There is unanimity that children’s care in England is broken. The widespread outsourcing of provision to the private sector is in no small measure responsible for this situation – private children’s homes now account for over 80% of residential placements. A seminal report by the Competition and Markets Authority back in 2022 concluded that the UK had ‘sleepwalked’ into a dysfunctional market for children’s social care in which excessive fees were being paid for services that too often failed to meet the needs of these most vulnerable of children.
Local authorities say there were more than 1500 children in 2020 for whom councils were paying over £500,000 pa to be placed in residential homes, with a lack of other options being the most common reason. The companies involved are amassing huge profits out of this – the CMA report found the 15 largest providers were making an astonishing average of 23% profit per year. To meet these costs, council spending has rocketed from £3 billion in 2009/10 to £7 billion in 2022/3, leaving little in the pot for mainstream local services.
The government has fresh ideas to address this situation. What are they and will they work? The proposals outlined by the Education Secretary, Bridget Philipson, contain three key proposals on profiteering:
- A requirement on providers to share their financial information with the government so that profiteering can be identified and challenged, and so the government can be satisfied that there is no risk of market failure on the part of provider companies.
- The empowerment of Ofsted to investigate multiple homes run by the same company – a response to revelations of shocking abuse at three homes run by the Hesley Group in Doncaster. Ofsted will also be given the power to issue providers with civil fines to deter ‘unscrupulous behaviour.’
- A ‘backstop’ law to put a limit on the profit providers can make – a measure that will only be used if providers do not voluntarily put an end to profiteering.
Much of the detail has yet to be fleshed out, but there are lessons waiting to be learned from the parallel world of adult social care, which has long faced similar problems. Here the collapse of the large residential care provider, Southern Cross, in 2011 led to policies to address market failure in social care, including stronger requirements on a small number of the largest private providers of social care to disclose financial information. This was portrayed as a ‘light-touch’ approach primarily concerned with understanding the risk of market failure, rather than curbing profiteering.
None of this suggested a very tough approach was in the offing. The task of policing the balance sheets was given to the Care Quality Commission rather than a financial regulator better suited to the role. Doubts were quickly raised about the ability of CQC to do this job and little has been heard about it since, despite the parlous state of the sector. And it is noteworthy that while the Education Secretary is now acknowledging there is a profiteering problem in children’s services, the Health and Social Care Secretary, Wes Streeting, has made no statement on the parallel problems in adult care.
It has been a similar story in relation to a second long-running initiative, the ‘Fit and Proper Person Test’ – one which might certainly have applied to those running the Hesley Group. The assumption here is that problems can arise from the capricious behaviour of key individuals, and that this can be countered by undertaking an assessment of their character across four ‘concerns’ – honesty, integrity, competence, and capability.
Little has been heard of this measure too since it was introduced over a decade ago, and the impact has been small. The test is confined to directors (executive directors, non-executive directors, chairs, and trustees) with senior managers and other staff excluded. Certainly, in the case of large national and multi-national organisations and investors, it is unlikely that the fit and proper person test has been a serious consideration in their decision-making.
There are lessons to be learned here for the new government’s proposals on child care providers. First, that it is insufficient to confine the new measures to the largest providers. In both children’s and adult social care, these account for only around a quarter of provision. Secondly, securing financial oversight of national and multi-national providers will be a huge challenge, especially where they are nested within an opaque network of offshore companies. Southern Cross, for example, was owned by a complex mix of creditors, property investors, bondholders, banks, shareholders, and landlords.
Wales
However, if there are negative lessons to learned from the adult social care experience in England, there may be more positive ones to be acquired from policy proposals in Wales. Here, the Health and Social Care Bill (Wales) seeks to completely end profit-making from children’s care placements, as opposed to merely curbs on excessive profiteering in England. Indeed, the Welsh proposals go further in seeking to eliminate the for-profit sector completely. From April 2026 newly registered providers will have to be one of the following: a charitable company limited by guarantee without share capital; a charitable incorporated organisation; a charitable registered society; or a community-interest company.
In Wales the private sector currently provides around 87% of children’s homes and 35% of fostering placements. In recognition of this dependence, these existing services will be able to continue delivering on a for-profit basis for an indefinite transitional period under conditions to be determined by regulations. The Welsh government is hopeful that some of these commercial companies will be willing to transfer their operation into a not-for-profit model – perhaps an overly optimistic position.
In Wales, as in England, policy is one thing, implementation is another. A survey of expert opinion on the Wales Bill revealed a consensus that seeking to eliminate profit on its own would be a necessary but not a sufficient factor. The wider issues identified as requiring resolution were: levels of funding; strategic investment; the workforce; regulation; and commissioning practices. These are messages that will equally apply to England.
Given the highly outsourced nature of provision in Wales and (even more so) in England, the most problematic issue is finding alternative providers to the commercial sector. In both countries, not-for-profit providers are being encouraged to come forward and set up provision, but this will require financial assurances by governments that will be difficult to deliver. One option proposed by the MacAlister review in England was a windfall tax on the profits of private care providers, but neither government seems to have picked up on this. The reality is that private investors have massively and profitably filled a black hole left by the hollowing-out of state provision, and this will not be easily reversed.
Markets detached from morals
Perhaps the most important aspect of this welcome focus on profiteering in care services is the ethical dimension. Just as the Competition and Markets Authority concluded that the UK had ‘sleepwalked’ into a dysfunctional market system in children’s services, so the comparably problematic situation in adult social care has never been properly debated and justified. In particular, the ethics of outsourcing services and support for vulnerable people has been glossed over.
Thatcher’s privatisation of public services and utilities has created many casualties, water, transport, power, and social care amongst them, but allowing support for the most vulnerable of our children and young people to be shaped by market forces is surely the most egregious. Over a decade ago, the philosopher, Michael Sandel argued that markets had become detached from morals, expanding into spheres of life where they simply did not belong – a drift from having a market economy to being a market society. He further argued that in an era of market triumphalism, public discourse becomes drained of moral and civic energy, something that can be seen in the way taxation is now routinely regarded as a transactional burden rather than an instrument for the collective good.
The proposals to curb profiteering in children’s care in England and Wales represent a political acknowledgement of Sandel’s key argument. While questions will remain about the scope and likely effectiveness of the measures, we can take some comfort that at last the right questions are being asked.
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