More elderly care homes set to close after spending freeze

Ministers pledged that no one would be made homeless but were unable to guarantee that no homes would close

More care homes for the elderly could go bust in the wake of Southern Cross's demise, a leading social-care consultancy has warned.

Over half of UK councils have frozen or reduced fees they pay for residents in 2011-12 at a time when costs are rising by an average 2.8 per cent, according to a survey by the health and social-care analysts Laing and Buisson.

The widening gap between the money coming in and the expenses is likely to lead to staff cuts, deteriorating service and could force "more operators of residential care homes for the elderly into administration", it says. The Department of Health may be compelled to fix fees to protect residents who could otherwise find themselves homeless when facilities close, it says.

Southern Cross Healthcare, the largest independent care-home provider, collapsed this week after landlords of its 752 homes refused to accept a 30 per cent proposed reduction in their rent. The Government said no one would be made homeless but ministers were unable to guarantee that no homes would be closed.

There are about 11,000 care homes for the elderly in the UK with 380,000 residents, just over half of which have their fees paid by local authorities. The survey found that of 208 councils, 140 had frozen or reduced fees for 2011-12 and a further 18 had raised fees by less than necessary to meet the increased costs. Just seven increased fees above 3 per cent, all of them in Wales.

Overall, the average increase in fees for local authority-funded residents was 0.3 per cent, significantly below the figure of 2.8 per cent which the analysts estimate is necessary to keep pace with care-home cost inflation. Increases in fees have been below inflation for the past five years but the latest increase is the lowest yet. The 2.5 per cent real-terms cut is a "dramatic step up" from last year's cut of 1.4 per cent, Laing and Buisson said.

Southern Cross claimed freezing of fees by local authorities played a major role in causing its closure. More than a quarter of councils – 29 per cent – said they expected the number of local authority-funded residents in care homes to be lower by the end of the year, reducing occupancy rates and putting further pressure on operating margins. William Laing, chief executive of Laing and Buisson, said independent operators would have to cut costs, accept lower profits, or load fee increases on residents who pay privately. He said: "Staffing is the biggest cost and that is where savings would be sought. Southern Cross said there was huge variation in the staffing levels in its homes and its hope was to rationalise them without affecting services." He added: "We have always believed that the Department of Health would be resistant to taking on a fee-fixing role. Maybe the fallout from the Southern Cross failure will encourage ministers to take a more interventionist line."

A Department of Health spokesman said: "It is for local authorities to commission care from providers that best meet the needs of the communities they serve." He said the Spending Review made it clear that "local authorities should have the resources to protect people's care in their areas".