Local authorities are underpaying for older people's residential and nursing care by £2.36 billion a year, with the gap between care costs and council fees reaching its highest recorded level, according to a new report from Care England.
The trade body’s ‘Priced to fail’ report found the funding shortfall has increased by 49 per cent in cash terms since 2022/23, reaching £2.36bn in 2025/26 – and warns there is currently nothing in place to prevent the gap widening further.
The analysis found the average council-funded residential care placement now carries an annual funding shortfall of more than £10,000, while the equivalent figure for nursing care exceeds £23,000 per bed.
According to the report, the nursing care shortfall is broadly equivalent to a care worker's annual salary, leaving providers to absorb the gap through operational efficiencies, delayed investment, repairs and maintenance, or by limiting the number of publicly funded placements they can offer.
Care England chief executive Professor Martin Green said: "There are around half a million people living in care homes in England right now.
“They are our parents, our grandparents, people who built this country and paid into it their whole working lives on the understanding that it would be there for them when they needed it most.
"What this report shows is that the system we are asking them to rely on is being underfunded to the tune of £2.36bn every single year, and that the gap is getting worse, not better."
Nursing care gap widens
The report identifies the sharpest widening of the funding gap since 2022 was seen last financial year (2025 -26), widening by 27 per cent – which Care England mostly attributed to the increase in the combined impact of National Living Wage increases and changes to employer National Insurance contributions, arguing that local authority fee uplifts failed to keep pace with provider costs.
The report also highlights significant regional variation in council funding, with the weekly shortfall for nursing home residents ranging from £278 to £639 depending on location.
The findings add to ongoing concerns across the care home sector about provider sustainability, workforce pressures and the ability of operators to invest in services while meeting rising employment and regulatory costs.
Reform calls
Publication of the report comes days after Prime Minister Andy Burnham used his first Labour Party Conference speech as leader to set out plans for a National Care Service, warning that "broken social care will break the NHS too".
Professor Green said Baroness Casey's ongoing review of adult social care provided an opportunity to address long-standing funding issues, but argued action could not wait for the review's final recommendations.
He said: "I have spent nearly forty years in and around adult social care, and I have never known a moment where the gap between what we ask of this sector and what we are prepared to pay for it has been this wide.
"We have a word for what happens when you keep asking more of a system while giving it less. It fails. And when social care fails, the consequences ripple outward through the NHS, through local authorities, through families and communities."
A full analysis of Care England's Priced to Fail report findings by policy lead Fraser Rickatson will be available to The Care Home Environment registered subscribers in the October issue, out next week. Register to receive your copy here.
