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Who cares? How the outsourcing of provision for looked after children is not fit for purpose

4 min read

Who profits when care homes and approved schools are placed in the private sector? Martin Barrow reports

Westminster is preoccupied with the cost of elderly care, but local councils are increasingly concerned over the future of children’s services. Blackpool Council is the latest to sound the alarm, with children’s services overspending by £4.45m in the last financial year despite the allocation of £8m in extra funding. 

As financial pressure builds, council leaders and directors of children’s services are becoming increasingly critical of profiteering by private companies providing children’s social care. About 80 per cent of children’s homes are privately-owned and private agencies now account for almost 40 per cent of foster care. When a child comes into care, the chances are that their home will be provided by a private company. These homes don’t come cheap – the average price for a place in a children’s home is now around £4,500 a week, but £7,000 is not uncommon.

No wonder the “business” of children’s care has caught the eye of international investors. Last year Witherslack, a provider of children’s homes and special schools, was acquired by Mubadala Capital, an Abu Dhabi sovereign wealth fund, for about £600m. CareTech, which is valued at around £700m, is currently in takeover talks with two groups of international investors. Many of the biggest providers are already owned by “tax-efficient” private equity firms based offshore in places like Guernsey and Luxembourg. 

What motivates these investors to acquire social care companies in the United Kingdom is not a desire to care for vulnerable children, but money. Children’s homes and foster care can be very profitable. Last year Witherslack saw operating profits jump by almost 30 per cent to £26m, with fees charged to local councils increasing by 20 per cent to £113m. Smaller providers are getting squeezed out, but the big companies have deep pockets and are paying generous prices to take out the competition. Companies like SSCP Spring Topco and Sandcastle Care have amassed millions of pounds in debt. Interest charges are consuming much of the money that local councils pay in fees, which is intended for the care of children and young people. Last year Witherslack spent £70m on interest charges alone.

What motivates these investors to acquire social care companies in the United Kingdom is not a desire to care for vulnerable children, but money

Outsourcing has also broken the link between care and local communities, with thousands of children in care sent to live many miles from their families and friends because no local homes are available. Companies maximise returns by locating their business where homes are cheapest – not where children need them.

Alarm bells are already ringing. The Competition and Markets Authority has criticised “supernormal” profits from children’s homes and foster care. The Independent Review of Children’s Social Care is also critical of current arrangements and proposes remedies, including a windfall tax. 

Profits would be a secondary issue if outsourcing was delivering a world-class care system for children. But current provision is not fit for purpose. The care review was scathing about the children’s homes estate, with one in four homes now failing to meet the government’s own modest criteria for “good”. The review wants more children to stay with extended families and also envisages a significant expansion of foster care. At present, this is likely to favour foster care agencies, many of which are owned by the same social care companies and also stand accused of profiteering. 

This mess has been many years in the making and will take years to put right, even assuming the political will exists to address the challenges. A positive first step would be to direct and support local councils to renew their in-house provision of foster carers and children’s homes. This is not just about the number of local homes but also about the knowledge that is required to support carers and the children they look after. This will take money and time but, in the long run, will deliver better local care that will help more young people to fulfil their potential.

Martin Barrow is a journalist and foster carer

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