The cost of residential care for vulnerable children in England has soared to unprecedented heights over the past five years, igniting a fierce debate about the quality of care and the structure of the system itself. According to a recent report by the National Audit Office (NAO), councils spent a staggering £3.1 billion on residential placements in the year ending March 2024—almost double the £1.6 billion spent just four years earlier. Yet, despite this massive injection of public funds, many children still find themselves in placements that fail to meet their basic needs or provide a sense of stability.
At the heart of this issue is what the NAO has bluntly described as a "market failure." The watchdog found that the average annual cost per child in a children’s home reached £318,400 in 2023-24, a figure that has raised eyebrows across the political spectrum. The increase in costs, the NAO argues, is not simply a result of a growing number of children in care—although the number did rise by 10% to 16,150 over four years—but is also driven by the increasing complexity of children’s needs and a market dominated by private, profit-driven providers.
“I do not know where the money is being spent,” said Ezra Quinton, now 20, who experienced life in the care system from the age of nine. Ezra, who works with the care leavers’ charity Become, recounted a childhood marked by instability and poor conditions. “We were told to wear shoes if we wanted to shower because they didn’t clean up the glass properly,” Ezra told BBC News, recalling one home where smashed windows and broken glass in the showers were the norm. Over the years, Ezra estimates he was moved up to 60 times, often far from his home in Greater Manchester, with placements in Wales, Liverpool, Crewe, and Leeds. The constant upheaval disrupted his education, though he still managed to achieve C grades in all his GCSEs.
The NAO report paints a picture of a system under immense strain. Two thirds of children in residential care in March 2024 were placed outside their local authority, and nearly half were more than 20 miles from home. This, the report argues, can have a damaging effect on children’s wellbeing and development, severing ties with family, friends, and familiar surroundings.
One of the most contentious findings in the NAO report is the role of profit in children’s residential care. A striking 84% of children’s homes are now run for profit, with the 15 largest providers making average profits of more than 22%. Many of these providers are ultimately owned or part-funded by private equity firms—seven of the ten largest, according to the NAO. This has led to accusations that vulnerable children are being treated as “cash cows” by some in the sector, with profits prioritized over care.
Emma Wilson, the NAO report’s author, emphasized the need for a better balance between supply and demand for care home places. “It’s really important to get right that balance between supply of available care home places and demand,” she told BBC News. The report argues that the current market structure allows private providers to cherry-pick the children they take, based on the level of support needed and the profit margins available. This has left councils struggling to find appropriate placements, forced to compete for limited spots and driving costs even higher.
The government has acknowledged the seriousness of the problem. In a statement, the Department for Education conceded, “Vulnerable children across the country have long been let down by years of drift and neglect in children’s social care, which this report lays bare.” The department pointed to its plans for the largest-ever reform of children’s social care, including recruiting more family help workers and introducing legislation aimed at curbing profiteering in care homes.
Education Secretary Bridget Phillipson has gone further, warning that the government will not hesitate to cap profits in children’s social care if providers fail to rein in their gains voluntarily. “Labour is delivering the biggest reform to children’s social care in a generation,” she stated in November 2024, highlighting commitments to more support for families, a crackdown on profiteering, and stronger regulation for better placements.
But the NAO report also criticizes the Department for Education for not having set out what a “productive and resilient market” should look like, nor collecting comprehensive data on market issues. Gareth Davies, head of the NAO, said, “The residential care system for looked-after children is currently not delivering value for money, with many children placed in settings that don’t meet their needs. Local authorities are forced to compete for limited places in an under-supplied market, driving high costs.”
Sir Geoffrey Clifton-Brown, chairman of the Public Accounts Committee, echoed these concerns, calling for more coordinated commissioning, better forward planning, and decisive measures to ensure that children are provided with the right care, in the right place, at the right cost. “Skyrocketing costs for children’s residential placements have placed additional strain on already precarious local authority finances, with more and more children placed in inappropriate settings,” he remarked.
The Local Government Association has also weighed in, warning that the “astronomical cost of care placements also means there is less money available for councils to spend on the earlier help children so desperately need.” Amanda Hopgood, representing the association, called for greater financial oversight of the largest providers, adding, “We would also like to see greater financial oversight of the largest providers, with some making huge profits when money should be invested in supporting children.”
Not everyone in the sector agrees with the characterization of excessive profiteering. Sara Milner, who set up Cherry Wood children’s home in Surrey after a career in local authority care, insists that staffing accounts for 80% of costs and that the fees charged reflect direct expenses. “We make moderate margins... but obviously we have to be able to make profits to be a viable business and to offer security for the young people’s future which is obviously really important when you’re doing this type of work,” she told BBC News. Milner noted that, despite high demand, pressures such as rising costs and recruitment difficulties have delayed plans to expand her operation.
The Children’s Homes Association, representing providers who pay tax in the UK, argues that council-run homes can actually be more expensive than independent providers. Mark Kerr, the association’s chief executive, stated, “We know that official data shows that local authority costs are higher. So if there’s a value for money question then the independent sector arguably demonstrates more value for money than local authorities.”
Meanwhile, the NAO and Competition and Markets Authority both highlight that prices in the sector have risen above inflation, with private providers’ profit rates averaging 22.6% between 2016 and 2020. The mismatch between supply and demand has led to local authorities competing for places, further inflating costs and exacerbating budgetary pressures for councils nationwide.
As the government prepares to implement its promised reforms, the debate over how best to balance quality, cost, and profit in children’s residential care is far from settled. For the thousands of children like Ezra who depend on these services, the stakes could not be higher.
