Owners of private children’s homes fear impact of plans to eliminate profit from sector in Wales

Richard Youle, local democracy reporter

Owners of private children’s residential homes fear that plans to eliminate profit from the sector in Wales could be disastrous and ultimately harm vulnerable young people.

Three owners spoke to the Local Democracy Reporting Service about how they ran their homes and what the future might hold. This type of residential childcare provides specialist support for looked-after children who have been referred to them by councils.

The homes have therapists, a high staff-to-child ratio – even their own schools. The cost of a placement can be around £5,000 per week, in some instances more, and some young people live in them for years.

There has been a huge rise in the number of private children’s residential homes in Wales to meet demand. This is partly driven by children referred to them by councils in England, although some children in Wales also cross the border to residential homes in England.

In 2012 there were 99 registered private children’s residential homes in Wales and 24 council-run ones.

Ten years later there were 222 private children’s homes and 34 council ones, although these included some settings which might only offer short-term and respite care for young people with a disability.

Strip away the short-term break and respite element and there were 762 residential bed places in March, 2022. So these are generally small homes, not sprawling great buildings like many care homes for the elderly.

Cost

The average cost in March, 2022, for a child’s residential placement was £4,857 per week, and councils in Wales were spending nearly £2.4 million a week on them.

The Welsh Government wants to rebalance the market, and intends to bring forward legislation to remove profit from children’s care. This could mean profit-making firms having to move to an entirely new model by April 1, 2027.

Ministers said young people had strong feelings about being cared for by profit-making private organisations, and they said they were giving councils and not-for-profit organisations a lot of extra money to build up residential care capacity.

It is a complex subject raising questions about the definition of profit, how private companies change their Welsh operations to non-profit – should they want to – whether councils could fill the gap if private providers withdrew and, assuming the same level of specialist care was provided to young people, whether councils and charities could do it at the same or less cost.

A consultation about the Welsh Government plans took place in late 2022. The consultation document said, among other things, that children’s care homes had become a “seller’s market” and that this impacted the prices charged to local authorities.

Profit margins

It cited a report by the UK Competion and Markets Authority which found that the profit margins of 15 large children’s care home providers in England, Scotland and Wales averaged 22%.

The proposed legislation would also impact foster care, but this article focuses on children’s residential homes.

Darryl Williams worked in various roles for councils in North Wales, at one point managing a team of 16 chldren’s social workers. He then set up a private company, Woodlands Ltd, which will be 25 years old in April.

“I’d become sick of putting children in less than average placements,” said Mr Williams. There was one time, he said, when he was driving back from what he felt was a particularly unsatisfactory placement when he decided to act.

“I thought, ‘What can I do?’ Luckily I played football with my bank manager, and he lent me money for our first home,” he said.

“We have grown slowly. We now have five houses, with 21 beds, and a therapy centre. I won’t grow any bigger – I’d forget the names of my staff. We have our own school, a headteacher, nine teachers, seven teaching assistants, five house managers, and four in-house therapists.”

Mr Williams said the total workforce was 105 and that the five homes catered for boys who had gone through significant trauma. “It does take a lot of time to work though that,” he said.

Once a referral was agreed, Mr Williams said three members of staff would visit the newcomer before he moved into one of the homes. Mr Williams said all the young people had a bespoke package of care, and that new arrivals were supervised at all times as they settled in. He said around 70% of the boys were from England and 30% from Wales.

As well as the school, Woodlands has an outdoor education centre where Mr Williams said boys learned bushcraft and made wooden carvings, chessboards and the like, some of which they sold.

Mr Williams said three of the boys at Woodlands had gone onto university in the last four years. One care leaver was doing a masters’ degree in chemistry. “We have broken the mould,” said Mr Williams. “It makes me amazingly proud.”

Placement

A placement at Woodlands is around £5,000 per week, and the average length of stay is around three years.

“What we charge is extremely reasonable,” said Mr Williams. “The houses are maintained to a very high standard. You get quality care, the best in-house school in Wales according to Estyn in 2020, and therapy. These houses are not like institutions. Children come here and they feel valued.”

Mr Williams claimed that some children’s care homes were “making a fast buck”, charging £5,000 per week for “inadequate” care. A part of him, he said, agreed with First Minister Mark Drakeford’s commitment to removing profit.

