Private equity companies now own or partly own 11 of the 20 largest providers of fostering and children’s homes in England, as calls to ban “obscene” profit-making in children’s care grow.
An investigation by the thinktank Common Wealth found the “big four” independent fostering agencies – which provide almost a quarter of fostering placements in England – have paid out more than £200m from taxpayers to shareholders in interest payments since 2020.
Andrea Egan, the general secretary of Unison, said the findings must be a “wake-up call” for systemic change in children’s social care.
“Profiteering from children’s social care is nothing short of obscene. Decades of outsourcing mean essential services funded by taxpayers are being treated as a goldmine by investors,” she said. “They’re using the welfare of vulnerable children to line their pockets. Children’s social care needs fundamental change, and it needs it soon.”
The analysis found that at least one in three fostering agency placements and one in five children’s homes placements are run by firms backed by institutional finance, including private equity, hedge funds, venture capital and sovereign wealth funds.
It also found that the four largest fostering companies all used shareholder loans, under which shareholders lend money to a business (without buying new shares) at interest rates that are typically much higher than bank rates.
Through this method, the companies have paid or reserved at least £205m to their shareholders and investors since 2020.
National Fostering Group, the largest independent fostering provider in the UK with more than 4,000 places, is owned by Stirling Square Capital Partners, having previously passed through the hands of Graphite Capital and Sovereign Capital.
It has paid more than £116m in interest on investor loans since 2020, Common Wealth found, as well as £71m in interest on preference shares (where a pre-agreed percentage of an investment is paid back to the investor over a fixed period).
BSN Social Care, majority-owned by MML Capital Partners, runs a chain of regional fostering agencies across the country supporting more than 850 children. It has paid more than £7m interest on shareholder loans since 2020.
Reported interest rates on these loans range from 8% to 14%. The thinktank said this creates a tax shield by artificially depressing taxable profits, and was a “mechanism for extracting wealth for investors”.
Sophie Flinders, a senior data analyst at Common Wealth who led the analysis, said there was a clear case to ban private companies profiting from public and essential services.
“It’s time to cut out the middleman and ensure that all spending on children’s social care goes directly to improving the quality of care, not to lining shareholders’ pockets,” she said.
Egan added that “insourcing” was vital, and that returning services to the public sector would “ensure funding goes where it’s needed and there’s genuine accountability”.
A Guardian investigation found that £1 in every £11 of UK government spending on contractors went to private equity-controlled companies last year, including key services such as transport, waste management and healthcare.
The Competition and Markets Authority previously found that the biggest private providers in children’s social care were “making materially higher profits, and charging materially higher prices”, while many were also carrying “very high levels of debt”.
Over the past decade, the biggest companies have established market dominance by buying smaller providers, pushing up prices across the sector.
The UK government has vowed to curb profiteering in children’s social care through better oversight and, as a last resort, capping profits. The Welsh government has gone further by promising to end for-profit provision in children’s social care by 2030.
Common Wealth is calling for a temporary pause on for-profit providers in children’s social care, as well as a full audit of illegal children’s homes. It urged the government to use its powers of compulsory purchase order to bring those of unacceptable quality into public hands.
“The outsourcing premium fails the most vulnerable children. Providing the best possible care, rather than mediating the social care market, should be the priority,” the report concluded.
Tim Barclay, the chief executive of the National Fostering Group, said: “We support about 3,600 children across the UK through a network of fostering agencies, all of which are rated ‘good’ or ‘outstanding’ by regulators.
“Every pound the group receives is focused on frontline care: recruiting and training foster carers, therapeutic support for children, safeguarding and the 24/7 professional support that helps placements succeed. The costs of fostering reflect the increasingly complex needs of children coming into care and the specialist, wraparound support they require.”
BSN Social Care has been contacted for comment.
