The Minister of State, Department for Education (Baroness Smith of Malvern) (Lab)
My Lords, I shall speak to amendments in group 4. As other noble Lords have identified, we have a market that is dysfunctional and not working appropriately. That results in the types of pressures and complexities for local authorities that we have heard about and has been described by several reports.
In 2022, the Competition and Markets Authority found that the children’s social care placement market was dysfunctional. It found that the largest private providers were making profit margins significantly above what would be expected in a well-functioning market. The LGA also found, in 2023, that the 20 largest independent providers made profits exceeding £300 million in a year. There is a considerable discrepancy between the levels of profits made in this market and those made, on average, across non-financial businesses in the rest of the economy. I do not believe that there should not be a market in this particular area, but it is completely clear that the excess profits being made are not the sign of a properly functioning market. They are the sign of a market that is distorted, dysfunctional and failing to serve children and young people and the local authorities which are paying the costs of funding the profits, as opposed to investing in their children.
We clearly need to make reforms, and that is what the Bill is partly about. I will come to some of the other reforms not included in the Bill that are also part of the overall programme. Additionally, local authorities currently have no way of knowing if a provider, or members of its wider corporate group, is at risk of failing financially. That is why amendments in this group cover Clauses 14 and 15 of the Bill and related issues.
I will start by addressing the point raised by the noble Baroness, Lady Barran, about Clause 14 standing part of the Bill. Clause 14 introduces a new financial oversight scheme for children’s social care, a key part of our wider reforms of the market. We are aware that a provider of children’s social care places suddenly closing its provision as a result of financial failure could have a significantly detrimental impact on the care and stability of where children and young people live. Currently, as I have said, local authorities have no way of knowing whether a private provider or its corporate owners are at risk of failing financially. If a large provider were to fail and suddenly exit the market without warning, it could be difficult for local authorities to find alternative placements for those children or places that appropriately met their needs. That is why we are developing this new financial oversight scheme in children’s social care. This will, for the first time, increase financial and corporate transparency of difficult-to-replace children’s social care providers, allow for an accurate, real-time assessment of financial risk and strengthen forward planning.
The noble Baroness, Lady Barran, rightly asked some detailed questions about how the system will work. We are not developing this completely from first principles. We have worked closely with the Care Quality Commission to learn from its existing market oversight scheme, which operates for a similar purpose in adult social care. That was set up in the wake of the collapse of Southern Cross in 2011. We are confident that we can operationalise this and make it effective.
The way in which the scheme is being designed means that those on the scheme will also be required to submit a recovery and resolution plan containing information on risks to a provider’s financial stability and plans to reduce those risks. The Secretary of State may also require providers or a corporate group member on the scheme of heightened financial risk to undergo an independent business review. The noble Baroness asked whether the independent business review would use the recovery and resolution plan. For reasons that I will explain, those are two important but slightly separate elements of the scheme.
Amendment 134A, tabled by the noble Baroness, Lady Sanderson, seeks to require all local authorities to publish the prices that they pay for private placements of children’s homes on an annual basis. Before I get into the detail of the amendment, the noble Baroness suggested that other parts of the overarching strategy that we must put right in this failing market were potentially not being taken forward. That is not right. The fact that something is not in this legislation does not mean that it is not part of the Government’s overall approach to improving the sufficiency of placements. Alongside the legislative provisions in this Bill, we are also developing a national data programme to address that gap in national and regional data around the underlying costs of children’s social care placements. We are also extending our national support programme to provide additional support to local authorities in forecasting, commissioning and market shaping. We are investing considerably in local authority capacity. There will be £560 million in capital investment between now and 2029-30 to refurbish and expand children’s homes and foster-care placements, alongside additional investment in foster-care sufficiency.
On the point about market diversification, raised by my noble friend Lady Thornton, we are exploring options to encourage new providers such as charities and ethical investors to enter the market. I will certainly talk to my honourable friend Minister Daby about how we can bring people to a round table to think about that market diversification.
We are improving both the workforce and the registration of new children’s homes and supported accommodation to support the reforms we are making to the market. This is a wide-ranging, strategic and important programme of work, and in the Bill we are looking at the legislative elements of that.
I agree with those noble Lords who talked about the importance of data transparency. That will be part of our wider package of measures and will cover not only placements in children’s homes but fostering and supported accommodation placements. I am glad that the noble Baroness, Lady Sanderson, is supportive of the need for that change. I assure her of our ongoing commitment to it. We want to ensure that local authorities have the necessary information, capability and tools to shape the market, negotiate more effectively, secure better-suited placements and achieve greater value for money. It is, of course, also a function of an appropriately working market that there is better and clearer information than has been the case up until now.
On the point about whether and how we do that with local authorities, we are clear that these changes should be supportive in nature rather than seeking to add additional burdens to local authorities. For that reason, we are considering the best way to help local authorities to make informed decisions when commissioning placements—utilising the data we expect them to collect on costs—and how they can provide better data and cost transparency. We will outline more plans on that in due course. I agree with the principle about the need for much better information.
Amendment 140 tabled by the noble Baroness, Lady Tyler, seeks to apply the financial oversight scheme to providers of supported accommodation. I assure noble Lords that supported accommodation providers will be in scope for the financial oversight scheme. They are not in the Bill, which reflects how this type of provision is dealt with in the Care Standards Act. That Act was extended to cover supported accommodation by regulations. To ensure consistency, we will similarly apply financial oversight to supported accommodation through regulations, and that will occur once the financial oversight scheme comes into force. As I have said, the scheme will increase financial and corporate transparency of the most difficult to replace providers of supported accommodation, alongside the other forms of provision that have already been identified.
Amendment 140A tabled by the noble Baroness, Lady Barran, is where we get into some of the detail about the independent business review and the recovery and resolution plan. I want to reassure the noble Baroness that the independent qualified person undertaking the IBR will of course be able to request the provider’s recovery and resolution plan if that is necessary to inform their assessment. The RRP is a proactive contingency plan that requires providers to mitigate risks and prepare for the worst-case scenario of financial failure in a way that minimises negative impacts on children. On submission, a provider’s RRP will be reviewed by experts in my department. I can assure the noble Baroness that we will of course ensure we have the appropriate expertise to be able to do that. As we are basing this on a similar model for adult social care, there is good learning and understanding about what will be required.
Separately, if we judge that there is a significant risk to a provider’s financial sustainability, the department may instruct a qualified person to conduct an independent review of its business. The IBR will examine the nature and extent of risks to a provider’s financial sustainability and provide additional assurances to the department in its assessment of financial risk. As I have said, that may well include a consideration of the RRP and, of course, the independent review of the business will be carried out by people with specific expertise in this area. We may well need to look for particular expertise for that.