Children’s Wellbeing and Schools Bill

Baroness Scott of Needham Market Excerpts

Thursday 19th June 2025 Lords Chamber

[The Minister of State, Department for Education (Baroness Smith of Malvern) (Lab)]

My Lords, as I said in Committee on Tuesday, in 2022 the Competition and Markets Authority found the children’s social care placement market to be dysfunctional. It found that the largest private providers were making profit margins significantly above what would be expected in a well-functioning market. Most significantly, notwithstanding the profit levels that are being made, we know that there are still insufficient high-quality placements for children who desperately need them. To that extent, the profit levels being made are not, as the noble Baroness, Lady Barran, suggested, driving the sort of supply that we want to see.

The amendments in this group cover Clauses 15, 16 and 17, which implement important legislative elements of our children’s social care placement market reforms: the new profit-capping powers and their associated financial penalties. Introducing profit-capping powers will ensure that we have further powers to curb profiteering if the wider package of measures that I outlined on Tuesday, which we expect to rein in excessive profit-making, do not have their intended effect. This is a power to have in place if other elements of the programme do not work.

I turn to the points raised by the noble Baroness, Lady Barran, on whether Clause 15 should stand part of the Bill. Having outlined the broad intention of the profit cap, I want to be clear that, although some private providers are clearly doing brilliant work, we want to ensure that all providers deliver high-quality placements at sustainable cost. As I say, we know that this is not always happening.

The Competition and Markets Authority found the market to be dysfunctional and estimated that the largest private children’s social care placement providers were making profit margins of between 19% and 36%—well above what would be expected in a well-functioning market. As I have said previously, excess profits have not led to sufficient supply in this market. Furthermore, making these levels of profit from providing placements for some of our most vulnerable children is unacceptable and must end.

This clause provides important backstop powers to ensure that the Government can take action, if needed, to end profiteering. It also sends a clear signal to providers that the Government will not hesitate to take regulatory action to restrict this unacceptable behaviour if profit-making is not reined in. It is not the Government’s intention to extend these powers to any other sectors at this point, although I can confirm that the provisions would cover supported accommodation, along with the other elements noble Lords have already outlined.

To be frank, I hope that it does not become necessary to use these powers. I hope that people see the writing on the wall that there is an impact from the other elements of the Government’s plans, and that we see profits delivered at a more reasonable level and, more importantly, placement sufficiency improving. However, if it became necessary to use these powers, the clause already includes important safeguards through restrictions on the powers to ensure that they are used appropriately. Of course, if they were to be used, the point at which that was determined would be dependent on market conditions and profit levels at that particular point.

Regulations may be made only if the Secretary of State is satisfied that they are necessary on value-for-money grounds. The Secretary of State must also have regard to the welfare of looked-after children and the interests of local authorities and providers, including the opportunity to make a profit. Crucially, this clause also requires the Secretary of State to consult before making regulations. This will be particularly important to ensure that all interests are considered in determining issues, such as how a cap would be calculated and the level at which it would be set. That would be the point at which the particular nature of profit levels—which the noble Baroness, Lady Barran, asked about—would be considered in detail. In addition, Clause 15 also provides for regulations to be made that set out important details about the administration of any future profit cap by providing for annual returns from registered providers and the ability to request supplementary information. I hope that noble Lords can see from the discussions we have had on this Bill—notwithstanding other areas—just how important these powers are to ensuring that the Government can take proportionate action, if needed, to restrict profit-making in the market.

Amendments 504A and 505A in the name of the noble Baroness, Lady Barran, seek to require the Secretary of State to publish a report that would clarify the supply and capacity of independent children’s homes and independent fostering agencies, and the expected impact of the profit cap on the number of available placements, before Clause 15 is commenced. To reiterate, if the profit cap was to be commenced, this would be at a later stage, at which there may well be a different set of market conditions. We intend to use the powers in Clause 15 only if profiteering is not brought under control through the wider package of measures that we have set out.

The consultation requirement in this clause is particularly important because it will outline the details of the proposed cap itself and require the Government to respond and publish that response. This will set out our rationale, including on the matters in the noble Baroness’s amendment, if we judge that a cap is needed. In addition, the Explanatory Memorandum to the regulations will set out the policy rationale. In effect, that already fulfils the aim of these amendments to require a report to be published. In response to the noble Baroness’s question, the regulations will, of course, be made by virtue of the affirmative resolution procedure, so there will be the opportunity to cover these matters in debate and address their potential impact. I hope that reassures the noble Baroness that a report on the impact and design of the profit cap would be necessary before it could be implemented.

I turn to Amendment 142A in the name of the noble Baroness, Lady Barran, which seeks to limit the ability of the Secretary of State to impose financial penalties. I understand her specific questions. We expect the vast majority of any penalties issued to fall on corporate structures of one form or another. First, however, as we said on Tuesday, an individual might run a provider within scope—for example, a children’s home—as a sole trader. It would seem strange and surprising if that sole trader were making profits that would be likely to breach a cap, but it would be a bit bizarre if that were way to avoid a profit cap, were it to be necessary to introduce one.

Secondly, even within a corporate structure, there might be an individual who is personally culpable for a breach under the requirements of Clauses 14 and 15. The ability to issue a financial penalty in those circumstances might act as a strong deterrent—the finance director, for example. Of course, the Government do not intend to issue financial penalties that would be disproportionate or unfair on an individual. Indeed, Clause 17 sets out a number of factors that must be considered in determining the amount of a penalty. These include the impact of that penalty on the person in question, the nature and seriousness of the offence, and any past breaches and mitigating or aggravating factors.

Finally, I turn to Amendments 142B and 142C, which seek to restrict the financial penalty that may be imposed for breaches. While the Bill does not limit the financial penalty that can be issued for a breach of the requirements, I hope I have reassured noble Lords that, importantly, we will set the maximum amount in regulations, after we have engaged in full consultation with interested parties to determine the most appropriate maximum for any financial penalties. That will allow us to adjust the maximum amount over time, as necessary, and regulations made will be subject to the affirmative procedure. That will afford Parliament the opportunity to debate and scrutinise the Government’s proposals, and the Government to provide timely answers at that point to issues such as profit levels and operating arrangements, which the noble Baroness identified. Of course, even if a maximum amount is set, that does not necessarily mean that a provider would automatically be fined the maximum amount. As set out in Clause 17, there will be discretion when determining an appropriate amount for any financial penalty.

I hope that that provides more clarification of some of the meanings in this clause, that it responds appropriately to the amendments the noble Baroness has tabled, and that she feels able to withdraw her amendment.

[The Deputy Chairman of Committees (Baroness Scott of Needham Market) (LD)]

The noble Baroness, Lady Longfield, has the right to reply.

[Baroness Longfield (Lab)]

I have already indicated my intention to withdraw my amendment.