Findings from the Competition and Markets Authority vindicate Byline Times’ investigations into private equity investment in children’s care

The largest private providers of children’s social care are “making materially higher profits, and charging materially higher prices than we would expect if this market were functioning effectively,” a report by the Competition and Markets Authority (CMA) has found.

The damning conclusions follow Byline Times’ investigations into the profits made by private children’s social care providers and the advertising of children’s social care to investors as offering “favourable demographics”.

Those “favourable demographics” represent a growing need for social care for children who have endured neglect and abuse, who are unaccompanied asylum seekers, or who have profound needs. 

Byline Times found that private equity firms have increasingly become involved in children’s social care, with the “children’s services market” becoming big business for investors.

Now the CMA report vindicates this paper’s reporting. It warns that private providers are carrying high levels of debt – with those owned by private equity firms having particularly worrying debt levels. This leaves providers vulnerable to external changes – such as a tightening of credit controls – which in turn increase the risk of a “disorderly exit of firms from the market”.

High levels of debt are normal for private equity firms. But while debt and associated risk are fine if investors are putting their money into a pizza chain, the impact on looking after children if a provider is forced to pull out of the children’s services market is very different than in other sectors. 

The report expressed concerns that disorderly exits could have a devastating impact on vulnerable children – causing disruption, forcing them to move to a new placement, and affecting their future life chances. Looked after children urgently need stability, rather than their placements being provided at the whim of market forces. 

The CMA also raised concerns that high levels of debt and the risk of providers pulling out of the market would have a knock-on effect on the provision of social care. The report found there is currently not an adequate number of appropriate placements for children in need of care. Therefore local authorities are not in a position to “deal with a sudden and significant reduction in supply” of placements should private equity-owned firms unexpectedly close their doors. 

However, it does not recommend banning the private provision of children’s social care in its report, not least because the CMA found the quality of care did not greatly differ between private and public sector involvement. Scotland has plans to bring back children’s residential care into the public sector by 2030, having already banned private providers of foster care.


High Prices, High Profits

There are 100,000 looked after children in Britain today, with the majority cared for by foster families or kinship arrangements. More than three-quarters of places in children’s residential care now come from independent providers in England and Wales.

For the children’s homes providers in its data set, the CMA saw steady operating profit margins averaging 22.6% from 2016-20. In the same time period, average prices increased from £2,977 to £3,830 per week, an average annual increase of 3.5%, after accounting for inflation. 

Such healthy profits would, in normal circumstances, see providers investing and expanding in the market, as well as new providers entering the field. This would lead to less efficient providers closing down, and prices being reduced to create a more competitive marketplace. 

This has not been the case. Instead, profits and prices remain high, local authorities are forced to pay whatever is expected of them in order to meet needs, and there is not an adequate number of appropriate placements. While shareholders do well out of private investment in children’s social care, the wages of careworkers remain low – leading to a staffing crisis. 

The CMA notes that “given the high levels of profit among the large providers, it is perhaps surprising that wages have not risen to ease recruitment pressure”. 

The lack of investment has led to a struggling system, where children are routinely housed inappropriately.

This includes children being housed out of area –  away from their family and support networks – with 37% of looked after children in England housed 20 miles away from their home base. Further, 13% of children in England were housed separately from their siblings, and too many are unable to access specialist support which is crucial for young people struggling with trauma, such as unaccompanied asylum seekers. 

Concerningly, while private providers have led to an increase in provision across the board, this has not translated into an increase in appropriate provision. This is, in part, because private providers tend to invest in property in cheaper regions such as the North West.

The result is regional inequality, with the North West having 23% of all places in children’s homes and 17% of looked-after children, while London has just 6% of places in children’s homes and 11% of looked-after children. As a result, children in London in need of residential care are on average being housed 60 miles out of area, in contrast to children in the North West who are on average housed 21 miles from their home. 

The CMA also found reports of children being housed in unregulated accommodation – something which is now illegal for under-16s.

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The CMA report was published in advance of the independent review into children’s social care, led by Josh MacAlister. It follows a controversial decision by the Government to ban unregulated housing for looked after children under-16, but not for those under-18.

The sector has also suffered various scandals in recent years, not least following the murders of two young children: Star Hobson in Bradford and Arthur Labinjo-Hughes in Solihull. Hobson’s death led to Bradford’s children’s services being transferred to a trust. An independent review into social care services and Labinjo-Hughes’ death is ongoing. 

Last week it was reported that 17 children have died in a care setting in Northern Ireland over five years, although the CMA report did not cover the region.

It also follows Devon’s childcare services being found “inadequate” by Ofsted, and the inspectorate has recently suspended the registration of the Cambian Brook View facility in Lancaster due to concerns. Ofsted has also warned that children in Surrey are being left in neglectful situations for too long, with children left sleeping next to boxes of razor blades.

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