Profit-making in the children’s care system

November 2022

Summary
As a children’s rights charity, Article 39 is gravely concerned about the state of England’s children’s care system. There are not enough safe, caring and loving homes for children in the localities that they are needed. Children are being harmed.

Leaving the care of highly vulnerable children to the marketplace is failing on its own terms, and is an abdication of the state’s responsibility. From the 1940s onwards, often in response to abuse scandals and the direct testimony and campaigning of those who grew up in care, Parliament has put in place safeguards for children in care but these are predicated on a care system which has sufficient homes for vulnerable children. In an environment of scarcity and desperation, childcare standards are being increasingly weakened. This is dangerous. Furthermore, profit-making in the care of children brings its own, additional safeguarding risks.

There is an overwhelming, child-centred case for local authorities being directly responsible for arranging, running and managing the vast majority of homes for children in the care of the state. Charitable organisations also play a key role. Profit-making in the children’s care system must be proactively and determinedly curtailed, so that it becomes the exception and is only ever justifiable in the interests of children. We support the Welsh Government’s proposals to end profit-making in the care of children^[1] in that country, and urge the UK Government to follow suit.

1. Introduction

Article 39 fights for the rights of children living in state and privately-run institutional settings, including children’s homes, mental health units, prisons, supported accommodation and Home Office-funded hotels. Our charity’s origins lie in the restraint-related deaths of two boys, Gareth Myatt and Adam Rickwood, in secure training centres run by G4S and Serco respectively, in 2004. The first secure training centre opened in Kent in 1998, and only one of four remains open. Secure training centres are now widely acknowledged to have been a serious child protection failure.

2. Purpose of policy
This policy on profit-making in the children’s care system will shape Article 39’s advocacy work – it will inform our campaigns, our responses to public consultations and parliamentary inquiries, and our media interventions.

3. Our guiding principles
Article 39’s strives for England to be:

A country where children who are living in institutional settings are given the best of care and protection, in environments where they feel safe, valued and respected, and their views and experiences matter.

This policy has been developed with five guiding principles:

It is the quality of care, protection and support experienced by children and young people that matters the most.
Children’s homes can offer high quality care, protection and support for children, including older teenagers, when they are local, small, well-staffed, have a clear purpose, are effectively managed and there is a low turnover of staff and children.
Children and young people’s views and experiences are central to determining and improving the quality of services; they have the right to be heard and involved in all decision-making which affects them.
There is a long history of institutions and organisations failing to protect children, and putting their own reputations ahead of the interests of children. Government and local authorities have often colluded in this.
A children’s rights approach, whereby the requirements of the United Nations Convention on the Rights of the Child (UNCRC) are implemented in full, is the best means of ensuring children and young people are properly cared for, listened to and respected, protected and supported. The UNCRC demands respect for children and is the tool for wider cultural change, bringing about improved relationships and professional conduct, and systems and services which are unequivocally for the benefit of children and young people.

4. Children’s care system: where are we now?
Austerity has decimated the public services upon which children and young people, and their families, depend. This includes the help which families need to support children to remain safely at home, and to help children return home safely after a period in care. For children and young people in care, the current landscape is dire:

