Six out of ten of the biggest children’s care providers running large debts
According to a report from the Local Government Association, six out of the ten largest providers of foster carers and children’s homes are operating with greater debts than they have tangible assets.
The LGA, which represents councils across England and Wales, raised concern over the effect this financial instability could have on the placements of children.
They said this risk was especially pronounced as most of these homes use a private equity model which relies on debt to drive growth.
In order to address these fears, the LGA called for greater oversight of companies who provide homes for children in care, arguing for the establishment of a service similar to the CQC.
Using the collapse of adult care provider Southern Cross in 2011 as an example, the LGA highlighted that following its collapse, the CQC assumed a duty to monitor the finances of the “most difficult to replace” services. They argued a similar system should be set up for children’s care.
Nearly a third of fostering places are provided by private organisations and nearly 75 per cent of children’s homes are in private hands.
The sector has also seen considerable consolidation among the largest providers, with eight of the largest providers merging to become the three largest groups over the last three years.
This consolidation adds further complexity to the picture as there is currently no system in place to measure the impact of such mergers on the quality of care provided or the outcomes of the children in their care.
In response to these findings, the Independent Children's Homes Association blamed funding cuts for this financial squeeze.
While debt is an issue, the LGA also highlighted the large profits made by the largest six providers.
Last year, these providers made £215 million in profit, with some achieving more than 20 per cent of profit on their income. These profit margins are concentrated with the largest providers however, with smaller providers often making far less.
The Chair of the LGA’s Children and Young People Board responded to the report by stating: “Fewer and fewer providers are now dominating that market. Much of the growth of those providers has been fuelled by enormous loans, which will at some point need paying back yet this research shows many of them do not have the assets to do that.
“Providers should also not be making excessive profit from providing placements for children. What matters most is that children feel safe, loved and supported, in placements that best suit their needs and that provide good value for money.
“The Government’s promised review of the children’s care system needs to look at how the market for children’s social care placements is impacting on children’s outcomes. It should also consider how we can better support in-house provision and smaller providers, and work with councils and providers to improve transparency of costs.”