The government will legislate to tackle "profiteering" from children's care placements in England, a minister has vowed.
Children's minister Janet Daby said that the forthcoming Children's Wellbeing Bill would strengthen regulation of the sector to "return children’s social care to delivering high quality outcomes for looked after children at a sustainable cost to the taxpayer".
Her pledge came as Ofsted, in a bid to influence the legislation, called for new powers to regulate providers of children's care placements, including in relation to profit-making.
'Profiteering from vulnerable children unacceptable'
Daby, a former fostering social worker, was responding to a written question from fellow Labour MP Helen Hayes about what the government would do to tackle "excessive profits in the residential children’s social care sector".
In her response, the Department for Education (DfE) minister said that "profiteering from vulnerable children in care [was] unacceptable" before saying that the Children's Wellbeing Bill would tackle the issue.
Her comments follow longstanding concerns about profit levels among providers, particularly the largest, enabled by their leverage over councils needing to place children, often at short notice, amid an insufficiency of placements.
Profit levels of largest providers
In its 2022 report on the placements market, the Competition and Markets Authority found that, among the largest 15 providers, profit margins averaged 22.6% in residential care and 19.4% in fostering.
Since 2020, English council spending on children's homes has risen sharply, with the cost of these placements increasing by 13% in 2021-22 and 15% in 2022-23, according to a recent report commissioned by the major children's charities (source: Pro Bono Economics, 2024).
The number of registered places in mainstream children's homes has grown by 28% over the past four years, compared with a 7% decline in the number of approved mainstream fostering households from 2019-23.
Promised children's social care regulation
The Children's Wellbeing Bill was announced in the 2024 King's Speech, meaning it will be debated during the 2024-25 parliamentary session and should become law next year.
Initial information on the bill did not include any pledges to tighten the regulation of children's social care services - a pledge in Labour's manifesto - but Daby has now confirmed that the legislation will enable the government to deliver on its election commitment.
It is not clear as yet what the bill will contain on regulation and how far it will draw upon work commenced under the previous government to address service costs, profit levels and placement sufficiency through the so-called market interventions advisory group (source: Children and Young People Now).
However, last week, Ofsted set out a wish-list of measures for ministers to include in legislation, to bolster its regulatory powers over children's social care services.
Ofsted's call for new powers
This included being able regulate profit-making by large groups that provide multiple social care and education services, "to make sure their decisions are made in children’s best interests and not solely for profit".
Ofsted also called for powers to:
- Regulate groups providing children's homes or other social care services, including being able to restrict growth where there are systemic issues across multiple settings, requiring group leaders to tackle quality issues revealed by inspections and being able to enforce actions at a group-wide level.
- Fine unregistered settings, to deter providers from operating them. Its current powers are limited to prosecution, which Ofsted said was "costly and time-consuming".
- Refuse registration applications based on need, for example, in areas, such as in the North West, that are oversaturated with children's homes.
Other measures proposed by the regulator included setting quality standards for all places where children live away from home, including residential special schools, to ensure consistency across all settings, and enabling registered managers to be able to move from one setting to another without having to re-register, reducing burdens on providers.
Regulator 'optimistic' about reform
The proposals were made in response to the Big Listen, Ofsted's biggest ever consultation, which also resulted in its plan to scrap single-word judgments for inspections of local authority children's services and of children's social care providers.
Its national director for social care, Yvette Stanley, said the regulator could not "pre-empt future ministerial decisions" but it was "working very closely with DfE officials" and was optimistic about the prospects for reform.
Daby indicated that the DfE was looking at at least one aspect of Ofsted's proposals, on the location of children's homes.
In answer to a parliamentary question, from Labour MP Mohammad Yasin, on the issue, Daby said: "The department is developing options in regard to planning of children’s homes, including considering the location of new homes and registration requirements."
Ofsted's proposals were welcomed by the Association of Directors of Children's Services (ADCS), which has long sought action to tackle profit levels among children's home providers.
Children's directors seek 'bold action' on 'huge profits'
ADCS vice president Rachael Wardell said it supported the regulator being able "to look at the contribution groups of providers make to children’s outcomes and experiences, and their use of scarce public funds".
"In recent years there has been a trend towards business mergers and acquisitions giving rise to some very large providers and an expansion of private equity investment in children’s homes, which is increasingly being seen in the childcare sector too," she added.
"We await the government’s response to these asks and hope to see bold action from ministers to prevent huge profits being generated and extracted from the system on the backs of vulnerable children and young people, in particular.”
Daby's commitment to 'cracking down on excessive profits'
For the government, Daby added: “We know that all too often care placements for vulnerable children come at a massive financial cost to councils and a human cost to young people who aren’t getting the support they need.
“We are committed to cracking down on providers making excessive profits, and our Children's Wellbeing Bill will strengthen regulation to make sure every child has a safe, loving home."
Meanwhile, the DfE has selected two areas - Greater Manchester and the South East - to test the commissioning of care placements by region-wide bodies, rather than individual local authorities.
Regional care co-operatives - proposed by the previous Conservative government are designed to give councils – collectively – greater clout over providers to shape services across their regions and ensure sufficient high-quality placements for children in care.
