The National Audit Office (NAO), the independent public spending watchdog, has launched a study into the Department for Education’s oversight of the children’s homes sector, including supported accommodation, in light of the 35% rise in placement costs between 2015/16 and 2023/24.
The NAO will examine the challenges in the market, whether the DfE is taking sufficient action to address the “value for money challenges” faced by councils and that the sector is “financially sustainable, cost-effective, and delivering positive outcomes”.
Following the NAO reporting its findings later this year, the Public Accounts Committee, parliament’s spending scrutiny body, will take evidence from senior government officials and experts to understand the key drivers of rising costs, the suitability of settings for children and what the DfE is doing to ensure the financial sustainability of the sector.
The moves follow hot on the heels of children’s minister Janet Daby criticising independent care providers for “outrageous profiteering” over the rates they charge local authorities.
“We need to put an end to it,” Daby told CYP Now at the Association of Directors of Children’s Services (ADCS) annual conference earlier this month (July). “We’re not against a profit being made, but 20-30%…this is outrageous profiteering that’s happening off the back of vulnerable children.”
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At the conference, Daby had been bullish in her desire for local authorities to reduce their use of independent care places and invest more in their own provision, challenging directors of children’s services to “recruit more foster carers so we are able to place our children in local authority foster homes”.
On children’s homes, the government recently announced an extra £52 million, match-funded by local authorities, to create 200 additional places in council-run homes across 49 areas.
Meanwhile, legislation to cap the amount of profit independent providers can make is set to become law when the Schools and Children’s Wellbeing Bill completes its passage through parliament later this year.
What level the profit cap will be set at is yet to be decided. CYP Now understands that an expert group, set up to advise ministers on the issue, is only at the very early stages of its work.
Children’s services leaders back the government’s renewed vigour over the issue: ADCS president Rachael Wardell told CYP Now that “a lot of the profit making in children’s residential care…goes beyond making a profit and into profiteering”.
Wardell added that an outright ban on profit-making in children’s social care – as is planned in Wales from 2027 – would likely have “widespread support” from DCSs if proposed in England.
Wardell and Daby say change is needed because high residential care fees are “bankrupting” local authorities and are a key factor in children’s social care spending rising to £15 billion annually.
However, children’s residential care providers say the problem is not the cost of placements but the fact that too many children have been taken into care over the past decade.
“We need fewer children in care, not more placements,” says Mark Kerr, chief executive of the Children’s Homes Association (CHA).
“The unprecedented number of children in care, particularly residential care, indicates serious failings by preventative social care services in meeting the needs of children and families.”
Since 2015/16, the number of children in care has risen 19% to stand at 83,630 in 2023/24, although the rate of increase has plateaued in recent years.
Kerr adds that another factor is a shift in the type of placements available to children’s services commissioners – Ofsted data published this month shows that in the past year there has been a 15% rise in children’s homes compared to 2% in fostering agencies (see graphic, source: Ofsted).
“Worryingly, we continue to see residential placements being made for children who should otherwise be cared for within foster families due to the acute shortage,” Kerr explains. “Yet there is no indication or belief from experts that the foster carer base will increase to meet this demand.”
The CHA also points to delays in the system of registering homes as contributing to higher fees. It says that at its recent annual conference, Ofsted revealed it is receiving 150 applications a month as the drive to create smaller homes results in more settings needing registration.
Kerr says the “unprecedented volume of applications” means Ofsted is unable to meet the statutory 16-week registration timeline, while in some regions the inspectorate is unable to provide an indication of how long it will take.
“This is unacceptable because providers are required to name both the ‘responsible individual’ and a ‘registered manager’ upon application, and they are incurring significant salary costs – between £10,000 and £15,000 per month – before knowing when or if the home will be registered,” he adds. “These unnecessary financial pressures result in higher fees for local authorities.”
The CHA has put forward a series of recommendations – including a fast-track application process for experienced providers, more flexibility over where a registered manager can work, and fewer inspections for top-rated homes – it is calling on the government to adopt urgently.
On the issue of profiteering, Kerr accepts “a small number of large providers are exploiting local authorities” but maintains that the government’s drive to reduce independent providers “is driven by ideology, not evidence”.
“The independent sector consistently provides care at a lower cost than local authorities,” he adds.
The long-running debate over the cost of providing children’s home placements is an issue likely to be on the agenda of both the NAO and PAC investigations.
