Foster Care Faces Profiteering Crisis

The Price of Care: Private Equity and the Profiteering Crisis in England's Foster System

Specialists are sounding an alarm about the treatment of at-risk youth as mere assets within England's foster care system. A forensic look at the sector reveals that firms supported by private equity now supply almost twenty-five percent of all foster placements, a market consolidation that allows them to accumulate substantial financial earnings. This success, however, stands in stark contrast to the struggles of local authorities and the foster carers on whom the entire system depends, prompting urgent calls for reform.

The growing dominance of a few large firms has created a system where the welfare of children is at risk of being secondary to financial returns. This model introduces dangerous instability, raises costs for taxpayers, and fails to adequately support the dedicated individuals who open their homes to children in need.

The Rise of the Mega-Providers

The landscape of foster care has been fundamentally reshaped over the last decade. Independent Fostering Agencies (IFAs) now arrange approximately fifty percent of every placement, which is a considerable rise from approximately one-third back in 2016. This growth has been supercharged by private equity investment, leading to a highly concentrated market. The four largest IFA groups, all with private equity ownership, now control a staggering 23% of England's entire fostering capacity.

These firms operate on a vast scale. The National Fostering Group (NFA), the UK's largest provider, is owned by Stirling Square Capital Partners. Polaris Community, which incorporates Foster Care Associates (FCA), is owned by CapVest. Together with a few other major players, these organisations have become indispensable to local councils that find it increasingly difficult to meet the demand for placements through their own in-house services.

A System in Financial Distress

Local authorities find themselves in an impossible position. Faced with rising numbers of children entering care and years of budget cuts, many councils lack the resources to recruit and support enough of their own foster carers. This has forced them to turn to the private sector, creating a dependency on IFAs that has driven placement costs skyward and contributed to a severe financial crisis in children's social care.

Spending on services for looked-after children has ballooned, climbing from £3.1 billion in 2010 to £7 billion in 2023. This escalating expenditure diverts funds away from vital early intervention services designed to help families stay together, creating a vicious cycle of rising need and higher costs.

The Profit Margin on Vulnerability

The financial mechanics of the privatised fostering market are striking. In the 2023 fiscal year, the parent organization for the National Fostering Group, a major UK provider, recorded £104 million in underlying earnings, which represented a 21 percent profit margin. Recent figures show the top three providers owned by private equity made combined profits of £40 million in 2023. The largest providers achieved an average margin on profits of over 19% on their fostering services.

These earnings are generated from public funds. Councils pay IFAs a premium for placements. Analysis revealed that the expense of operations for each young person was greater by £8,400 in the private sector compared to local authority provision in 2020. This discrepancy has led to accusations that private firms are making "obscene" profits from the system.

Children as Commodities

Deep unease exists about the ethical implications of this profit-driven model. There are worrying questions about turning children into instruments for making money. This sentiment is echoed by whistleblowers from within the industry, who have described how some private agencies incentivised staff with bonuses for placing more children into care, likening foster parents to "gold bars".

The focus on profit is fundamentally at odds with the requirements of at-risk youth who have experienced significant trauma. The fear is that financial imperatives could lead to placements being made based on availability and income potential rather than the best interests of the child.

The Peril of Being 'Too Big to Fail'

The consolidation of the market into a few large providers creates systemic risk. With these massive private equity corporations acquiring an increasing number of smaller operators, overseeing them becomes more difficult. A significant concern is the potential for a large provider to collapse, which would leave thousands of children without a home and local authorities scrambling to manage the fallout.

The high levels of debt carried by some of these large, leveraged firms amplify the risk. The failure of a major provider in the adult care home sector serves as a stark warning of the potential for market instability to have devastating consequences for those who rely on the services.

A View from Parliament

Politicians have taken note of the soaring profits and the strain on public finances. There are questions about the value that private firms bring to the sector, given they are amassing exceptional sums of cash from a system in crisis. Calls have been made for a comprehensive examination by the Department for Education (DfE) into the operational methods of these agencies and the nature of their agreements with carers.

There is a growing cross-party consensus that the current model is unsustainable. The government has pledged to act, acknowledging that certain private enterprises have been profiting without shame from at-risk children. This has led to legislative proposals aimed at bringing greater transparency and control to the market.

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A Flawed Financial Model

The flow of money through the system reveals a stark disparity. Local authorities pay IFAs substantial weekly fees for each placement. In a common scenario, a council might be charged £1,000 per week for a placement. Of that amount, the foster carer might receive £300 to pay for their own allowance and the child's necessities.

The remaining £700 is retained by the agency to handle overheads such as social worker salaries, offices, and administration, with the remainder becoming profit. This structure creates a powerful incentive for agencies to minimise their own costs to maximise their financial return, a pressure that does not always align with providing the best possible support for carers and children.

The Reality for Foster Carers

Despite the substantial earnings being made by agencies, many foster carers face significant financial hardship. One carer calculated her hourly pay amounted to only 80 pence. A large number depend on Universal Credit for their livelihood, a situation made worse by the cost of living crisis. A recent survey found 59% of carers said their allowance did not cover the full cost of looking after a child.

This financial strain contributes to a retention crisis. The number of foster parents in England is at its lowest in a decade, with more households leaving the role than joining. This shortage has a direct impact on children, leading to siblings being separated and young people being placed far from their communities and schools.

