A £2.3bn-a-year hole has been exposed in England’s elderly care home system, leading to warnings that living standards for hundreds of thousands of vulnerable people could be at risk. A government exercise to define the true cost of care has uncovered a 20% shortfall in council funding needed to look after close to 200,000 people aged over 65 in care and nursing homes, the Guardian can reveal. A further annual hole of at least £650m has been found in funding for carers who look after people in their own homes, although that is likely to be a significant underestimate and could be over £1bn more, according to providers. It means some councils are paying care homes hundreds of pounds a week less for each resident than what is considered “the fair cost of care”. Care home users said it is “putting people at risk”. Operators warned they could be forced to shut facilities and said it “will endanger the foundations on which social care support has been built”. The funding shortfall directly affects people whose care and nursing home bills are entirely or partly paid for by councils because they have less than £23,250 in assets. And it comes amid growing reports of rushed and inadequate care for thousands of people. Scores of previously good dementia care homes have been recently rated “inadequate” by inspectors finding residents’ dressings going unchanged for 20 days, “revolting” filthy carpets and unexplained wounds, often as a result of staff shortages. “The evidence is clear,” said Martin Green, the chief executive of Care England, which represents independent care home operators and compiled the figures from council submissions. “The care sector is being significantly underfunded by local authorities and requires significant investment by central government. The continued funding shortage needs to be tackled head-on.” In Bracknell Forest the council budget to look after someone in a care home is about £840 a week, but £1,380 is actually needed – a 64% shortfall. And in Sunderland the council pays £380 less weekly for each nursing home bed than providers need to cover costs and remain sustainable. “People needing care are the ones who suffer,” said Helen Wildbore, the director of the Relatives & Residents Association. “Some families are facing a dire choice between a cheap ‘inadequate’ rated home, or a placement miles from relatives. It is a constant battle to get basic rights respected.” Conservative governments have in the past year cancelled or postponed social care reforms to deliver Boris Johnson’s 2019 promise to “fix the crisis in social care once and for all”. Experts say at least £7bn a year more is needed for social care – which also includes people with learning disabilities and children – but in the autumn budget the chancellor, Jeremy Hunt, announced the equivalent of just £3.75bn a year in extra funding. The shadow care minister, Liz Kendall, said: “A decade after the government promised to reform social care, they still haven’t delivered. Any prospect of reform is now buried and it is families paying the price with 28,000 exhausting their life savings to pay for care in the last five years alone.” She said a Labour government would “shift the focus of care into the community with more people cared for in their own home which is where they want to be”. Funding shortfalls have also been blamed for low care-worker pay, which averages £9.66 an hour in the independent sector and has resulted in one in 10 posts being vacant. Care workers have been quitting for better pay in supermarkets, Amazon and the NHS. Last year, 247 care homes closed while only 123 opened, according to CSI Market Intelligence, a care sector research firm. Meanwhile, 63% of people in the UK think social care has got worse over the past year and just 3% think it has improved, according to new polling by Ipsos for the Health Foundation thinktank. Council leaders said the figures showed “adult social care has nowhere near the funding it needs to provide high quality support to people who need it”. Cathie Williams, joint chief executive of the Association of Directors or Adult Social Services said that now the figures were public, the government “should deliver the long-term sustainable funding to deliver the ambition … for people to be able to access outstanding quality and tailored care and support.” The funding hole emerged from 147 council submissions to a “fair cost of care” exercise commissioned by the government before Liz Truss scrapped a national insurance rise to increase funding and her successor as prime minister, Rishi Sunak, postponed changes to social care funding until at least 2025. “As we strive to deliver the best care we can to some of the most vulnerable members of our society these figures expose the stark reality of the risk that providers are carrying day to day without a fair cost for care,” said Nadra Ahmed, the chair of the National Care Association. Many care homes charge private-payers more to make up the shortfall from council-funded residents. But in poorer areas, where more people rely on state funding, that is less possible. Across 12 boroughs in the north-east of England where councils fund residential care for more than 14,000 people over 65, the average weekly funding is £648 a person but the fair cost of looking after each person is £767. Across 19 boroughs in the south-east where 30,000 older people rely on council funding, the fair cost averaged £1,080 a person a week but the councils paid just £794, according to Care England analysis shared with the Guardian. The £2.3bn shortfall applies only to elderly nursing and residential care homes. When funding gaps in domiciliary care and care for working age people with learning disabilities, it aligns with previous estimates of £7bn a year extra funding needed, Care England said. Inflation and the national living wage rise to £10.42 an hour from April is further ratcheting up financial pressure. When the Hunt chaired the Commons health and social care select committee, he said £7bn a year extra was only a “starting point” that would not increase care quality. In the autumn budget he announced the equivalent of just £3.75bn a year in extra funding, over £1bn of which was to create more spaces to discharge people faster from congested hospitals. Asked about the financial hole, a spokesperson for the Department of Health and Social Care said: “This historic funding boost will put the adult social care system on a stronger financial footing and help local authorities address waiting lists, low fee rates, and workforce pressures in the sector.” They added the government was spending £15m to boost hiring of carers from abroad.