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Profit and loss: How children's care is failing our most vulnerable

Illustration: Tracy Worrall

14 min read

Demand is rising, costs are spiralling and profit-maximising private equity and sovereign wealth funds are piling in. The children’s care business is a huge policy failure that is dragging councils towards bankruptcy but, as Justine Smith reports, it is vulnerable children that are the real victims.

Illustrations by Tracy Worrall

It took the tale of a reality TV star, an ex-pornographer and their connections to a children’s home temporarily closed after a damning Ofsted inspection to put the profit-run care business in the media spotlight earlier this month.

The story of Ampika Pickston and her fiancé David Sullivan’s involvement in the home in Altrincham, which Ofsted rated “inadequate”, briefly highlighted the booming market in privately-run residential care for children. 

AP Care Homes is challenging what it describes as Ofsted’s “flawed” report but last year hundreds of children’s homes were rated as needing improvement or inadequate and more than 100 closed. In the absence of self-promoting soft porn stars or high-profile former porn barons, few if any hit the headlines.

Nor has there been much interest in what an official watchdog has found to be the excess profits made in a burgeoning private children’s care industry that, increasingly, is attracting global venture capital and even sovereign wealth funds.

This 2022 report, by the Competition and Markets Authority (CMA), also highlighted a highly fragmented, complex market, that means individual councils find it hard to plan for and therefore provide their own residential and foster care, leaving them at the mercy of private providers.

Illustration: Tracy Worrall
Illustration: Tracy Worrall

It means children’s destinies are being decided by market forces, with thousands needlessly moved into residential institutions, instead of foster homes, because of uneven provision.

The House has spent months investigating how the private sector is impacting children’s social care services in England, pushing some councils to the brink of bankruptcy with what critics say amounts to “obscene” profiteering. 

Last October, we sent freedom of information (FOI) requests to 95 of the 174 care-commissioning councils in England and Wales to survey the state of children’s social care today. Sixty-nine responded (though not all responses were complete). 

We found the average annual cost of a residential placement in 2023-24 is £281,000 or £5,400 per week (based on 35 responses). This is five times more than it costs to keep an adult in prison. While some children require such intensive intervention that authorities have reported spending as much as £1m per year on individual care plans, what is of more concern is the 25 per cent hike in prices in just two years that we uncovered – when at the same time there are 23 per cent profit margins taken by the biggest operators, as revealed by the CMA report. 

That review warned England had “sleepwalked into a dysfunctional children’s social care market” which it found had “left local authorities hamstrung in their efforts to find suitable and affordable placements in children’s homes or foster care”.

A survey by the Local Government Association last year found 1,510 placements which cost more than £10,000 per child per week.

Our figures showed some authorities appearing to depend far more heavily on residential than others. The London Borough of Redbridge, for example, has two in three of its looked-after children in homes, compared to the average of about one in 10.

The highest average annual expenditure on residential placements, at £373,000, was the London Borough of Sutton, up from £204,000 in 2019 and more than twice as much as nearby neighbour Tower Hamlets, where it was £180,000.  

Tower Hamlets has the highest child poverty rate in London, 56 per cent, but has relatively low numbers of children in care, one in 213, the same as Sutton. Even with one of the lowest per-placement costs of all responding councils, Tower Hamlets projects it will overspend by £0.6m on children’s homes in 2023-24.

Sutton Council recently admitted it was in “survival mode”, dipping into reserves and raising council tax to manage a £5m overspend which it said was largely down to having to increase its budget for children’s residential care by £2m due to “current demand for children and young people needing residential care and growing increases in prices”.

In Blackpool, where one in 45 children is in care, the highest proportion in England, the council pays an average £296,811 per annual residential placement, enough to buy two terraced properties in the town. Children’s services spending increased from 15 per cent of its total budget a decade ago to 45 per cent this year, leaving it with the country’s highest funding gap. 

Our survey also found independent foster agency (IFA) placements consistently costing twice as much as in-house local authority provision, an average £48,000 per year (43 responses), compared to £23,000. Ofsted figures show IFAs now supply a record 47 per cent of all filled mainstream foster places and the CMA says they make 19 per cent profit.

Scotland removed profit from children’s services years ago and Wales is in the process of doing the same. However in England, the private sector is increasing its share of the market every year.

The obscene, eye-watering cost of some of this residential care is public purse money which is leaving the country when it should be being reinvested into the system

Anne Longfield, chair of the Commission on Young Lives, said: “This is a huge business we have allowed to be created. People talk about it as a hot market. Venture capitalists are around it like bees around honey.”

