Hundreds of children placed in illegal homes for months due to system pressures, MPs warn

Hundreds of vulnerable children in England have been placed for months at a time in illegal and unregistered homes because of deep-rooted failures in the residential care system, according to a new report by the Public Accounts Committee (PAC).

The committee found that in September 2024 nearly 800 children were living in unregistered children’s homes or supported accommodation — around one in ten of all children in residential care at that point. Such settings are illegal to operate without registration with Ofsted and cannot be routinely inspected, meaning there is no consistent assurance about the quality of care provided or the safety of children and surrounding communities.

The PAC’s report paints a picture of a system under sustained pressure, with local authorities forced to rely on inappropriate placements because of a shortage of suitable, registered provision. While councils are expected to use unregistered homes only as a last resort and on an emergency, short-term basis, evidence to the inquiry suggests this is no longer the case.

The Children’s Commissioner told the committee that children placed in unregistered accommodation during 2024 stayed for an average of around six months, rather than being moved on quickly. This raised particular concern where children’s liberty had been restricted through the courts. During 2024, 1,280 children in care were subject to deprivation of liberty orders, meaning they were held in placements against their consent, in some cases in settings that were not legally regulated.

MPs described this situation as “utterly unacceptable”, warning that the absence of oversight means it is impossible to know whether children’s placements are safe, stable or meeting their needs. The report concludes that the normalisation of unregistered placements reflects a system that is no longer functioning as intended.

The Department for Education (DfE) has acknowledged the scale of the challenge and estimates that it could take up to two years for planned reforms and investment to begin easing the shortage of places. However, the PAC questioned whether current measures are sufficient, particularly efforts to reduce demand by increasing foster carer numbers.

Figures cited in the report show that the number of foster carer households fell by 9% between March 2020 and March 2024, excluding family and friends carers. This decline has taken place alongside rising use of semi-independent placements, a trend recently highlighted by The House magazine. MPs said there was limited evidence that government initiatives to grow foster care capacity were working at the scale required.

The report also highlights stark geographical inequalities in the availability of placements. Almost half of children in care in England are placed more than 20 miles from their family homes, with many living much further away. In London, there are currently no secure children’s home places at all.

Such distances create additional challenges for social workers, who may struggle to build relationships with children placed far from their local area or understand the support services available to them. The PAC has called on the DfE to set out how it will ensure that new homes are developed in the areas where need is greatest, rather than leaving councils to compete for a limited number of places.

That competition, MPs argue, has contributed to spiralling costs in what the report describes as a “dysfunctional” market. As demand has outstripped supply, local authorities have found themselves bidding against one another for placements, driving up prices.

Spending on residential care placements in England has almost doubled over the past five years, reaching £3.1 billion in 2023–24. The PAC concluded that the DfE has failed to get a grip on this cost escalation and does not yet have a clear plan for how it will help councils manage volatile demand or plan provision more effectively.

Concerns about value for money are compounded by the level of profit being made by some private providers. Evidence from the Competition and Markets Authority showed that in 2022 the 15 largest children’s social care providers recorded average profit margins of 22.6% for children’s homes. Over the same period, their prices increased by an average of 3.5% above inflation each year.

Seven of the ten largest children’s homes providers are now owned by private equity firms, a trend that MPs said raises further questions about transparency and financial risk. Private equity ownership can involve complex financial structures and high levels of debt, yet despite private companies providing the majority of residential placements, the DfE does not have a full picture of providers’ financial health.

During the inquiry, MPs asked the department whether suppliers were “price gouging”. The DfE acknowledged that in some parts of the country providers were making significant profits. Evidence to the committee suggested that private-equity-owned providers were of particular concern, while smaller, practitioner-led homes were less likely to generate excessive returns.

Sir Geoffrey Clifton-Brown, chair of the Public Accounts Committee, said the findings showed a system that was failing its most vulnerable children.

“The stated purpose of the children’s social care system is ‘to provide care for those who need it so that they grow up and thrive with safety, stability and love,’” he said. “For the hundreds of children highlighted in our report living for months in illegally unregistered homes, a lack of oversight means we cannot know whether their circumstances are indeed safe, stable, or loving.”

He warned that local authorities were being pushed into unsafe practice by systemic failure. “A dysfunctional system is forcing local authorities to routinely reach for solutions which will see our nation’s children regularly put at risk. This utterly unacceptable situation has become normalised, but there is nothing normal about this unsustainable state of affairs.”

Sir Geoffrey also criticised the lack of oversight of providers’ finances, saying: “Without a good understanding of the motivations, debt, and potentially excessive profits of private providers, government cannot effectively oversee a market with players within it who could very well be over-leveraged with debt.”

He added that children in care were often unable to make their voices heard: “It is clear from our Committee’s scrutiny that they are currently being failed.”

Responding to concerns about unregistered placements, the Association of Directors of Children’s Services (ADCS) said councils share the goal of ensuring children have access to safe, appropriate homes but are constrained by market conditions.

Rachael Wardell OBE, ADCS president, said: “Children in care need access to safe, stable homes that meet their needs and keep them close to their communities. Both local and central government are now investing heavily in this provision, although it takes time to translate plans into registered and available places.”

She reiterated ADCS’s long-standing call for a shift away from profit-driven provision. “Local authorities always want to secure the right homes for children, but they are operating in a market that too often puts profit before care,” she said, adding that measures in the Children’s Wellbeing and Schools Bill could help to “rebalance the market in children’s interests”.

Wardell also called for a coordinated national approach. “DCSs urgently need a national placements strategy that helps local areas meet our sufficiency duties, one that puts children at the centre, ensuring the right homes are available in the right places, led by care and compassion, not commercial interests.”

The PAC’s report adds to growing scrutiny of England’s children’s social care system, with MPs warning that without urgent and fundamental reform, unsafe and unlawful placements risk becoming an entrenched feature rather than a last resort.