“There are some children’s homes owned by private equity, by trust funds, and that money goes out the country,” he said. “But he is taking an absolute sledgehammer to crack a nut. You could put in certain conditions, such as ownership has to be in the same country. And I would be quite happy with having ‘x’ amount of profit. You have to have profit in order to invest. It’s not a dirty word.”

Mr Williams said he could take more revenue as profit but that instead he reinvested it in the business. As well as staff and property costs, he said liability insurance was now £120,000 a year.

The 63-year-old said he felt there was an ideological element to the proposed legislation that was reminiscent of “1980s Valleys socialism”. He said: “And I say that as a Labour supporter.”

As he understood things to stand at the moment, Mr Williams said he would fold his businesses if a new profit elimination law come in. He claimed that such legislation could be “the biggest disaster ever for children’s care in Wales”. In his view, damage had already been caused.

Nuala Sharpe runs Landsker Child Care, which runs eight children’s residential homes with 30 places in Neath Port Talbot, Bridgend, Vale of Glamorgan and Pembrokeshire, with her husband and fellow director Paul Thomas. It was set up in 2000.

The homes are for vulnerable boys and girls aged 8 to 18 with complex needs, and they have a separate school building. “We do a very robust risk assessement of a child to ensure a good mix,” said Ms Sharpe. “Our goal is to provide them with the best years of their childhood. We deliver sector-leading therapeutic care.”

Forest school

Ms Sharpe said Forest School sessions were provided, plus courses in things like food hygiene, and that some older children did volunteering or had job placements in cafes, health spas and the construction sector.

One child, she said, played in a local football and rugby team. Others got involved in gymnastics and the Air Cadets.

She added that retention rates among the 125 staff were high, with managers staying for an average of 16 years. “The winners are the children,” she said.

Ms Sharpe preferred not to say what the weekly placement cost was, but she said it was average or just below average, that it hadn’t gone up in four years, and that the business’s profit margin was 6%.

She said the homes used to cater exclusively for children in Wales, but now 40% of the young people were from England. She said she kept in touch with many of them after they had left.

Like Mr Williams, of Woodland, Ms Sharpe said she felt there were “bad apples” in the sector and that she supported a rebalancing of the heavily private-led market.

But she felt small to medium-sized businesses like theirs were being tarred unfairly with an “unethical” brush, and she claimed the proposed elimination of profit had chilled the sector.

Impossible situation

“We are in an impossible situation,” said Ms Sharpe. “We can’t go to banks or financial institutions to borrow money. We are hearing that some companies are swapping from children’s care to adult only. We can see the sector deteriorating around us, and one of the factors is the proposed policy. There is a danger that you will eliminate good practice.”

She added: “Our fear is that is the public sector can’t deliver better quality of care or deliver it cheaper.”

Her husband, who has worked in the care field for 30 years, said: “The frustration is the portrayal of us as ‘in it for the money’. We are a business, it employs people, and it needs to make a profit in order to invest.” He added: “We’ve re-mortgaged, and we didn’t take a salary for the first eight or nine months.”

Another specialist children’s care provider is Amberleigh Care, which has a 19-place home in Welshpool, Powys, and 13-place one across the border in Telford, both with a school and clinical therapeutic staff.

The 100 staff look after mainly teenage boys which managing director Kevin Gallagher said had experienced multiple early life traumas.

Trips

Dr Gallagher said the boys attended school in uniform, went on school trips, walks and camping breaks, could do music lessons and join sports clubs. There were animals on-site, and the Welshpool home had greenhouses and a vegetable garden, with produce like jam sold at a local market.

He said demand for children’s residential placements had risen in the last 15 years for reasons including cuts to public services and families finding daily life more of a struggle. Amberleigh Care, he said, received around 50 referrals a week for boys who met its criteria. He added: “The complexity of need has also increased.”

Placements at the Welshpool and Telford homes cost £5,500 to £6,000 per week, and young people normally stayed there for two to two-and-a-half years. Dr Gallagher said highly technical care was provided, resulting in reduced self-harm, improved self-confidence and career aspirations. The “vast majority” of profit, he said, was reinvested in the business.

“We had one young person who has now come back to work for us,” said Dr Gallagher. “Another lad joined the police force – he comes back and is a mentor with us.”

