Nadia on... private children's homes

When children do not have parents or caregivers, are abandoned, or are abused or neglected, the state has a duty to step in. Nearly 84,000 children in England are ‘in care’, meaning local authorities officially look after them. Out of this group, roughly 16,000 children live in residential care homes, while the rest are with foster families. As of August 2026, Nottingham has 572 children in care.

Over the past few decades, a broken system of outsourced care has led to shocking profiteering in the children’s residential care home market. A shortage of care placements and aggressive market dominance by private firms is leaving vulnerable children all over England housed in unsuitable care homes, sometimes hundreds of miles away from their original homes. Some are even moved into illegal homes (providers not registered with, or inspected by, Ofsted). 

At the same time, local councils, which have a legal responsibility to house the children, are struggling with the rising costs of most of these placements. In 2023, Nottingham City Council issued a Section 114 (bankruptcy) notice, partly driven by soaring demand and costs in children's and adults' social care.

The crisis in children’s home provision is no doubt having a long-lasting negative impact on the children themselves. We already know that children in care are much more likely to receive a criminal conviction or end up not in education, employment, or training. Now, with investment firms routinely buying property in rural parts of England (where housing costs are cheaper) to convert into children’s homes, children are being isolated by being moved hundreds of miles away from their support networks. Research also shows that commercial provision is associated with more frequent moves, which means greater disruption and instability. All of this makes children more vulnerable to exploitation and grooming.

The fundamental issue is that the market for children’s placements currently rewards scarcity. With too few places to go round, private providers, who now run around 85% of England’s children’s homes, can set their own prices. Earlier this year, a Financial Times investigation revealed that private providers charge the state an average of £384,020 per child per year. This is an extortionate amount to charge for care that has been found “statistically significantly more likely to be rated of lower quality than both public and third sector services.” The investigation also found that many people without experience in care are cashing in, with "plumbers, hairdressers and Airbnb landlords” opening up “homes”. 

Since 2020, local authority spending on children’s care placements has risen twenty times faster than the number of children in care, making children’s social care the highest cost to some local authorities. Costs have risen because, in some areas, demand for homes, particularly for children with complex needs, has outstripped the number of places available, giving private providers the opportunity to charge higher rates.

So why is this happening and how did we get here?

The roots of profiteering in children’s social care lie in the 1980s, when Margaret Thatcher’s government championed a mixed economy of state, voluntary, and private providers, promising lower costs, more user choice and increased innovation. Yet four decades on, the UK Competition and Markets Authority officially described this sector as “dysfunctional”. Private equity ownership boomed in the late 2010s, when firms that buy companies with borrowed money and aim to sell them at a profit purchased providers in quick succession. The Competition and Markets Authority found that the fifteen largest private providers of children’s homes made profit margins of 22.6% between 2016 and 2020. As critics point out, most companies do well to make 5% 

The think tank Common Wealth describes the state’s relationship with private providers today as “co-dependent”. As local authorities have gradually lost the operational knowledge, specialist staff, and infrastructure to run services directly, private providers have filled the gap and now dominate. It’s clear that we must work to reverse this trend. 

Protecting children in care has always been a Labour Party priority. Within months of being elected to government, ministers announced plans to cap the profits of private children’s home providers, and in December 2024 introduced the Children’s Wellbeing and Schools Bill to deliver them. Last year, the government also invested £53 million to create 200 new placements in high-quality council-run homes through its Plan for Change, to protect the most vulnerable children in society from unsafe, illegal children’s homes. While these are steps in the right direction, I believe we should be working towards ending for-profit provision entirely, something Wales has vowed to do by 2030.

Experts in this field have highlighted that large providers could sidestep a profit cap by routing money out as interest on shareholder loans, and research shows hundreds of millions in interest is flowing to investors. Plus, the government has an infamously poor track record of regulating privately run essentials. So instead of relying on regulatory powers, shouldn’t we be dismantling a system built to extract money from the care of vulnerable children?

Andy Burnham’s new government must work towards public provision, so that every pound improves services for children and funds good pay and conditions for the staff who look after them. No one should profit from children with nowhere else to turn. It’s time to build a system that puts their needs first.

nadiawhittome.org