Ofsted to crack down on illegal children's homes, warning of sufficiency crisis

Ofsted has unveiled plans to strengthen its response to the growing use of unregistered children's homes, warning that illegal provision is placing vulnerable children at risk while exposing them to exploitation, criminality and unsafe care.

The inspectorate said it will take a more aggressive approach to investigating and prosecuting unregistered providers, while also proposing changes to local authority inspections designed to discourage councils from using illegal placements where they have failed to address local sufficiency needs.

The announcement comes alongside new Ofsted research which found that shortages of suitable children's homes, foster carers, affordable housing and workforce capacity are contributing to children being placed further from home or in accommodation that cannot meet their needs.

Although there are now more children's homes than ever before, Ofsted said provision is often concentrated in the wrong areas, with many homes becoming smaller or unable to support children with more complex needs. At the same time, local authorities continue to face record placement costs.

Sir Martyn Oliver, His Majesty's Chief Inspector, said: "Illegal homes are a scourge on our society, placing profit above children's welfare and safety. It's absolutely right that we do everything in our power to prevent children from being placed in unsafe and unsuitable accommodation.

"The research published today highlights that we need the right homes in the right places, not more homes in the wrong places. Changing our approach to focus on sufficiency, as well as rooting out criminality, will ensure we're playing our part in tackling this issue."

Under the new approach, Ofsted said concerns about the safety of children in unregistered homes will routinely trigger criminal investigations, visits to the homes, evidence gathering and prosecutions where appropriate. Where inspectors identify safeguarding concerns or evidence of wider criminal activity, they will work with police and local authorities to take immediate action to protect children.

The inspectorate has also established a dedicated unregistered social care team following new powers introduced through the Children’s Wellbeing and Schools Act 2026, allowing it to issue civil penalties as well as pursue criminal enforcement against those operating illegal children's homes.

In a blog accompanying the announcement, Yvette Stanley, Ofsted's National Director for Regulation and Social Care, warned that the scale of the problem has grown significantly in recent years.

"On any day, we know several hundred children are living in unregistered homes. These children get none of the essential regulatory or independent safeguards needed to make sure they're being cared for well and safely. Many of them are highly vulnerable, with complex needs. And the people providing their care are too often unsuitable and motivated by the wrong reasons," she wrote.

Stanley also highlighted concerns about organised crime becoming involved in the sector, citing allegations that illegal children's homes have links to county lines gangs, money laundering and drug smuggling.

"There have been some horrendous incidents that have occurred in unregistered children's homes that must never happen again," she said.

According to Stanley, Ofsted was made aware of more than 900 suspected unregistered children's homes during 2024, while the Public Accounts Committee estimated that around one in 10 children in residential care were living in an unregistered setting during an average month. She added that some illegal providers were reportedly charging local authorities up to £30,000 per child each week, with the Office of the Children's Commissioner estimating that unregistered placements cost taxpayers £353 million.

Alongside its enforcement plans, Ofsted will consult on changes to its inspection framework for local authority children's services. The proposals would allow councils using illegal provision without demonstrating determined action to improve local sufficiency to receive lower inspection judgements, including "urgent improvement" or "needs attention" grades.

Stanley acknowledged that many councils face extremely difficult placement decisions because of longstanding shortages across the care system.

"We understand that the causes of these problems are complex and entrenched. There are no quick or easy fixes," she wrote.

"Local authorities are faced with difficult dilemmas. There are often no 'ideal' options available to them when it comes to placing children in care. This only incentivises nefarious operators to take advantage."

However, she argued that the legal framework is clear and that inspectors cannot ignore councils' responsibilities.

"We do fully recognise the pressures local authorities face. But when they commission a placement in an unregistered home, they're usually breaching their legal duties. As the inspectorate for children's services, we cannot ignore this. The standards we expect local authorities to meet need to reflect their existing legal obligations."

The inspectorate also announced changes to the way it processes applications for new children's homes, saying it will prioritise providers seeking to establish specialist provision in areas where local authorities have identified the greatest need. Applicants will be expected to demonstrate they have engaged with local authorities to ensure proposed homes address local and regional sufficiency gaps.

Stanley concluded that while enforcement alone would not solve the problem, Ofsted intended to play a more active role in preventing children from being placed in illegal accommodation.

"There is no one easy way to stop local authorities using unregistered children's homes. But we'll not shy away from doing everything we can do to prevent children being placed in illegal homes that put their welfare and safety at risk. We must root out criminality from the children's social care sector."