Ministers are under mounting pressure to pump more money into care for the elderly as investigations by the Observer reveal how some of the largest providers may have to pull out of supplying services because of an escalating financial crisis.

Before chancellor George Osborne’s autumn statement on 25 November, Sarah Wollaston, the Conservative chair of the all-party Commons select committee on health, is calling for the government to act, saying that social care providers are reeling from rising costs and declining fees from cash-strapped local authorities.

Meanwhile, the head of Care England, which represents independent care providers, claims that the care home sector is heading for a bigger crisis than the steel industry, while Chai Patel, the boss of one of Britain’s largest care home operators, HC-One, says half of Britain’s care homes could go bust.

The warnings come as residents in the 470 homes and specialist centres run by leading provider Four Seasons face uncertainty about the future of the company. Four Seasons has to make a £26m interest payment in December, but is losing money under the weight of £500m of debt.

Four Seasons has insisted that it can make the payment, but bosses at rival companies warned that the industry was under unsustainable pressure.

In the home care sector, where specialists look after the elderly in their own properties, the United Kingdom Homecare Association cautioned that leading providers could pull out of 55,125 care hours and 33 contracts because of the shortfall between the cost of care and the amount local authorities were paying for the service.

Wollaston, a former GP, said she supported the new national living wage and moves to pay transport costs to carers, but added that the government had to recognise that both measures would increase the costs of care.

“There has been a longstanding gap in funding for social care and this will become much more severe if there is not adequate recognition of the rising costs the sector will face as a result of the living wage. Otherwise, we will see more care providers pulling out of the sector,” she said.

Many problems result from the fact that local authorities, which have suffered funding cuts of more than 40% since 2010, cannot offer enough to make contracts attractive or, in many cases, viable. Many providers are turning to the private market as an alternative, where they can.

Martin Green, the head of Care England, said the crisis would lead to more people ending up in hospitals and Patel, whose company runs 250 care homes, said he had given research to the government that showed that half of care homes could disappear.

A Department of Health spokesperson said: “We know the system is under pressure and we’ve given extra money to support it but working in better, smarter ways is key to dealing with our growing ageing population. Since April, our £5.3bn Better Care Fund has been getting local NHS and councils working together to keep people well and living independently, which saves money in the long term. The overall costs of providing social care will be considered as part of the spending review later this year and we are working with the care sector on this.”

The Local Government Association has admitted that there is likely to be a £2.9bn shortfall in social funding care by the end of the decade and has called on the government to take action. Izzi Seccombe, LGA community wellbeing spokeswoman, said: “Only with a properly and adequately resourced adult social care system can we address the growing concerns about the state of an increasingly fragile provider market.”

As care homes prepare for the extra cost of paying Osborne’s new national living wage, research by KPMG has revealed that just under 6 million Britons, or 23% of the workforce, are being paid less than the current living wage. That proportion is even higher among young people, with 72% of 18 to 21-year-olds earning less than the level judged as sufficient.