Profit-making from children’s care in Wales is set to end by 2030, other than in exceptional circumstances, after a bill to implement the measure became law.

The passage of the Health and Social Care (Wales) Act 2025 makes Wales the first UK nation to institute an effective ban on profit in the provision of fostering, children’s home or secure accommodation placements for looked-after children. In Scotland, independent fostering agencies are not permitted to make a profit, but private children’s homes are.

After the legislation received Royal Assent today, minister for children and social care Dawn Bowden said: “By removing profit from the care of looked after children, we’re ensuring that funding goes towards improving outcomes for young people and I’m proud that we’re the first UK nation to take this bold step.”

Three stages of profit ban

Under the government’s plans, the policy to eliminate profit will proceed in three phases:

1. From 1 April 2026, no new for-profit providers of children’s home, fostering or secure accommodation services will be allowed to register in Wales.
2. From 1 April 2027, existing for-profit providers will not be able to add additional beds or foster carers to their services.
3. From 1 April 2030, councils will not be able to make new placements in existing for-profit providers of children’s home, fostering or secure accommodation services without ministerial approval, in the case of Welsh authorities, or in exceptional circumstances specified in regulations, in the case of English authorities.

Following stage three, placements will generally only be permitted in council-run homes, or with local authority foster carers, or with placements provided by four other types of organisation: charitable companies limited by guarantee without share capital; charitable incorporated organisations; charitable registered societies or community interest companies.

Under all four models, there are no dividends paid to shareholders or members and surpluses must be reinvested in services. These organisations would also have to have as their primary purpose the welfare of children or another public good determined by the Welsh Government.

Council and provider concerns about legislation 

The Welsh Government has said that the legislation is a response to young people’s concerns about having profit made from their care and would ensure that surpluses were reinvested in improving services.

However, both councils and providers have voiced concerns about the impact of the act.

The Welsh Local Government Association (WLGA) has warned that it risks putting pressure on an already-stretched care system, while the Children’s Home Association has said that ministers have “significantly underestimated” the cost of replacing for-profit services and that children would increasingly be placed in unregulated care as a result of the act.

Legislation to eliminate profit from the provision of care to looked-after children in Wales has been approved by the Senedd and so will become law.

Under the Health and Social Care (Wales) Bill, new placements in for-profit children’s homes, secure accommodation or foster placements, by Welsh or English councils, will be banned – other than in exceptional circumstances – in April 2030.

This is three years later than Welsh ministers’ original target for eliminating profit, but they have lengthened their planned timetable in response to significant concerns about the potential disruption to children’s care from their original plan.

Currently, the private sector provides 87% of children’s home and 35% of fostering placements in Wales.

Young people ‘don’t want profit made from care’

Introducing its final debate in the Senedd last week, the Labour government’s minister for children and social care, Dawn Bowden, said the legislation was a response to young people saying that “they did not want to be the means of someone making a profit out of the challenges that they and their families faced”.

She said in delaying implementation, the government was “mindful of minimising the risk of disruption to children”.

However, she added: “But I want to be very, very clear that the 2030 date for the ending of new placements by Welsh local authorities in existing for-profit services is not a target date, it is the absolute end date.

“And I expect substantial progress to be made before then in ending placements of existing for-profit children’s homes and fostering services prior to 2030 in areas that have sufficiency for that not-for-profit provision, and I will be making sure that we get to that place as quickly as we possibly can.”

Councils’ concerns over impact on care system

However, the Welsh Local Government Association, while voicing support for the bill’s ambitions, raised concerns about its impact on the care system.

“Councils continue to fully support the ambition of removing profit from the care of children that the Health and Social Care Bill aims to deliver,” said Charlie McCoubrey, the WLGA’s spokesperson for health and social services.

“It’s an important step towards making sure vulnerable children and young people get the right support, with their needs prioritised over financial gain.

“That said, we’re still concerned about the potential impact on a system that’s already under pressure, with a need for appropriate levels of funding to make this work. Councils are already stretched, and without proper, long-term investment, there’s a real risk of putting even more pressure on the services children rely on.

“We’re keen to keep working closely with the Welsh Government to help deliver these changes in a way that supports local authorities, doesn’t destabilise existing placements, and makes a real difference to children’s lives.”

Welsh Government ‘has significantly underestimated costs’

From a provider perspective, the Children’s Home Association said there was “no evidence” that many children’s homes providers would be able to transition to a not-for-profit model, meaning councils would have to replace them.

However, it warned that the Welsh Government had “significantly underestimated the cost of replacing the providers who have provided specialist care to society’s most vulnerable for decades”.

The CHA cited figures produced by the Welsh Government itself showing that the average weekly cost of looking after a child in a standard four-bed independent home was £3,811, 38% below the equivalent for a local authority home (£5,625).

The association also accused the Welsh Government of rejecting efforts from the sector to devise a “viable solution”, for example, by permitting models of care that restrict profit. It said that children would increasingly be placed in unregulated settings due to a lack of placements.

‘The right thing to do, but concerns must be addressed’

Giving the British Association of Social Workers (BASW) Cymru’s response to the bill, national director Sam Baron said: “This is a progressive and ambitious piece of legislation which, is simply the right thing to do.

“Whilst full implementation will take several years, this move will rightly return public money into the public care system, increasing available resources and, by implication, release public money to address the issues of quality variations and low salaries.

“However, frontline voices and concerns must be listened to and addressed, by ensuring an already stretched public system receives the desperate investment it already needs to avoid even greater pressures being felt further down the line.”

