How can care homes respond to the financial challenges they face?

The UK’s care sector is under increasing strain. Escalating costs, funding constraints and workforce challenges are creating difficult operating conditions for many providers.

While the 6.7% rise in the National Living Wage (NLW) from April 2025 (followed by a further 4.1% increase planned for April 2026) was a positive step in recognising the value of the care workforce, it adds further squeeze to providers already working on tight margins. With many frontline staff in the sector earning close to the NLW, pay uplifts often extend through to senior roles, driving workforce costs higher still. The impact of rising wages is compounded for employers by the reduction in the threshold for Employer National Insurance Contributions in April 2025.

Rising operational expenses continue to bring challenges for care providers. Small and medium-sized homes, often operating with less financial capacity, are especially vulnerable to these escalating costs. Reviewing fee structures and performing regular cash-flow stress-testing allows potential risks to be identified early.

Funding and staffing pressures are also intensifying. Fee uplifts and funding sources have not always kept pace with the rising cost base, forcing some providers to make difficult decisions about sustainability and service levels. Addressing underperforming services or contracts before they become critical creates space for informed proactive decision-making rather than reactive measures.

Workforce shortages remain significant. According to the Adult Social Care Workforce Survey: April 2025, 71% of adult social care providers report recruitment difficulties, and more than half face retention issues. Pay competition from other sectors and limited childcare support are attributed as the main barriers to recruitment and retention. Aligning workforce planning with occupancy levels and the needs of residents can improve both stability and cost control.

Together, these pressures leave many providers with limited room for manoeuvre, and a clear need for proactive strategic advice.

How we can help

Care home providers can respond to rising costs and workforce pressures by acting early – reviewing financial performance, engaging proactively with stakeholders and addressing sustainability issues before they become critical. For stakeholders who are concerned about the position of a care home, seeking early advice is crucial.

The Restructuring & Insolvency team at Moore Kingston Smith has extensive experience working with care homes facing challenges. We understand the unique pressures facing this sector – from rising operational costs and staffing shortages to compliance requirements from the Care Quality Commission (CQC) and local authorities. Our team’s experience includes:

• Engaging with the CQC to ensure regulatory requirements continue to be met.
• Working closely with local authorities to maintain continuity of care and safeguard vulnerable residents.
• Developing tailored solutions that prioritise resident welfare while stabilising the business, whether through turnaround and restructuring strategies, formal insolvency processes, or controlled exits.

Contact us today for a confidential discussion about your situation. We are here to help you find a path forward.