Social care leaders warn of dangers of private equity firms in children’s placements

Sector leaders have criticised an insufficient supply of places and the presence of private equity firms in the children’s social care market as part of the Competition and Markets Authority (CMA) study.

The CMA launched the market study into children’s social care provision to examine the lack of availability and increasing costs in children’s social care provision, including children’s homes and fostering.

Organisations, including the Association of Directors of Children’s Services (ADCS), criticised the ability of providers to be able to “pick and choose” which referrals they accept and at what price, as well as the uneven geographical spread of homes across the country.

“Typically, the supply of homes hasn’t developed in response to need but rather providers have taken advantage of low cost accommodation, often in areas with pre-existing challenges which are exactly the wrong areas to place vulnerable teenagers,” the ADCS said in its statement.

The imbalance in power for placement choice was echoed by Ofsted, which said: “prices are high. Limited choice means that the commissioner is often not in a good position to negotiate the best care and support for children.” Calling for a ‘national approach’, the regulator said: “No single local authority can resolve these serious sufficiency issues on their own; indeed, a cross-government approach is required.”

The ADCS said its members had also been “concerned for some time” about how private equity is driving rapid changes in the ownership, financial models and service delivery in residential services for vulnerable children.

“The proportion of the market controlled by just a small number of providers, along with multi-million-pound mergers between providers who are diversifying across the sector and buying up smaller firms, increases the risk within the system,” the ADCS submission read, adding: “The risks associated with the impact of provider failure are significant and only increase as ownership continues to contract.”

Concern over the balance of provision was shared by the Local Government Association (LGA), which warned that the growth and market share of the very largest providers limits councils’ ability to manage the market and ensure the availability of placements to meet the needs of the children they care for.

The LGA also warned of the risks of private equity firms in the children’s social care market and called for a national body to oversee the largest providers, similar to the role the Care Quality Commission (CQC) holds for adult social care provision.

The collapse of adult care home provider Southern Cross in 2011 led to a legal duty for the CQC to monitor the financial health of the “most difficult to replace” adult social care service providers, however, no such duty exists for children’s social care providers.

“We would like to see a role introduced to oversee the financial health of large children’s social care placement providers to prevent a ‘Southern Cross situation’ in children’s social care, and also incorporate consideration of how mergers and acquisitions impact on quality of care and the experiences and outcomes of children,” the LGA’s said in its evidence.

This sentiment was echoed by Ofsted, which warned that the lack of oversight into the financial health of largest providers was “a serious gap”.

The CMA’s study was launched in March after concerns were raised by social work and social care leaders, including Chair of the Care Review Josh MacAlister, around the high profit margins of the private children’s home market.

The watchdog invited from interested parties such as care and accommodation suppliers, local authorities, and looked-after and care-experienced children and their advocates.

Thirty-five organisations contributed evidence for the study, which the watchdog will use to make a decision on whether to open a full market investigation. The decision on whether to make an Market Investigation Reference (MIR) will be published by 11 September 2021.