As of now, private equity firms have either full or partial ownership of 11 out of the 20 largest fostering and children’s home providers in England, amid rising demands to eliminate profit-making in the care of children, which many deem excessive.
An investigation conducted by the think tank Common Wealth revealed that the four largest independent fostering agencies, which account for nearly 25% of fostering placements in England, have distributed over £200 million from taxpayer funds to shareholders in interest payments since 2020.
Andrea Egan, the general secretary of Unison, emphasized that these revelations should serve as a critical impetus for reforming children’s social care. “The practice of profiting from children’s social care is absolutely unacceptable. Years of outsourcing have led to taxpayer-funded essential services being exploited as lucrative opportunities for investors,” she stated. “They are prioritizing their financial gains over the welfare of vulnerable children. A comprehensive overhaul of children’s social care is urgently needed.”
The analysis indicated that at least one-third of placements by fostering agencies and one-fifth of placements in children’s homes are managed by firms supported by institutional financing, including private equity, hedge funds, venture capital, and sovereign wealth funds.
Furthermore, the report highlighted that the four largest fostering organizations utilized shareholder loans, a financial arrangement where shareholders lend money to a business at interest rates significantly higher than traditional bank rates, without acquiring new shares.
As a result, these companies have either paid or set aside at least £205 million for their shareholders and investors since 2020.
National Fostering Group, recognized as the largest independent fostering provider in the UK with over 4,000 placements, is owned by Stirling Square Capital Partners, having transitioned through Graphite Capital and Sovereign Capital. According to Common Wealth, it has disbursed more than £116 million in interest on investor loans since 2020, in addition to £71 million in interest on preference shares, which entail a fixed percentage of an investment paid back to the investor over time.
BSN Social Care, primarily owned by MML Capital Partners, operates a network of regional fostering agencies serving over 850 children and has paid more than £7 million in interest on shareholder loans since 2020.
The interest rates associated with these loans have been reported to range between 8% and 14%. The think tank noted that this practice creates a tax shield by artificially lowering taxable profits and acts as a “mechanism for wealth extraction for investors.”
Sophie Flinders, a senior data analyst at Common Wealth who led the research, asserted that there is a compelling argument for prohibiting private companies from profiting from public and essential services. “It is essential to eliminate intermediaries and ensure that all funding allocated for children’s social care is directed towards enhancing care quality, rather than enriching shareholders,” she remarked.
Egan further stated that “insourcing” is crucial, as returning services to the public sector would guarantee that funds are allocated where they are necessary and that there is true accountability.
A separate investigation by The Guardian discovered that in the previous year, £1 out of every £11 spent by the UK government on contractors was directed towards companies controlled by private equity, encompassing vital services like transportation, waste management, and healthcare.
The Competition and Markets Authority had earlier identified that the largest private providers in children’s social care were “generating significantly higher profits and charging considerably higher prices,” while also carrying “very high levels of debt.” Over the last decade, these major firms have gained market dominance by acquiring smaller providers, resulting in increased prices throughout the sector.
The UK government has pledged to mitigate profit-making in children’s social care through enhanced regulation and, as a last resort, implementing profit caps. The Welsh government has taken a more definitive stance, committing to abolish for-profit provisions in children’s social care by 2030.
Common Wealth is advocating for a temporary halt on for-profit entities within children’s social care, coupled with a thorough audit of illegal children’s homes. They urged the government to utilize compulsory purchase orders to transfer facilities of unacceptable quality into public ownership.
“The outsourcing premium fails the most vulnerable children. Our priority should be to provide the best possible care, rather than managing the social care market,” the report concluded.
Tim Barclay, the chief executive of the National Fostering Group, responded by stating, “We support around 3,600 children across the UK through a network of fostering agencies, all of which have received ‘good’ or ‘outstanding’ ratings from regulators. Every pound the group receives is dedicated to frontline care: recruiting and training foster carers, providing therapeutic support for children, ensuring their safety, and offering 24/7 professional assistance to facilitate successful placements. The costs associated with fostering reflect the increasingly complex needs of children entering care and the comprehensive support they require.”
BSN Social Care has been approached for a statement regarding these findings.
