Private childcare providers exploiting a “broken market”

The Case for Change report published today has called in to question the conduct of private care providers for children. A review led by Josh MacAlister, former schoolteacher and chairman of the government’s review of social care stated that the care of vulnerable children in residential homes is increasingly dominated by large, profiteering providers that are exploiting a “broken market”.

In addition to highlighting problems around growing numbers in section 47 investigations, the report calls on private providers to cut profits and fees and criticises them for playing local authorities off against each another, whilst setting excessively high fees in a market with chronic shortages of placements.

Private equity model

The review highlights that private equity firms have recently turned their efforts and acquisition strategies towards the childcare sector. However, the private equity model involves a high level of risk by absorbing excessive debt in order to make acquisitions, which has prompted concerns that many companies may eventually be at risk of collapse despite high profit margins.

Kathy Evans, chief executive of Children England, recently expressed similar concerns stating that:

“That is a really dangerous position . . . they [private providers] leave the state in a position of potentially being held hostage over price.”

High fees

This year the Local Government Association reported that the six largest private providers were making combined annual profits of more than £200 million, with fees being charged to local authorities varying between £1000 and £10000 per week; more expensive than the average cost of £858 per week for housing a prisoner.

It was also found that large providers are making around 18 per cent in typical profit margins, which has risen by a sixth in the last year and bolstered by the recent shortage of available places for children.

Failing service

In addition to high costs an investigation has found that around 175 children’s homes were Ofsted registered during the first wave of the pandemic in 2020 when in-person inspections were not possible, a third more registrations than in the same period in 2019.

Inquiries also revealed failings at almost a third of newly registered homes, including unsafe restraint practices or putting children at risk of sexual or criminal exploitation.

MacAlister’s review also found that in 135,000 cases where a child was suspected of being in danger or suffering harm, they were not put into a protection plan. A figure which has risen threefold in the last 10 years.

MacAlister has therefore asked:

“owners of private children’s homes, particularly large groups, to act with responsibility to bring down costs and reduce profit-making and to be responsive to the needs of children”.