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Children’s Care Homes: Private Equity

Volume 835: debated on Tuesday 30 January 2024


Asked by

To ask His Majesty’s Government what regulation they are planning in response to the findings of a recent investigation by the Observer that private equity firms’ investments in children’s care homes in England have doubled since 2018.

My Lords, we recognise the concerns that the noble Lord refers to, particularly around large providers with complex ownership structures. We agree that sometimes placement costs are too high. That is why we are providing £259 million of capital funding to support local authorities to increase care placements and ensure that they meet children’s needs. We will introduce a new market oversight regime that will increase transparency on debt structures and profitability.

My Lords, I thank the Minister for that Answer. The problem, however, is that the current mixed economy in the children’s care market is completely broken. Private equity providers are making high profits in the sector, increasing their margins and carrying large levels of debt, yet expanding their share of the care market at the same time. Meanwhile, increasing numbers of councils face crisis or even bankruptcy. Can the Minister tell us how the Government plan to eliminate specifically private equity profiteering in this sector? Can she also clarify whether it is government policy to substantially reduce the presence of private equity firms in the children’s care market?

I am glad that the noble Lord used the word “profiteering”: he beat me to it. As he has heard me say before, the Government are not against profit-making but they are against profiteering. Having much greater financial transparency will go some way to addressing his concerns, but the fundamental thing that has to shift is having fewer children in children’s homes and more children in foster care. That is why the Government place such emphasis on supporting foster carers and, indeed, kinship carers.

My Lords, a recent DfE review found that a third of the just-over 6,500 youngsters in residential care homes could have gone to foster homes, which usually offer better outcomes and a better quality of life, and cost about a 10th of the price. The Minister has just referred to this. What precisely is going to happen to ensure that there is proper and meaningful investment in foster and kinship carers to reduce the councils’ dependence on some of these private equity residential care providers and stop this extreme and excessive profiteering?

The noble Baroness will be aware that we are investing £36 million in foster care, starting with work with local authorities in the north-east to encourage recruitment of more foster carers. That programme has got off to a very good start. We have also launched the first ever national kinship care strategy, backed by £20 million of investment in the financial year 2024-25.

My Lords, private equity has already devoured care homes such as Southern Cross and Four Seasons, which actually had more subsidiaries than General Motors. Profiteering, asset stripping and tax avoidance are the basic business model in private equity. Studies have shown that private equity in care homes is making profits in the range of between 30% and 40% of the revenues. That is clearly unacceptable and is very poor value for public money. Can the Minister give an undertaking that there will be an investigation into the role of private equity in care homes and healthcare?

The noble Lord will be aware that the Competition and Markets Authority has already done a great deal of work in this area and has made recommendations which are behind our commitment to a much clearer market oversight regime. We will bring forward legislative changes to enact that when parliamentary time allows.

My Lords, I will follow on from the question of the noble Lord, Lord Sikka, about value for money. The Minister said that the Government are against profiteering but not against profit. What actual value is added by having private sector companies involved in this sector, when we should see all the public money that is being spent going into the care of children, and not into profits?

The first thing—whether the noble Baroness agrees or not—is that it provides an enormous amount of capacity, and in her zeal to address the profitability of the sector we need to consider also the stability of those placements for children.

My Lords, I think it was only two Prime Ministers ago who promised before the last general election that they would fix social care. The problems that we have talked about today apply to the whole of the social care sector. In effect, those who pay for care—whether for elderly parents or local authorities for children and others, who are very vulnerable people—are subsidising private equity companies’ profits. When are the Government going to get round to fixing it and have a whole new policy for social care that improves the conditions for everybody?

We have announced our new social care strategy. The noble Lord will be aware of the independent review of children’s social care, which we have acted on. We are now starting to implement the initial pathfinder sites to test our new family-led approach to social care. As he said, these are vulnerable children and families, so we need to do this judiciously.

The Minister previously spoke of bringing in financial oversight to children’s social care. Figures from PoliticsHome show that the average placement now costs £281,000, which has risen by 25% over the last two years. Clearly, swift steps need to be taken to bring down those costs. She has previously alluded to the money going in, but can she be clear about the timeline for a new financial oversight regime and how it will help?

As I said, bringing forward the legislative changes necessary to implement a new regime depends on parliamentary time. However, we are not wasting any time in trying to support the foster market, for all the reasons that noble Lords have already set out.

My Lords, there is a sense of urgency here, as this issue is not only about gross profiteering and loading up homes with debt but about respect for the human rights of children. What active consideration are the Government giving to price caps, which some local authorities have called for—or, better still, to moving towards a model of public ownership in the public interest?

We are looking at a number of different options in this area. Although I am not suggesting that these are absolutely comparable, in 2023-24 the average cost of a residential care placement provided by a local authority is just under £5,500, but the average placement provided by the private or voluntary sectors is just under £4,700. Costs may not be the main issue here.

My Lords, to give the House a clearer idea of the trends, can the Minister tell us how many children are currently in care homes and foster homes? What have been the trends over the last decade and what are the predictions for the next decade?

There are just under 8,000 children in children’s homes, about 57,000 children in foster care and just under 7,000 children in either secure placements or independent supported accommodation.

My Lords, this attack on the private sector is extraordinary, is it not? Local authorities are desperate for capital and the resources to provide for children, yet the private sector, which is providing that capital, is under attack. Surely the alternative is that there will not be the resources needed for children.

My noble friend pointed to a more fundamental question, namely: why have local authorities and charities, which used to provide these services, stepped back in a world where the private sector can make a decent return on them?

My Lords, let me be clear: it seems from the Minister’s answers that the Government are quite happy for these companies to rip off the taxpayer. When will they do something about the taxpayer being ripped off by companies that are adding to debt and making huge profits?

I am not aware of the specific cases the noble Lord referred to, and it is dangerous to generalise in this area. We have seen disgraceful behaviour by some providers—noble Lords will remember the case of the Hesley homes where unforgivable child abuse went on—but that is not what we are seeing across the whole sector. What we need is to move those children who do not need to be in children’s homes out of them and into foster care or kinship care—and that is where we are focusing.