The children's care system in England is being distorted by providers prioritising financial gain over the needs of vulnerable young people, the national inspectorate has declared in a damning new report.
Profit Over Need: A System 'Bent Out of Shape'
Ofsted's annual report reveals a record high of 4,010 registered children's homes as of March this year, marking a significant 15% annual increase. However, the watchdog warns this growth is not driven by care requirements but by a pursuit of profit, with new homes overwhelmingly opening in regions where property is cheapest.
Sir Martyn Oliver, Ofsted's Chief Inspector, branded the situation an "ongoing national scandal." He stated, "The most vulnerable children in our society deserve loving and stable homes but the profit motive is increasingly dictating the location and ownership of children's homes. As a society, we are failing these children."
The data shows a stark geographical imbalance. The North West of England now hosts more than a quarter of all children's homes, yet is home to only 18% of the looked-after child population. Ofsted believes providers are attracted by lower housing costs, exacerbating pressure on local services in areas already struggling. Just 46% of local authorities in the North West were rated good or outstanding, compared to 88% in London.
The Spiralling Costs and Shadow Market
The financial burden on local authorities has skyrocketed. Spending on looked-after children has more than doubled from £3.9bn in 2015-16 to £8.1bn in 2023-24. The average annual cost for each child in care now stands at a staggering £97,200.
This crisis of affordability and placement scarcity has fuelled a dangerous 'shadow market' of unregistered providers. Ofsted reported launching nearly 900 investigations into potential illegal homes in the past year. These unregistered operations have been charging "exorbitant" fees, reaching as high as £30,000 per week in some cases.
"This shadow market only exists because there aren't enough of the right kinds of places in legitimate registered homes," the report concluded. Alarmingly, almost 90% of local authorities admitted to placing children in unregistered settings due to a lack of suitable registered alternatives.
Concentration of Ownership and Government Response
The report also highlighted concerns over market consolidation. A significant 84% of children's homes are privately operated, with the ten largest owners controlling nearly a fifth of the market. This concentration means the financial failure of a single large provider could have an "enormous impact" on national capacity.
In response to profiteering concerns, the government has previously proposed a crackdown, including a potential "backstop" law to cap profits if providers do not voluntarily curb excessive earnings. Ofsted has urged ministers to work with councils to completely eliminate the use of unregistered children's homes, describing the situation as a "crisis both for children and for local councils, whose budgets cannot hope to keep pace with the spiralling costs."
The inspectorate further noted a rise in child protection concerns within homes, which increased to 510 in the latest year from 364 previously—a rise attributed, in part, to the growing number of homes overall.
