The care home industry is calling on the chancellor to review funding to halt a growing crisis in the sector.

Despite a £300 million spending increase over two years, the industry is warning that more must be done if the closure of homes is to be halted.

Residential homeowners, who largely look after elderly people, say the problem has been heightened by the introduction of tough new national care standards.

They have highlighted the archaic funding formulas that decide whether patients do or do not get government funding and how much they are entitled to.

There are often disputes between families, local councils and the NHS about who pays the bills.

The industry warned that most homes are run as small businesses and many will struggle to meet the new legislation.

If the problem is not solved it could delay the government's plans to modernise the NHS.

A sharp rise in the number of homes that have closed has also led to a shortage in some areas.

This has in turn compounded the problem of "bed blocking" in the NHS - six per cent of hospital beds are now taken up by elderly patients for whom care homes cannot be found.

Tim Evans of the Independent Healthcare Association, an industry body, says if the problem is not addressed "the government's NHS plans will run into the sand".

John Morton, chief executive of care homes company Southern Cross, warned: "The industry has not been properly funded for the last five years. New regulations, the minimum wage and other factors have meant that many homes have had to close."