Profits for big children’s care providers ‘higher than expected’, says competition watchdog

Local authorities have 'inherently weak' position in market and shift to national or regional commissioning of placements should be considered, says Competition and Markets Authority

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Photo: Melpomene/Fotolia

Story updated 26 October 2021

Profits for large children’s social care providers are higher than would be expected in a well-functioning market, as the lack of placements leaves councils in an ‘inherently weak’ position.

The Competition and Markets Authority (CMA) said today it had found that the largest children’s home providers charged an average weekly price of £3,830, with an average operating profit margin of 23%. For independent fostering agencies, the average weekly price for fostering was about £820 per week, with an average operating profit margin of 19%.

In the interim report from the competition watchdog’s study into the children’s social care market, it said that such levels of profit were the result of councils’ weak bargaining position relative to providers.

This was because placements were insufficient and councils often had to find somewhere for a looked-after child in a hurry. Each individual authority was also responsible for too few children to be able to accurately forecast demand and shape the market.

To tackle this, the CMA suggested moving towards regional or national procurement or commissioning of looked-after children’s placements. This could take the form of national or regional bodies advising councils or taking direct responsibility for placements.

However, it raised concerns about calls to restrict providers’ profits and prices on the grounds that the fundamental issue was a lack of supply, and this may reduce it further.

Private equity warning

The CMA also raised concerns about the impact of private equity ownership of providers, particularly among children’s homes, because of the high and increasing levels of debt they were carrying.

This could lead to providers failing and exiting the market, creating instability for children, in an echo of what happened in adult social care with the collapse of Southern Cross in 2011. To address this, it suggested creating a financial oversight regime of the kind introduced in adults’ services, and run by the Care Quality Commission, following Southern Cross’s collapse.

The report also called for the regulatory regime around children’s services to be reviewed to enable providers to increase supply.

While it said that it wasn’t a case of regulatory standards being too high but of some regulations “unwittingly creating barriers” to meeting children’s needs. This was in the context of the regulatory regime in England having been in place for about 20 years during which the market for children’s care had changed dramatically.

‘Failing system’

Andrea Coscelli, chief executive of the CMA, said: “We are concerned this is a failing system, with children not being placed in the right homes while providers are being allowed to charge high prices and make big profits.

“Vulnerable children rely on these services, but too many are being placed in accommodation that does not meet their needs. And despite many placements not being suitable, local authorities, funded by taxpayers, are paying more than they should to provide them. The levels of debt we have seen being carried by private equity-owned firms is also a real concern due to the effect a firm in financial distress could have on the children in their care.

“We are now considering ways to tackle these issues, including recommendations to the UK and devolved governments, and are inviting comments on these. Our priority remains identifying the best ways to ensure children can get the right care.”

The study was launched in March after the head of the children’s social care review, Josh MacAlister, called on the CMA to investigate insufficiency of placements and providers’ profit levels.

The CMA has launched a three-week consultation into the interim report, closing on 12 November, after which it will do further work evidence gathering and analysis before completing its final report by March of next year.

‘End or limit for-profit provision’

On the back of the report, the Association of Directors of Children’s Services (ADCS) called for an end to – or at least a limitation of – for-profit  provision in children’s social care.

ADCS president Charlotte Ramsden said: “Meaningful change is needed and ADCS calls on government to implement legislation which prevents for-profit operations or as a minimum caps the level of fees chargeable in fostering and residential services, similar to that in Scotland.

“Local authorities would be able to reinvest some of this money and develop more in-house provision and earlier intensive support, closer to the communities in which children grow up. The system must be driven by children’s needs, not maximising profits.”

‘Extremely high profits and concerning levels of debt’

In response to the report, the Local Government Association (LGA) said it reflected concerns it had been raising for years.

“Our members are increasingly concerned about the balance of provision, in particular the growth and market share of the very largest providers which limits councils’ ability to manage the market and ensure the availability of placements to meet the needs of the children they care for,” said Anntoinette Bramble, chair of the LGA’s children and young people board.

She added: “The CMA has confirmed our recent findings that private equity providers are making extremely high profits and carrying concerning levels of debt that risks the stability of homes for children in care, which is paramount if they are to thrive. We continue to call for oversight of the market to avoid a ‘Southern Cross situation’ in children’s social care and to ensure the quality of provision.”

