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'Private equity involvement in care placements needs reviewing'

Local Government Association expresses concern about profit and debt levels

The Government's review of children's social care needs to consider the impact of increasing private equity and stock market involvement in the system, the Local Government Association says as it publishes new research showing that the six largest independent providers of placements made £219 million in profit last year.

The LGA's report – Profit-making and Risk in Independent Children's Social Care Placement Providers – December 2020 update – states that some independent providers of children's residential and fostering placements are achieving profits of more than 20 per cent on their income, while four of the seven largest groups of independent providers had more debts and liabilities than tangible assets.

While councils provide some of their own fostering and children's homes places for children in care, nearly three in four children's homes and two in five fostering households are now provided by independent organisations, which includes private and charitable companies. The two largest independent fostering providers offer nearly a third of all independent fostering places.

Councils have been reporting increasing difficulty in finding suitable places for children in care, particularly for older children and those with more complex or challenging needs. They have also identified some placement costs rising far beyond inflation, putting pressure on budgets that are already at breaking point.

Rising demand means that despite increasing budgets, councils still overspent on children's social care by more than £3 billion over the past five years. Four in five councils have reported rising costs for fostering and residential placements for children in care due to coronavirus pressures last year.

The Department for Education has launched an independent review of children's social care which councils say is an important opportunity to consider how we can ensure that we have the right homes for all children in care, and that money spent on those placements is improving outcomes for children.

The LGA is calling for this review to lead to greater national oversight of companies providing homes for children in care, like 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.

Additional research by the LGA – Barriers and Facilitators to Local Authorities and Small Providers Establishing Children's Homes – identifies five key barriers to diversifying ownership of children's homes: negative stigma around children's homes; financial risks; high barriers to entering the market; concerns around how to support children with complex needs; and limited coordination of commissioning around the country.

For the LGA's report Profit-making and Risk in Independent Children's Social Care Placement Providers – December 2020 update, click here. For Barriers and Facilitators to Local Authorities and Small Providers Establishing Children's Homes, click here.

31/1/21