Independent children’s homes are facing significant staffing pressures that are hampering their ability to respond to rising demand from councils, a provider survey has found.
The regular “state of the sector” survey for the Independent Children’s Homes Association (ICHA) found recruitment challenges were having a “severe impact” on the operating profitability of almost two-thirds of providers, while about 45% cited inflation and staff turnover as doing so.
Employee churn was a particular problem, with more than 60% of providers reporting turnover of more than one in five members of staff, the highest proportion recorded in the survey’s history, and up from 36% in the previous poll, in November 2020.
Respondents said increased staffing costs were linked to the rising complexity of needs, the need to pay staff above the national living wage (currently £9.50 an hour) and meeting mounting cost-of-living pressures for workers, found the report by children’s homes specialist consultancy Revolution Consulting.
It said that staffing pressures and costs were limiting the sector’s ability to generate the funds that were needed to invest in services. Four in ten respondents reported adding new places in the previous year, down from 50% in the November 2020 survey. This was particularly an issue for smaller providers, just 35% of whom had added places.
Rising demand and fee rates
This was despite rising demand from councils, with 65% of respondents reporting a rise in referrals and 41% an increase of more than 10% in demand, double the proportion in November 2020.
Providers had responded by increasing fees, with 35% increasing rates by 0-5% and 27% by over 6% over the previous year.
However, the report found occupany rates had not risen in line with demand, with with 47% reporting the same levels of occupancy as a year earlier, while 25% recorded a decline.
Echoing previous reports, the study found that a driving factor behind this was that “providers do not prioritise full occupancy over good matching”, despite the economic benefit of doing so. ‘Matching with the needs of children already in placement’ was most commonly cited by providers as being ‘often or always’ a factor in rejecting new referrals, with ‘risks associated with the child’ the next most popular response.
More complex needs
Providers said this was chiefly caused by the increasing complexity of children’s needs, including sexual exploitation, criminal exploitation, gang-related issues and deprivation of liberty.
Respondents said they were often unable to safely match referrals to vacancies after considering the need to safeguard other residents of multi-occupancy homes. They also cited:
- Being wary of putting their Ofsted rating at risk by accepting an inappropriate referral.
- An increasing specification by local authorities for solo-placement homes with high staffing ratios.
- Emergency or short-notice referrals.
- Not accepting referrals from certain local authorities, including due to the council having previously submitted incomplete information on a child.
- The lack of suitable staff.
The trend in occupancy rates were reflected in profit levels, with 28% reporting increases in operating profits while 42% recorded a decline. The situation was worse for smaller providers (those with ten or fewer places), 15% of whom had increased profits while 45% reported a decline.
The profits of private sector homes have come under significant scrutiny after a recent review by the Competition and Markets Authority (CMA) concluded that margins among large providers – at 22.6% on average from 2016-20 – were higher than would be expected in a well-functioning market.
The final report of the Independent Review of Children’s Social Care then criticised profit-making in the sector, recommending a windfall tax on the profits of the 20 largest children’s home and fostering providers to help fund its recommendations. It also called for regional groups of councils to take over responsibility for commissioning from individual authorities to help the state “take back control” of the system from providers and thereby cut profits.
However, the state of the sector report said its findings, unlike those of the other reviews, were based on a more balanced sample of the children’s home sector, not just the largest providers. Average operating profits among the 169 respondents stood at 8.3%, similar to its last survey in November 2020 and “much lower” than the CMA’s figure for big providers, said the report.
The report also highlighted the commissioning challenges concerning children’s homes, with 45% of placements spot purchased outside of commissioning frameworks, 51% spot purchased within a framework and just 4% procured through a block contract.
An increasing number of providers (28% overall, rising to 40% of small providers) said they were choosing not engage with tenders issued by local authorities. Meanwhile one in six (17%) said they had left a commissioned framework in the last year.
“This offers further clear evidence of the way in which current commissioning activity struggles to impact on the sector,” the report said.
Providers reported that they found no difference in demand for their services whether they chose to join frameworks or not. Smaller operators were especially likely to criticise procurement processes and tenders as being overly onerous, or insufficiently flexible.