Watchdog’s report raises concerns over availability and price of children’s social care

The competition watchdog’s report on children’s social care has finds that there is a shortage of appropriate places for local authorities seeking to place children and that the largest private providers could be earning higher profits than would be expected in a well-functioning market.

The CMA also highlights risk of private equity-owned providers going into financial distress and ultimately having to exit the sector due to the high and increasing levels of debt, jeopardizing the stability of children’s placements in a similar way to the effects of the collapse of Southern Cross on adult social care.

The initial findings are the result of a market study that the CMA launched in March after calls from the Chair of the Review of Children’s Social Care in England, Josh MacAlister. Despite the concerns, the watchdog decided against proceeding to full market investigation in September.

The study’s interim report provisionally finds that there is evidence of a shortage of appropriate places for children and that high prices are often being paid to place them.

The interim report finds that there are too often no placements available, in children’s homes, with foster carers or in independent accommodation, that fully meet the needs of children – with some being too far away or requiring siblings to be separated.

Each local authority must take steps to ensure, so far as reasonably practicable, that sufficient accommodation is available within their area in order to meet the needs of the children they look after. However, the report finds that because local authorities must find an appropriate placement, often under considerable time pressure, their position in the market is inherently weak. This means they are often paying private providers for those placements at prices that are higher than they would otherwise be.

As a result, large private sector providers of children’s homes and fostering services appear to have been making higher profits in England and Wales than the CMA says it would expect in a well-functioning market. However, the CMA’s interim study has not seen evidence of systematic differences in the outcomes of care for children between local authority and independent provision.

New figures from the interim report show that in 2020, for the largest providers of children’s homes, the average weekly price was £3,830, with an average operating profit margin of 23%; while for fostering agencies, the average weekly price for fostering was about £820 per week, with an average operating profit margin of 19%.

The CMA’s analysis suggests many of these problems are the result of the relatively small numbers of children each local authority is placing. This means they are limited in their ability to purchase placements in larger numbers and plan for future needs, which could drive up prices and make it harder to place children in appropriate accommodation.

The CMA is also concerned about the evidence it has seen of particularly high and increasing levels of debt being carried by private equity-owned firms in the sector. This could leave the businesses vulnerable to financial distress and ultimately having to unexpectedly exit the market in the event of tightening credit conditions.

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.

The CMA said such an event in children’s social care providers could in turn risk huge disruption to children in their care and could put pressure on local authorities to suddenly find new homes for them.

The CMA will be testing these initial findings, looking in more depth at profits in the market and exploring possible solutions to these issues for the study’s final report, which is due to be published in March 2022. The recommendations being considered include the creation of larger-scale national or regional bodies with a remit to help ensure that children are able to access the right placements, where these do not already exist.

The CMA says they could do this either by helping local authorities to secure appropriate placements at lower prices or by taking over responsibility for placing children, adding that this could help local authorities to purchase placements in larger numbers. This is being considered alongside other possible solutions, such as updating the regulatory frameworks of the sector and the introduction of constraints on debt levels in the sector.

Andrea Coscelli, Chief Executive of the CMA, said the watchdog is inviting comments on these possible proposals.

“We are concerned this is a failing system, with children not being placed in the right homes while providers are being allowed to charge high prices and make big profits.

“Vulnerable children rely on these services, but too many are being placed in accommodation that does not meet their needs. And despite many placements not being suitable, local authorities, funded by taxpayers, are paying more than they should to provide them. The levels of debt we have seen being carried by private equity-owned firms is also a real concern due to the effect a firm in financial distress could have on the children in their care.”

Commenting on the report, Association of Directors of Children’s Services (ADCS) President Charlotte Ramsden said the report outlined concerns which the Association had been raising with the Government already.

“The ‘offer’ from independent residential care providers has not developed in line with children’s needs creating a mismatch between supply and demand. Local authorities are the sole purchasers of placements, yet excessive profits are being made by some providers on the backs of vulnerable children,” Ramsden said. “This is wholly wrong and not in the best interests of these vulnerable children and young people.”

Ramsden also expressed worries that multi-million-pound mergers between providers are becoming commonplace and that the high and increasing levels of debt being held by private equity firms is of “real concern” when considering the potential disruption that exiting the market could have on the children in their care.

Ramsden suggested implementing legislation which prevents for-profit operations or caps the level of fees chargeable in fostering and residential services, similar to that in Scotland, as potential solutions to the problems with the market outlined in the report.

“Local authorities would be able to reinvest some of this money and develop more in-house provision and earlier intensive support, closer to the communities in which children grow up. The system must be driven by children’s needs, not maximising profits.”