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Public-sector cuts hit care home sector

Southern Cross, the UK's largest care home operator, has today issued a profits warning suggesting that the company will miss full-year targets because of a reduction in spending by local authorities. The company operates 730 care homes throughout the UK providing over 37,000 beds although total occupancy rates have fallen from 87.5% last year to 85.4%. Is this the start of a significant reduction in spending by local authorities?

There is no doubt that local authorities in the UK are cutting back more and more and this situation is likely to get worse before it gets better. While the budget cuts announced so far have hit the headlines many believe these are just the tip of the iceberg and many more will follow over the next 12 months. While companies such as Southern Cross believe that the situation regarding care homes in the UK is still very positive in the medium to longer-term, they will not escape cuts in the public sector.

Slowly but surely we are starting to see signs of concern in the private sector for companies which have for many years lived off public sector business. The demise of Connaught last week perfectly illustrates the difficulties which lay ahead for those with connections to the public sector.

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