Children's Wellbeing and Schools Bill (Sixth sitting)

Damian Hinds Excerpts

Committee stage
Tuesday 28th January 2025 Public Bill Committees

[Neil O’Brien]

I rise to speak to amendment 25 and clause 14. I thank the hon. Member for Twickenham for what she said about our amendment. I completely agree that, ideally, we would have what we are asking for on a regular basis, but just to be clear, the requirement on the Secretary of State to report to Parliament details and analysis of available placements is in amendment 25 because we want to keep the focus firmly on supply and capacity, which I think we agree are the ultimate drivers of the problem we are addressing.

As we said in response to the oral statement to the House by the Secretary of State, we welcome the continuing focus on issues that we identified, and we set up the market intervention advisory group to look at that when we were in government. The heart of the problem, however, as I think we all recognise, is the lack of supply of high-quality places in residential, kinship and foster care for looked-after children. Demand for such places outstrips supply, and that is what is causing the high cost of placements.

It is striking that in its 2022 report, the Competition and Markets Authority did not recommend a profit cap because, in its words,

“The central problem facing the market…is the lack of sufficient capacity.”

The CMA concluded that taking measures to limit the profitability of providers would

“risk increasing the capacity shortfall.”

So if we do not take action to increase capacity first, ironically, we risk simply driving up prices and exacerbating the shortage of places.

Likewise, the review commissioned by the last Government and carried out by the hon. Member for Whitehaven and Workington (Josh MacAlister) found that profit caps would not work as it would be,

“relatively easy for providers to reallocate income and expenditure to maintain profit levels”,

a point already alluded to by the hon. Member for Twickenham. The capacity problem rests on the availability of places and the demand for those places. We spoke previously about the need to do much more to grow fostering to reduce demand. Our amendment is designed to ensure that that capacity issue remains at the front of everybody’s mind at both the national and the local levels, so that at neither level do we fall into thinking that we can fix this without primarily fixing supply.

I understand the argument that it cannot hurt to have the power in the clause, which is the reason why we will not vote against it, but it is unlikely to change things very much compared with increasing supply. In fairness, the Bill’s policy notes state that the profit cap power

“is intended only to be used as a last resort should other measures not have the expected impact”.

The hon. Member for Twickenham talked about it being a backstop. My only worry is we should not even rely on it as a backstop. As the previous independent review and the CMA highlight, it would not be easy to use. One reason is that it would inevitably have to be backward-looking. The Government’s policy notes state:

“We are aware that the administration of the profit cap will be a retrospective look back at whether or not the profit cap has been breached in a past period. It will therefore not necessarily prevent breaches in itself, but it will allow action to be taken retrospectively if such breaches have occurred and act as a disincentive for further breaches.”

We will be looking backwards at a sector where there are a lot of complicated financial arrangements, and because we are looking backwards, people will have time to do all kinds of things to make sure that they look like they are complying, for the reasons I have mentioned.

As Ministers take this measure through the other place and consider implementation, I strongly recommend that, if they regulate for fines, they set up an absolutely iron-clad mechanism to ensure that those fines are paid. I was very disturbed to learn from an answer to a parliamentary question the other day that the Home Office has no idea what proportion of the fines imposed for illegal working are actually paid. In that sector, people just move on—they set up a new company, or get their brother to start a new thing. They just move on, and they do not pay the fine. It is widely known that we do not even know how many people are paying those fines. Obviously, we need to prevent that from happening in this sector, where there is equal scope to move on, to set up new things and collapse the old, and so escape fines. I am sure Ministers are seized of that risk; I just wanted to emphasise what they need to do when regulations are made.

Another way out that Ministers might want to try to close off is that some in the sector adopt offshore models of provision. Might the Government want to use this rare legislative moment to discourage, either in primary legislation or by giving themselves the power to regulate, the commissioning of places with providers that are domiciled offshore? They might want to take that power now, but even if they fix it, there will continue to be so many opportunities to fudge and to manage profits with interest and debt.

I do not mean to labour this because, as I listen to some people in the debate, including Ministers, I hear that they understand the difficulties, but then I hear from some other people, and they think, “Oh, we can just control prices to get out of this, without addressing the underlying real problem about supply.” When I was at the Treasury, one reason we were really keen on the work we were leading on through the OECD on base erosion and profit shifting was that we were faced with the endless generation of new tax wheezes and profit-shifting arrangements. They all had these exotic names—the Dutch sandwich, the green jersey and the double Irish; people were constantly generating new ways of moving profits around.

I want to bring that to life a bit by asking some questions. How would profit be defined for the purposes of the cap? The policy summary talks about

“(on average) profits of 19.4% on fostering, 22.6% on children’s homes and 35.5% on supported accommodation.”

I went back to look at the 2022 CMA report from which those numbers are drawn, but it just talks about margins, so I was not clear on whether we were talking about pre-tax, post-tax, or earnings before interest, tax, depreciation and amortisation. I am keen to understand what measure of profit we are using.