Profit ‘not inherently at odds with excellent care’

The bill, which will also introduce direct payments for people receiving NHS continuing healthcare, was passed comfortably, with only the Conservatives voting against.

The party’s shadow cabinet secretary for health and social care, James Evans, said private sector providers played “a critical role in ensuring that children have somewhere safe to live and receive the care and support they need” and that it was “wrong to assume that  making profit is inherently at odds with delivering excellent care”.

Under the government’s plans, the policy to eliminate profit will proceed in three phases:

1. From 1 April 2026, no new for-profit providers of children’s home, fostering or secure accommodation services will be allowed to register in Wales.
2. From 1 April 2027, existing for-profit providers will not be able to add additional beds or foster carers to their services.
3. From 1 April 2030, councils will not be able to make new placements in existing for-profit providers of children’s home, fostering or secure accommodation services without ministerial approval, in the case of Welsh authorities, or in exceptional circumstances specified in regulations, in the case of English authorities.

Who can provide care to children?

The bill permits local authorities and four types of organisation to provide care to children: charitable companies limited by guarantee without share capital; charitable incorporated organisations; charitable registered societies or community interest companies.

Under all four models, there are no dividends paid to shareholders or members and surpluses must be reinvested in services. These organisations would also have to have as their primary purpose the welfare of children or another public good determined by the Welsh Government.

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The government will legislate to tackle “profiteering” from children’s care placements in England, a minister has vowed.

Children’s minister Janet Daby said that the forthcoming Children’s Wellbeing Bill would strengthen regulation of the sector to “return children’s social care to delivering high quality outcomes for looked after children at a sustainable cost to the taxpayer”.

Her pledge came as Ofsted, in a bid to influence the legislation, called for new powers to regulate providers of children’s care placements, including in relation to profit-making.

‘Profiteering from vulnerable children unacceptable’

Daby, a former fostering social worker, was responding to a written question from fellow Labour MP Helen Hayes about what the government would do to tackle “excessive profits in the residential children’s social care sector”.

In her response, the Department for Education (DfE) minister said that “profiteering from vulnerable children in care [was] unacceptable” before saying that the Children’s Wellbeing Bill would tackle the issue.

Her comments follow longstanding concerns about profit levels among providers, particularly the largest, enabled by their leverage over councils needing to place children, often at short notice, amid an insufficiency of placements.

Profit levels of largest providers

In its 2022 report on the placements market, the Competition and Markets Authority found that, among the largest 15 providers, profit margins averaged 22.6% in residential care and 19.4% in fostering.

Since 2020, English council spending on children’s homes has risen sharply, with the cost of these placements increasing by 13% in 2021-22 and 15% in 2022-23, according to a recent report commissioned by the major children’s charities (source: Pro Bono Economics, 2024).

The number of registered places in mainstream children’s homes has grown by 28% over the past four years, compared with a 7% decline in the number of approved mainstream fostering households from 2019-23.

Promised children’s social care regulation

The Children’s Wellbeing Bill was announced in the 2024 King’s Speech, meaning it will be debated during the 2024-25 parliamentary session and should become law next year.

Initial information on the bill did not include any pledges to tighten the regulation of children’s social care services – a pledge in Labour’s manifesto – but Daby has now confirmed that the legislation will enable the government to deliver on its election commitment.

It is not clear as yet what the bill will contain on regulation and how far it will draw upon work commenced under the previous government to address service costs, profit levels and placement sufficiency through the so-called market interventions advisory group (source: Children and Young People Now).

However, last week, Ofsted set out a wish-list of measures for ministers to include in legislation, to bolster its regulatory powers over children’s social care services.

Ofsted’s call for new powers

This included being able regulate profit-making by large groups that provide multiple social care and education services, “to make sure their decisions are made in children’s best interests and not solely for profit”.

Ofsted also called for powers to:

• Regulate groups providing children’s homes or other social care services, including being able to restrict growth where there are systemic issues across multiple settings, requiring group leaders to tackle quality issues revealed by inspections and being able to enforce actions at a group-wide level.
• Fine unregistered settings, to deter providers from operating them. Its current powers are limited to prosecution, which Ofsted said was “costly and time-consuming”.
• Refuse registration applications based on need, for example, in areas, such as in the North West, that are oversaturated with children’s homes.

Other measures proposed by the regulator included setting quality standards for all places where children live away from home, including residential special schools, to ensure consistency across all settings, and enabling registered managers to be able to move from one setting to another without having to re-register, reducing burdens on providers.

Regulator ‘optimistic’ about reform

The proposals were made in response to the Big Listen, Ofsted’s biggest ever consultation, which also resulted in its plan to scrap single-word judgments for inspections of local authority children’s services and of children’s social care providers.

Its national director for social care, Yvette Stanley, said the regulator could not “pre-empt future ministerial decisions” but it was “working very closely with DfE officials” and was optimistic about the prospects for reform.

Daby indicated that the DfE was looking at at least one aspect of Ofsted’s proposals, on the location of children’s homes.

In answer to a parliamentary question, from Labour MP Mohammad Yasin, on the issue, Daby said: “The department is developing options in regard to planning of children’s homes,
including considering the location of new homes and registration requirements.”

Ofsted’s proposals were welcomed by the Association of Directors of Children’s Services (ADCS), which has long sought action to tackle profit levels among children’s home providers.

