Councils flag concerns about ‘excessive profits’ at children’s homes

Patrick Butler, The Guardian Friday 29 January 2021

Local Government Association calls for financial oversight of privately run facilities

Councils have called for financial oversight of England’s privately-run children’s care homes after research showed some of the biggest private equity-owned providers were collectively making hundreds of millions a year in profits.

The Local Government Association (LGA) also warned that the increasing indebtedness of some of the largest private providers risked triggering a Southern Cross-style financial collapse, potentially leaving vulnerable children without a home.

“Providers should … not be making excessive profit from providing placements for children,” said Judith Blake, chair of the LGA’s Children and Young People board.

“What matters most is that children feel safe, loved and supported, in placements that best suit their needs.”

The call for increased regulation comes amid concern about the sustainability of the increasingly privatised children’s care market, as well as the quality of some care provision, highlighted by revelations that thousands of youngsters were placed in unregulated accommodation such as boats and caravans.

A study published on Friday by the LGA found the six biggest private children’s care providers made £219m in profits last year.

Some providers recorded profits of more than 20% of income, it said, while four of the seven largest provider groups had debt and liability levels that exceeded their assets.

English councils – which have collectively overspent by £3bn on children’s services in the past five years – were concerned that private providers were charging above-inflation rates for placements, the LGA said.

Four in five councils reported rising costs for fostering and residential placements due to coronavirus pressures last year.

Children’s care provision is increasingly dominated by private providers. Nearly three in four children’s homes and two in five fostering households are provided by private firms or charities, the LGA said.

The failure of the Southern Cross adult residential home chain in 2011, in part because of its inability to repay heavy loans taken out to finance rapid expansion plans, led to many of its thousands of elderly and vulnerable residents having to be rehoused.

In the aftermath of its collapse, regulators were given oversight powers to monitor the financial health of England’s biggest private care providers to try to ensure adult care home markets remained stable. No such oversight exists for children’s care homes.

Blake 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.”

Peter Sandiford, chief executive of the Independent Children’s Homes Association, said there was no evidence that any large children’s care providers were close to collapse. Four out of five of children’s homes run by large private providers were rated “good” or “outstanding” by Ofsted.

He said: “The [LGA] report demonstrates that there is continued growth, not just acquisition, in the sector which we know is needed.

“As local authorities do not appear to have the ability to meet this need, then the private and voluntary sector must continue and will, necessarily, grow to meet the needs of children requiring a home.”

The LGA called for the chair of the government’s recently-announced review of children’s social care, Josh MacAlister, to examine the working of the children’s care market in his year-long inquiry, which starts in March.

Kathy Evans, chief executive of Children England, which represents children’s charities, said: “The largest private care providers made £219m in profit last year, while the councils responsible for children in care struggled to even balance their books. That’s how chronically unsustainable this market is.”