On 18 November 2024, the Department for Education published a policy paper on its proposals to reform children’s social care. With 83% of children’s homes now privately owned, all eyes are now on private providers with the core of these reforms focussed on curbing what the government has identified as excessive profits, increasing children’s welfare and expanding Ofsted’s powers.
So what is changing? In this article we explore the changes to children's social care that will affect providers. This article also explores the impact these changes will have on the management and operation of businesses and properties, and advise next steps for providers to remain compliant with the government reform.
There are now over 1,500 children in placements, each costing the equivalent of over £0.5 million a year, with the largest providers making an average of 23% profit margin based on figures produced by the government.
With local government spending on looked after children having risen from £3.1 billion in 2009/10 to £7 billion in 2022/23, some independent reports cited by the Department for Education have identified that the level of profit being made in the care market are above those that would be expected in a well-functioning market.
Currently there is a gap in the data around underlying costs of different types of care provisions. The new reforms will require providers to disclose financial information, which will increase cost and price transparency, shining a light on the level of profits being made and bringing greater visibility to the prices local authorities are paying.
The government is also encouraging not-for-profit and socially-backed organisations to enter the sector and strengthen the market. If these reforms don't lower profits, then a ‘backstop’ law is proposed to cap the level of profit which can be made from children’s social care placement. However, the government has confirmed that they will engage with the sector before any such measure is introduced.
At present, Ofsted can request financial information at the time of inspection but registered providers aren't required to submit ongoing financial information. The reforms will see a new financial oversight scheme with providers required to disclose financial details to assist the Department for Education in carrying out ongoing assessments of the financial viability of the organisation and providing them with advance warning of likely provider financial failure so that they can take swift action.
The new scheme will also identify 'too big to fail' providers and will introduce requirements for them to have in place a contingency plan if they plan to wind down operations or need to exit the market, with assurances that they have appropriate cash reserves so that they don't unexpectedly fail and leave children without a home.
At present, Ofsted’s enforcement powers are limited to individual registered providers making them unable to take action when quality issues are identified across multiple settings owned by the same provider group. With some groups owning over 100 children’s homes, these limitations mean that Ofsted cannot hold providers to account for weaknesses across their organisation. The new regulatory framework will change this, giving powers for Ofsted to investigate multiple homes being run by the same company, acting on the recommendations made in response to the abuse uncovered at the Hesley group of children homes.
Ofsted will also be able to request an improvement action plan in which provider groups create and implement an action plan to resolve identified issues. Importantly, Ofsted will have the ability to enforce the development of any such plan, with the intention of getting the issues resolved at a higher level in the organisation and stopping these issues spreading.
In 2023-24 Ofsted opened cases on 1,109 potentially unregistered homes and found that 87% should have been registered. Short term, emergency provisions are sometimes necessary but too many children are living in homes without regulatory oversight.
Whilst Ofsted has the power to prosecute for the offence of providing children’s social care without registration, the reforms will look to introduce alternative enforcement powers, to allow Ofsted to issue civil penalties by way of a monetary fine. This is hoped to assist Ofsted in cracking down on unregistered homes by providing a more flexible and proportionate approach with single offences likely to warrant a financial penalty, whilst repeat or serious offences warranting criminal prosecution.
The increased scrutiny on providers will have an impact on property management and operation. Record keeping and evidence of compliance with property regulations will be key. Landlords will want to ensure that their investment is protected so providers can expect to see more onerous compliance, inspection and reporting obligations in leases, with penalties imposed for non-compliance, re-registration or negative reports from Ofsted.
Landlords are likely to require visibility on interactions with Ofsted or other events arising at a property. Tenants will need landlords to co-operate and provide information and evidence of compliance for areas which fall to landlords to deal with, for example in the case where a landlord repairs or maintains the building or services. It's also possible that enhanced due diligence will be necessary when a new property is being acquired and going through the registration process.
Private providers are an integral part of the social care ecosystem but the new reforms mean that they are now under greater scrutiny, with an emphasis on transparency, accountability and the prioritisation of children’s welfare over profits. Providers must review their internal practices, policies and procedures to align with the government reforms which look to address systemic issues within the social care setting.
If you would like advice on how these reforms will impact you or the steps you need to be taking to ensure compliance, please contact Ian Manners in our business risk and regulation team.