7,000 children in care aged 16 and 17 are currently living in unregulated accommodation where they are not legally entitled to care or consistent adult supervision.^[2]
Between October 2021 and September 2022, 3,256 unaccompanied children were housed in hotels funded by the Home Office rather than being looked after by local authorities as the Children Act 1989 requires.^[3]
Every day, there are around 50 children in England waiting for a place in a secure children’s home, and around 30 children at any one time have been sent to secure units in Scotland due to the lack of places available in England.^[4]
Latest data shows there are 386 children detained in young offender institutions and 38 children detained in Oakhill secure training centre – institutions which the government admitted in 2016 were not fit for the purpose of keeping children safe, and committed to phase out.^[5] Over half of children in custody have been in care.^[6]
At least 43% of looked after children live outside their local authority area (in addition, 6% of local authorities reported to the Department for Education that they did not know or record this information; this increased to 13% for children in residential settings).^[7]
Ofsted reports that a quarter of all children’s homes are in the North West, and only 5% are located in London.^[8] Provision is following the house-price market, rather than meeting the needs of children.
Provision which is outside a local authority’s management and purview is harder to monitor on a day-to-day basis. Further, it is more difficult for local authorities to identify patterns in complaints, abuse and mistreatment allegations, parental concerns and disciplinary investigations.
The Independent Inquiry into Child Sexual Abuse’s final report provides devastating evidence of many different kinds of institutions and organisations putting their own reputations above the interests of children.^[9]
Latest NHS data shows there were 60 children placed on adult mental health wards in the final quarter of 2021/22, despite amendments to the Mental Health Act 1983 in 2007 which sought to end such practice.^[10] Past research has shown that children in care are 24 times more likely to be mental health in-patients than children in the wider population.^[11]
Local authorities report that the accommodation of care leavers is ‘unsuitable’^[12] for 7% of those aged 17, 4% of those aged 18, and 7% of those aged 19 to 21 years. In addition, local authorities told the Department for Education that they had no information about the suitability of accommodation in respect of 25% of care leavers aged 17, 4% of those aged 18 and 7% of those aged 19 to 21 years.^[13]

5. Local authority as customer rather than provider

Since the 1980s, the use of large institutions for children’s day-to-day care and/or confinement has reduced – though prisons and boarding and residential schools remain. There has always been profit in the children’s care system, but this has substantially increased following the withdrawal of local authorities and the large children’s charities from running children’s homes in the 1990s and beyond.

There were 2,873 children’s homes in England on 31 March 2022; of these, 79% were run for profit.^[14] There were 316 independent fostering agencies operating in England on 31 March 2022; of these, 85% were run for profit.^[15]

The withdrawal of local authorities and the large children’s charities from running children’s residential care had three main drivers:

Successive abuse scandals and the serious failure of many local authorities and large children’s charities to protect children. Many local authorities and nearly all major providers in the voluntary sector came to see children’s residential care as too risky and too difficult to run safely. For the voluntary sector, there was the additional dynamic that serious failure risked reputational damage which in turn jeopardised their charitable income.
Internationally and domestically, from the 1970s onwards there has been a strong child developmental and children’s rights push against large residential settings in favour of family-based care (institutional settings per se were not, however, rejected by local and national policy makers – child prisons remained, as did large boarding and residential schools). Most recently, this culminated in the UN guidelines for the alternative care of children.^[16]
A market ideology within public services from the 1980s onwards, focused on a purchaser/provider split, first in adult social care and then in children’s social care, with many local authorities electing to commission and purchase placements for children rather than running these services themselves. This market approach was seen to be more efficient (cheaper) and it was believed that competition would improve the quality and accountability of services.

6. What we know about profit-making in children’s services

The Competition and Markets Authority (CMA) launched a market study of children’s social care in March 2021, publishing its final report a year later. It confirmed well known and serious deficiencies in the children’s care system, including:

High numbers of children living miles away from their home areas: “Children moved away from their home area may suffer loneliness and isolation at being separated from their support networks, have their schooling disrupted, and experience difficulty in accessing social services”.
Local authorities find it especially difficult to arrange placements for children with complex needs and/or older children.
Local authorities are often unable to find homes together for brothers and sisters.
Children are living in unregulated accommodation, not as a positive choice but due to absence of alternatives.^[17]

Ofsted reports that “[t]he 10 largest companies own a third of all children’s homes. This means that the loss of any of the bigger providers could leave major gaps in supply”.^[18] The Local Government Association is similarly concerned about the level of financial risk and precariousness of many of the larger providers.^[19]

Local authorities have consistently reported that private providers are turning away children who they consider would jeopardise Ofsted inspection judgements. Through its work with advocates, Article 39 is aware of children being ‘evicted’ from residential settings at short notice, with no financial detriment to companies who have been able to quickly fill the child’s place.

