‘Dysfunctional’ care market needs overhaul to tackle high prices and scarce placements, says watchdog

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The ‘dysfunctional’ children’s social care market needs an overhaul to tackle high prices, scarce placements and provider debt levels, the competition watchdog has said.

Following a year-long review, the Competition and Markets Authority (CMA) called for national and regional bodies to be set up to help councils find the right placements for children, get better value for taxpayers and reduce out-of-area provision.

It said this would strengthen councils’ weak bargainning position relative to providers, a result of competition between authorities for placements and the scarcity of suitable options to meet the unique needs of individual children, often in a hurry.

In the final report of its study of the fostering, children’s homes and unregulated accommodation markets across the UK, the CMA also urged action to tackle high levels of debt among some providers, particularly those funded through private equity. It proposed the creation of a financial oversight regime – similar to the one for large adult social care providers – to raise warnings about the potential failure of difficult-to-replace services.

‘More foster care should be in-house’

It also called for options to be explored to bring fostering services in-house, on the grounds that there was “indicative evidence” that councils could provide some placements more cheaply than independent fostering agencies. However, it said this was not the case for children’s homes – where costs for private and local authority provision were broadly equivalent.

The CMA repeated its conclusion from its interim report that profits for the largest providers across both children’s homes and fostering were higher than would be expected in a well-functioning market.

It said the largest children’s home providers had average profit margins of 22.6% from 2016-20, during which time their prices rose by 3.5% a year in real terms. In fostering, prices fell in real terms over this time, but IFA profit margins appeared to be steadily high, at an average of 19.4%.

However, it rejected the case for caps on profits or prices, on the grounds that it would reduce incentives for providers to invest in services and cut capacity further. The CMA acknowledged that the Scottish and Welsh governments were both committed to ending for-profit provision of placements for children in care and said these were rightly decisions for democratically-elected governments.

Need to tackle regulatory barriers

It also said the regulatory system in England should be reviewed to increase capacity in the market.

It said requirements such as the need for new children’s home providers to have a manager in place before applying for registration and the bar on managers’ registration being portable between services were problematic.

“We have heard from providers that these processes are costly, time-consuming and hinder the rapid redeployment of staff to a location where they are needed,” said the CMA.

It found such barriers were less of a problem in Scotland and Wales, where regulation appeared to be more flexible, consistent with strong protections for children in care. It urged the UK government to commission a thorough review of regulation relating to placement provision in England, for which children’s safety and wellbeing should be the overriding aim, “but also considering whether specific regulations are unnecessarily restricting the effective provision of placements”.

Local authorities ‘hamstrung’

CMA chief executive Andrea Coscelli said: “The UK has sleepwalked into a dysfunctional children’s social care market. This has left local authorities hamstrung in their efforts to find suitable and affordable placements in children’s homes or foster care.

“We have also identified issues with the financial stability of children’s home providers. It is important to manage the risk of children’s homes providers going bust and local authorities having to pick up the pieces.

Local authorities cannot be left to face these challenges alone. There are several areas where national governments should make changes to address issues in the sector, including new financial oversight of providers and the development of new bodies to support local authorities with commissioning. With children’s social care currently being reviewed across the UK we want to see our recommendations reflected in any changes to policy.

The report follows a string of studies that have highlighted the impact of placement scarcity – as well as high prices and profits – on the quality of care received by looked-after children, most recently a report by What Works for Children’s Social Care this week, which found councils were struggling to manage the children’s home market. 

Though the UK government is likely to wait until the report of the Independent Review of Children’s Social Care – due in late spring – before deciding which of the CMA’s recommendations to take forward in England, it has already pledged action to reform the market to tackle high prices and placement scarcity. 

Care review lead Josh MacAlister has also signalled he will recommend significant changes to the placement market, including to manage profit levels, and, in a tweet, said he shared the CMA’s concerns and analysis.

