Concern over children’s care providers’ 'debt-fuelled' £215m profit

The Local Government Association (LGA) commissioned report into the finances of social care providers found that some larger providers are achieving a profit of more than 20 per cent on their income.

The LGA also says that many providers’ profit growth is being funded through private equity debt, which raises concerns around their viability and the long-term stability of placements for children.

The largest 16 providers have a combined income of more than £1.37bn, finds the report, although some of this is from providing services outside the UK.

The figures have been released as councils across England face an annual spend of between £1.7bn and £1.8bn on buying fostering and residential care services from the private and voluntary sector. A further £900m is spent on independent special schools.

The LGA is concerned that high costs of providing care are adding to “significant funding and demand pressures on children’s services budgets” caused by shrinking funding from central government.

It is calling for greater transparency from providers around costs and greater collaboration across councils, government and the care sector in improving the availability and quality of placements.

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LGA children and young people’s board chair Judith Blake said that providers should “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 and that provide good value for money.”

She added: “A varied market for homes for children in care helps councils to make sure these children get the right homes for their needs, and both in-house and independent provision are key.

“Fewer and fewer providers are now dominating that market. Much of the growth of those providers has been fuelled by enormous loans, which will at some point need paying back, yet this research shows many of them do not have the assets to do that.”

Association of Directors of Children's Services (ADCS) president Rachel Dickinson said the report’s findings show that there is “now an unacceptable level of risk in the system”.

“The excessive profits being made by some providers on the backs of vulnerable children is difficult to stomach, particularly when austerity continues to bite in local government,” said Dickinson.

“However, our overriding concern remains how the extraction of profit and the level of risk in the system might negatively impact on children’s outcomes.”

Katherine Sacks-Jones, chief executive of children in care charity Become, is also concerned about the role of private firms within social care, and associated risks around debt.

“There is little transparency in the extent of profit-making by large companies operating within children’s social care,” she said.

"We are already seeing problems with the concentration of children’s homes in areas where property is cheaper rather than where homes are most needed, meaning children can be placed away from their friends, schools and family, dependent on where the homes are located.

"There are also serious questions around accountability and what happens if a large provider was to go bust. If this happened, what would happen to the children in their care?"

However, providers' body the Independent Children’s Homes Association (ICHA) believes the LGA’s report is too focused on identifying profit rather than exploring value for money.

“Profitability is one factor of financing care in complex situations. Any successful conclusion to the current crisis must ensure that our most vulnerable children have the right placement available to them, in the right location, at the right time and at the right price,” said ICHA chief executive Peter Sandiford.

Andrew Fellowes, NSPCC public affairs manager, added: "Children's security and stability cannot be put at risk by unscrupulous business models that put short term profit before care.

“The system should be focused on delivering what’s best for children not what’s most cost effective for the care provider.  

“We now need the Government to press on with their promised care review that should put the experiences and needs of children at its heart."

Education Secretary Gavin Williamson has said plans or a review of children's social care in England are "moving forward".

Some 27 organisations supporting vulnerable children have written to the Department for Education demanding an "urgent" review.