Longitudinal research by researchers at the University of Oxford, which examined 13,000 inspection reports for the period 2014 to 2021, found that across all inspection categories profit-making provision was “significantly more likely” to be judged as being of lower quality than local authority and voluntary sector provision. The authors summed up:

Using a novel and longitudinal dataset, we show that for-profit children’s homes are statistically significantly more likely to be rated of lower quality than both LA and third sector services. FP [for profit] services also receive a greater number of recommendations and violate more requirements compared to LA ownership. Third sector services perform worse than LA provision in most of our investigated outcomes, but these associations are considerably less consistent compared to FP ownership. Our presented findings are robust to model specification and consistent over the full analysed period. At LA level, we find provisional evidence that LA Ofsted ratings are negatively correlated with the percentage of for-profit outsourcing, meaning that LAs which outsource a greater amount of their children in care placements perform less well than those which do not.^[20]

Analysis of Ofsted data^[21] by the Guardian and the BBC found that children’s homes run for profit have disproportionately higher levels of serious incidents and complaints. The data was published in response to a parliamentary question and showed that 69% of places in children’s homes were run for profit, and these accounted for 76% of serious incidents in 2020/21 and 78% of complaints between 2018/19 and 2020/21. Conversely, 31% of places in children’s homes were run by local authorities and charities, and these accounted for 24% of serious incidents in 2020/21 and 22% of complaints between 2018/19 and 2020/21.^[22]

The CMA reported that the 15 largest providers of children’s homes and fostering services had average operating profit margins of:

35.5% for unregulated accommodation, with £330 profit per placement per week in 2020.
22.6% for children’s homes, with £910 profit per placement per week in 2020.
19.4% for fostering agencies, with £159 profit per placement per week in 2020.^[23]

Among CMA recommendations were improved commissioning arrangements (including at a national level) and government funding for “collective bodies to trial different market shaping and procurement techniques and improving understanding of what market shaping and procurement models work well”. Understandably given its statutory remit, the CMA made no recommendations relating to ending or reducing the pursuit of profit within children’s social care.

Similarly, the MacAlister Care Review’s final report, published two months after the CMA report, called for new commissioning arrangements (through regional care co-operatives). It recommended a one-off windfall tax for the 15 largest providers of children’s homes and fostering services, suggesting a calculation of 20% of profits over the preceding five years. The review stated this windfall tax “could generate hundreds of millions of pounds towards the costs of transforming the care system”.^[24]

The submission of the North East Association of Directors of Children’s Services (ADCS) to the MacAlister Care Review recommended:

The children’s care provider market should be dismantled or overhauled. Profit-making from children’s residential and foster care must be eliminated or capped. If a mixed economy of provision remains, a national approach is needed to the management of the market, which must address sufficiency and develop a fair price for care with national terms. Capital investment is needed to create new capacity.

The review should examine whether it would be better for all foster carers to be aligned to the LA in which they live or consider other options to have a single co-ordinated approach to recruitment and retention.

Government should support growth in overall care capacity and a wider range of placements, with a greater focus on public sector and not for profit delivery. Additional capital investment and risk sharing arrangements are needed to support the development of local capacity.^[25]

In its response to the CMA’s interim report, the ADCS had explained:

It is disappointing that the CMA is unclear about the benefits of limiting for profit provision or limiting prices/ profits. Current market conditions, operating as they do with one customer – LAs – and little competition between an ever shrinking group of providers tightly controlling supply, create ideal conditions for a cartel. When comparing the learning disability and mental health market to children’s services (both generally operate from similar sized homes), the level of profit made in the children’s sector is significant. For example, for one LA, the average cost of a placement for a younger adult with learning disabilities is circa £1,200 per week, compared with a children’s residential placement for a 16-year-old averaging £5,000 per week. While there are some differences in legislation and some allowances paid for children, these alone cannot account for the difference in cost.^[26]

7. Article 39’s position

Our children’s care system does not have enough caring and safe homes for children within their local communities. This is a national crisis, akin to ambulances parked outside emergency departments awaiting hospital treatment for critically ill patients. The sufficiency duty on local authorities is ineffective.^[27]

Relying on the market to provide homes for children is not working. There are insufficient homes for children in the places that they are needed, and for some groups of children there are no homes at all – particularly teenagers and children with complex needs.