Really important final report from the @CMAgovUK on children’s social care. The @reviewCSC shares the same concerns and analysis about the broken care ‘market’ and we’re giving proper thought to the ideas for change in this report ahead of our conclusions https://t.co/QDCGxOBANK

— Josh MacAlister (@JoshMacAlister) March 10, 2022

In its response to the CMA report, a Department for Education spokesperson said: “All children and young people deserve to grow up in stable, loving homes. That’s why we are working hard to raise standards for children in care and why we commissioned an independent review of children’s social care, which will set out to radically reform the system.

“While it continues, we are taking forward urgent reforms to address pressures in social care, including providing £259 million to local authorities to maintain capacity and expand provision in secure and open children’s homes.”

Need to tackle ‘unacceptable profiteering’

The Association of Directors of Children’s Services (ADCS) welcomed the CMA’s recommendations to increase in-house fostering provision and tackle the risks to provision caused by debt-laden large providers.

However, president Charlotte Ramsden added: “We are disappointed that the CMA did not go further on limiting for-profit provision or placing a limit on prices or profits. Profiteering through public money on the basis of meeting children’s needs is unacceptable. Children’s services have long operated in a mixed economy with a range of providers involved in the delivery of services locally, yet multi-million pound mergers between providers are becoming increasingly common as is private equity.

“ADCS has previously called for the introduction of legislation which prevents for-profit operations or as a minimum caps the level of fees chargeable in fostering and residential services. Whilst this cannot happen overnight and will take time to achieve, ADCS remains committed to the aspiration of moving to a not-for-profit model.”

The Local Government Association said the report highlighted the urgency of the need for change in relation to children’s placements, and also supported the CMA’s recommendations for an oversight regime for difficult-to-replace providers, for whom failure could be “catastrophic”.

It also backed improved support for councils in forecasting need and shaping the market.

‘Workforce issues must be addressed’

The Independent Children’s Home Association welcomed the report’s findings but stressed the importance of addressing workforce issues in ensuring children had the right placements.

“The CMA report rightly highlighted that there are insufficient placements available in children’s homes, particularly for children with complex needs. However, it is critical that it is acknowledged that this issue is predominantly caused by insufficient workforce, not physical homes,” it said.

While ICHA welcomed the £259m allocated by the DfE to build children’s homes – most of which will go to the secure sector – it said that “without appropriately qualified and experienced staff to work in these homes, the problem will remain”.

Further, there is a risk that local authorities will be under pressure to staff these new homes with candidates who do not have the necessary qualifications and experience to meet the needs of children and young people,” it added. “This will put children and young people at risk.”

It also said the CMA had missed an opportunity to address the level of demand for children’s placements.

It said: “There are currently a record number of children in care. The most sensible strategy to reduce the expenditure on children in care is to reduce the number of children coming in to care. However, this will require significant investment in social work and a reversal of cuts to local authority budgets.”

Concerns raised on IFA findings

The Nationwide Association of Fostering Providers also welcomed the report but raised concerns about its findings on independent fostering agencies and the need to increase in-house provision by local authorities.

Chief executive Harvey Gallagher said it was surprising that the CMA had found indicative evidence that councils could provide some placements more cheaply than by purchasing them from IFAs.

“The fact that this evidence is ‘indicative’ demonstrates this has yet to be shown to actually be the case,” he added. “We would welcome sight of this indicative evidence to explore it further. Indeed, the CMA themselves state ‘from the evidence we have seen is not clear that local authorities would be able to recruit the required number of foster carers themselves, nor that they would be able to provide the same quality of care at a similar price, across the full range of care needs and in every area.”

Meanwhile, Ofsted was positive about the review’s findings.

“We are pleased to see many of the issues we have raised – including about the lack of homes for children in the right place, the lack of market oversight, and the outdated regulatory framework – reflected in its recommendations,” said a spokesperson.

“We are ready to work with the government on the next steps, alongside the outcome from the independent care review.”