Children’s homes body excludes providers funded through tax havens from membership

The body representing children’s home providers has decided to exclude providers receiving finance from tax havens from membership.

The Children’s Homes Association’s (CHA) new membership rules also stipulate that members must be ultimately owned in the UK and have at least majority shareholders who are UK-registered taxpayers.

The CHA will base these judgments on checking providers against Companies House records and with reference to a list of countries deemed to be tax havens, which includes the British Virgin Islands, Bermuda, the Cayman Islands, Guernsey, the Isle of Man, Jersey, Luxembourg, Monaco and Switzerland.

The decision, which came into force on 6 April 2024, has excluded just 2% of CHA’s 300+ members.

Reduction in fee income

However, these organisations collectively represent 20% of placements under the association’s umbrella, meaning the decision will lead to a 10% reduction in income from membership fees.

The association said the move was designed to ensure that its private-sector members – who make up the large majority of the CHA’s membership and the children’s homes sector alike – contribute, through their taxes, to the state-funded care system that pays them.

Excluding providers financed through tax havens will also affect private equity-owned organisations, where companies are bought out by investment firms using funds backed by high levels of debt, which must then be serviced through the providers’ profits.

An analysis of the largest 20 children’s home and fostering providers by Revolution Consulting, published last year, stated that six had owners based outside the UK, and ten had private equity involvement.

Concerns about private equity ownership

In its 2022 report on the children’s social care, the Competition and Markets Authority warned that debt levels carried by private equity-backed companies increased the risks of providers failing, harming children whom councils would then have to find placements for at short-notice.

On the back of this, the CMA recommended that the Department for Education set up a market oversight regime to monitor the finances of the largest and most difficult to replace children’s home providers, which the DfE agreed to take forward in last year’s Stable Homes, Built on Love strategy.

In a statement on its membership changes, the CHA said it was “not appropriate” for fees paid to providers to be spent on “unreasonably high levels of interest”.

Its interim chief executive, Mark Kerr said the association supported “a mixed economy of children’s social care which relies on public, charity, and independent for-profit provision”.

Providers ‘should contribute to tax-funded care services’

He added: “An amazing range of specialist expertise exists in the sector and the continuation of investment from private organisations is vital to ensuring the right care is available for our society’s most vulnerable children.

“However, we are also committed to social value and believe that organisations delivering tax-funded care services should fairly contribute to the system that makes care possible in the first place.”

As well as concerns over provider debt, council leaders and campaigners have also raised repeated concerns about profit levels among largest providers, which the CMA concluded was higher than would be expected in a well-functioning market.

It did not recommend caps on prices or profits in its 2022 report, while the DfE also did not include any specific measures to tackle profits in the sector in Stable Homes, Built on Love.

Instead, the department said it believed its plans to for regional care co-operatives (RCCs) to take over responsibility for commissioning care placements from individual councils would reduce profit levels by ensuring care was better planned.

Call for national rules to tackle profit levels

However, the Association of Directors of Children’s Services has warned that there is no evidence that RCCs – whose full establishment is several years away – would have this impact and that national rules were needed to tackle what it has described as profiteering.

The ADCS welcomed the CHA announcement, with president Andy Smith saying: “This sends a positive signal about the need for a more stable care system that is committed to meeting the needs of our most vulnerable children and young people above all else. We now urgently need national government to create a set of national rules to ensure the system is reset in favour of children’s best interests.”