LGA reveals scale of ‘concerning’ profit margins in children’s social care market

National membership body for local authorities says some independent providers of children’s residential and fostering placements are achieving profits of more than 20% on their income.

29/01/21

LGA reveals scale of ‘concerning’ profit margins in children’s social care market

The Local Government Association (LGA) has called for the Government’s review of children’s social care to consider the impact of increasing private equity and stock market involvement in the system, after new research shows that the six largest independent providers of placements made £219 million in profit last year.

The LGA says that some independent providers of children’s residential and fostering placements are achieving profits of more than 20% on their income. Four of the seven largest groups of independent providers had more debts and liabilities than tangible assets, meaning they may be at risk of defaulting if interest rates change.

The LGA is calling for greater national oversight of companies providing homes for children in care to prevent a financial collapse, similar to that of adult care home provider Southern Cross in 2011, which could leave vulnerable children without a home.

The collapse of Southern Cross led to a legal duty for the CQC to monitor the financial health of the “most difficult to replace” service providers. However, no such duty exists for children’s social care providers.

Judith Blake, Chair of the LGA’s Children and Young People Board, said the sector “cannot risk” a situation like the Southern Cross collapse in children’s social care.

“An oversight scheme is needed to help catch providers before they fall and ensure company changes don’t risk the quality of provision.”

“The largest providers of children’s placements are growing rapidly and continuing to acquire other providers. The potential risks involved in their considerable debt levels is an issue that the Government must consider alongside greater financial support for children’s services.”

Blake said that independent providers “should not be making excessive profit”, adding: “councils, providers, central government and Ofsted all have a role to play in developing a diverse market that makes sure we have the homes children need.”

However, Peter Sandiford, Chief Executive Officer for the Independent Children’s Homes Association, said the report fails to recognise that money is not being taken out of the sector, but is in fact being reinvested. He also argued that large providers were “leading the way” in quality with more than four in five homes being assessed as either ‘Good’ or ‘Outstanding’ by Ofsted.

“The report demonstrates that there is continued growth, not just acquisition, in the sector which we know is needed,” Sandiford said, adding: “As local authorities do not appear to have the ability to meet this need, then the private and voluntary sector must continue and will, necessarily, grow to meet the needs of children requiring a home.”

The call for an investigation comes after Josh MacAlister, Chief Executive of Frontline and soon-to-be Chair of the wide-ranging review of children’s social care in England, wrote to the Competition and Markets Authority (CMA) on Monday, saying an investigation by would “provide invaluable evidence to my review”, which the CMA says it is considering.
Read our story: https://www.socialworktoday.co.uk/News/Watchdog-considers-opening-investigation-into-children%E2%80%99s-social-care-market

While councils provide some fostering and children’s homes places themselves, three-quarters of children’s homes and 40% of fostering households are now provided by independent organisations, including private and charitable companies. The two largest independent fostering providers offer nearly a third of all independent fostering places.

The LGA, which represents nearly every council in England, says local authorities have been reporting increasing difficulty in finding suitable places for children in care, particularly for older children and those with more complex or challenging needs. They have also identified some placement costs rising far beyond inflation, putting pressure on budgets that are already at “breaking point”.

Local authorities in England have reported overspends of more than £3 billion on children’s social care in the last five years, even as budgets increase. Councils say this is a result of rising demand, with four in five also reporting rising costs for fostering and residential placements due to the pandemic.

Children England, which represents a consortium of charities working with children and families, supported the calls, saying “radical action on the care market can't come soon enough.”

“This new, updated analysis of the finances of the largest care providers shows growth and consolidation that is strengthening the cartel of the largest, private equity-funded companies, even as the debts of individual companies rise.”

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