Children’s directors seek ‘bold action’ on ‘huge profits’

ADCS vice president Rachael Wardell said it supported the regulator being able “to look at the contribution groups of providers make to children’s outcomes and experiences, and their use of scarce public funds”.

“In recent years there has been a trend towards business mergers and acquisitions giving rise to some very large providers and an expansion of private equity investment in children’s homes, which is increasingly being seen in the childcare sector too,” she added.

“We await the government’s response to these asks and hope to see bold action from ministers to prevent huge profits being generated and extracted from the system on the backs of vulnerable children and young people, in particular.”

Daby’s commitment to ‘cracking down on excessive profits’ 

For the government, Daby added: “We know that all too often care placements for vulnerable children come at a massive financial cost to councils and a human cost to young people who aren’t getting the support they need.

“We are committed to cracking down on providers making excessive profits, and our Children’s Wellbeing Bill will strengthen regulation to make sure every child has a safe, loving home.”

Meanwhile, the DfE has selected two areas – Greater Manchester and the South East – to test the commissioning of care placements by region-wide bodies, rather than individual local authorities.

Regional care co-operatives – proposed by the previous Conservative government are designed to give councils – collectively – greater clout over providers to shape services across their regions and ensure sufficient high-quality placements for children in care.

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Legislation to end profit-making from the provision of children’s care placements in Wales has been published.

The Health and Social Care (Wales) Bill would permit only not-for-profit organisations and councils from providing fostering, children’s home or secure accommodation placements.

The reform would make Wales the first UK country to ban profit-making from both fostering and residential services.

However, following concerns during consultation that the reform would disrupt the supply of placements and children’s care, the Labour-run Welsh Government has dropped its original plan to require compliance from all providers by April 2027.

While new providers registering from April 2026 would have to be not for profit, existing services would be able to continue delivering for-profit care for an indefinite transitional period under conditions determined by regulations.

In the context of the private sector providing 87% of children’s home and 35% of fostering placements in Wales, the Welsh Government said this would “mitigate disruption” to the lives of children in existing placements.

However, despite this, both provider and local authority leaders raised concerns about the bill’s impact on the placements market.

Young people ‘have strong feelings’ about profit-based care

Introducing the bill in the Senedd this week, minister for social care Dawn Bowden said the reform was driven by what children and young people wanted as well as the Welsh Government’s belief in the inappropriateness of profiting from their care.

“In developing this bill, we have been guided by what young people have told us,” she said. “They have very strong feelings about being cared for by privately owned organisations that profit from their experience of being in care.”

Bowden added: “These are children who have been through the most traumatic of times who end up in the care system, and we have to offer them the best care that we can in whatever way we can. That means that any money coming into the system must be reinvested into the system.”

She told the Senedd that spending on residential care had tripled, from £65m to £200m, since 2017, which she said was “unsustainable”.

The reform is part of a wider plan to reduce the number of children in care – which has risen from 5,660 in 2017 to 7,210 in 2023 – deliver more care closer to children’s homes and reduce the number – and cost – of residential care placements.

This includes, potentially, rolling out family drug and alcohol courts across Wales, to keep more families together, and taking steps to boost foster carer recruitment and retention, including by making allowances more equitable between local authorities.

Chances of providers ditching profit model

Bowden said that, because of the transitional arrangements, there would be no “cliff edge” for profit-making providers, many of whom were in “active and encouraging conversations with us about how they can transfer their operation into a not-for-profit model”.

However, in a memorandum on the bill, the Welsh Government said that intelligence it had received indicated that, while high numbers of IFAs would convert, relatively few residential providers would, though it was not possible to be precise at this stage.

The memorandum sketched out three scenarios, under which 50% (scenario A), 25% (B) and no (C) private providers switched to not-for-profit provision.

Under scenario C, councils would have to secure an additional 653 residential care placements across 204 homes, whereas under scenario A, only 102 additional homes would need to be sourced.

Initial costs of reform falling on councils

According to a report by ADSS Cymru, a standard cost for developing a children’s home is £700,000, and the directors’ body assumed that councils would have to meet the start-up costs and bear the risks of homes running below capacity to encourage new not-for-profit providers to enter the market.

The Welsh Government is providing councils with £68m from 2023-26 to invest in new provision.

However, with all things being equal, councils would face additional costs of £88m in 2025-26, £67m in 2026-27 and £46.5m in 2027-28 under scenario C, compared with £45.5m (2025-26), £35m (2026-27) and £25m (2027-28) under scenario A, according to modelling by the Welsh Government.

In the long-term – from 2028-29 – the government projected that councils would save money under any of the three scenarios.

Also, it added that its intention was for the costs of reform to be lower than illustrated because of its plans to reduce the number of children in residential care.

Adequate funding ‘will be crucial’

In response to the bill, Welsh Local Government Association spokesperson for health and social care, Llinos Medi said removing profit from provision for children in care was “an important ambition in supporting us in achieving better outcomes for children and young people” that would lead to “a better and fairer system for all”.

“However, while we endorse the bill’s aims, we do have some concerns regarding the resources and capacity of local authorities to implement these changes effectively and within the timescales set out,” she added.

“Adequate funding and support will be crucial to ensure that local authorities can meet the increased demands and continue to provide essential services without disrupting the lives of children and young people in existing residential and foster care placements. We look forward to working collaboratively with the Welsh Government to address these challenges and ensure the successful implementation of this important legislation.”

‘Lack of detail on transitional arrangements’

On behalf of providers, Care Forum Wales chair Mario Kleft said there appeared to be “more questions than answers2 in the bill.

