- Video report by ITV News Correspondent Ben Chapman
There are fears of care home closures across the nation as the industry faces an unsustainable £1bn-a-year funding gap, the competition watchdog has warned.
Residents fees paid for by councils fail to meet the costs of care homes, meaning there is now a noticeable shortfall and a sharp increase in rates for people paying for private care, according to the Competition & Markets Authority.
Private care home residents fees are 40 per cent higher on average than those paid by councils, which works out to be around £12,000.
The CMA may take legal action against a number of care homes in a clampdown on charging families for "extended periods" following the death of a resident, or asking for unfair fees upfront.
CMA chief executive Andrea Coscelli said: "Care homes provide a vital service to some of the most vulnerable people in society.
"However, the simple truth is that the system cannot continue to provide the essential care people need with the current level of funding.
"Without substantial reform to the way that councils pay and commission care, and greater confidence that the costs of providing care will be covered, the UK also won't be able to meet the growing needs of its ageing population."
Around 430,000 people live across the UK's 11,300 care homes. The sector is keep its head above water on a day-to-day basis but there is no money around for future investment.
It is estimated that a further 12,000 beds are required per year due to the ageing population, the CMA said.
The watchdog has called for an independent body to take charge of the care home planning for councils in England and Northern Ireland.
Mr Coscelli added: "It is essential that residents and their families can make informed choices, understand how these services will be paid for, and be confident they will be fairly treated and able to complain effectively if they have concerns.
"We are now calling on care homes, councils and government bodies to help people navigate what can be a confusing system."