The Competition and Markets Authority has published its final report into the children’s social care market. Martin Barrow, journalist and foster carer, considers its findings and what they mean for the future of children’s homes and foster care. 

One of the most contentious aspects of the care system for children and young people is the extensive use of private companies to provide foster care services and children’s homes. Supporters of the use of private companies say it brings greater choice and higher quality. Critics argue that private companies exploit a precarious ecosystem to earn millions in profits from local authorities who are sinking ever-deeper into debt. 

In March 2021 the Competition and Markets Authority launched an investigation into the children’s social care market (essentially, foster care agencies and children’s homes) in response to concerns over high fees and the scarcity of places for children in care to live. An interim report was published in October 2021 and a final report in March 2022. 

Two points need to be addressed upfront. First, it was never the job of the CMA to take a view of whether profit from care of children was good or bad; its role was to establish whether the market that exists works in the best interests of ‘consumers’. Second, the CMA covers the whole of the UK and its review of children’s social care looked at Scotland and Wales as well as England. While both Scotland and Wales have taken steps towards the elimination of profit from foster care and children’s homes, England remains committed to a mixed public/private market. 

Further, anybody expecting the CMA to establish a clear way forward will have been disappointed. The final report contained something for everyone, and even the strongest advocates for privatisation found comfort in some of the CMA’s findings. 

So, what did the CMA conclude? The headline findings were damning. The children’s social care market is “dysfunctional.” The CMA found there is a shortage of appropriate places in children’s homes and with foster carers, meaning that some children are not getting the right care. Some children are also being sent to live too far away from where they previously lived or separated from their siblings.

This shortage also means that high prices are often being paid by local authorities, who are responsible for placing children in appropriate settings, with these costs picked up by taxpayers. The largest private providers of placements are making ‘supernormal’ profits, and charging materially higher prices than would be expected if this market were functioning effectively. The CMA also expressed concern over the high level of borrowings being carried by the largest providers. 

Most children and young people in care live with foster families, and it was here that the CMA found the clearest evidence that using independent foster care agencies was more expensive for local authorities than using their own carers. Agencies’ operating profit margins are close to 20%, almost twice as high as similar companies in other sectors. 

When it came to children’s homes, the CMA did not find evidence that providing local authority placements was any less costly than purchasing placements from private providers, which left many local authorities perplexed. Yet providers have earned above-market returns over several years (around 11%, compared to a ‘normal’ rate of return of between 3% and 6%). 

The CMA’s proposed remedies rely heavily on strengthening central government oversight and building collaboration between local councils to improve the commissioning process. There is also a nod to further deregulation, particularly around planning laws, and to supporting the recruitment and retention of care staff and foster carers. But it comes down firmly against any attempt to ban private provision or to limit fees or profits.

The CMA expresses concern about high levels of debt, particularly involving providers owned by private equity. But it goes on to say that the risk of failure is very low, given the high demand for homes and places. It says nothing about these companies’ offshore tax arrangements, multimillion pound interest charges or management fees. Similarly, there is no discussion about transparency of ownership structures. Broader issues, such as the quality of care and the stability of placements, including the hundreds of children who are routinely sent many miles away from their families, are not in the CMA’s remit. 

What happens next is not clear. Will Quince, the Children’s Minister, has expressed disquiet about fees and profits in England, so some action seems likely. The Government has promised to make £259 million available to local authorities to invest in children’s homes but much of this is destined for the secure estate. The Government’s response will need to dovetail with the Independent Review of Children’s Social Care, which is taking place in England. Josh MacAlister, who leads the review, has urged private providers to show restraint but his direction of travel suggests he wants to work with them, rather than against them. 

But the reality is that the private sector feels it has dodged a bullet with the final report. The imbalance between demand and supply is likely to get worse before it gets better and providers, who account for 80% of all children’s homes, are confident they can influence commissioning reforms to their advantage. Local authorities continue to tender for long-term outsourcing contracts with private companies and there is no evidence that not-for-profits can be persuaded to return to the sector. 

In Wales, providers with children’s homes plan to fill any spare places with children from England to mitigate the impact of the devolved government’s move against profit. This is a sure sign that businesses feel well placed to weather any regulatory storm. Across the UK, larger providers, particularly those who own foster care agencies, children’s homes and special schools, can use their muscle to recover any hit on basic fees by charging more for the additional services they provide. 

More local authorities are speaking openly of the need to provide children’s homes and foster care where children live, instead of where private companies decide they should be. But putting this into practice will be a challenge when there are so many competing financial priorities. 

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Feature Image: Gravityaddict, Creative Commons via Wikimedia Commons