Private children’s home providers charging councils too much, report says

Private providers of children’s homes and foster care are making “significant and persistent” profits by charging cash-strapped local authorities elevated prices for increasingly scarce placements, the Competition and Markets Authority (CMA) has said.

The largest private providers of children’s homes are now charging councils an average of £3,830 a week per child, with an average operating profit margin of 23%, according to the CMA’s interim report on children’s social care.

For fostering agencies, the average weekly price for fostering was about £820 a week, with an average operating profit margin of 19%.

Josh MacAlister, who is chairing the independent review of children’s social care in England, said the report showed the market was broken and failing too many children.

Six of the 10 providers with the most children’s homes in England and both of the two largest providers of foster care are now owned by private equity firms.

Many of these firms carry large levels of debt, which the CMA says may leave them vulnerable to having to unexpectedly exit the market in the event of tightening credit conditions. The CMA says the government should take this risk seriously if homes suddenly shut, “with potentially serious negative impacts on children and the ability of local authorities to fulfil their statutory duties”.

The number of children requiring placements and the complexity of the needs of those children have increased significantly in recent years, leading to a nationwide shortage of provision. At the same time, council budgets have been slashed by central government, prompting some local authorities to sell off their own children’s homes to raise short-term cash.

Local authorities in England have a legal duty to try where practical to secure safe, local accommodation to meet the needs of the children they look after. But too many children are being sent miles from home because of a shortage of placements.

As of March 2020, in England 44% of children in residential placements and 17% of children in fostering placements were more than 20 miles away from where they would call home, according to the CMA report.

“Children moved away from their home area may suffer loneliness and isolation at being separated from their support networks, have their schooling disrupted and may experience difficulty in accessing social services,” the report says.

Supply varies greatly throughout the country. The north-west of England has 23% of all places in children’s homes and 19% of looked-after children, while London has just 6% of places in children’s homes and 12% of looked-after children.

“However, this does not necessarily translate into sufficient availability of appropriate places for children in areas of oversupply, such as the north-west, due to children from outside the area being placed there,” the CMA report says.

Similar problems exist in Wales, but there were more limited concerns about supply in Scotland, the CMA reported.

It concluded: “If this market were functioning well, we would not expect to see undersupply and elevated prices and profits persisting over time. Instead, we would expect existing and new providers to create more places to meet the demand from local authorities, which would then drive down prices and profits. Significant and persistent economic profit is often an indication that a market may not be working well.”

Martin Barrow, a foster carer, said: “The time has come for local councils to show leadership (and humility) to admit that the way they treat children in care is wrong and that the system has failed. As a taxpayer, even if you are not moved by the impact on children in care, it is time to understand that you are being ripped off by big business.”

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