The rising cost of residential care and lack of government oversight

Last week the National Audit Office (NAO) published a report on Pressures on children’s social care. The report was produced against the backdrop of increasing strain on finances and services, particularly children’s services, that local authorities have been experiencing. It set out to examine recent trends in pressures on children’s social care demand and activity and the response of both national and local government to these pressures.

The cost of children in care was shown to be a key factor in the pressures facing local authorities. The number of children coming into care has increased exponentially over the last eight years; between 2010-11 and 2017-18 the number of children in care at year end increased by 15 per cent to 75,420 children, more than triple the rate of overall population growth.

Residential care was identified as an area of concern in terms of service provision and in relation to financial control.

Residential placements are much more expensive than foster placements

It was reported that residential placements are, on average, much more expensive than foster care: in 2017-18, local authorities spent £1.61 billion on the 79,000 looked-after children in foster care, £20,400 per child. In contrast, they spent £1.25 billion on the 26,750 looked-after children placed in residential care (a category that includes secure units as well as children’s homes), which amounts to £46,600 per child.

Increase in the use of residential care

The report recorded an increase in the use of residential care over the last five years. One of the reasons for this has been a steep rise in the number of children over 16 taken into care, which increased by 78 per cent between 2010-11 and 2017-18, from 3,210 to 5,710. Local authorities told the NAO that these children often have more complex needs and as a result are harder to place into foster care and are therefore more likely to go into residential care. It was noted that the Government does not have local or national data to understand the frequency or scale of this issue.

Demand is outstripping capacity

The increase in the use of residential care had, the report said, exposed the lack of suitable placement capacity available to local authorities: only 32 per cent of local authorities reported that they had access to enough residential homes for children aged 14 to 15 years, and 41 per cent for those aged 16 to 17.

The cost of residential care is rising

Although the number of children placed in residential care by local authorities increased by 9.2 per cent between 2013-14 and 2017-18, the real-terms cost of residential care increased by 22.5 per cent over the same period, from £1.02 billion to £1.25 billion.

Several local authorities had told the NAO that providers are able to charge local authorities a higher amount for residential care. The report cited the 2016 independent review by Martin Narey as having found that an absence of successful commissioning, along with other factors such as place availability and limited market management, was resulting in different local authorities paying widely different prices for the same standard of residential care

The government does not understand the situation

The NAO report concluded that the Department for Education had made poor progress in improving children’s social care services since 2016. One of the problems, it stated, was that despite having put in place a program of reform, the Department still does not fully understand what is driving demand for children’s social care or why there is such wide variation between local authorities in their children’s social care activity and costs. It has not, the report said, yet done the work to tie together available sources of information and therefore it lacks a well-informed pathway to achieve its goal.

There is an urgent need for financial transparency

The NAO’s findings reflect what we have been told by Directors of Children’s Services and other senior children’s services professionals. Given the high costs of residential care to the public purse and the increase in the use of children’s homes there is clearly an urgent need for the government to ensure it has the information it needs to understand the sector and the pressures faced by local authorities so that all children can be provided with suitable placements and support.

The cost of residential care has increased by 22.5 per cent in the last five years

The current lack of government oversight of the residential children’s homes ‘market’ is coupled with a lack of financial transparency. Directors of Children’s Services have told us that they do not know how homes are spending the fees or what profits private providers are making for their shareholders. In our third briefing, Hearts and Heads, we recommended that local authorities should routinely ask for balance sheets from providers which clearly show how the money they have received for each child has been spent and how much profit has been made. We have been told that some local authorities would be loath to ask for this basic information through fear that the providers would refuse to work with them. In a ‘market’ where demand is outstripping supply, the larger providers frequently have more power than the purchasers. It is up to central government to address this lack of transparency and to make sure that basic financial information about how public money is being spent is publicly available.

Over the coming year we will be addressing some of these issues as we look in more detail at the structure of the residential care ‘market’ and at how broader systemic issues can contribute to the criminalisation of children.

Claire Sands

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