“There are some truly excellent providers of children’s care placements in the independent, third sector and charity sectors in Wales,” he added. “Nobody accepts that it is right to profiteer from any service and from our perspective the driver needs to centre on quality and choice.

“Whoever provides child care services, they need to be economically viable to ensure their sustainability into the future. There is not any great detail yet about how any transition might be achieved and I am aware that a number of local authorities who commission services have voiced concerns around practical issues and the affordability of what’s being proposed.”

The body representing children’s home providers has decided to exclude providers receiving finance from tax havens from membership.

The Children’s Homes Association’s (CHA) new membership rules also stipulate that members must be ultimately owned in the UK and have at least majority shareholders who are UK-registered taxpayers.

The CHA will base these judgments on checking providers against Companies House records and with reference to a list of countries deemed to be tax havens, which includes the British Virgin Islands, Bermuda, the Cayman Islands, Guernsey, the Isle of Man, Jersey, Luxembourg, Monaco and Switzerland.

The decision, which came into force on 6 April 2024, has excluded just 2% of CHA’s 300+ members.

Reduction in fee income

However, these organisations collectively represent 20% of placements under the association’s umbrella, meaning the decision will lead to a 10% reduction in income from membership fees.

The association said the move was designed to ensure that its private-sector members – who make up the large majority of the CHA’s membership and the children’s homes sector alike – contribute, through their taxes, to the state-funded care system that pays them.

Excluding providers financed through tax havens will also affect private equity-owned organisations, where companies are bought out by investment firms using funds backed by high levels of debt, which must then be serviced through the providers’ profits.

An analysis of the largest 20 children’s home and fostering providers by Revolution Consulting, published last year, stated that six had owners based outside the UK, and ten had private equity involvement.

Concerns about private equity ownership

In its 2022 report on the children’s social care, the Competition and Markets Authority warned that debt levels carried by private equity-backed companies increased the risks of providers failing, harming children whom councils would then have to find placements for at short-notice.

On the back of this, the CMA recommended that the Department for Education set up a market oversight regime to monitor the finances of the largest and most difficult to replace children’s home providers, which the DfE agreed to take forward in last year’s Stable Homes, Built on Love strategy.

In a statement on its membership changes, the CHA said it was “not appropriate” for fees paid to providers to be spent on “unreasonably high levels of interest”.

Its interim chief executive, Mark Kerr said the association supported “a mixed economy of children’s social care which relies on public, charity, and independent for-profit provision”.

Providers ‘should contribute to tax-funded care services’

He added: “An amazing range of specialist expertise exists in the sector and the continuation of investment from private organisations is vital to ensuring the right care is available for our society’s most vulnerable children.

“However, we are also committed to social value and believe that organisations delivering tax-funded care services should fairly contribute to the system that makes care possible in the first place.”

As well as concerns over provider debt, council leaders and campaigners have also raised repeated concerns about profit levels among largest providers, which the CMA concluded was higher than would be expected in a well-functioning market.

It did not recommend caps on prices or profits in its 2022 report, while the DfE also did not include any specific measures to tackle profits in the sector in Stable Homes, Built on Love.

Instead, the department said it believed its plans to for regional care co-operatives (RCCs) to take over responsibility for commissioning care placements from individual councils would reduce profit levels by ensuring care was better planned.

Call for national rules to tackle profit levels

However, the Association of Directors of Children’s Services has warned that there is no evidence that RCCs – whose full establishment is several years away – would have this impact and that national rules were needed to tackle what it has described as profiteering.

The ADCS welcomed the CHA announcement, with president Andy Smith saying: “This sends a positive signal about the need for a more stable care system that is committed to meeting the needs of our most vulnerable children and young people above all else. We now urgently need national government to create a set of national rules to ensure the system is reset in favour of children’s best interests.”

Councils across England face insolvency without national rules to regulate mounting care placement costs, the Association of Directors of Children’s Services’ (ADCS) president has warned.

John Pearce told Community Care that these should include a calculated fair cost for care and rules on provider behaviour, in an interview at this year’s National Children and Adult Services Conference (NCASC).

Though he said the idea had not yet gained traction with the Department for Education, children’s minister David Johnston subsequently told NCASC that the DfE may be open to the idea.

Pearce’s comments came on the day that Nottingham council declared that it would not be able to set a balanced budget this year, citing children’s social care demand and costs as a cause.

At the same time, the Local Government Association released research showing authorities as a whole were on course to exceed their approximately £4.7bn care placement budgets by £680m (14%), following a similar overspend last year.

The association’s report, based on a survey of 124 of the 153 councils, also showed the proportion of placements costing £10,000 a week or more rose from 0.2% of the total in 2018-19 to 1.6% in 2022-23.

Factors driving placement costs

The situation is the result of councils lacking sufficient placements of the right kind in the right places to meet children’s needs. This has been driven by factors including:

• Fifteen consecutive year-on-year rises in the care population.
• More and more children with complex needs going into care and requiring more intensive provision, such as solo placements, high staff ratios or, increasingly, deprivation of their liberty.
• Reductions in the numbers of secure children’s home and inpatient mental health beds, removing alternative options for these children.
• A fall in the number of mainstream fostering households.
• A mismatch between the location of children’s homes and areas of need.

Councils’ lack of choice over placements has pushed up prices, particularly for children’s homes.

While the number of registered places in homes rose by 11% from 2016-22 (source: Ofsted), council spending on private providers – who run the vast majority – grew by 105% over this period (source: Revolution Consulting).