It is a providers’ market, which is dangerous for children because care planning for many has been reduced to finding a home – any home – rather than the right home which can meet their individual needs and is close to their family and local community. Unique freedom of information research with English local authorities undertaken by Article 39 revealed that at least 54 children looked after by 26 English local authorities were living in holiday rentals, caravans and other ‘temporary’ accommodation on GCSE results day this year.^[28] This is likely to be a significant under-estimate since many of the 26 local authorities who confirmed that some of their looked after children were living in this kind of accommodation refused to give precise numbers. The longest period any child had stayed in ‘temporary’ accommodation (a holiday rental) was 372 days.

Local authorities, social workers, independent reviewing officers and others involved in planning, scrutinising and monitoring children’s day-to-day care are increasingly operating in an environment of chronic insufficiency and desperation. This is not safe for children because expectations are lowered and what should be intolerable is tolerated.

Local authorities have legal responsibility for children in care. Legal protections and safeguards passed by Parliament are predicated on there being an actual care system for children, not a marketplace. No political party has ever proclaimed in a general election manifesto that the children’s care system should be predominantly based on the pursuit of profit.

There is no doubt that many (possibly all) local authorities seriously failed to protect children in care in the past, especially in residential care. From the 1990s onwards, in consequence of serious and sustained failures, the residential care sector went from being largely unregulated to regulated, including through a ban on corporal punishment and other cruel treatment^[29], access to independent advocates and monthly visits from independent persons. The regulation of the sector occurred alongside the withdrawal of many local authorities from running their own children’s homes. This means the vast majority of expertise (except for secure children’s homes) is now in the profit-making sector. Further, the children’s homes workforce has still not been fully professionalised; degree-level qualifications are only required for children’s homes managers. The Independent Inquiry into Child Sexual Abuse first called for the registration of children’s homes staff in April 2018^[30]; the government undertook a literature review and said it would keep the matter under review.^[31] The MacAlister Care Review recommends a leadership programme for children’s home managers (rollout by Spring 2024) to be followed by compulsory professional registration for all staff, though has not suggested any timeframe for this.

The Independent Inquiry into Child Sexual Abuse confirms that abuse can happen in any kind of institution and organisation, whether in the public, private or voluntary sector. We believe profit-making brings its own safeguarding risks, including:

Companies being too big to fail because there is nowhere else for children to go.
Contracts being legally too difficult or impossible to rescind, even when abuse has occurred.
Larger companies enjoying close relationships with government and having disproportionate influence over policy making.
Companies employing marketing and advertising techniques which give an incomplete or false picture of what they provide to children.
Public disclosure of failure inevitably carries a risk of financial loss and even bankruptcy, so there is greater pressure on profit-making organisations to try and manage complaints and abuse allegations internally, and to seek to minimise them.
While profit-making provision may arguably cost no more than similar provision in the statutory or charitable sectors, on a place-by-place basis, whenever profit is made these are public funds taken from the children’s care system that could have been invested in, for example, higher staff salaries, training and specialist support for both children and staff.

Article 39 supports the minimisation of profit-making in the children’s care system, in order to radically improve the care, protection and support provided to children, and to transform the experiences of adults who were in the care of local authorities as children.

We are not convinced that this will reduce the cost of the children’s care system overall since good quality care, protection and support, which lasts for as long as children and adults need it, is rightly expensive. The Independent Inquiry into Child Sexual Abuse’s final report should be the catalyst for professionalising the whole of children’s residential care, and giving those who work within it the esteem and financial remuneration their vocation demands.

We believe that the vast majority of homes for children in care should be arranged and managed by local authorities.

Only statutory and not-for-profit organisations should be allowed to register as a provider of care to children, whether this is family-based or through children’s residential care. There should be national guidelines on the financial arrangements of not-for-profit providers, so as to ensure income is directed at maintaining high quality care and a well-remunerated professional workforce. Funding for children’s direct care should not be transferred into charitable reserves, except where this is to sustain the organisation and its services to children.

