Councils are now spending £3.1 billion a year on children’s residential care, nearly double the amount spent five years ago.
This is despite the number of children in residential placements rising by just 10%, according to official Ofsted statistics.
In a market operated by 84% private run providers, the top 10 providers take home over £300million in profits annually.
Despite the increase in cost, Ofsted ratings reveal the quality of privately run children’s homes are still below the standard of those operated by local authorities themselves or non-profit organisations.
Dr Benjamin Goodair has studied the impacts of outsourcing social care in England.
He explained: “Over the last 30 years there have been moments in which it has been cheaper for councils to procure services from the private sector than the public sector.
“Based on the research, this has had, two consequences. One is a sort of detrimental effect on the quality of services for children in care.
“Basically you’ve now got fragmented services where the people buying services no longer run them, which means that things like locally available services aren’t guaranteed.
“The other thing that’s happened, which is also sort of spurring this moment where there is a big call for change, is that because the private sector has effectively captured the children’s home market, they started charging fees that are exorbitant.
“And so you’ve got this dual thing going on where services aren’t meeting children’s needs and they’re incredibly expensive at the same time.”
The ‘free market’ model that a privately dominated system operates in was intended to raise the quality of care as children’s homes compete for business.
Yet, in the children’s home market it is the local authorities that often find themselves competing with one another to house children.
This is giving the children’s homes the power to effectively ‘name their price’ and be selective about which children they decide to take in – a decision sometimes based on the profit or the extra care needs of specific children.
In 2024, Ofsted reported that almost one in three children’s homes often or always reject referrals for children with complex needs – often because of challenges around recruiting and keeping adequately trained staff.
Private homes are also more likely to open in locations where property is the cheapest rather than where need is greatest – with four London boroughs having no care homes at all.
As a result, in 2023 to 2024 half of children had been moved beyond a 20 mile radius of their original home – despite extensive research showing that keeping children close to their neighbourhoods, kinship networks and families is key to their wellbeing and later integration into society.
Clare Bracey, Director of Policy at children’s care charity, Become, said: “The high proportion of privately run homes means profit is often being put before the needs of children, which is totally unacceptable.
“A children’s home should be a place where children feel safe and loved and can recover from trauma.
“Instead, some homes are being treated as cash cows, run by staff not provided with the right level of training and built in areas where costs are cheaper.
“It means thousands of children moved across the country to where homes are, rather than where they need them to be – far away from friends, family, school and siblings, impacting their mental health, leaving them isolated and at risk of exploitation. It must end.
“The Government is taking steps to tackle profiteering through better regulation, but we urgently need a national plan and proper investment to create the right homes in the right places.”
The Competition and Markets Authority has also criticised the system, arguing “Britain has sleepwalked its way into a dysfunctional system”
There has also been a rise in children being placed in unregulated homes that have not even been screened by Ofsted.
In 2025, nearly 1000 children were placed in an unregulated home by their local authorities.
Poor quality of care, untrained staff and criminal exploitation, abuse and neglect have all been found to be operating out of these homes – yet, the Department for Education has said that it will take up to two years to eradicate local authorities’ reliance on them as the care system catches up.
Despite local authorities paying £318,000 a year to house a single child today (nearly five times the annual Eton fee of £63,000), there are still horror stories of vulnerable children being abused.
Last year, Sky News found that 91 care leavers aged between 16 and 25 died within a single year.
David Graham of the Care Leavers Association, said: “We would say most care leavers who succeed do so despite the care system.
“They are turfed into adulthood at 18, which is too young, with a lack of knowledge, skills and experiences to be able to deal with adulthood. They have not been supported to deal with their trauma.
“The impacts for care leavers are well documented. Higher rates of poor mental health, higher rates of poverty, lower employment, lower education outcomes and higher rates of criminal justice involvement.”
Dr Goodair added: “The sector-wide shift to a predominantly private run market was never a political choice.
“There was never a sort of big political mandate or a policy introduced to try and shift the provision of children’s homes to for profit companies.
“We shouldn’t be leaving this up to a market with our fingers crossed that there will happen to be the right kind of company set up to deliver care. This should be state run services that are guaranteeing some kind of decent care provision.”
The Department of Education has promised to crack down on profiteering and do more to support local authorities as part of a new children’s social care model confirmed last week.
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