An article posted 3 years ago on the PCR website depicted the growing concern regarding the potential rise in care home insolvencies. The severe financial difficulties facing many care homes at the time meant that the industry was facing a potential crisis in the UK going forward. 3 years on, and this crisis is in full flow, with a report this week confirming the worrying news.

It was noted at the time that staffing was the largest cost for care homes, amounting to roughly two thirds of expenditure. In fact, total expenditure relating to staff has only further increased due to the introduction of the National Living Wage, meaning that the average residential home now spends 52 percent of its turnover on staff, according to a report conducted by NatWest on Care Home Benchmarking.

The National Living Wage was always going to leave a ‘cloud’ of uncertainty over the industry and had appeared to be the ‘straw which broke the camel’s back’ when it came into effect. The most obvious solutions of staff cuts and restructuring hours were not an option due to rightly imposed regulations on staff-to-patient ratios. To further add growing uncertainty to the sector, the rising interest rates expected later this year would create an increase in costs for care homes, who will see any floating rate debts secured against their properties increase.

There were other factors at the time which appeared to show that all was not well in the industry, which was also in the spotlight from various negative press reports, arising from allegations of inadequate care and even abuse of patients. Another debilitating issue affecting the sector was the failure to attract enough young and career driven trainees, especially as NHS training places for nurses had been reduced.

With many care home places also being paid for by Local Authorities, the sector has been struggling even further due to the cuts imposed by the Government, which saw a reduction in the local authority funding during its austerity drive.

Official figures reported that the number of residential care businesses entering insolvency during the year to end of March was 148, up from 81 during the previous financial year – an increase of 83 percent. Separate research also found that one in four of the UK’s 2,500 care home companies was at risk of insolvency.

Julie Swan, Partner at PCR said:

“It is no surprise that there has been an increase in care home insolvencies over the past year, especially as many experts were predicting this a few years back. Unfortunately, despite an aging population, the introduction of the National Living Wage, rising interest rates and a lack of Government funding, it is inevitable that care homes will find it increasingly difficult to offer the care required whilst remaining solvent.

Yet, despite these fears, the sooner you are able to identify signs of distress for your care home, the more options you have. It is crucial to seek regulated advice within the insolvency and restructuring profession, and it is here where PCR can assist company directors to make the best choices. We cannot stress the importance of reaching out for expert advice from regulated professionals, as more can be done to provide the best possible outcome for a firm showing signs of distress.

For help and advice on administrations specifically, and insolvency procedures in general, please contact us on 0208 841 5252 to arrange a FREE initial consultation with one of our Insolvency Practitioners. Alternatively, you can contact us on our Priority Contact Form, where we will look to get back to you as soon as possible.

Ahmed Ali

Marketing & Practice Development Executive 

 

All contents Copyright © PCR (London) LLP unless otherwise noted. None of the elements on this website may be reused without permission.