What analysis have the Department done to think about the capital needs of the sector over the next five years? It will need large sums, which may make profit capping harder. Fundamentally, there is a big question about what level of profit the Department for Education deems to be acceptable. In in her articulate and thoughtful remarks, the hon. Member for Twickenham mentioned one provider that had a very high rate and another that she said was more acceptable. That is the heart of the issue: given the powers that are being taken, do Ministers at this stage have some rough barometer of what they would regard as unacceptable profits?

Alongside this debate, even as we as we speak, the consultation is running. Obviously, in an ideal world it would have been much better to have had the results of that consultation before the debate and before we moved to legislate. To say we are being asked to sign a blank cheque is an overstatement; I am less worried about it than that. Obviously, though, it would have been much better to have the results of the consultation. What is the timescale of the consultation and when will we have some results from it? Is the Minister already able to share any findings?

I am labouring the point slightly, but I want the Minister’s reaction to the issue, which I am trying to raise in different ways, of the difficulty of capping profits in this kind of industry with these kinds of players so that the concerns that caused the CMA and the hon. Member for Whitehaven and Workington not to recommend profit caps do not come to bear in practice.

A fundamental question is what the evidence is that, on a like-for-like basis, private sector providers are more expensive than either charities or local authority provision in this area. The numbers may exist, but I have not seen them. If the margins are so high, why are more providers not entering the market? It is a strange thing: there is not enough supply, but we think profits are too high. What is the barrier to entry? It may be that all those questions are addressed in the impact assessment, which is one reason that it is frustrating that we still do not have it.

The DFE says that it is trying to do other things to tackle excess profits. In its policy summary notes to the Bill, it said:

“Until these other measures have had time to be implemented and have effect, we will not know whether regulatory action in the form of a profit cap is necessary.”

That is totally sensible; I completely agree. What are the Minister’s thoughts on timing for making a decision on that? We have a consultation now. The Ministers are trying to do other things to tackle excess profits now; once implemented, they will take time to have an effect, if they are going to have an effect. In what year will we potentially make a decision on the profit cap? As I started to make the mental Gantt chart, I wondered whether this was a decision for the end of this Parliament or the next. I just want a sense of what Ministers think about the timing for making that decision.

Page 53 of the policy summary notes says:

“The level of any future profit cap would depend on a number of factors, including market conditions at the point that we make a decision that a cap is needed.”

That line is a bit mysterious. This may be obvious, but it is not obvious to me—what does that mean in practice? I could not work out which way round it was: would there be no profit capping if supply was too limited, as there would be no scope to do it, or would profit capping come in if supply was limited and prices higher than Ministers wanted? I was not sure in which direction the arrows ran between market conditions and the decision on having a profit cap.

We are not against the clause standing part of the Bill. We are obviously keen on our amendment, and indeed the improvement to it suggested by the hon. Member for Twickenham, but, as an amendment, it is what it is. But all of this is just an aim. We think there are massive limits to how usable this power will be in practice and we do not want it to become a distraction from fixing the main issue, which is supply. To use an example from housing policy, which is apt, given the Chair’s former Select Committee role, the places around the world that have tried to rely on rent controls to fix housing problems generally fail. The people who focus on supply generally do much better. That is the spirit behind our amendment and our questions to the Minister.

[Damian Hinds (East Hampshire) (Con)]

It is good to see you in the Chair, Mr Betts. I rise briefly to echo some of the points made by my hon. Friend the Member for Harborough, Oadby and Wigston and to ask a couple of questions. I have total sympathy with what Ministers are trying to do here. Having spent a bit of time at the DFE, I know the pain of seeing the amounts of money going out from local authorities for some very expensive placements.

The thing I always found vexing, and still do to this day, is exactly the thing the shadow Minister mentioned. If there are fat margins to be had, ordinarily, in a Schumpeterian world, people come into that—again, I hesitate to use the word—market. The insurmountable barriers stopping that from happening were never clear to me. It was not just that additional supply was not coming in to bring down unit costs, but that, on occasion, there was no place to be found. It is very important that we understand the underlying economics of this, bearing in mind, as ever, that we are talking primarily about the care of children.

The profit made by an entity cannot be limited, ultimately, because that is the residual left at the end of the year between revenue and cost. All one can do is either to choose not to use an entity that makes a profit of more than a certain amount, or seek some form of clawback. I note from the Bill that it is the latter approach that Ministers wish to take, as in proposed new section 30ZM. Do they seek to use this power as a fine—a penalty—for having a profit above whatever is deemed the appropriate level, or in proportion to it? In other words, do they seek to claw back the entirety of the surplus—the profit made—in excess of what is deemed a fair return?

