azets, due to post-pandemic financial pressures, including shortfalls in local authority funding.

“Government needs to grasp the nettle over funding reforms, however unpalatable to taxpayers, or we could see a significant number of business failures in the care sector because they can no longer make ends meet,” said Mr Milne.

“The last 40 years or so the care home industry can be summarised by expansion and consolidation and now, sadly, contraction.”

According to industry data, the UK has 17,100 care homes, including nursing homes, looking after 408,000-plus elderly.

Mr Milne added: “Britain’s care homes sector is at a crossroads following the pandemic, with a long list of problems exacerbated by local authorities not paying the true costs of care for residents placed in care homes, with better-off residents effectively subsiding them with higher fees of up to 40% for the same service.”

Handling a number of administrations in relation to care homes, he highlights the strong headwinds facing the sector.

“There are many common challenges facing the care sector in the post-pandemic world. It was already a sector under pressure before Covid-19, demonstrated by the closure of 1,578 care homes between 2015 and 2020. Many of those were well run homes with ‘good’ ratings from the Care Quality Commission.

“By way of illustration, based on a report from the National Audit Office, the public spending watchdog, government funding for local authorities in England fell by more than half in 2019-20 when compared to 2010-11, a 29% reduction in real terms, and funding continues to be under significant financial pressure.

“Many larger for-profit care homes were reporting a return on investment of less than 5% back in 2019, just before the pandemic hit – occupancy levels then fell from 90% to 80% in February 2021.

“Fast forward to this year, staff shortages are a huge problem in an industry where high staff turnover is endemic and expensive – 28.5% is the average. Recruitment and retention are now difficult in a sector which reportedly employs 752,000 people.

“It is estimated that the shortfall in care home staff is around 170,000 nationwide and, as we are living longer, an extra 500,000 care workers will be needed by 2035.

“Given that there are more than a million job vacancies in the UK as a whole, it is clear that care home workers can apply for other less demanding roles for either the same or more money.

“Care homes lost a lot of staff for various reasons – Brexit is a factor and Covid-19 resulted in a lot of long-term sickness and, in extreme cases, staff have been traumatised by their experiences, by what they saw and had to deal with for two dreadful years working behind face coverings.

“In turn, staff shortages have led to care homes becoming increasingly reliant on agency workers, where the rates being charged are at record levels due to the economics of supply and demand.

“To keep running, care homes have little option but to pay far more than they would for permanent and part-time staff, further piling on the relentless financial pressures.

“Which takes us to the political aspect of fixed rates for local authority-funded residents.

“The success of care homes is about ensuring high levels of occupancy and getting the right mix of privately funded residents and local authority funded residents – those rates from the public purse have not been able to keep up with decades-high inflation.

“With recent record-high energy and food bills, profit margins have been under further attack.

“Adding to these financial burdens is the rise in health and safety and compliance requirements to be met in the post-Covid world, which operators cannot recover unless they put up rates for private clients.

“It is a sobering thought that there will be 8.3 million people aged 75 or over in less than four Parliament terms away, with many requiring accommodation in care homes.

“Indeed, the UK has reached close to breakpoint with the care home sector – governments must grasp the nettle and bring in funding reforms to help a distressed industry where many of us and our loved ones will end our lives.”