Government response criticised

In response, the government has provided councils with £259m from 2022-25 to deliver more children’s home places and adopted proposals from the Independent Review of Children’s Social Care to test the creation of regional care co-operatives (RCC).

These would take over individual councils’ responsibilities for commissioning and providing placements, in order to pool expertise and planning capacity and give local government greater scope to dictate terms to providers.

However, the ADCS has warned that there is “no evidence” that RCCs would address pressures on the placement market, creating them would be “costly and time consuming” and they risked triggering a mass exist of providers.

John Pearce, ADCS president, 2023-24

In his speech to the NCASC yesterday, Pearce said there was no DfE plan to tackle the “unmanageable costs of children’s
social care homes”.

Risk of widespread council insolvency

Speaking later to Community Care, he said: “We’ve been very clear around our concerns about regional care co-operatives – but even if you set them aside, they are going to take five years [to set up] by which time no local authority in the country will be financially solvent.”

Those comments came as Nottingham council issued a section 114 notice, stating that it could not meet its legal obligation to deliver a balanced budget in 2023-24, with the volume and complexity of children’s social care packages a key driver.

As a result, it must cease new spending commitments and will need to come up with a plan to bring its budget into balance. This will likely involve further government intervention, to which it is already subject due to past financial problems.

Its action follows the issuing of section 114 notices by Birmingham council, in September 2023, Thurrock, in December 2022, Croydon, in November 2022 and Slough, in July 2021.

Need for national rules on care placements

Pearce said the DfE should follow the action it had taken in relation to agency social work by setting national rules to govern the market.

This should include open-book accounting – where providers seeking contracts show commissioners their costings and profit calculations – and the modelling of a fair cost of care, providing the basis for price caps.

He also said there should be rules around provider behaviour, citing the practice of services charging for empty beds in homes as one he would like to end. Pearce added:

We need to move away from the Wild West, where the providers can do what they want.”

He said that while the ADCS had put forward proposals along these lines to the DfE, “to date none of these have been taken forward”.

Minister holds open possibility of action 

However, Johnston subsequently told the NCASC that the DfE was looking into what action it could take in relation to placement costs.

“We are very aware of the pressures that the cost of children’s social care are putting on you at the moment,” he said.

“We are looking at how the market operates, the extent to which profiteering is taking place and what we can do about that and looking at, at a minimum, what standards we can have in the market.”

He added: “I can’t give you lots of details now. I have a team  who is looking at this issue and trying to find out exactly what is going on.

“We’ve all got our examples of very expensive placements and not bearing any relation to the cost of those placements. So watch this space as we know this is an area that needs our focus.”

Rising number of high-cost placements

In its report, the LGA said high-cost placements (over £10,000 a week) had become increasingly prevalent, with 91% of authorities saying they had at least one in 2022-23, up from 23% in 2018-19.

The key drivers of high-cost placements were a lack of choice of placement – cited by 98% of authorities – children exhibiting “challenging behaviours” (93%) and children having complex or significant mental health issues (92%).

On behalf of providers, the Children’s Home Association (CHA) said: “The operational costs for children’s residential care have increased at an unprecedented level over the last four years.

‘Multiple factors’ behind cost rise – provider body

“There are multiple factors that have impacted on the cost of providing children’s residential care as with all organisations. Inflation on supplies and salaries have been significant.

“Both the CHA and the LGA have made the government aware of the impact of the lack of sufficient funding in this sector.

“Unless this lack of funding is addressed it will not be possible to address the issues impacting both the cost, quality and availability of placements for children and young people in need of residential care.”

Children’s social care reforms

In its response to the LGA report, the DfE pointed to its children’s social care reform agenda, set out earlier this year in the Stable Homes, Built on Love paper.

“Our ambitious reforms to children’s social care will focus on more early support for families, reducing the need for crisis response at a later stage, with plans backed by £200m to test and refine our approach,” said a spokesperson.

“We are also investing £259m to support local authorities to create more placements for children in high-quality and safe homes.”

The “short-notice” closure of 28 children’s homes by one of the country’s biggest care providers shows the need for greater powers for councils and Ofsted over the market to manage the impact on young people.

That was the message from sector leaders after Outcomes First Group (OFG) closed almost half of its portfolio of 60 homes, reportedly giving commissioners a month in which to find new placements for the children affected.

The company’s actions were labelled “unacceptable” by provider umbrella body the Children’s Homes Association, of which OFG is not a member.

However, the company, owned by private equity firm Stirling Spring Capital Partners, said it had complied with commissioners’ contractual terms and that no decisions were made without the agreement of the local authorities and children’s social workers. It said the decision was driven by recruitment pressures.

The closures – in the context of the widely accepted placement shortages and instability for children – highlighted the need for tighter control of the market, said the Association of Directors of Children’s Services (ADCS), Local Government Association (LGA) and Ofsted.

Call for greater oversight of providers

“We are extremely concerned about the short-notice closure of children’s homes by Outcomes First and the impact of this decision on dozens of children who deserve to feel safe and secure in their homes,” said an LGA spokesperson.

“Such closures are one of the reasons the Local Government Association has been calling, for some years, for far better oversight of large providers, in particular where providers are carrying significant financial risk.”

An Ofsted spokesperson added: “We would expect any provider that was closing a home to be sensitive to the impact on children, and to minimise disruption through careful planning with placing authorities.