Like Mr Williams and Ms Sharpe, Dr Gallagher felt there were examples of profiteering among a minority of children’s residential care providers. He said: “No-one wants to see public money being extracted out of the system – I get what it’s about.”

But he feared profit elimination could be “catastrophic”, effectively legislating providers out of existence. If that were to happen, he claimed there was “absolutely no way” that specialist alternative capacity could be developed in time.

Dr Gallagher said in 30 years of working with children he hadn’t heard any of them mention they felt like a commodity making a profit for someone else. He said. “Sometimes you might hear, ‘You’re only doing this because you’re being paid.’ Young people don’t want to be in care. They’re just concerned about their day-to-day experience.”

Consultation

The Welsh Government’s consultation on its profit removal policy had a joint response from the Welsh Local Government Association (WLGA), which represents Wales’s 22 councils, and other bodies representing social services directors and council fostering services.

The joint reponse said there was support for the principal of removing profit from the care of looked-after children, and that there was recent evidence of private equity expansion within children’s residential care in Wales, but it urged caution due to a “pre-existing placement crisis”.

It said: “Put simply you cannot eliminate any element of support underpinning a statutory service without first building the alternative.”

It added: “A year forward, despite providers engaging in this work and retaining commitments to delivering care, there is evidenced disruption to the availability of placements for new children and young people entering care, and for those looked-after young people with increasing need.

“Private providers, in view of the policy intent, are already making business decisions to exit the market in Wales and this is impacting on the number of children who are being cared for in settings which do not have registration.”

The response said it was not proven that the public or third sector could provide children’s residential care at less cost than private operators. It suggested an alternative approach would be “purpose-based” organisations that advanced the “common good” being the key criteria, rather than “not-for-profit” ones.

A lot of work has been going on in the background on the proposed policy. Asked for its current position, an WLGA spokesman said: “We’ve previously outlined our support for the Welsh Government’s commitment to eliminate private profit from the care of looked-after children.

“However, there are still some concerns about local government’s capacity and financial resources required to achieve this. The commitment to eliminate private profit from children’s care has been highlighted as having a detrimental impact on the impact on the availability of placements.”

Rocio Cifuentes, Children’s Commissioner for Wales, said she strongly backed the principle of “safely” removing profit. “I want to see a measured and managed transition approach to make sure no child experiences disruption to their placement, and I’m looking forward to seeing further details published to enable that safe transition,” she said.

The Welsh Government is currently looking for an independent contractor to examine how the profit elimination policy would maintain or benefit outcomes for looked-after children, and what the adverse consequences might be.

The Local Democracy Reporting Service asked the Welsh Government to respond to the thrust of the concerns by the three private providers in this piece, what its definition of profit was, whether the cost of providing residential care by the public sector was similar to the private sector, whether there was evidence of private providers exiting the market, and what evidence there was of young people feeling like a profit-making commodity.

Strong feelings

A Welsh Government spokeswoman said: “Feedback from children and young people indicates they have strong feelings about being cared for by privately-owned organisations that make a profit from their experience of being in care. We do not believe that profits should be made from caring for children and intend to bring forward legislation to end this.”

She said regulator Care Inspectorate Wales said there was currently no direct evidence of an impact on the number of placements, but that “this commitment brings challenges and complexities”.

“We have developed a robust programme of work to assess impact and to manage and mitigate against risks as well as to develop best practice,” she said. “We are giving particular consideration to how we prevent or mitigate disruption to children and young people.”

She said legislation would be introduced later this year to achieve its aims, although it wouldn’t take effect straight away, and that ministers were investing an extra £68 million from 2022 to 2025 to help councils build in-house capacity for residential and foster care provision, including specialist provision for children with complex needs.

The Children’s Homes Association, which represents the majority of the residential sector, including public and charity providers, described it as the “forgotten sector” of social care. It said it was working with councils which didn’t yet run any children’s homes, and that it supported a “mixed economy” and an emphasis on social value.

But its view was that the costs of any elimination of private providers from Wales had been “dangerously under-estimated”, and that the planned changes were worsening placement availability in Wales, impacting the well-being and life chances of children in care, and leading to more use of unregulated settings.

The association also suggested that privately-run residential homes were on average 10-20% less expensive than council-run ones, but added: “We will continue to support and work with all stakeholders, including the Welsh Government, with the aim of ensuring every child has the right care, in right place, at the right time.”