Councils are failing to make ‘fair' payments to care home operators, making care for the elderly unsustainable and providers unable to invest in new capacity, according to new research.

The research - from healthcare market intelligence provider Laing & Buisson - found the rates councils will pay for care beds has failed to keep pace with inflation for the last three years.

Analysis of the figures showed that even if the Dilnot Commission's recommendations on insuring against care costs were introduced, this funding would cover fail to cover even half the costs they are intended to finance.

Chief executive of Laing & Buisson, William Laing, said: ‘The 'care' element of costs - which would be insured by the state under the Dilnot recommendations  - would in actual fact cover well under half of these new 'fair fees', stretching to around 33% for residential care and 45% for nursing care. This means that the majority of costs will still fall to individuals.

‘Whoever works out what the state will cover will also have to make a decision on whether it will cover just the bare care costs, or if it will add in a reasonable operator's mark up of around 10% in which to help create a sustainable care home economy and to encourage the capacity building which all research points towards a great need of.'

The Fair Price for Care toolkit shows that the average fee paid by most local authorities is £50 a week below the rate needed to provide an environment on the borderline of acceptability.