Outsourcing of children’s home placements linked to poorer council Ofsted ratings, suggests study

Councils almost 5% less likely to be rated outstanding, good or requires improvement - as opposed to inadequate - for each additional percentage point of outsourced care, researchers find

Screen with the word 'profits' written on it along with various related symbols
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Councils with a greater proportion of looked-after children placed in profit-making children’s homes tend to receive worse Ofsted ratings, research has found.

For every additional percentage point of for-profit children’s home provision, a council had 4.7% lower odds of being rated outstanding, good or requires improvement, as opposed to inadequate, from 2016-21, said researchers.

Echoing the findings of Ofsted’s annual social care data returns, the study, by Oxford University academics, also found that council-run homes tended to receive better overall ratings than for-profit ones, from 2014-21.

Across the period studied, profit-making homes had 33.7% lower odds of being rated outstanding, good or requires improvement, as opposed to inadequate, than council-run homes.

They also tended to be rated worse than council-run homes in relation to leadership and how well children were helped and protected, and had 1.44 times the odds of being found to have violated a legal requirement than council-run homes, found the study.

Researchers also compared council-run with third sector homes, finding that, though the latter tended to perform worse, there were no statistically significant differences in overall ratings or the likelihood of violating a requirement.

Profit-making in children’s care under spotlight

The findings come with over 80% of children’s homes, and 79% of places, in England provided by the private sector, amid an often heated debate about the appropriateness of for-profit provision in children’s care, which the Scottish and Welsh governments are planning to ban.

The Association of Directors of Children’s Services (ADCS) has called for profit-making from children’s care to be banned or limited and former children’s minister Will Quince criticised “profiteering” by some children’s home providers earlier this year.

Provider body the Children’s Homes Association (CHA), meanwhile, has defended the value for money offered by private providers, and their necessity in a market of scarce placements.

The issue is likely to come to a head when the Department for Education (DfE) delivers its response, before the end of the year, to two reports that urged action on the issue.

CMA and care review reports urge action

The first, from the Competition and Markets Authority (CMA), found that profit-making by the biggest children’s home firms and independent fostering agencies (IFAs) was higher than would be expected in a well-functioning market, due to councils’ weak bargaining position relative to providers in the context of placement scarcity.

The CMA rejected banning or regulating profit, lest this make placement shortages worse. Instead, it backed creating national and regional bodies to be set up to help councils find the right placements for children, getting better value for taxpayers and reduce out-of-area provision.

The other report – by the Independent Review of Children’s Social Care – also did not back restrictions on profits or prices, recommending that councils band together to create regional care co-operatives (RCCs) responsible for commissioning care placements across their areas.

The review argued RCCs would help local government “take back control” of the system by gathering more intelligence on care placement needs than individual councils and having the financial confidence to invest in long-term provision. This, it said, would increase council-run and not-for-profit provision and reduce profit-making across the sector.

Challenge of replacing private placements

The paper’s authors, Anders Bach-Mortensen, Benjamin Goodair and Jane Barlow, said that their findings were of “significant concern”, given the dominance of for-profit provision and the vulnerability of children in care.

However, echoing the CMA, they said their findings should not be treated as evidence that the quality of services would improve if for-profit homes were restricted or banned.

“Many of the problems faced by [local authorities] are exacerbated by a lack of appropriate places, and the role of [for-profit] providers cannot be replaced without substantial co-ordination and long-term planning,” the study concluded.

Instead, the authors called for more research into the effectiveness of commissioning in driving outcomes for children in care, and how these relate to the characteristics of local authorities and the types of providers delivering services.

One inherent limitation of the study, the report said, was that it assumed that council, for-profit and third sector homes served children with similar levels of need.

Debate over ‘cherry picking’ of children

It added: “Given that for profit providers have been known to selectively serve users that are thought to maximise their chance of a favourable inspection rating, this assumption may not hold. As such, the gap in quality when considering client severity may well be larger than in our estimations.”

This is a highly contentious issue in the sector, as evidenced by the contrasting reactions of the ADCS and CHA to the study.

ADCS president Steve Crocker said the challenge of finding the right placement for children amid scarce supply meant providers could “pick and choose who to accept and at what cost”.

Concerns about research

However, CHA chief executive Peter Sandiford said the inability to compare services on a like-for-like basis was a key limitation with the analysis.

He added: “We strongly challenge the intimation that outsourced providers ‘cream’ or ‘cherry pick’ the children they care for, and the research provides no evidence to support this notion, which we would argue strays into polemic debate. It is our opinion that it is in fact the children with the highest levels of need and risk that are cared for in the independent sector.”

This point has been echoed by others in the residential care sector, who have pointed to the practice of councils allocating placements to foster carers and then in-house children’s homes before going out to the private residential sector. This, they claim, often leaves private children’s homes caring for children with the greatest needs.

Also, it has been claimed that the private sector is more likely to deal with emergency placements, which adversely impacts on Ofsted grades.

Excess profits should be scrapped – directors

Crocker said the research filled a knowledge gap about the impact of “creeping privatisation” in children’s residential care and said it should be considered by the government in its response to the care review.

He added: “ADCS has long held the position that the government needs to step in to abolish excess profit making in this sector and invest, or help cash strapped local authorities invest in, new, not for profit provision.”

Sandiford said that, while the research provided valuable information on historic inspection judgments of children’s homes, it was important to “focus on the quality of the children’s residential care today and our aspirations for the future”.

An Ofsted spokesperson said: “This is a detailed report and we will consider its findings carefully. Like the authors, we would urge caution in drawing simplistic conclusions given the complexity of the sector. There are other variables, such as children’s needs and the particular specialisms of homes. And local authorities will have all different strengths and areas for improvement in terms of sufficiency and the commissioning of complex placements.

“What we do know is there isn’t enough provision to meet children’s needs in the places where homes are needed…This requires joined up planning across health and social care at a national and local level. From needs analysis, to getting funding in the right places and stimulating the right kind of provision – this is urgent.”

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