“As we have said for some time, the lack of significant oversight in the children’s home market has meant the risks and impact of providers leaving the market, or no longer providing specialist services, are not properly understood. This is leaving parents and local authorities struggling to find the right homes for some of the most vulnerable children.”

The Department for Education (DfE) has pledged to introduce an oversight regime for the largest children’s home and independent fostering providers, to increase transparency of their finances and identify services at risk of closure.

This was recommended in last year’s final report of the Competition and Markets Authority’s children’s social care study.

New council duty mooted

However, ADCS said it may be necessary to go further, by placing councils under a duty to step in and run services where providers quit the market at short notice.

Such a duty exists in adults’ services, in which councils must, temporarily, meet the needs of people – regardless of any duty to do so – when a provider’s business fails.

ADCS president John Pearce said: “A disorderly exit of providers from the market, particularly those operating at scale, would be difficult to manage in every respect, there isn’t a mechanism for local authorities to step in and run children’s homes as there is in adult social care, even in the short term, which begs the question where will those children and young people go?

“There may be benefit in exploring the local authority provider failure duty in adult social care under the Care Act 2014 and how this could be replicated in children’s services to protect children’s best interests.”

Pearce also repeated longstanding ADCS calls for government investment to address the “urgent crisis” in the supply of placements, which ministers are seeking to address through a £259 investment in children’s home provision from 2022-25.

Providers ‘need help with staffing’

The CHA also urged help for the sector, particular in relation to staffing.

“Government and stakeholders have been made acutely aware of the crisis in children’s residential care, and of the factors creating it: record numbers of children in care with an alarming increase in high acuity cases; woefully underfunded local authorities; historically high and persistent inflation; and a severe recruitment and workforce crisis,” a spokesperson said.

“The recruitment crisis is currently the most serious barrier to providers opening new provision to meet local authority sufficiency needs.”

In its statement on the home closures, OFG said: “The group adhered to the contractual terms agreed with the local authorities. Transition plans – agreed by all parties – were in place.

“No placement decisions were made in isolation without the full agreement of the local authority and social worker.”

“We made the difficult decision to close some homes in light of sector wide recruitment challenges.”

They said the homes had been offered for purchase as a priority by local authorities or other residential care providers.

In relation to its other homes, the spokesperson said it was “operations as usual”, adding that 94% were rated good or outstanding by Ofsted.

Social workers could more than double the time they spend with children and families through more efficient case management systems and fewer meetings.

That was the conclusion from a report last week from county council leaders setting out a “blueprint” designed to keep more children with their families through relationship and strengths-based practice.

Practitioners’ studies typically spent just under 20% of their time working directly with children and families, found the paper by the County Councils Network (CCN), Association of County Chief Executives (ACCE) and consultancy Newton.

Half of social worker time spent on admin

By contrast, they spent half of their time on case recording, administration or other IT tasks, and significant time in meetings.

Researchers based their estimates on more than 100 social workers logging their time over the course of a week, and through shadowing some practitioners to observe how they split their time.

The report said practitioners’ time with children and families could rise to 45% on average if councils invested in digital systems that supported more efficient case recording, limited internal meetings and expanded the use of remote meetings developed through the Covid-19 pandemic.

The call came as a British Association of Social Workers report released in the same week found that the demands of administrative tasks was the biggest challenge practitioners reported facing in their roles.

Projected care population ‘could be cut by a third’

The CCN, ACCE and Newton report projected that the number of children in care in England could rise from 80,850 to between 86,000 and 95,000 by the end of 2025, adding up to £2.1bn to costs. This meant “the status quo was not an option”, it said

However, the report estimated that reforms could save 95% of the cost and cut by a third the projected number of children looked after by 2025 to between 64,000 and 77,000.

Based on case reviews with practitioners, the report estimated that 39% of children currently looked after could have avoided coming into care had the system worked differently and there was more support in place for families on the verge of crisis.

It recommended that councils spend £205m a year on ‘edge of care’ services to support those young people either at risk of coming into care or who could return to their families where it was safe to do so.

This would involve practitioners having the time to build and maintain strong and trusting relationships with families, working effectively with adults’ specialists and other agencies in a whole-family way and building on families’ strengths to overcome challenges.

Reforms ‘cannot be done on a shoestring’

The report, based on analysis of six county authorities, national data sets and conversations with more than 200 people in the system, also called for investment in care provision to provide more support in family-based settings rather than residential care.

It estimated that 40% fewer children (between 3,300 and 4,400) could be in children’s homes and placed with kinship or foster carers instead, including through improved foster carer recruitment and support.

Keith Glazier, children’s services spokesperson for the CCN, said: “The report throws down the gauntlet for local authorities to work more effectively, but it also shows how the rest of the public sector can be more joined up in supporting families on the verge of crisis, and in delivering meaningful support to reduce the need for lengthy periods in care: improving outcomes for children.

“However, this cannot be done on a shoestring and we urge for a substantial injection of funding from government this year so we can begin to transform services.

‘Social work at its best is face-to-face’

BASW said the report chimed with its own 80-20 campaign, which aims to reduce bureaucracy and increase support and resources so social workers spend more with families.

“Social work at its best happens face to face and that’s what social workers want to do, not be stuck doing admin,” it said.

The Association of Directors of Children’s Services agreed with the report’s recommendations of a long-term funding settlement for children’s services, a greater focus on early help and prevention and a national focus on recruiting and retaining foster carers.

