The care home market is not sustainable without additional public funding, the competition regulator has said.

report published today by the Competition & Markets Authority said providers that primarily support council-funded residents will struggle to survive at the current level of fees paid, with significant reforms needed to bolster the sector to meet rising demand.

The CMA’s profitability analysis of the sector found the average fees paid by councils are below the costs of supporting residents. However, the sector as a whole, including self-funders, is “just able” to cover operating and capital costs.

The analysis found many individual care homes are currently not financially sustainable, with those supporting council-funded residents particularly vulnerable.

It added: “This shows that the fees currently being paid by local authorities are not sufficient to sustain the current levels of care under the current funding model.

“The implication is that public funding needs to increase if the current model of funding is to continue, or alternatively, if current levels of funding do not increase, the funding model for care will need to be changed.”

The analysis found about a quarter of care homes are most at risk of failure or withdrawal, as they have more than 75% of council-funded residents.

For these homes, the CMA estimates fees paid by councils are up to 10% below total running cost, which equates to a funding shortfall of £200m-£300m across the UK.

A CMA analysis based on larger providers found that fees paid by self-funders were on average 41%, or £12,000 a year, higher than those paid by councils.

However, it said most self-funders are not wealthy, with a current assets threshold for council-funded support in England of £23,250 resulting in “practically anyone” who owns a home being required to cover their own costs if they enter a care home.

The report said: “We already observe that nearly all new care homes being built are in areas where they can focus on self-funders.

“While we would expect that many mixed homes with differential pricing could continue to operate for some time, there will be a need for additional funding to support further care homes that would not be sustainable without the benefits of this price differential.”

The report also said that councils’ approaches to responsibilities under the Care Act to shape local markets was variable.

The CMA said: “This understandably reflects the current pressures on LAs and their lack of long-term certainty on future funding patterns and levels.”

Local Government Association community wellbeing board chair Izzi Seccombe (Con) said the report showed the “stark reality of the social care crisis” and called for urgent government action.

“Councils and providers are united around the severity of the challenges the system faces around care home availability and viability,” she said.

“If the system is left to carry on as it is, then we will see more and more providers either pulling out of council contracts or going out of business altogether.”