One brochure, a market review of the UK children’s services market produced by global finance advisory consultants, Clearwater International, talks of “significant opportunities for investors with increasingly positive market drivers… a highly defensible market, favourable demographics, a growing UK population exposed to risk factors”.

In its report the CMA highlighted the fact that some of the “largest private providers are carrying very high levels of debt, creating a risk that disorderly failure of highly leveraged firms could disrupt the placements of children in care”.

It warned: “Despite the PE-owned providers having high operating profit margins, a significant proportion of their leftover cash is spent on servicing debt. This low headroom reduces their financial resilience, especially if the sector were to experience lower margins or the economy experienced heterogenous shocks.”

Illustration: Tracy Worrall
Illustration: Tracy Worrall

Longfield said: “The obscene, eye-watering cost of some of this residential care is public purse money which is leaving the country when it should be being reinvested into the system. The only way to move away from this travesty is to say we are going to end private providers and at the same time, government must invest in new provision.”  

A spokesperson for the Children’s Home Association (CHA) said: “The CHA does not condone profiteering. However, there is a huge difference between ‘profit’ and ‘profiteering’. When local authorities have not been willing or are not able to run their own children’s homes, the level of investment and financial security necessary to sustain that provision by independent providers is significant. 

“The cost increase between public and private provision has been comparable for several years. Furthermore, residential care is often used for those children and young people who are the most vulnerable and a complexity of need that cannot be met in foster care. This often results in higher staffing ratios needed, which results in higher cost.”

Numbers of children going into care are vastly outrunning population growth, up 25 per cent in just 12 years to more than 83,840 or 1 in every 143, and are predicted to rise to 100,000 by 2025. Observers blame 46 per cent cuts to early intervention services over the last 12 years and rising poverty levels. 

Children’s services have simply not been able to keep up – and in some areas have actively withdrawn – while the private sector gets to pick and choose what provision it puts where, leading to extreme shortages in areas that don’t favour profit and forcing social workers to scrabble around trying to find any placement, anywhere in the country at any cost, just to put a roof over the head of a child in crisis.

A children’s services placements team manager told The House there were more than 100 inquiries for every available emergency care bed just before Christmas.

The system failures mean hundreds of youngsters being illegally housed in unregulated accommodation including hostels, unregistered children’s homes, unsupported independent living, hotel rooms, caravans and boats. One child with complex needs was held in the A&E ward of London’s St George’s Hospital for 28 days because there was nowhere else to put him.

Our research found, despite 2021 legislation banning the use of unregulated placements for under-16s, an average of four under-16s per council living in unregulated settings.

In 2022, a government-commissioned Independent Review of Children’s Care concluded that an urgent £2.6bn rescue package was needed to pull children’s services out of crisis, stop the spiralling numbers going into care and dampen rocketing costs.

In response, the government unveiled its strategy, Stable Homes, Built on Love, promising to reform the system by putting “love, relationships and a stable home at the heart of being a child in care”. That translated into a £200m package of measures including trial regional commissioning programmes, an increase in national minimum fostering allowances, a pilot early help model for families and £9m to support kinship carers.

Illustration: Tracy Worrall
Illustration: Tracy Worrall

While the objectives were broadly welcomed, critics said it showed little commitment to achieve them.

A year after its launch, chair and author of the 278-page independent review, Josh MacAlister, says he is disappointed with the watered-down response and slow pace of change. 

“My findings still stand,” he said. “One of the most urgent challenges remains profiteering – people extracting profit beyond what the market should allow. That’s the conclusion the CMA reached as well. The longer we take to fix this, the greater the cost in financial terms and in how many vulnerable young people we condemn to poorer outcomes.

“When sovereign wealth funds are investing in your country’s children’s homes, you know something is very wrong.”

Private market drivers also affect where children are sent to live. Last year, almost a quarter of new children’s homes were opened in the North West, compared to seven per cent in London. Meanwhile, children in London were being sent an average of 60 miles from home because of local provision shortages.

A children’s services placements team manager told The House there were more than 100 inquiries for every available emergency care bed just before Christmas

“It’s the market doing what it rationally does if the objective is profit-making,” says MacAlister. “Buy up property that is in cheap areas, pay staff as little as you can and then take out the profit.”

More than half of looked-after children now live outside of their local area, with some hundreds of miles away from their friends and families having been moved multiple times, isolated from support networks and having their education disrupted.

A recent DfE review found a third of the 6,670 youngsters in residential care could have gone to foster homes, which usually offer more positive outcomes, a better quality of life and can cost around a tenth of the price, as our research found.

Georgia Toman went into care at 14 and was suddenly moved to a children’s home 30 miles from her school a month before her GCSEs.

