We ‘will not flinch’ from capping ‘eye-watering’ profits in children’s social care
Local authorities are paying more than £2 billion a year in fees to the largest 20 private providers of social care for children in England.
The major public spend was revealed in a report monitoring profitmaking, solvency and debt risk.
It comes as children’s minister Josh MacAlister said he would “not flinch” from capping the “eye-watering” profits made by private providers of children’s social care.
The report, compiled by Revolution Consulting, is the fifth survey into the financial performance of the largest independent sector children’s social care providers operating in England, and includes private companies and voluntary sector bodies.
It offers an insight into how much profit the largest providers are making, as well as their debt risk, and the level of local authority spending on residential care for children.
The report reveals average profit margins of 17.1 per cent, with one company making profits as high as 26.2 per cent.
Potential financial risks in eight of the 20 providers were also highlighted, where cashflow was only meeting the interest payments on loans of one to three years.
And it revealed 55 per cent of providers are partly owned by private investment funds.
The report, Profit making and Risk in Independent Children’s Social Care Placement Providers, is based on publicly available financial information covering 2022-2025.
Total local authority spending on independent sector residential care and fostering has increased significantly over the past decade, reaching approximately £3.8 billion last year (an increase of 153 per cent since 2015/16), although the rate of growth has slowed.
Profit margin at individual provider level ranges between 1.4 per cent (TACT) and 26.2 per cent (Witherslack). Six providers report profit/surplus margins below ten per cent and these include all three voluntary sector owned bodies.
Warning about the risk of financial instability in the sector, the report states: “Many providers continue to operate with significant levels of debt, reflecting common investor-backed acquisition structures. All providers were generating sufficient operating profit to meet interest obligations.
“However, a proportion have relatively low levels of interest cover, indicating more limited resilience to potential financial shocks. In a small number of cases, the scale of debt relative to operational performance suggests refinancing may be required to meet future obligations.”
The report adds: “While the sector appears operationally sustainable, financial resilience is uneven and remains an area for ongoing monitoring.”
Increases in spending by local authorities on independent sector residential care and fostering have been particularly steep, up 83 per cent between 2021/22 and 2024/25.
The Children’s Wellbeing and Schools Act which came into force on 29 April introduces additional measures for oversight of profit-making in the sector.
This includes potential powers to limit profits and the creation of Regional Care Cooperatives made up of groups of local authorities enabling collective bargaining over fees charged by independent providers.
An implementation document published by the Department for Education (DfE) last month called Delivering the children’s social care reset says: “Local authorities are being pushed to the brink while some private providers (including some backed by private equity) continue to make excessive profits – this cannot continue.
“It is fundamentally wrong that provision for the most vulnerable children in our country allows some companies to make eye-watering levels of profit for substandard services, extracting funds from hardworking taxpayers that could be used to fund services for children.”
The DfE said its reforms will drive down profiteering by expanding fostering, improving early support and using wider family networks such as kinship care.
It adds: “We will publicly set out more information on the impact of our reforms. But based on our assessment and subject to consultation, we will not flinch from capping the profits of private providers placing vulnerable children in care.”