Better understanding of private companies is needed to safeguard those in care.
The LGA has become increasingly concerned about the levels of debt and financial risk in independent children’s social care placement providers, as well as the lack of market oversight.
While councils provide some of their own fostering and children’s home places for those in care, more than three in four children’s homes – and more than a third of fostering placements – are now provided by the independent sector, which includes private and charitable companies. We are also seeing significant consolidation of providers.
The worry for councils is that we have no clear understanding of how profit, consolidation and risk are affecting the market or the experiences of, and outcomes for, children in care – though the Competition and Markets Authority (CMA) recently confirmed councils’ concerns that the children’s social care market is “dysfunctional”.
To improve our understanding of the market, and to support councils in their commissioning, we have been publishing research for two years on profit-making and financial risk in the largest providers of children’s social care placements.
The latest update, published in March, found that:
- The 10 largest independent providers of children’s social care placements (residential and fostering) made a combined profit of more than £300 million last year.
- On average, the largest 20 providers achieved profits that were 20 per cent of income – 14.2 per cent higher than the previous year.
- The total income of the largest 20 was more than £1.6 billion – 60 per cent of which was made by the largest four providers.
- Private equity (PE) ownership among the largest providers is increasingly prevalent. Ten of the 20 largest providers have PE ownership, and this proportion increases to eight of the largest 10.
- Nearly half (nine) had more debts and liabilities than tangible assets.
Our absolute priority is that children who can’t live at home feel safe, loved and supported, in homes that best suit their needs. While many providers work hard to make sure this is the case, it is wrong that some providers are making excessive profit from providing these homes, when money should be spent on children.
Despite increasing their children’s social care budgets, most councils are overspending each year as costs continue to soar.
The LGA estimates that future costs are set to increase by an estimated £600 million each year until 2024/25, with more than 8 in 10 councils already in the unsustainable position of having to overspend their budgets as a result of rapidly rising demand.
Councils have seen spending on residential placements increase by 84 per cent since 2015. They are having to divert funding from other local services – including early help for families – to meet these and other costs to provide desperately needed support to children in care.
Yet the largest privately run companies, which provide many residential and fostering homes for children, bring in huge profits. At the same time, many carry significant levels of debt that the CMA concluded create a risk of failure – which could disrupt the placements of children in care.
Stability for children in care is paramount if we are to help them to thrive. So, it is vital that there is oversight of the financial health of these providers to help catch them before they fall and ensure company changes don’t risk the quality of provision.