She said: “It was either a children’s home in Lancaster, 30 miles away from school, or a foster home even further away in Merseyside. That’s all that was available. That’s how broken the system is. Being in a residential home was so stressful.”

Georgia, now 21, has beaten the odds to study a bioscience degree. Four in 10 care leavers her age are NEET – not in education, employment or training – and only 14 per cent get to university compared to nearly half of non-care-experienced people.

Although hers was a local authority-run home, she is appalled by the for-profit market in children’s social care. She said: “Nobody should be getting rich from children’s trauma. It is absolutely disgusting.”

A DfE spokesperson told The House: “Profiteering in the children’s homes market is wholly unacceptable.”

However, critics say central and local government appear to be doing little to tackle its malign impact.

Chief executive of the charity for care-experienced children Become, Katharine Sacks-Jones, said: “There hasn’t been any action to address profiteering. Placements can be costly when needs are high but this is about unacceptable profit margins and the private sector-dominated market failing to meet needs of the harder-to-place children, those with complex needs and disabilities, sibling groups and unaccompanied asylum-seeking children.”

With children’s services now accounting for an average 29 per cent of the 151 commissioning councils’ overall budgets, it is little wonder many are issuing warnings of harsh cuts and even near-bankruptcy as they struggle to balance the books. They reported a combined children’s services overspend of almost a billion in 2021-22. 

The Association of Directors of Children’s Services has called for price caps. President John Pearce said: “Profiteering by some large private providers and growing private equity involvement is a concern, as is the considerable level of borrowing and debts that some private companies are holding. Should any of these providers fail it would be children who suffer the greatest consequences.”

The CMA report urged caution around shackling the private sector, warning that price caps or de-profitisation could see a mass exit from the market and lead to a collapse in provision unless the public sector stepped in with significant capital investment to fill the space. The Welsh government says it has been working with partners to prevent or mitigate any adverse consequences and is confident no child will lose their home as a result.

Others, including MacAlister, have gone further, calling for profit to be removed from the system entirely. Deputy Minister for Social Services in Wales Julie Morgan said her government made the decision to eliminate profit after hearing directly from looked-after children who told them they didn’t want business capitalising on their trauma and deciding their futures.

Illustration: Tracy Worrall
Illustration: Tracy Worrall

“There is strong evidence which demonstrates for-profit providers are more likely to place children outside of their local area, provide generic care packages and pose a greater risk to the stability and continuity of care they provide than not-for-profit counterparts,” she said.

In the absence of more radical legislation and government intervention, MacAlister says local authorities in England must step up and reassert their position in the children’s services market. Instead of spot-buying last-minute places at the mercy of the market, he said, they should be collaborating with neighbouring authorities to build or commission services two or three years in advance.   

“How they interact with the market is very weak,” he said.

He argues meaningful investment in foster and kinship carers could also reduce councils’ dependence on the private market by reversing the current unhealthy supply and demand dynamic.

However, foster carers are currently deregistering at an unprecedented rate and not being replaced. Sarah Thomas, chief executive of the Fostering Network and a former social worker, said: “There’s an increasing number of children in care with complex needs. However some foster carers don’t feel they have the right skills, or support, to care for these children in the best way possible. Other services designed to help children with complex needs, such as specialist mental health services, are also significantly stretched and can’t always provide support when needed.”

Almost half of children in care were found to have a mental health disorder in the most recent reliable study and all have suffered trauma. Almost two-thirds have experienced neglect, 48 per cent physical abuse and 23 per cent sexual abuse. More than a quarter have special educational needs requiring Educational, Health and Care Plans compared to three per cent in the general population.

A DfE spokesperson said: “We are working to increase financial transparency across the children’s homes sector, and are also investing £259m to support local authorities to create more placements for children in high-quality and safe homes.

“We are also making the largest ever investment of £36m to deliver improved foster carer recruitment and retention across the country, alongside greater financial support for foster carers.” 

Children’s care services in numbers

  • 83,840: children in care in England, up 25% in 12 years (DfE)
  • 59,380: approved mainstream foster carers, down 8% since 2019 (DfE)
  • 1,050: fall in fostering households in the year to March 2023 (DfE)
  • 130,000: children with kinship carers, many getting no support (DfE)
  • £159: weekly profit per private fostering placement (CMA, 2020)
  • £5,400: weekly cost per child in residential (2023, FOI data) up 25 per cent in two years  
  • £910: weekly profit per private residential placement (CMA, 2020)

* The House sent FOI requests to 95 of the 174 care-commissioning councils in England and Wales. They included all county councils, London boroughs and Welsh authorities. Seventy responded, broadly representative of the national make-up of councils and geographical regions with the exception of unitary authorities and metropolitan boroughs. Not all were able to give complete responses

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