Legislation making it a condition of registration that providers of children’s care operate on a not-for-profit basis could be drafted so as to empower the Secretary of State to authorise the registration of an ‘excepted provider’ from the profit-making sector when this is in the best interests of children, and those running the service have relevant expertise. Excepted providers should be listed in secondary legislation, and be subject to a system of profit-capping which is subject to independent oversight and control.

Government funds should be available for small care providers who currently operate outside the not-for-profit sector to transfer to the not-for-profit sector.

A legal duty should be introduced requiring the Secretary of State to ensure local authorities have sufficient funds to meet the needs of children currently being cared for, and adults who were once cared for.

Children not being cared for by their own local authorities should be formally acknowledged as a safeguarding risk, and local authorities required to report on the proportion of looked after children for whom they are responsible that they care for themselves, and the proportion that they pay others to look after.

A transition period will be required to carefully plan and implement the minimisation of profit-making in the children’s care system.

^[1] The Welsh government is consulting on implementing a ban of profit in the care of looked after children, deadline 7 November 2022: https://gov.wales/proposed-changes-legislation-social-care-and-continuing-health-care

^[2] https://socialcareinspection.blog.gov.uk/2022/08/31/supported-accommodation-we-need-strong-oversight-to-make-sure-young-people-are-safe-secure-and-doing-well/

^[3] https://questions-statements.parliament.uk/written-questions/detail/2022-10-11/61091

^[4] https://www.gov.uk/government/statistics/childrens-social-care-data-in-england-2022/main-findings-childrens-social-care-in-england-2022

^[5] August 2022 data: https://www.gov.uk/government/publications/youth-custody-data

^[6] https://article39.org.uk/wp-content/uploads/2020/12/The-Case-for-Ending-Child-Imprisonment-10-December-2020.pdf

^[7] https://www.gov.uk/government/statistics/children-looked-after-in-england-including-adoption-2020-to-2021

^[8] https://www.gov.uk/government/publications/ofsted-annual-report-202021-education-childrens-services-and-skills/the-annual-report-of-her-majestys-chief-inspector-of-education-childrens-services-and-skills-202021

^[9] https://www.iicsa.org.uk/final-report

^[10] https://www.england.nhs.uk/publication/nhs-mental-health-dashboard/

^[11] ^{O’Herlihy, A. et al (2002) National in-patient child and adolescent psychiatry study (NICAPS). Royal College of Psychiatrists’ Research Unit.}

^[12] See Regulation 9(2) The Care Leavers (England) regulations 2010 for the statutory definition of ‘suitable accommodation’: https://www.legislation.gov.uk/uksi/2010/2571/regulation/9/made

^[13] https://explore-education-statistics.service.gov.uk/find-statistics/children-looked-after-in-england-including-adoptions/2021

^[14] https://www.gov.uk/government/publications/inspection-outcomes-of-the-largest-childrens-social-care-providers/largest-national-providers-of-private-and-voluntary-social-care-march-2022#childrens-homes

^[15] https://www.gov.uk/government/publications/inspection-outcomes-of-the-largest-childrens-social-care-providers/largest-national-providers-of-private-and-voluntary-social-care-march-2022#childrens-homes

^[16] https://digitallibrary.un.org/record/673583?ln=en

^[17] https://www.gov.uk/government/publications/childrens-social-care-market-study-final-report

^[18] https://www.gov.uk/government/publications/ofsted-annual-report-202021-education-childrens-services-and-skills/the-annual-report-of-her-majestys-chief-inspector-of-education-childrens-services-and-skills-202021#social-care

^[19] https://www.local.gov.uk/profit-making-and-risk-independent-childrens-social-care-placement-providers

^[20] https://www.ox.ac.uk/news/2022-10-05-outsourced-children-s-care-homes-provide-poorer-quality-care-oxford-study

^[21] https://depositedpapers.parliament.uk/depositedpaper/2284169/files; https://depositedpapers.parliament.uk/depositedpaper/2284131/files

^[22] https://www.theguardian.com/society/2022/jun/28/serious-incidents-more-common-in-for-profit-childrens-homes-in-england

^[23] https://www.gov.uk/government/publications/childrens-social-care-market-study-final-report/final-report

^[24] https://childrenssocialcare.independent-review.uk