Dramatic increases in council tax will not be enough to fill a yawning gap facing social care in England which will be more than £3.3bn a year by 2020, a trade union has warned.
New research from the GMB, which represents workers in care homes, highlights the financial crisis facing the care industry – and the burden that will fall on taxpayers in trying to address it.
The GMB found all local authorities in England need to increase council tax by the maximum allowed over the next four years to support care homes. This will raise £1.8bn a year by 2019/2020.
Justin Bowden, the GMB national officer for social care, said: “It’s a bad situation. There are homes closing and beds going out of the system, particularly in places like the north-east [of England], where councils pay the least per week for residents.”
George Osborne announced in the autumn statement that local authorities could increase council tax by up to 2% a year from April as long as the proceeds went to social care. He also handed an extra £1.5bn a year to the Better Care Fund, a pot used by the NHS and local authorities to support social care.
This means that social care in Britain could have an additional £3.3bn of annual funding by 2020, but the GMB and care home operators fear this will not be enough to stop care homes going bust.
Care homes are being squeezed by a fall in the fees that cash-strapped local authorities pay towards residents and a rise in staff costs. This pressure will be exacerbated in April by the introduction of the “national living wage”, meaning care homes will have to pay all staff over the age of 25 at least £7.20 per hour.
In response to the funding crisis, care home operators are closing homes or taking on more fee-paying residents. The number of beds in care homes in the UK fell by 3,000 last year, the first decline for a decade according to research by industry analysts LaingBuisson. In addition, private residents now pay 40% more on average than publicly funded residents for like-for-like services as care homes try to make up their funding shortfall.
There is also evidence that the quality of care in homes is deteriorating. The Care Quality Commission has found a third of Britain’s 18,000 care homes require improvement and 7% are “inadequate”.
The unprecedented squeeze on the industry is happening at a time when demand for care homes is higher than ever. The NHS is suffering its own funding crisis and the average age of the population is growing. There are more than 11 million people aged 65 or over in the UK and this is expected to rise by 50% by 2030.
Martin Green, chief executive of Care England, warned the industry was in a “very perilous” state. He accused the government of “playing silly political nonsense” by trying to pass responsibility for funding social care to local authorities through the council tax precept.
“It is a very significant tax increase and it is going to be levied on local residents,” said Green, whose organisation represents the care homes industry. “This country has some major demographic challenges and if it does not face up to them it will be a disaster.”
Green warned small businesses and individuals running care homes were in particular danger.
“The real problem is that 55% of the sector is small businesses. The big corporates will plan their exits but small businesses will just go bust,” he said.
There are roughly 487,000 beds in 18,000 care homes in Britain. Just over 90% of these beds are full, according to LaingBuisson. The residents include 41% paying privately, 37% purely funded by the state, 12% who are paying fees but are topped up by local authorities, and 10% funded by the NHS.
The biggest care home operator in the country has been at the forefront of the financial crisis facing the sector. Four Seasons operates 470 homes and specialist facilities, which contain more than 20,000 beds. However, not only is it being squeezed by the pressures on the wider industry, it is also struggling under the weight of more than £500m of debt, paying out £50m a year in interest. The company reported a pre-tax loss of £25.4m in the third quarter of 2015, the last results it published.
Four Seasons, which is owned by private equity company Terra Firma, appears to have stabilised itself. It made a £26m interest payment in December and insists it has “medium-term finances” for its needs. Nonetheless, the company has said it plans to sell homes this year and close loss-making sites to shore up its finances.
Ian Smith, chairman of Four Seasons, said: “It’s good that the government has listened and that the chancellor has done something. The ability to charge a social care precept gives local authorities some leeway to increase their budgets.
“It’s a start, although it is hard to see how the precept in practice would provide anywhere near enough to put the care home sector on a sustainable footing given the chronic under-funding that exists even before the additional costs of the living wage.”
Councils say they simply do not have the funds to provide more support to care homes.
The Local Government Association has called for £700m that is due to be injected into the Better Care Fund over the next four years to be released immediately.
Councillor Izzi Seccombe, the LGA community wellbeing spokeswoman, said: “We are concerned that councils will not see the benefit of this extra money for social care until towards the end of the decade when services supporting our elderly and vulnerable are under severe strain now.”
However, the constant pleas for extra funding will not solve the underlying structural problems facing elderly care in Britain.
One senior executive at a major care home group said both the shortage of beds in hospitals and the funding pressure on care homes could be eased by greater cooperation between the NHS and the social care industry. The NHS spends as much as £25bn a year on holding elderly patients in hospital as they wait for the local authority to arrange and approve a care home, they claimed.
William Laing, an economist and author of the LaingBuisson report, said the UK needs a new regulator for the industry called Ofcare that sets the prices for care homes in the same way that Ofgem and Ofwat do for utilities. This could ensure that councils adequately fund care and operators do not make excessive profits.
He said: “The continuing standoff between central and local government, where no one is taking responsibility for good management of the social care market, has led to a highly polarised environment, with inadequate profits in areas highly exposed to public pay and super-profits earned by some providers in areas of high private pay.”