It has recently been reported that Four Seasons, the care home group which controls 330 care homes, continues to hold debt-for-equity restructuring talks with its bondholders in order to raise the necessary funding that it needs to continue operating. As Four Seasons is the second largest care home operator in the UK, the outcome of these restructuring talks is of great importance to the wellbeing of the UK care sector.

Local Authorities in England and Wales had planned to make savings of £824m in their social care budgets in 2017/18 according to the Associate Directors of Adult Social Services, despite demand for these services increasing with the UK’s ageing population.

The Local Government Association say that the care home sector faces a £2.3bn funding gap by 2020 and a Competition and Markets Authority (CMA) report highlighted a £1bn shortfall in public sector funding of care homes in 2017.

The cost of providing a high standard of care has also increased markedly over the years. The National Living Wage rose again this month (to £7.83) from £6.70 just three years ago, placing increased strain on care home companies’ profit margins.

The average residential home now spends 52% of its turnover on staff**. Demand is also rising for qualified staff, in particular nurses, that care homes require. This has led to care homes increasingly hiring their healthcare professionals as expensive agency workers.

The rising interest rates expected this year creates further costs for care homes, who will see any floating rate debts secured against their properties increase.

Lee Causer, Partner at Moore Stephens, said “Care homes should be benefiting from the demographics of the UK – an ageing population. But they are not.” Care homes are not receiving enough local Government funding to sustain the profit margins necessary to run a successful business. Many companies are finding it difficult to cope with the rising costs associated with the care industry.”

“Without additional income, care homes will not be able to offer the levels of care required whilst remaining solvent.”

Residential care home insolvencies up by over three quarters in 12 months

* Insolvency Service: Year end March 31st 2018
** NatWest Care Home Benchmarking Report 2016/17