Government to unveil plans to curb profits of children’s home providers

The government is scheduled to announce proposals on Monday designed to stop companies operating children’s homes in England from generating excessive profits. The government indicates it will introduce new regulations compelling major providers to reveal their financial information. Should these providers not voluntarily cap their profits, they will be subject to a statutory limit on their earnings. Additionally, the government plans to enhance the authority of Ofsted, the regulatory body, enabling it to investigate and penalize children’s home providers deemed “exploitative” for taking advantage of an overburdened care system. Education Secretary Bridget Phillipson stated that “thousands of children have been failed” within the care system. Speaking on BBC Breakfast, she remarked, “Frankly some of the accommodation and placements are deeply, deeply shocking,” attributing this to both the living conditions and the “terrible outcomes” experienced by some of the nation’s most vulnerable children. These modifications form part of a significant reform of the children’s social care system, which is responsible for supporting and safeguarding vulnerable young individuals. These initiatives are being introduced at a time when children’s services managed by local councils are contending with increasing demand, intricate cases, and escalating expenses. According to local authorities, in 2023, over 1,500 children required placements in residential homes for which councils were paying in excess of £500,000 annually, primarily due to a scarcity of alternative provisions. Concurrently, a 2022 report from the Competition and Markets Authority revealed that the 15 largest providers of children’s homes achieve an average annual profit of 23%. On Monday, the government plans to present legislation in Parliament that will mandate significant care home providers to disclose their financial details to the government, enabling it to contest practices it labels as profiteering. This legislation will also incorporate a “backstop” law designed to impose a cap on these profits, which the government can activate if companies do not voluntarily implement such limits. The government states that this measure will also enable it to prevent the largest providers from unexpectedly entering administration, thereby avoiding situations where children are left without accommodation. However, Andrew Rome, an accountant and prominent analyst in the sector, pointed out that the 10 largest providers constitute only 26% of all children’s homes in England, with numerous other providers being considerably smaller. He informed the BBC that this initiative would overlook “smaller opportunists who are charging the extraordinary prices for unregulated [or] unregistered services”. Mr. Rome further commented that achieving financial oversight of large providers would be challenging because they frequently operate via a network of companies, whereas smaller firms might only be required to reveal restricted financial data. He additionally stated that a “backstop” law aimed at limiting profits would be “close to impossible to design and police”. The government also plans to grant Ofsted the authority to impose civil fines on private providers, including unregistered homes, in order to “deter unscrupulous behaviour”. It alleged that some providers were “siphoning off money that should be going towards vulnerable children” from facilities that “don’t meet the right standards of care”. In September, a Liverpool court was informed that unregistered children’s homes were requesting up to £20,000 per child weekly from a local authority. The council stated it was compelled to accept these charges due to the inability to locate alternative placements for the children, despite it being illegal to send them to such homes. Ofsted will also receive enhanced powers to investigate multiple homes operated by the same company. The government indicates it is implementing recommendations from a child safeguarding panel, which examined abuse allegations at three children’s homes in Doncaster managed by the Hesley Group. In 2023, the BBC disclosed that over 100 reports detailing abuse and neglect were recorded at these locations between 2018 and 2021. Allegations included children being beaten, locked outside naked in cold conditions, and having vinegar poured on their cuts. During that period, Hesley generated a 16% profit from the facilities it operated. Ofsted received 108 reports regarding the sites, which accommodated children with disabilities and complex health requirements, yet still assessed them as “good”. Both the regulator and the Hesley Group have since issued apologies for the deficiencies, and the three homes have been shut down. An expert panel appointed to review these incidents concluded that a “major overhaul” of the safeguarding system was necessary. Annie Hudson, who chairs the panel, stated that the forthcoming legislation would “go some way towards tackling some of the systemic weaknesses that can create the conditions where very vulnerable children are abused and neglected”. Phillipson further commented that England’s care system was “bankrupting councils, letting families down, and above all, leaving too many children feeling forgotten, powerless and invisible”. Additional measures planned by the government encompass: The BBC has learned that the government will also detail actions to address the increase in Deprivation of Liberty Orders, which have seen a 12-fold rise over the past seven years. These court orders permit children to be confined—in either registered or unregistered homes—and are frequently issued for children who pose a risk to themselves or others. Dame Rachel de Souza, the children’s commissioner, advocates for a significant reduction in their issuance. In response to the government’s proposals, the Children’s Home Association (CHA), representing providers across England and Wales, commented that the new Ofsted powers designed to “tackle unregistered and unregulated illegal residential provision is long overdue”. Nevertheless, the CHA contended that the “backstop” law, which proposes to limit providers’ profits, “risks serious unintended consequences” because it would “incentivise more providers to adopt offshore interest and debt-driven business models”. The CHA also criticized Phillipson’s remark that the sector was failing families, asserting that it was “not involved with families or their decisions” and admitted children “because social work and preventative measures fail, likely due to local authorities’ lack of financial resources”. Paul Carberry, chief executive of the charity Action for Children, expressed approval for the government’s plan, but emphasized that “urgent investment in not-for-profit and public sector provision is required to create stability and make sure every child gets the placement they need”.