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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

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source: Criminal Care? Privatising children’s social care | Martin Barrow | HOWARD LEAGUE FOR PENAL REFORM | 3 July 2019

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FollowingFollowing @MartinBarrow

A (long) thread about how private equity makes millions from the care of vulnerable children and young people 1/

12:32 PM – 4 Jul 2019

1.  Martin Barrow‏ @MartinBarrow Jul 4

   You may never have heard of SSCP Spring Topco. It is probably the biggest private provider of foster care, residential care and special education in the UK. It is ultimately owned offshore by the private equity firm Stirling Square, via tax havens in Luxembourg and Jersey. 2/
    Martin Barrow‏ @MartinBarrow Jul 4

   It does what it can to hide itself from the public, trading under more than 50 different names. These include National Fostering Agency, Acorn, Pathway and Brighter Futures, not forgetting my own favourite, Hopscotch Solutions 3/

2.  Martin Barrow‏ @MartinBarrow Jul 4

   SSCP’s latest accounts have been published, revealing how it is taking hundreds of millions of pounds from children’s services that are on the brink of financial collapse. 4/

    Martin Barrow‏ @MartinBarrow Jul 4

   In the year to the end of August 2018 it received fees from local authorities of £241 million and earned underlying profits of £19 million. Its highest paid director received £699,000 (that’s a LOT of foster care…). 5/

    Martin Barrow‏ @MartinBarrow Jul 4

   Comparisons with the previous year are difficult because SSCP has been buying up rival fostering agencies, including Acorn, essentially using taxpayers’ money to fund these deals. 6/

    Martin Barrow‏ @MartinBarrow Jul 4

   As its accounts state, this is virtually risk-free because all its business comes from local authorities, which are unlikely to default. 7/

    Martin Barrow‏ @MartinBarrow Jul 4

   SSCP has been paying high prices to buy other agencies (effectively trading foster carers and looked-after children as commodities). 8

    Martin Barrow‏ @MartinBarrow Jul 4

   This includes £6 million for Brighter Futures Foster Care and £4 million for Child Care Bureau. This is a lot of money to acquire the rights to foster carers, rather than bricks and mortar. 9/

    Martin Barrow‏ @MartinBarrow Jul 4

   As a result, it now has huge debts of almost £500 million. Its interest charge is £50 million, effectively paid for by you and me as taxpayers out of money intended for frontline care. 10/

    Martin Barrow‏ @MartinBarrow Jul 4

   High interest charges have left SSCP with a loss for the year of £44 million. In fact, accumulated losses over the last two years are £104 million. 11/

    Martin Barrow‏ @MartinBarrow Jul 4

   If this were a normal business, losses of this magnitude would be unsustainable. But this is private equity. Essentially, SSCP is loading the business with debt, underwritten by the taxpayer, to hold a grip on scarce availability of foster care and children’s homes. 12/

    Martin Barrow‏ @MartinBarrow Jul 4

   SSCP’s balance sheet is propped up by £158 million of goodwill (effectively, the loyalty of its foster carers) and £127 million of other intangible assets (including brands). Its auditors, PWC, think this is prudent. 13/

    Martin Barrow‏ @MartinBarrow Jul 4

   Curiously, this assumption is based on a ‘useful economic life’ of five years for its foster carers. If you are one of them, you have been warned. 13/

   

    Martin Barrow‏ @MartinBarrow Jul 4

   As to the future, SSCP claims to have formal contractual arrangements with the majority of local authorities and says it will continue to buy foster care agencies and children’s homes. Despite its debt burden. 14/

    Martin Barrow‏ @MartinBarrow Jul 4

   So, champagne corks are popping in Luxembourg and Jersey. Meanwhile, LA children’s services are on the brink of insolvency with deficits of many millions of pounds and vulnerable children and families are left without support. 15/

    Martin Barrow‏ @MartinBarrow Jul 4

   It doesn’t have to be this way 16/ends

    Martin Barrow‏ @MartinBarrow Jul 4

   SSCP’s accounts can be found here (let me know if you find any other nuggets) https://beta.companieshouse.gov.uk/company/09248650/filing-history …

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