Private equity involvement in care placements needs reviewing amid concerning profit and debt levels

The LGA’s report shows that some independent providers of children’s residential and fostering placements are achieving profits of more than 20 per cent on their income.


Girl and boy surrounded by trees

The Government’s review of children’s social care needs to consider the impact of increasing private equity and stock market involvement in the system, the Local Government Association says today as it publishes new research showing that the six largest independent providers of placements made £219 million in profit last year.

The LGA’s report shows that some independent providers of children’s residential and fostering placements are achieving profits of more than 20 per cent on their income, while four of the seven largest groups of independent providers had more debts and liabilities than tangible assets.

While councils provide some of their own fostering and children’s homes places for children in care, nearly three in four children’s homes and two in five fostering households are now provided by independent organisations, which includes private and charitable companies. The two largest independent fostering providers offer nearly a third of all independent fostering places.

Councils have been reporting increasing difficulty in finding suitable places for children in care, particularly for older children and those with more complex or challenging needs. They have also identified some placement costs rising far beyond inflation, putting pressure on budgets that are already at breaking point.

Rising demand means that despite increasing budgets, councils still overspent on children’s social care by more than £3 billion over the past five years. Four in five councils have reported rising costs for fostering and residential placements for children in care due to coronavirus pressures last year.

The Department for Education has launched an independent review of children’s social care which councils say is an important opportunity to consider how we can ensure that we have the right homes for all children in care, and that money spent on those placements is improving outcomes for children.

The chair of the review, Josh MacAlister, recently contacted the Competition and Markets Authority asking them to investigate the children’s social care ‘market’, a move which could provide important evidence around how homes are provided for children in care.

The LGA is calling for this positive review to lead to greater national oversight of companies providing homes for children in care, like the role the Care Quality Commission (CQC) holds for adult social care provision.

The collapse of adult care home provider Southern Cross in 2011 led to a legal duty for the CQC to monitor the financial health of the “most difficult to replace” adult social care service providers. However, no such duty exists for children’s social care providers.

Additional research also published today by the LGA identifies five key barriers to diversifying ownership of children’s homes: negative stigma around children’s homes; financial risks; high barriers to entering the market; concerns around how to support children with complex needs; and limited coordination of commissioning around the country.

Cllr Judith Blake, Chair of the LGA’s Children and Young People Board, said:

“The largest providers of children’s placements are growing rapidly and continuing to acquire other providers. The potential risks involved in their considerable debt levels is an issue that the Government must consider alongside greater financial support for children’s services.

“We cannot risk a Southern Cross or Four Seasons situation in children’s social care. Stability for children in care is paramount if we are to help them to thrive. An oversight scheme is needed to help catch providers before they fall and ensure company changes don’t risk the quality of provision.

“Providers should also not be making excessive profit from providing placements for children. What matters most is that children feel safe, loved and supported, in placements that best suit their needs.

“Councils, providers, central government and Ofsted all have a role to play in developing a diverse market that makes sure we have the homes children need.

“The Government’s review of the children’s social care system is a positive step. It must consider how to support councils and independent providers to deliver the homes our children in care need, how the current market is impacting on children’s experiences, and how we can make sure children get the support they need to thrive.”

Notes to Editors

1. The two reports published today by the LGA, are:

Profit-making and Risk in Independent Children’s Social Care Placement Providers – December 2020 update – produced by Revolution Consulting

Barriers and Facilitators to Local Authorities and Small Providers Establishing Children’s Homes – produced by Newgate Research

2. The coronavirus related costs are reported in the Department for Education’s vulnerable children and young people survey