Biggest independent children’s care providers made over £300 million profit last year

The largest independent providers of children’s social care brought in profits of more than £300 million last year, a new report commissioned by the Local Government Association (LGA) reveals.

It comes as councils face significant financial pressures in children’s services as a result of rising numbers of children needing increasingly expensive care. The number of children in need of support from councils is now at its highest level since before the pandemic – 82,170 looked after children in England.

The report by Revolution Consulting found council spending on privately run children’s homes more than doubled in the past six years.

In 2021/22, local authorities in England spent £1.5 billion on independently-run residential care for vulnerable children – an 11 per cent increase on the previous year – and up from £736.6 million in 2015/16, representing a 105 per cent increase overall.

At the same time, the aggregate fee income of the 20 largest independent children’s social care placement providers* was £1.63 billion last year, increasing by 6.5% over the previous year.

Figures show 19% of this was recorded as profit – amounting to £310 million overall.

The LGA, which represents councils, say it is “wrong” that some providers are making huge profits when money should be invested in supporting children, calling for greater financial oversight of the largest providers.

Cllr Louise Gittins, Chair of the LGA’s Children and Young People Board, said while councils are having to divert more and more money away from early help services and into homes for children in care, the largest privately-run companies continue to bring in huge profits.

“As the report shows, spending on residential care placements for children has increased dramatically in recent years as councils have sought to find the best homes for record numbers of children in care, while mergers and acquisitions have seen some large independent providers grow significantly.”

The report also identifies a significant amount of mergers and acquisitions taking place, which have led to concerns about the lack of knowledge of what the impact of such activity is on children living in provision.

It says that despite the data obtained in the report, visibility of financial information has made it difficult to provide a clear picture of the care provider market.

“Decreasing visibility of financial information makes it increasingly difficult to understand the financial health of these organisations that are largely funded by public money. Furthermore, regulations have not kept pace with the changing ‘market’, leaving regulators with limited powers to monitor the performance of large providers,” Cllr Gittins added.

John Pearce, President of the Association of Directors of Children’s Services (ADCS), which represents directors responsible for children’s social care, said “report is the latest in a long line outlining the unjustifiable level of profit being made by the largest privately run companies, all from our most vulnerable children and young people.”

“We need to re-balance the system in favour of meeting children’s needs and away from the current market-led system where considerable levels of borrowing and debts are held by some private companies. Should any of these providers fail, no single local authority could step in, and it would be children who suffer the greatest consequence. As the Competition and Markets Authority notes, the current level of risk of disruption to children’s accommodation and care is unacceptable.

“We are the only purchasers of placements but providers can pick and choose which referrals to accept and set the price due to high levels of demand. Local authorities across the country are working hard to overcome the sufficiency challenges they face with many investing in their own children’s homes and in campaigns aimed at recruiting and retaining more foster carers, but this alone cannot solve the problem in either the short or longer term. ADCS continues to call for new legislation which prevents profiteering in children’s services and for the introduction of pricing bands and caps. The system must be driven by children’s needs, not maximising profits.”