“Although care can be the right thing for some children, we should be doing all we can to support families to stay together safely, in line with the Children Act 1989,” said ADCS president Charlotte Ramsden.

“Government should support us in this by ensuring we have appropriate resources to keep children safe from harm and to provide targeted early help at the earliest opportunity.”

The Department for Education (DfE) said it recognised the “pressures that councils are facing on children’s services” and that some of the £4.8bn increase in government grant funding for councils over the next three years announced at last year’s spending review would go towards addressing this.

“This support comes alongside wider investment in children and family services, including our expansion and rollout of family hubs across the country and through the supported families programme,” a spokesperson for the department said.

They added that the care review, due to be published in late spring, would “provide an opportunity to reform the care system more widely”.

Story updated

The ‘dysfunctional’ children’s social care market needs an overhaul to tackle high prices, scarce placements and provider debt levels, the competition watchdog has said.

Following a year-long review, the Competition and Markets Authority (CMA) called for national and regional bodies to be set up to help councils find the right placements for children, get better value for taxpayers and reduce out-of-area provision.

It said this would strengthen councils’ weak bargainning position relative to providers, a result of competition between authorities for placements and the scarcity of suitable options to meet the unique needs of individual children, often in a hurry.

In the final report of its study of the fostering, children’s homes and unregulated accommodation markets across the UK, the CMA also urged action to tackle high levels of debt among some providers, particularly those funded through private equity. It proposed the creation of a financial oversight regime – similar to the one for large adult social care providers – to raise warnings about the potential failure of difficult-to-replace services.

‘More foster care should be in-house’

It also called for options to be explored to bring fostering services in-house, on the grounds that there was “indicative evidence” that councils could provide some placements more cheaply than independent fostering agencies. However, it said this was not the case for children’s homes – where costs for private and local authority provision were broadly equivalent.

The CMA repeated its conclusion from its interim report that profits for the largest providers across both children’s homes and fostering were higher than would be expected in a well-functioning market.

It said the largest children’s home providers had average profit margins of 22.6% from 2016-20, during which time their prices rose by 3.5% a year in real terms. In fostering, prices fell in real terms over this time, but IFA profit margins appeared to be steadily high, at an average of 19.4%.

However, it rejected the case for caps on profits or prices, on the grounds that it would reduce incentives for providers to invest in services and cut capacity further. The CMA acknowledged that the Scottish and Welsh governments were both committed to ending for-profit provision of placements for children in care and said these were rightly decisions for democratically-elected governments.

Need to tackle regulatory barriers

It also said the regulatory system in England should be reviewed to increase capacity in the market.

It said requirements such as the need for new children’s home providers to have a manager in place before applying for registration and the bar on managers’ registration being portable between services were problematic.

“We have heard from providers that these processes are costly, time-consuming and hinder the rapid redeployment of staff to a location where they are needed,” said the CMA.

It found such barriers were less of a problem in Scotland and Wales, where regulation appeared to be more flexible, consistent with strong protections for children in care. It urged the UK government to commission a thorough review of regulation relating to placement provision in England, for which children’s safety and wellbeing should be the overriding aim, “but also considering whether specific regulations are unnecessarily restricting the effective provision of placements”.

Local authorities ‘hamstrung’

CMA chief executive Andrea Coscelli said: “The UK has sleepwalked into a dysfunctional children’s social care market. This has left local authorities hamstrung in their efforts to find suitable and affordable placements in children’s homes or foster care.

“We have also identified issues with the financial stability of children’s home providers. It is important to manage the risk of children’s homes providers going bust and local authorities having to pick up the pieces.

Local authorities cannot be left to face these challenges alone. There are several areas where national governments should make changes to address issues in the sector, including new financial oversight of providers and the development of new bodies to support local authorities with commissioning. With children’s social care currently being reviewed across the UK we want to see our recommendations reflected in any changes to policy.

The report follows a string of studies that have highlighted the impact of placement scarcity – as well as high prices and profits – on the quality of care received by looked-after children, most recently a report by What Works for Children’s Social Care this week, which found councils were struggling to manage the children’s home market. 

Though the UK government is likely to wait until the report of the Independent Review of Children’s Social Care – due in late spring – before deciding which of the CMA’s recommendations to take forward in England, it has already pledged action to reform the market to tackle high prices and placement scarcity. 

Care review lead Josh MacAlister has also signalled he will recommend significant changes to the placement market, including to manage profit levels, and, in a tweet, said he shared the CMA’s concerns and analysis.

Really important final report from the @CMAgovUK on children’s social care. The @reviewCSC shares the same concerns and analysis about the broken care ‘market’ and we’re giving proper thought to the ideas for change in this report ahead of our conclusions https://t.co/QDCGxOBANK

— Josh MacAlister (@JoshMacAlister) March 10, 2022

In its response to the CMA report, a Department for Education spokesperson said: “All children and young people deserve to grow up in stable, loving homes. That’s why we are working hard to raise standards for children in care and why we commissioned an independent review of children’s social care, which will set out to radically reform the system.

“While it continues, we are taking forward urgent reforms to address pressures in social care, including providing £259 million to local authorities to maintain capacity and expand provision in secure and open children’s homes.”

Need to tackle ‘unacceptable profiteering’

The Association of Directors of Children’s Services (ADCS) welcomed the CMA’s recommendations to increase in-house fostering provision and tackle the risks to provision caused by debt-laden large providers.

