Today
Sat 23 October 2021

The growth of private sector involvement in the children’s social care sector has led to big profits for investors, while a crisis of poverty and inequality brings more vulnerable children into the ‘market’

“Compelling buy and build strategy”. “Favourable demographics”. “Significant consolidation opportunities.”

This is the language used to describe the children’s social care sector in the UK to private equity investors by Clearwater International, a leading global finance investment house. The brochure presents the “Children’s Services Market”: an opportunity for people with money to spend, as the number of vulnerable children needing care in the UK rises.

Vulnerable children have become big business, capable of generating big profits.

Profits for private providers are rising beyond the numbers of looked-after children. A Department for Education study found that large independent fostering agencies, led by private equity firms, grew at 7.7% annually from 2013 to 2018. In that same period, the total number of children in care rose at just 1% annually.

Nearly three in four children’s homes and two in five fostering households are now provided by independent organisations, from both the private and charitable sector. For the largest private providers, income levels increased by 7.3% when comparing data between February and December 2020. Among the top 10 of children’s homes providers, seven are now owned by private equity firms. 

Concerns are mounting within the sector that this direction of travel will only accelerate, with the Government’s focus on the care sector sharpening around the current Care Review. 

The Review is slated to look at all aspects of care; but critics fear that it will give a green light to increasing private sector involvement.

It is part of a wider move in the UK towards the privatisation of the care sector, says Jason Ward, Principal Analyst at the Centre for International Corporate Tax Accountability. He told Byline Times that he believes that the UK care sector – from children to care for older and disabled people – is on the way towards being one of the most privatised and least transparent in the world.

FUND MORE INVESTIGATIVE REPORTING

Help to expose the big scandals of our era.


Private Equity for a Public Good

Private equity companies buy up businesses from pizza restaurants to children’s homes in order to re-engineer them for profit. They do this by taking in funds from external investors, such as pensions, before deploying them to buy up active businesses.

The core technique for increasing returns on their funds is via debt, with the companies they buy having to borrow externally, from entities such as banks, and internally from private equity owners. 

The model encourages larger conglomerates to buy up smaller providers – something evidenced in Clearwater’s pitch to investors. It cites numerous examples whereby care providers have changed private hands.

In July 2020, Bestport Private Equity sold Oracle Care and Education to an undisclosed acquirer, generating a 3×3 profit for Bestport. The National Fostering Agency was sold by Graphite Capital in 2015 to Stirling Square Capital Partners for £250 million, becoming part of the Outcomes First Group which reports revenues of £400 million.

In a submission to the Competition and Markets Authority on children’s social care, Michelle Meagher and Nicholas Shaxson, of the Balanced Economy Project, in partnership with Vivek Kotecha, described how children can feel “like they’re being bought and sold on a market”. 

Change of ownership can also lead to staff leaving, which the former Children’s Commissioner, Anne Longfield, warns can cause “instability” to children. In a report authored in November 2020, she explained how “if a private provider became insolvent, there is a serious risk that every child in its care would have to be placed somewhere else” and that “our previous reports on children’s experiences of instability in the care system reveal the worry, stress, loneliness and exhaustion that children often face as a result of placement changes”.

Meagher, Shaxson and Kotecha explained that “private equity firms’ core expertise is typically less in the operations of the businesses they buy than in knowing debt markets, and knowing how to organise corporate structures and operations to maximise borrowing”.

This is reflected in how private equity-owned companies often have complex structures. The National Fostering Agency, for instance, has 12 parent companies, naming SSCP Spring Topco LTD as the person with significant control. Core Assets Group, another children’s care provider, had four parent companies; while Priory Education Services LTD had eight parent companies. 

Longfield has also raised concerns that such complex structures causes an issue of “transparency: not knowing who is ultimately profiting from the care of vulnerable children”.


Profits in a Crisis 

In 2019, there were 11,000 more children in care than in 2011 and the total reached more than 80,000 by March 2020. Rising rates of child poverty means that there is no sign that the numbers of looked-after children will reduce any time soon. 

During that time, the amount of children looked after by private providers increased by 42%, with the best available estimates suggesting that the largest organisations make a profit margin of around 17% on the fees that they receive from local authorities. In other words, for every £100 they charge, around £17 is operating profit.

Analysis by Byline Times has revealed that one of the largest providers, CareTech, reported a profit of £27.9 million in 2020 (its gross profit was £147.9 million), with the highest-paid director earning £450,000 and final dividends per share worth 8.75p. 

