UK care homes at risk of financial ruin as Living Wage costs bite

Ravender Sembhy
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2015 General Election - Elderly Care
Costs to the care home sector could rise by as much as £900m (Source: Getty)

Hundreds of British care homes are facing financial ruin as a result of the Living Wage, with the sector expected to come up against a £500m funding gap next year.

According to data from corporate health specialists Company Watch, costs across the sector could rise by as much as £900m with the introduction of the Living Wage in April.

The data, which covers 20,000 homes, shows that total profits of care operators were only £402m over the past 12 months, leaving a black hole of half a billion pounds. With the added wage bill, 1,400 care homes are at risk of failure or will need rescuing, experts are warning.

Nick Hood, business risk adviser at insolvency group Opus Restructuring, told City A.M.: “The UK residential care sector is facing a nightmare scenario with the imminent introduction of the National Living Wage, with a huge hike in its labour costs.”

In an attempt to soften the impact, George Osborne said last week that councils can increase council tax by up to two per cent to fund social care. However, Hood warned: “There is no certainty about how much of the new money to be raised by local authorities for social care will be available to boost care homes’ income.”

The care sector has come under intense scrutiny since 2011, when debt-laden Southern Cross, a 750-home operator, collapsed leaving thousands of residents in limbo.

Recently, Four Seasons, Britain’s biggest care group, controlled by financier Guy Hands, has come under

severe financial strain. Falling local authority income, rising costs and a heavy debt burden have raised questions about its financial structure. Four Seasons is home to 20,000 residents. The introduction of the Living Wage is expected to pile further pressure on the firm and the sector.

Hood added: “The prospects could hardly be grimmer.”

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