Criminal Care? Privatising children’s social care | Martin Barrow | HOWARD LEAGUE FOR PENAL REFORM | 3 July 2019
CareTech sounds like a technology company but its currency is people. Not just any people, only the most vulnerable: children in care, young people with learning difficulties, adults with complex mental health issues.
In this age of austerity, with social care in a destructive battle for funding, you’d think that this would not be a particularly attractive sector for an ambitious, fast-growth company like CareTech. Well, you’d be wrong. Welcome to the topsy-turvy world of children’s services, where local authorities struggle to keep the lights on while businesses like CareTech earn millions in profits as providers.
CareTech is something of a standard-bearer for the privatisation of children’s care, owning children’s homes, residential learning disability services and a hatful of foster care agencies. With its shares listed on the London stock market, the company is now worth around £400 million.
Last year it took over rival Cambian Group to create what City analysts like to call a ‘behavioural health services’ giant. In the first six months of the current financial year, the merged group earned underlying pre-tax profits of £20.7 million. Group revenue, effectively the fees it receives from local authorities to look after children and young people, doubled to almost £200 million.
In the context of state-provided children’s services, these are colossal amounts of money. With central funding being cut by anything up to 60 per cent since the financial crisis, many local authorities are having to raid their reserves to be able to provide any kind of service to support vulnerable children and families. The pressure is unrelenting, with the number of ‘looked-after’ children in care in England rising steeply in recent years and now exceeding 75,000.
The merged CareTech and Cambian group earned underlying pre-tax profits of £20.7m within six months
CareTech’s ‘profits’ are, effectively, money that might otherwise be spent on frontline care. Instead, much of it is going to shareholders. Their dividends are being increased by 7% in the first half of the year, well ahead of inflation, at a cost of £2.6 million. As it happens, CareTech’s biggest shareholders are the chairman, Farouk Sheikh, and his family. Their dividends alone give them almost £2.5 million. This is in addition to their salaries. Last year the chairman earned £732,000.
The Cambian acquisition was mostly funded by borrowings which, inevitably, means a significant increase in interest payments. With net debt now standing at £300 million, CareTech’s ‘financial expenses’ for the first six months were £7 million. But the risk is mitigated by the fact that revenues from local authorities are unlikely to dry up any time soon. In fact, CareTech can reasonably assume that an economic downturn, far from being a calamity for its business, would likely result in more children coming in to care as vulnerable families struggle.
CareTech is not alone in leveraging debt to buy children’s homes and foster care agencies, taking profits but transferring any risk on local authorities. Private equity firms have also done this to create some of the biggest independent providers, such as Foster Care Associates and National Fostering Agency. Businesses are increasing drawn to the sector and today around three-quarters of children’s homes are privately-owned and about 40 per cent of children in foster care are placed with private agencies. Hundreds of millions of pounds are now being taken out of children’s services every year. Local councils, who have sold or closed most of their own children’s homes and neglected their foster care workforce, are in no position to complain.
Does it matter? Organisations like the Independent Children’s Homes Association and the National Association of Fostering Providers insist independent provision offers value for money. But their claims are disputed. Earlier this year an inquiry by Commons’ Housing, Communities and Local Government select committee heard how independent provision can sometimes cost three times as much.
Yesterday Ofsted suspended the registration of a Cambian home, describing young people at “greater risk of criminalisation”
It is not as if paying such a premium guarantees higher quality of care. Ofsted inspection reports show that quality is variable in privately-owned children’s homes, just as it is in the state sector. On the very same day that CareTech announced its bumper profits, Ofsted inspectors announced widespread failures at one of the company’s homes in Norfolk. Their damning report prompted Norfolk County Council to announce that it would no longer ask children to live there.
Yesterday Ofsted announced it had suspended the registration of a Cambian home in Wolverhampton. Inspectors described a home out of the control of its staff, with young people at risk of criminalisation.
“Young people’s risk-taking behaviours are escalating, and staff are not able to keep them safe,” their report said. “This has included two young people stealing the staff car and assaults on staff. Staff are increasingly calling the police for support to manage young people’s behaviours, which has resulted in young people being arrested. Young people are at greater risk of criminalisation. This can affect their emotional and physical well-being, future career pathways or social relationships as they transition into adult life.”
Not surprisingly, private providers are minded to open homes in cheaper parts of the country, in order to maximise profits, with little regard for where the children actually come from. This means that children and young people are likely to be sent many miles away from their families, in what are known as ‘out of area placements.’ Around 60% per cent of residents in children’s homes are now placed out-of-area. Each time a placement breaks down they get moved on again, and again. Another parliamentary committee, the APPG for Runaway and Missing Children and Adults, is looking at the relationship between these out-of-area placements and the hundreds of children who go missing from care every year.
Meanwhile, CareTech continues to prosper. ‘Occupancy’ (which is how the company describes a child’s home) is at around 93%. Costs are rising but the company tells investors it is confident these will be passed on to local authorities as fees are renegotiated. Now Cambian is fully integrated, CareTech is on the lookout for more acquisitions to grow the business. Its shareholders must be kept happy.
Martin Barrow is a journalist and foster carer