In a reference to a number of recent court cases in which placements have not been available for children with highly complex needs, she said such “harrowing cases” were “unacceptable” and a solution could not wait until the outcome of the CMA review next March. She urged the government “to work with us urgently to address these challenges”.

‘Without reform, children’s outcomes will suffer’

The Independent Children’s Home Association (ICHA) also welcomed the report.

“It lays bare what we already know that the current state of the market is due to many complex factors and no single solution will bring about the change required,” said deputy chief executive Elizabeth Cooper. “It also brings a sense of urgency suggesting that without reform, children’s long-term outcomes will suffer.”

She added: “We recognise and share the CMA’s concern regarding leverage and the potential for the collapse of large residential provision if economic conditions change and look forward to future recommendations that enables enterprise to continue in a sustainable and reassuring way.

“Finally, we strongly support the call for a review of regulations to enable more diversity to enter the market and better reflect the current conditions in which we operate.”

The National Association of Fostering Providers (NAFP) also welcomed the report but urged the CMA to do further analysis of fostering services in order to “dispel myths” about independent fostering agencies.

“There are significant differences between fostering and residential care,” said NAFP chief executive Harvey Gallagher. “Trying to cover both in one narrative does not give an accurate picture of each sector’s challenges.”

He said the report implied that most children’s placements were “spot purchased”, leaving councils in a weak position, however, in fostering most placements were made using pre-tendered contracts.

Gallagher added that issues to do with the appropriateness of IFA placements were often beyond agencies’ control.

He said: “The most appropriate care for a child is often more about the carer having the particular skills and experience to meet that child’s needs. Too often, IFAs are sent referral information that misses vital information, contains old information or is completed by someone who does not know the child.”

4 Responses to Profits for big children’s care providers ‘higher than expected’, says competition watchdog

  1. Ray Jones October 22, 2021 at 6:06 pm #

    Hmmm! Surprised? No. Shocked? Yes. Mr MacAlister’s referral of the children’s social care market to the CMA was a manoeuvre which was only ever going to go in one direction. Create a bigger and more diverse market. Why was it a forgone conclusion? Because the role of the CMA is to promote competition within markets. And now we see the second part of the possible plot and pattern becoming clearer. Let’s not just have a bigger market, but let’s also reduce the regulations which provide safeguards for children but which hinder companies in making their profits. And third, let’s move away from commissioning and purchasing by local authorities to a distant and remote national agency which is focused on trading children within the bigger market to be created. Echoes here of the national care service Mr Elvin was campaigning for a few weeks ago. Mr Elvin is described on the Frontline website as a part of the Frontline team. One might assume, therefore, an affinity and relationship with Mr MacAlister who is leading the DfE’s review of children’s social care. None of this direction of travel will be sensible for children and families. Children placed miles away from their families and communities in less regulated placements within a privatised market place with the placement choices determined by remote commissioners. Awful! But then the CMA – and may be the MacAlister DfE review – was never going to conclude it would be better to reinvest and re-energise the care of children as a public service provided within local communities and where money was not being decanted as profits to the already rich but was retained to help children and families. I just so hope my reading of the tea leaves is way off the mark and it shows my paranoia rather than prescience!

    • A Man Called Horse November 18, 2021 at 10:32 am #

      Ray your analysis is spot on. The Government believe in profit and it doesn’t matter if its selling weapons to repressive Governments or selling children for super high profits everything is a business opportunity and we know this for sure because during the pandemic many of them had their grubby hands in the cash cookie tin.

      Ideologically Councils running anything is not what they are about. They believe in private profit and public squalor its their core belief system.

      The public have gone along for the ride giving them an 80 seat majority to do exactly what they like. The only accountability that scares them is the possibility of losing an election. We have the Government that the public wanted with all of the contradictions it raises.

  2. Hugh October 25, 2021 at 10:35 am #

    NHS is the template. It’s not even stealth privatisation anymore. From GP services to ‘elective’ surgery private providers are in the market and getting embedded. The MacAlister review is part of this journey. Franchising care doesn’t look so clever in the light of railway failures though does it? It’s the Big Idea that counts not its impact though.

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