Like many other developed nations, the UK is contending with an ageing population. As a result
of longer life expectancy, the number of people over 85 will double to 2.6m in
the next 25 years. Despite the likely increase in demand for their services,
the care home sector is facing significant operating challenges, with staffing
shortages and spiralling costs hampering progress.
According to the most recent UK Census, the number of people aged
65 years and over increased from 9.2 million in 2011 to over 11 million in
2021 and the proportion of people aged 65 years and over rose from 16.4%
to 18.6%. And this is a trend that is set to continue. The number of people
aged 85 years and over was estimated to be 1.7 million in 2020 (2.5% of the UK
population) and this is projected to almost double to 3.1 million by 2045 (4.3%
of the UK population). Whilst the average person living for longer is clearly
good news, this demographic shift presents issues for policy makers and the
provision of elderly care.
The care homes sector is worth around £15.9 billion a year to the national economy. According to UK government numbers, there are around 5,500 different providers in the UK operating 11,300 care homes for around 410,000 elderly residents.
Despite its existing size and likelihood for growth however, operators in the sector are facing a raft of challenges that are taking their toll on business performance and viability.
Impact of energy costs
The rising cost of energy has impacted smaller businesses in all sectors, but for care homes, which typically face a higher heating burden, the threat is particularly stark. Indeed, according to Care England, the largest representative body for care providers in England, a third of care homes in England have considered closing in the past year due to rising energy bills.
In April 2023, Care England warned the energy regulator, Ofgem, that care home heating bills had soared by 500% in the past year because suppliers are charging rates that dwarf the current market price for gas.
Despite government support schemes, aimed at alleviating the impact of these increases, the volatility in the wholesale energy market has increased cost uncertainty for operators. Furthermore, the current Energy Bills Discount Scheme (EBDS) only runs until March 2024, which raises the potential of further real cost increases next year.
Staffing shortages
After the toil of the Covid Pandemic and tightened labour supply after the UK’s separation from the EU, the care homes sector hit critical staff shortages in 2022. Whilst the number of vacancies has since fallen – driven largely by a reclassification of working visas to include care workers, allowing record overseas labour migration into the sector – the issues of attracting and retaining talent remain.
Care England has lobbied for an increase in the minimum wage for care sector workers to £15 per hour (compared to the National Living Wage of £10.42), but salary is not the only staff-based cost operators need to consider. Businesses also need to invest in the training, development and support of staff, who are often facing incredibly challenging patient/resident care scenarios.
Interest rates and rent rises
A recent report from the Centre for International Corporate Tax Accountability and Research (CICTAR) warns that the UK care system is facing a crisis of rising costs because of how care homes are financed. The past few years have seen investors drawn to the sector – based on its compelling growth potential – and have spent an estimated £7.5bn buying up healthcare properties over the last five years. The report authors estimate that up to half of for-profit care home groups are now leasing their homes from landlords. This presents a new challenge for operators, they argue, as rents rise in line with inflation. Some care home operators may have to increase their fees, to meet these increased costs. But increased fees can only be realised if staffing and resident capacity is managed accordingly.
Care homes will remain a vital sector in the UK economy, with an ageing population likely to create a significant surge in demand. Healthcare providers will need to develop new strategies to tackle the challenges outlined above and may face funding issues as they adapt their models to the challenges of today.
Capify is a specialist finance provider to thousands of UK smaller businesses UK. Our business loans help operators to navigate specific short-term challenges and invest in the opportunities of their sector. Find out more about our financing solutions, and see how much you may be eligible to borrow, here:
https://capify.co.uk/cash-flow-working-capital-loans/