Exploitation and an Unstable Workforce

At the core of this system are the foster parents, yet many feel undervalued and exploited. The first certified trade union for foster carers is fighting a landmark legal case to secure workers' rights. Currently, carers are not classified as employees or workers, leaving them with little protection or recourse to challenge unfair treatment.

This precarious status, combined with low pay and inadequate support, leads to burnout and high turnover. The constant churn of carers undermines the stability that is so crucial for children who have already experienced significant disruption in their lives. The fear of unsubstantiated allegations is also used to control carers, discouraging them from speaking out.

The Crushing Weight on Council Budgets

The high cost of private placements represents a significant element driving local authorities towards financial ruin. Spending on children's services now consumes an ever-larger portion of local government budgets, rising from 18% in 2010 to 25% a decade later. Some authorities are paying astronomical sums, with reports of single placements in children's homes costing up to £1 million per year.

This is compounded by soaring demand for Special Educational Needs and Disabilities (SEND) services, creating a "perfect storm" for council finances. Without intervention, the system faces collapse, which would have catastrophic consequences for all public services in those areas.

The Industry's Defence

Private providers defend their role, arguing they offer specialist, high-quality care that local authorities are often unable to provide. The UK's largest provider highlights that regulators have given a 'Good' or 'Outstanding' rating to every single one of its agencies. The company states it puts money back into expanding long-term arrangements and widening access to specialized support.

There is also significant investment in training, with one major provider delivering more than 200,000 hours of instruction for its staff and carers in a single year. The industry argues that overhead expenses represent the intricate framework necessary for providing secure, excellent care and that financial records undergo external audits and are accessible to the public.

Scrutinising Quality and Outcomes

A key question is whether the higher price tag of private provision translates into improved results for young people. While providers point to their Ofsted ratings as proof of quality, the overall picture is complex. There is a chronic shortage of appropriate placements across the board, whether public or private, meaning children are not always getting the right care.

The lack of comprehensive, comparative data makes it difficult to definitively conclude whether private or local authority placements produce better long-term results for children's wellbeing, educational attainment, and future life chances. The focus should be on stability and support, regardless of the provider type.

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The Role of Regulation

Both Ofsted and the Competition and Markets Authority play crucial roles in overseeing the sector. Ofsted is responsible for inspecting IFAs to ensure they meet required standards for safety and care. However, its powers have historically been focused on individual homes or agencies rather than the large corporate entities that own them.

A major market study concluded the system was "dysfunctional," pointing to insufficient placements and profits that were higher than expected in a well-functioning market. While it made recommendations to improve commissioning and reduce barriers to entry, it stopped short of calling for a cap on profits, fearing it could deter investment and worsen placement shortages.

The Government's Pledged Reforms

In response to mounting pressure, the government has announced its intention to reform the system through the forthcoming Children's Wellbeing Bill. A key pledge is to take firm action against care providers who generate exorbitant earnings. The reforms propose giving Ofsted new powers to investigate the parent companies of large provider groups and to demand financial transparency.

Ministers have also threatened to introduce a legal cap on profits as a "backstop" if the market does not rebalance itself. This represents a significant potential intervention, aimed at preventing public money from being siphoned out of a system that is desperately under-resourced.

A £25 Million Recruitment Drive

Alongside regulatory reform, the government has committed additional funding to boost the number of foster carers. An investment of over £25 million is being channelled into creating regional recruitment hubs, collaborative efforts between local authorities to attract more people to fostering. The aim is to strengthen in-house provision, reducing the reliance on expensive private placements.

While a welcome step, questions remain whether this investment is sufficient to reverse a decade of decline and create the thousands of new fostering families that are urgently needed. The success of these hubs will be crucial in determining whether the balance of power can shift back towards local authorities.

Addressing the Structural Failure

The existence and growth of the private fostering market is a direct result of systemic failures in the public sector. IFAs exist since local councils have found it difficult to run fostering services effectively. For years, they have failed to recruit and retain enough of their own carers to handle the growing demand.

Simply blaming private providers for capitalising on this failure misses the point. Meaningful reform must address the root causes, empowering local authorities with the funding and strategies needed to build a robust, supportive, and appealing in-house fostering service that can compete with the private sector on quality and support, not just cost.

A Path Towards a Child-Centred System

A consensus is emerging that the current trajectory is unsustainable. Campaigners and experts are proposing a range of solutions, from a windfall tax on the profits of large providers to the complete removal of profit-making from children's care, as is being pursued in Wales. There are strong calls for a national register of foster carers to improve matching and for a standardised, fair payment structure nationwide.

Ultimately, the debate centres on a fundamental question: should the care of the state's most at-risk youth be a domain for generating substantial private profit? The challenge for policymakers is to re-engineer a framework in which the primary investment is in children's futures, ensuring that every child has a secure, consistent, and supportive residence.

The Human Cost of a Broken System

Behind the financial figures and policy debates are the lives of thousands of children. The instability of the current system, characterised by a shortage of carers and profit-driven incentives, risks inflicting further trauma on young people who have already lost the security of a family home. The goal must be to create a system where their wellbeing is the only bottom line that matters.

The experiences of the foster parents who are on duty around the clock to provide love and support in challenging circumstances underscore the human cost of underfunding and exploitation. Their call for fair pay, respect, and workers' rights is not just a matter of employment law; it is central to building a stable, caring workforce capable of giving children the future they deserve.