However, president Charlotte Ramsden added: “We are disappointed that the CMA did not go further on limiting for-profit provision or placing a limit on prices or profits. Profiteering through public money on the basis of meeting children’s needs is unacceptable. Children’s services have long operated in a mixed economy with a range of providers involved in the delivery of services locally, yet multi-million pound mergers between providers are becoming increasingly common as is private equity.

“ADCS has previously called for the introduction of legislation which prevents for-profit operations or as a minimum caps the level of fees chargeable in fostering and residential services. Whilst this cannot happen overnight and will take time to achieve, ADCS remains committed to the aspiration of moving to a not-for-profit model.”

The Local Government Association said the report highlighted the urgency of the need for change in relation to children’s placements, and also supported the CMA’s recommendations for an oversight regime for difficult-to-replace providers, for whom failure could be “catastrophic”.

It also backed improved support for councils in forecasting need and shaping the market.

‘Workforce issues must be addressed’

The Independent Children’s Home Association welcomed the report’s findings but stressed the importance of addressing workforce issues in ensuring children had the right placements.

“The CMA report rightly highlighted that there are insufficient placements available in children’s homes, particularly for children with complex needs. However, it is critical that it is acknowledged that this issue is predominantly caused by insufficient workforce, not physical homes,” it said.

While ICHA welcomed the £259m allocated by the DfE to build children’s homes – most of which will go to the secure sector – it said that “without appropriately qualified and experienced staff to work in these homes, the problem will remain”.

Further, there is a risk that local authorities will be under pressure to staff these new homes with candidates who do not have the necessary qualifications and experience to meet the needs of children and young people,” it added. “This will put children and young people at risk.”

It also said the CMA had missed an opportunity to address the level of demand for children’s placements.

It said: “There are currently a record number of children in care. The most sensible strategy to reduce the expenditure on children in care is to reduce the number of children coming in to care. However, this will require significant investment in social work and a reversal of cuts to local authority budgets.”

Concerns raised on IFA findings

The Nationwide Association of Fostering Providers also welcomed the report but raised concerns about its findings on independent fostering agencies and the need to increase in-house provision by local authorities.

Chief executive Harvey Gallagher said it was surprising that the CMA had found indicative evidence that councils could provide some placements more cheaply than by purchasing them from IFAs.

“The fact that this evidence is ‘indicative’ demonstrates this has yet to be shown to actually be the case,” he added. “We would welcome sight of this indicative evidence to explore it further. Indeed, the CMA themselves state ‘from the evidence we have seen is not clear that local authorities would be able to recruit the required number of foster carers themselves, nor that they would be able to provide the same quality of care at a similar price, across the full range of care needs and in every area.”

Meanwhile, Ofsted was positive about the review’s findings.

“We are pleased to see many of the issues we have raised – including about the lack of homes for children in the right place, the lack of market oversight, and the outdated regulatory framework – reflected in its recommendations,” said a spokesperson.

“We are ready to work with the government on the next steps, alongside the outcome from the independent care review.”

Children’s homes are profiteering from a “broken” market in which demand far exceeds supply, the children’s minister has warned.

This is driving huge spending on placements by local authorities, with fees of £8,000 plus a week “not unusual”, Will Quince told the House of Commons’ education select committee last week.

As a result, councils lack funds to invest in early intervention, to help children stay with their families, he said.

Sitting alongside the minister, Department for Education (DfE) director of children’s social care Fran Oram said the government would bring forward reforms to ensure the market functions much more in the interests of children.

Profit warnings

These would be based on the recommendations of the Competition and Markets Authority (CMA) report into the children’s social care market – due this week – and that of the Independent Review of Children’s Social Care, expected around May.

Both the CMA, in its interim report, and care review lead Josh MacAlister have issued warnings about the high level of profits in the children’s home market.

Quince said that the government was already taking steps to tackle the issue by investing £259m in building children’s homes from 2022-25.

The majority of this will be spent on secure children’s homes, of which there are only 13 in England and for which there are 25 children waiting for a place at any one time, Ofsted has said previously.

The minister told the committee that the shortages meant that councils were having to send children “many many miles away” for a secure bed.

Providers question minister’s claims

However, his claims about fee levels were challenged by Independent Children’s Homes Association (ICHA) chief executive officer Peter Sandiford, who said “the quoting of outlier costs for a small number of cases does not reflect the cost for the sector generally.”

“Yes, some placements do cost in excess of £8,000, but these high costs are dictated by the extreme needs of the children that the local authorities cannot meet,” he said. “Such high-level needs and risks require significant specialized care twenty four hours a day to ensure they are kept safe and their needs are met.

“It is important to note such levels of need are often a result of previously failing to invest in the right provision at the right time.  When used as an early intervention rather than as a last resort, a children’s home is a cost effective and impactful intervention.”

He added that average fees for council-run homes were higher (£4,865 per week) were higher than the average for the private sector and voluntary sectors (£4,153), according to the latest analysis of the unit costs of social care services produced by the Personal Social Services Research Unit. These figures do not account for differences in need between children.

‘Eye watering levels of borrowing and debts’

The Association of Directors of Children’s Services (ADCS), which has long raised concerns about profit levels for children’s care placements said said that “meeting children’s needs, not maximizing profits should always be the priority”.

Association president Charlotte Ramsden also warned that the ownership of children’s homes by private equity providers with “eye watering levels of borrowing and debts” created significant risks of providers failing.

While welcoming the government’s funding to build children’s homes, she said this needed to be followed by  “a comprehensive placement strategy”, with investment to ensure “the right placements are available in the right locations and at the right time”.