--- Later in debate ---

[Damian Hinds]

I am not at all opposed to the clause, but I am curious to know what prompted it. What outside world events made us rethink the regulations? I heard what the Minister said about consulting young people, but I am struggling slightly to picture that conversation, where the kid goes, “You know, what we really need is a change in the employer licensing regulations.” But fair enough.

The changes are in some ways liberalising by increasing the latest hour from 7 o’clock to 8 and allowing Sunday working, but in other ways they are restricting. I am interested in what is behind that. There are risks to guard against in the employment of children, but the employment of children is not in itself an ill to be mitigated. There are many benefits to the child in having that opportunity. In fact, the biggest gripe we hear from employers about young people—it happens again and again—is about what some call soft skills, or employability skills or workplace skills. Whatever we want to call it, those are skills that people develop at work. Many times over the years, whenever I have had a group of leaders and industry together, I have gone round the room and literally asked, “How old were you when you first did a day of paid work?” The most typical, most common answer is 14—some say 15, and for some it is younger. It is important that we learn from that.

In the last 25 years, there has been a sharp decline in the number of under-16s and under-18s doing paid work. That is partly because of the decline in certain job types—there are not many paper rounds or milk rounds any more—and partly because of social attitudes. When we had public exams in the lower sixth and upper sixth for most children, that probably had an impact for the slightly older age groups. One of the reasons that employers find it daunting to employ children is that they are often unclear about what the regulations are, but they have a sense that there are risks, including reputational risks and so on.

The explanatory notes state:

“The Secretary of State will have a power to make regulations in relation to child employment which will replace the power local authorities currently have to make bylaws. The regulations may prohibit the employment of a child in certain types of work, make provision in relation to child employment permits, authorise the employment of 13-year-old children and set out the number of hours children can work per day or week, their entitlement to breaks and leave and to specify other conditions of employment”.

It is quite a list.

Today, to be clear, children can work part time from the age of 14. In some council areas, the minimum is 13. Are the Government now saying that the minimum age will become 13 throughout the country? What limits do they envisage in ordinary times for additional regulation? There is rightly already plenty of regulation about the employment of anybody and further regulation about the employment of people who are below 18. What additional regulation do the Government envisage?

The Government will say that there will be secondary legislation under the affirmative procedure and that it will all be fine, but we know how secondary legislation works—often in this very room—under the affirmative procedure. Often people do not know about it very far in advance. A Committee of Members of Parliament comes here and debates the secondary legislation—I was going to say that the MPs vote on it, but often they do not—the legislation cannot be amended, and then it moves on. Given that we are talking about the primary legislation, it would be helpful to get on the record what the Government are thinking about doing in this area.

As my hon. Friend the shadow Minister rightly said, having a standardised system of permits nationally is okay in principle. Indeed, benefits may well come from that, but it goes somewhat against the direction of travel from a Government who are introducing devolution in local government and changing the levels at which responsibility is held. The danger with a national system for something like this is that we could lose some of that local knowledge and variability, for example, in rural areas of the country with heavy agricultural sectors. Employment can be different there. In seaside towns with more seasonal employment, that might affect the employment of children. Can the Minister give us some reassurance that there will not be scope creep, for example through the introduction of further regulations for the employment of children in the family business or activities such as babysitting? Can she also assure us that the minimum age exemptions with a performance licence for the creative industries—theatre, film and television—will not be lost?

[Munira Wilson]

I do not have a philosophical problem with this clause either. I was slightly surprised to find it when I was reading the Bill and to hear where it came from, but I understand what the Government are attempting to do.

Before press releases start going out suggesting that the Lib Dems want to promote child labour, I will preface my next question with some feedback from the National Network for Children in Employment and Entertainment. It has raised some concerns that the later hour set out in the legislation does not fully address the employment of young people in televised and live sporting events. That is particularly the case where we now have the benefit of floodlights and roofs—I think of the late matches on centre court at Wimbledon, when we have ball boys and ball girls from the local area working there. I understand that there is a different licensing regime if children are participating in sport, but this measure would apply to some of the children working at those sporting events. What consideration have Ministers given to those sorts of situations? Have they spoken to the National Network for Children in Employment and Entertainment?

For organisations with particular shift and working patterns—for example, those involving non-performance roles in theatres, including in lighting or backstage—the National Network for Children in Employment and Entertainment suggests allowing hours later than 8 pm on a Friday or Saturday for older teenagers, provided that the next day is not a school day. I am not necessarily suggesting that that is the right thing to do, but that is a suggestion made by that organisation given its needs. It would be good to get some clarification on when the current byelaws for child employment will cease and when regulations from the Secretary of State will replace them.

Importantly, what consideration has been given to safeguarding and DBS checks of employers where young people are working? The right hon. Member for East Hampshire touched on that. We have self-employed young people offering their services as tutors, babysitters and gardeners. I understand that some of them are offering their services through apps and things nowadays, and they are presumably not touched by these regulations, so what consideration have Ministers given to children in those sorts of services?