Fees paid by cash-strapped councils fail to meet costs of caring for residents, according to Competition and Markets Authority

The UK’s care homes are grappling with an unsustainable £1bn-a-year funding gap caused by councils not paying enough money, resulting in many homes charging residents over the odds in order to stay afloat, an official review has found.

The Competition and Markets Authority (CMA) has also revealed it is taking enforcement action against a number of care homes that have been unfairly demanding large upfront fees, or charging families for weeks after the death of an elderly relative.



In its report into the £16bn care homes sector, which covers 410,000 residents and stretches across 11,300 homes, the CMA said “urgent action” was needed because the current regime was “not sustainable” without additional funding.

It suggested that people who paid for their own care were being asked to pay more than they should in order to subsidise council-funded residents.

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“On average, a self-funding resident is paying over £12,000 a year more than a local authority to have a place in the same care home ... This difference between self-funded and local authority prices for the same service is understandably perceived by many as unfair.”



The government has said it will publish a green paper on care and support for older people by summer 2018. In the meantime, however, the issue was that councils were paying fees that were “below the costs care homes incur”, said the CMA.

It added that if councils were to pay the full cost of care for all the residents they financed, the extra cost to them would be between £900m and £1.1bn a year – a figure that will increase as the population continues to age.



This shortfall had led to care homes “propping up their finances” by charging higher prices to those who paid for their own care – known as self-funders. On average, said the CMA, self-funders’ fees, at almost £44,000 per year (£846 a week), were 41% higher than those paid by councils.



The report stated: “Many care homes are relying on higher prices charged to self-funders to remain viable, even when providing the same services.”

It added: “Given that local authority fees have been below total cost, this indicates ... that this is offset by self-funded resident fee rates being above total cost.”



With many homes not currently in a sustainable position, some may be forced to shut or move away from the local authority-funded segment of the market.



The chief executive of the CMA, Andrea Coscelli, said: “Care homes provide a vital service to some of the most vulnerable people in our society. However, the simple truth is that the system cannot continue to provide the essential care people need with the current levels of funding.”



The CMA said it was taking enforcement action against some care homes and “raising concerns” with others in order to ensure they were complying with consumer protection law.

The watchdog is focusing on homes that are charging large upfront fees that are not fair or transparent, and those charging families for extended periods of up to four weeks after a resident has died.



As a result of the CMA’s work, people shopping around for a care home could find it easier to get information about pricing in future.

As part of its recommendations, the CMA called for an independent body to take charge of care home planning for councils in England and Northern Ireland.

The Department of Health said: “We know the social care sector is under pressure due to our growing, ageing population – that’s why we’ve given £2bn additional funding over the next three years, and next summer we will publish plans to reform social care to ensure it is sustainable for the future.”

Care England, the trade body for care homes, said the independent body recommended by the CMA “needs to have teeth and the authority to compel local authorities to pay ... If the market continues without a considerable funding injection or better commissioning practice, the closure of care home providers will limit choice and competition”.