Source · Select Committees · Public Accounts Committee
Recommendation 5
5
Accepted
Set out how to understand private provider finances and proactively address market risks.
Recommendation
Despite private providers providing most care home places, the Department does not fully understand their financial position. Private sector providers are responsible for 84% of children’s homes and 74% of places for children in England. Seven of the ten largest children’s homes providers are owned by private equity, which means less financial transparency, a focus on generating profits and potentially high debt levels. The Department recognises private providers play an important role and that it needs to understand more about their financial standing to effectively oversee the market. This includes companies’ debt levels and financial risks and, should it introduce a profit cap, profit levels. In 2022, the Competition and Markets Authority found that the fifteen largest children’s social care providers had average profit rates of 22.6% for children’s homes, with their prices increasing by an average of 3.5% above inflation each year. However, there are many small and medium sized providers who do not make the same scale of profit. The Children’s Wellbeing and Schools Bill will introduce a financial oversight scheme, but the Department has not set out how it will use this beyond watching for warning signs of provider failure. This contrasts with other sectors. For example, the Care Quality Commission oversees adult social care providers and has a dedicated financial sustainability team overseeing around 30% of its market. 5 recommendation The Department should set out how it will better understand the profits, motivations and debt positions of private providers and how it will then proactively address risks across the market.
Government Response Summary
The government accepted the recommendation, explaining that the Financial Oversight Scheme, established through the Children’s Wellbeing and Schools Bill, will increase financial transparency and allow real-time assessment of financial risk and debt positions for "difficult to replace" providers. The scheme will also require contingency plans and use data to monitor profit levels across the market.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. Children’s Wellbeing and Schools Bill) The Financial Oversight Scheme will be established through the Children’s Wellbeing and Schools Bill. It will increase financial and corporate transparency among the most “difficult to replace” providers and their corporate owners. This will allow the department to make a better, real-time assessment of financial risk (including debt positions), and provide advance warning to local authorities where there is a real possibility that risk to financial sustainability could lead a provider to cease operating, so they can take swift action and minimise disruption to children. The Scheme will also require providers or their owners to develop and submit a contingency plan to ensure providers and their parent companies can prepare for the worse- case scenario of financial failure, playing an active role in managing their exit from the market. A similar Market Oversight function exists within adult social care (delivered by the Care Quality Commission) to assess the financial stability of ‘difficult to replace’ adult social care providers. The department has worked closely with CQC to learn from their experience and inform development of the scheme. The department expects about 40 providers to be covered by the Scheme (around 42% of the looked after children’s placement market in England). This may scale up or down in the future according to market developments to ensure aims of the Scheme continue to be met. Data from the Scheme will be used to help determine how overall profit levels are changing, or not, among providers in scope of the Scheme.