The cost of a single place in a residential children’s care home in England has nearly doubled in five years to an average £318,000 a year, with private firms racking up huge profits as a result of market failure, according to the public spending watchdog.
The £3bn children’s homes market, which is increasingly dominated by private firms, some funded by private equity, is “dysfunctional” and too often fails to deliver a good service for youngsters or value for money, a National Audit Office (NAO) report said.
In the most extreme instances – likely to involve children with complex needs who require 24-hour supervision by multiple staff – councils had been charged up to £63,000 a week (£3.3m a year) for a single placement, the NAO said.
Privately owned care firms ramped up fees above the rate of inflation, with the biggest providers enjoying average annual profit rates of 22.6% a year as they took advantage of spiralling demand for care, insufficient places and staff shortages.
Despite the increase in spending, too many placements failed to meet individual children’s care requirements, the report said. Unsuitable placements were common, with half of youngsters placed more than 20 miles from their families, and one in seven experiencing three or more different placements in a year.
Gareth Davies, the head of the NAO, said: “The residential care system for looked-after children is currently not delivering value for money, with many children placed in settings that don’t meet their needs.”
The cost of residential care is seen by local authorities as unsustainable. It is also regarded by many top-tier councils as the biggest cause of overspends in children’s services and the most substantial threat to their financial viability.
The lack of suitable residential care places meant four out of five councils placed children with complex needs in illegal care facilities, the NAO said. Official figures show the number of children placed in so-called unregistered homes rose from 147 in 2020 to 982 in 2024.
Shortages of places were exacerbated by high property prices and councils not granting planning permission for new homes because of local resident opposition. Demand for care home places had risen in part because of a decline in the number of foster carers and the closure of inpatient children’s mental health services.
The most recent official figures show that in March 2024, 16,150 of the 83,630 looked-after children in England were in residential care, defined as children’s homes, secure homes for youngsters with severe behavioural problems, and supported accommodation for teenagers over 16 years old.
Of the 4,000 registered children’s homes in England, 84% are privately owned. NAO analysis found seven of the 10 biggest private providers were ultimately owned or part-funded by private equity firms. These are often loaded with high levels of debt, heightening the risk of market instability.
Although the government has promised to tackle “excessive profits” in the children’s residential sector, the NAO says progress in making changes has been slow, and ministers have yet to set out a clear vision of how it would achieve this.
According to the NAO, many large private providers’ “complex ownership arrangements” mean it is difficult to identify excess profits or what constitutes a “reasonable price” for a placement, making it hard to introduce a profit cap.
The newly appointed education minister Josh McAlister, who chaired a government-commissioned independent review of children’s services three years ago, previously called for a windfall tax on “indefensible” private children’s home profits.
Amanda Hopgood, the Local Government Association’s children, young people and families committee spokesperson, criticised the “astronomical” cost of care placements and called for “greater financial oversight” of the largest private providers.
A Department for Education spokesperson said: “We are driving the largest ever reform of children’s social care, backed by £2bn to break the cycle of crisis for children, recruiting thousands more dedicated family help workers to wrap support around families and tackle issues from drug and alcohol addiction to domestic abuse.”
