by Andy Elvin
I was very heartened to see directors of children’s services representing the North East speak out so forcefully last month on the children’s care market.
It “increasingly resembles a series of cartels, able to regulate the supply of provision to retain profit margins and make considerable private profit from public funding”, the 12 DCSs wrote in a submission to the children’s social care review.
This summary is spot on. Josh MacAlister, the man heading up the care review, appears to recognise the picture too, having described children’s home providers’ profit levels as “indefensible” in a June speech ahead of publication of the review’s case for change document.
With the review soon to move onto its next phase, the time is ripe to rip things up and start again.
Though the care market is a monopsony, a market where there is only one purchaser, it defies the logic of such a market. This is because the state has absolutely no control over price, supply, or capacity of foster or residential care that is run by non-local authority (LA) providers.
The commissioning approach LAs take is nonsensical – it does nothing meaningful to control price and has little or no impact on sufficiency. If LAs stopped all commissioning activity in children’s social care tomorrow, it would make no appreciable difference to the cost or sufficiency of foster or residential care.
The market is essentially driven by a series of spot-purchasing arrangements that often bear little relation to the involved framework tenders that LAs undertake. It is entirely based on what spaces are available in children’s homes or foster homes at any given day.
This is not a criticism of LAs or commissioners, who face a thankless task. Since the early 1990s, successive ministers at the Department for Education (DfE) have allowed the current situation to evolve and mutate, and we are now living with a particularly pernicious market variant. Doing more of the wrong thing will just make things worse.
‘A dystopian present’
We are in a dystopian present, where a few private equity (PE)-backed providers own an outsized share of non-LA children’s homes and foster care capacity. They have not done this by developing and nurturing provision or risking their own money.
Instead they borrow money, often from each other, at high rates of interest to buy multiple children’s homes and private independent fostering agencies (IFAs). They assign the debt they have taken on to the company they have bought – leveraged debt, as it is called – then charge the cost of this debt’s interest to the LAs through their fees.
They frequently sell the business at a significant profit within three to five years, then start the process all over again. They have no interest or investment in children’s long-term futures. The process is driven by greed and avarice, and they are profiting from the childhoods of children in care.
Many also have complex company structures that lead to offshore tax havens, in order to minimise their bills. So, while they are happy taking taxpayers’ money in excessive profits, they draw the line at paying tax themselves.
The Nationwide Association of Fostering Providers (NAFP) and Independent Children’s Homes Association (ICHA) are desperately trying to protect their members’ market share. They point to the Ofsted ratings of some of their members’ services and say “never mind the price, feel the quality”.
‘No one has a monopoly on good practice’
Yet any review of Ofsted inspection reports on fostering and residential children’s homes provision delivered by councils and the private and voluntary sectors shows that high- and low-quality provision is present everywhere. No type of provision has a monopoly on good practice.
Responding to the North East DCSs’ remarks, NAFP chief executive Harvey Gallagher said: “Why would you want to remove something that was really good for children and for the public purse? IFAs have raised the bar for everyone, and local authorities have had to up their game.”
Such comments are a marriage of arrogance and misinformation. There is no credible evidence that the PE providers are “good for the public purse”.
Every penny that is paid out in dividends, or siphoned offshore, is money that should be spent on our children. As noted above, PE-backed providers have no monopoly on quality, and their exit from the sector would not diminish the quality of care that children receive.
This plunder of the public purse must end now. I, alongside others, am proposing to the care review an alternative model, without private equity involvement, that removes the transactional nature of the current arrangements, gives surety of costs to LAs, and allows us to work together to ensure sufficiency. We can then all concentrate on providing stability, lifelong relationships and great outcomes for children.
We should be investing taxpayers’ money in our children’s futures. The current ‘care market’ is simply a trough for the snouts of the offshore private equity brigade.
Andy Elvin is the chief executive of fostering charity TACT