Care home sector faces financial crisis that could lead to loss of thousands of beds

The UK care home sector is facing a financial crisis that could lead to the loss of almost 37,000 beds, equivalent to about 1,500 care homes over the next five years and force elderly residents to instead stay in hospitals, leaving the National Health Service to pick up the annual £3bn bill. One in 10 beds in care homes are in danger of disappearing by 2020.

According to the Westminster-based think tank ResPublica, the sector has primarily been affected by a fall in the fees that local authorities contribute to residents' care and an increase in staff costs. Post April, the "national living wage" may come into force, increasing staff costs further.

The ResPublica report which has the backing of the GMB trade union states that the care home sector will be short of £1.1bn in funding by the 2020-2021 financial year. Of this, £382m is linked to costs associated with the introduction of the national living wage.

In 2011, the country's biggest care home group, Southern Cross, collapsed. However, rival operators took control of its homes. This time around, the industry will not be able to bear the failure of a major operator, the report says.

Phillip Blond, a director at ResPublica said: "When Southern Cross failed, the private sector stepped in and cared for those left homeless. Now, however, with the sector losing money for every funded resident, there is no provider of last resort. We fear the worst case scenario is the most likely, that these residents will flood our local general hospitals costing £3bn per year by 2020."

The report states that real term spending on social care for older people has fallen by 17% over the last five years. Currently there are about 425,000 people across 18,000 care homes in the country.

While 18% of the existing population account for seniors aged more than 65, the figure is expected to increase to 25% by 2050, putting more pressure on the system. Several care home heads and trade unions have asked the government to step in and take the necessary action.