CareTech is not a private equity company. Its biggest shareholders are its chairman, Farouk Sheikh, and his family. Their dividends alone give them almost £2.5 million in 2019, in addition to their salaries.

Large private providers can work at economies of scale which may allow them to introduce services that are unaffordable in local authority provision such as in-house child psychologists, as well as reducing reliance on agency staff. 

However, when a care provider makes profits, by definition that money is returning to shareholders and is therefore not spent to benefit children.

A spokesperson for CareTech told Byline Times that 2% of its profits is invested in its charitable foundation which supports the social care sector and care workers with grants. 

Concerns have been raised that care for profit is leading to some practices that have a negative impact on child wellbeing. Crucial to this is housing children ‘out of area’ – when children are sent to live in care miles away from their families. Around 60% of looked-after children now live out of area, in part because provision is being focused in places with cheap housing. More than 2,000 looked-after children now live further than 100 miles from their homes. 

Speaking to the Housing, Community and Local Government Committee in 2019, the chief executive officer of the British Association of Social Workers, Ruth Allen, expressed her concerns that “when things become profitable… They feed into the difficulties we have, where children are placed way out of area”.

There is also evidence from some providers that spending on children has been reduced after a new acquisition, including activity budgets and pocket money. 

Ofsted inspection reports show that the quality is variable in privately-owned children’s homes, just as it is in the state sector. However, alarm bells have been raised over some private providers. 

While CareTech celebrated large profits and shareholder dividends in 2019, Ofsted inspectors reported widespread failures at one of the company’s homes which led to Norfolk County Council announcing that it would no longer ask children to live there. A CareTech spokesperson said that the facility has since been inspected a further four times and is now rated as ‘good’ by Ofsted. 

In November 2020, two girls living in a care home run by Keys Groups were allegedly raped in a hotel room, with Ofsted reporting that “poor management oversight and a failure to keep young people safe left a life-changing impact on the girls’ lives”. Keys Group is owned by the private equity G Square Healthcare Private Equity LLP and did not respond to requests for comment. 

In response to previous news reporting about the alleged rape, a Keys spokesperson said: “On the infrequent occasions when care doesn’t meet the high standards [expected], we are committed to learning. None of our homes are currently rated inadequate.”

Management consultancies are also seeing opportunities to profit from children’s social care.

In October it was announced that Price Waterhouse Cooper (PwC) had won a £100,000 contract with the Scottish Government to design its National Care Service – a move trade unions called “deeply troubling”, arguing that the consultancy has a vested interest in privatised care provision. 

Ray Jones, Emeritus Professor of Social Work at Kingston University and St. George’s, University of London, and the author of the 2018 book, In Whose Interest? The Privatisation of Child Protection and Social Work, told Byline Times that another area of concern is the emergence of specialist employment agencies for social workers, who are self-employed. Local authorities pay the employment agencies a fee to find suitable candidates. 

Prof Jones told Byline Times that many in the care sector are challenging the direction of travel towards increasing marketisation. “​​There is considerable resistance to the commercialisation of care by people who have been in care and those involved in the sector,” he said. “It is more expensive, for one thing, with big profits being taken out by venture capitalists and companies that should be available within the system. Secondly, privatisation has made it a national market rather than a local system. Children are being bussed across the country, which carries risk and trauma to them.” 

Caroline Bald, a social work academic and member of the campaigning group, the Care Review Watch Alliance, told Byline Times: “I think my concern is that private industry is about profit and by nature. And it actually can be more expensive.”

A Department for Education spokesperson told Byline Times that it is “committed to keeping our most vulnerable children safe and local authorities are required by law to ensure there is high quality accommodation available for the children they look after”.

They said that, in March, the Competition and Markets Authority launched a market study looking at the provision of accommodation and associated care and support for children in care in England, Scotland and Wales.

OUR JOURNALISM RELIES ON YOU

Byline Times is funded by its subscribers. Receive our monthly print edition and help to support fearless, independent journalism.

Thank you for reading this article

New to Byline Times? Find out more about us


SUBSCRIBE TO THE PRINT EDITION

A new type of newspaper – independent, fearless, outside the system. Fund a better media.

Don’t miss a story…

Our leading investigations include Brexit, Empire & the culture war, Russian interference, Coronavirus, cronyism and far right radicalisation. We also introduce new voices of colour in Our Lives Matter.

More stories filed under NHS Corporate Takeover

More stories filed under Reportage