The fees councils are paying care home providers has created a sector-wide shortfall of £1.3bn a year that is being plugged by a “hidden care tax” on private users, according to research.
Analysis by Laing Buisson estimated the average fee paid by councils in England for residential care was £486 per week in 2016-17.
This compares to benchmark fees of between £590 and £648 that is estimated must be charged by care providers in order to generate a “reasonable” annual return on capital.
The research concluded that the care home sector is therefore being kept afloat through cross-subsidies from the 40% of residents who pay privately.
It added: “We have conservatively estimated the shortfall in council paid care home fees at about £1.3 billion a year in England alone.
“The £1.3 billion can equally be viewed as a hidden ‘care tax’ that government and councils are content to see private payers contributing to keep mixed funding homes in business.”
Responding to the analysis, the Local Government Association’s community wellbeing board chair Izzi Seccombe (Con) said historic underfunding of adult social care had impacted on the cost and quality of support and access to services.
She said: “The consequences for the provider market are particularly acute and the gap between what providers say they need and what councils are able to afford is now at breaking point.”
Cllr Seccombe added without “urgent and genuinely new” government funding more care home providers would leave the publicly funded market or go out of business.
She added: “As we have warned before, this risks creating a two-tier system between those able to choose and pay for their own care, and those reliant on increasingly overstretched council-funded care that will struggle to meet people’s needs, which is at odds with the prime minister’s pledge for a shared society.”