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.
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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.
Let’s remember too that there are also PE-backed children’s homes that are inadequate, some of which have been shut down by Ofsted.
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
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I couldn’t agree more. Having spent 10+ years working in large IFAs I now work exclusively with LAs and 3rd sector fostering services. The view from this side of the fence is stark when it comes to procurement. Things have to change.
Andy Elvin is once again banging the drum about the evils of PE within the children social care section. What a surprise! But just a cursory glance at what TACT are currently charging local authorities for fostering placements doesn’t show a particularly significant difference to other IFA’s. (This is publicly available on any councils £500+ expenditure data). I do note that turnover for TACT was down £6.4 millions last year and the Annual reports notes a reduction in their carer base, which may be part of the rationale for Andy to want to reduce competition?
Whilst he infers that any profits are reinvested into the service, he might perhaps want to look at his own charity commission financial details (https://register-of-charities.charitycommission.gov.uk/charity-search/-/charity-details/1018963) which shows that for some in the ‘charity’ it seems to pay extraordinarily well? It is very easy to ‘no make a profit’ when all your senior managers are being compensated accordingly. I do note with some interest that SSW (looking at the current advert for workers) don’t seem to be benefiting quite as well as Andy is apparently doing. Good that charity begins at home eh Andy?
Further, I’ve yet to see any of the much vaunted transparency from TACT with regards the failure of their partnership model with Peterborough City Council (And a subsequent loss of £9.8 million in revenue from the accounts) . Where is the public report on why TACT ended the contract early and handed back the contract to the local authority? To be fair, the local authority still hasn’t reported on how much money was wasted on this failed venture either! However, it is complete chutzpah for Andy Elvin to talk about “providing stability, lifelong relationships and great outcomes for children.” when TACT hasn’t practiced what it apparently preaches.
Lets not pretend that Andy Elvin doesn’t have a vested interest in this area and unsurprisingly wants to ‘reset the market’ to benefit his own ‘charity’. However, he knows already that being ‘not for profit’ is a misnomer. It is already illegal to be a for profit fostering provider in Scotland and yet all of the larger providers have a presence in Scotland.
Self interest disguised as altruism. Curious why the sudden convergence on the dismantle the care market narrative peddled so loudly now when the system has been operating for decades. John Simpson spot on.
I was very glad and relieved to read Andy Irvine’s comments. I was involved in the early days of setting up the independent sector for fostering, when a lot of hard work went into ensuring that the choice that could be offered by small independent – and highly individual – agencies was a positive and valued part of the sector’s development – and as it will no doubt be rememberd by some, independent agencies were not permitted to set up unless they were ‘Not for Profit’. Once it was discovered that big money could be made for shareholders, and the law was changed, I have watched the sector become motivated by how much public money, meant to be spent on the welfate of children, can be creamed off by those very few big ‘shell’ companies that own the vast majority of independent fostering providers now.
I have not studied TACT’s financial details, but whatever they are, they do not change the wider facts – Private Equity companies are acquiring Independent Fostering Agencies with borrowed money, on the pretext of improving their viability, and then paying their shareholders dividends which have been achieved by reducing services to vulnerable children. This is not hard to discover. On any level, however, the practice is unacceptable, and a million miles from the vision we had at the outset.
That there are venture capitalist vultures feasting on public funding does not negate the points John Simpson makes about so called not for profit providers mimicking them.
I’m not sure if there is a misunderstanding on how corporate finance work or willful ignorance but I’m not aware of any start up fostering agency (now or historically) that didn’t / doesn’t rely on capital financing to support the venture. Whether its a bank loan / overdraft / debenture or Private Equity finance, it is essentially all the same. To try and distinguish between different forms of debt structures doesn’t make any real sense? Further, PE are private companies so don’t have any shareholders so you can’t make the charge that the profits go to the shareholders. If they were PLC’s that would be different, anyone could buy shares and presumably benefit from any profit that were generated (indeed, just like the majority of private fostering agency owners). Further, just like PE companies, the majority of independent fostering agencies have an exit plan (usually retirement) that is in effect.
The halcyon days of Mom and Pop fostering agencies is both misleading and looking at the past with rose tinted glasses. All of these agencies were presumably only too happy to sell up to PE backed organizations because they wanted to essentially cash out despite being ‘not for profit’. Tell that to the founders of FCA (random example) who are no doubt enjoying their well deserved retirement. I struggle to understand why when individual owners make a profit that is seen as wholesome and good, but if PE make a profit that is wicked and bad. They are the same and the intent is surly subjective?
My main points about TACT is that Andy Elvin continues to propagate the myth that PE is/was bad for children. In really it makes practically little difference. There are good PE companies and ones that are less so. This is exactly the same with privately owned (I.e. Attachments Fostering – recently closed down by Ofsted). To pretend one has an ethical / moral advantage over the other is misguided. As I pointed out initially, the ‘not for profit’ label is unhelpful as PE companies are already established in Scotland where it is already in legislation. However, this has not stopped all the PE companies from having agencies in Scotland and nominally not making any profits.
Further, having looked at the fees charges by both PE, independent, charity and co-operatives there is surprising similarities. I do wonder why non PE (as that is the alleged charge) are presumingly charging so much if there is no profit element involved? It that were the case then TACT would be one of the cheapest providers of fostering placements. However, the reality is that this is not true at all? Again, looking at their accounts doesn’t show any significant investments in services, indeed their accounts explicitly talks about putting up their fees to local authorities for children on historical contracts (to be far this is probably true for all providers!).