The Scottish Government wants to remove profit from children’s care – here’s how to do it.
A repost from our In Common column in The National, Craig summarises our latest policy paper on how and why the Scottish Government must remove profit from children’s care.
Image Source: Oxana Lyashenko, Unsplash
In 2020, after four years of investigation, the Independent Care Review published its final report calling for wide-ranging changes to the way that care is delivered in Scotland. On the same day, the Scottish Government made “The Promise” – its commitment to implement many of those changes. Some of those commitments, like those that would have been delivered by a National Care Service, have since fallen due to the failure of its Bill. But others are still active government policy. A notable one being a commitment – made several times throughout The Promise – to eliminate profit-making from children’s care having determined such care to be an area where profit-making was deemed morally unacceptable.
The Government’s current actual policy response is somewhat weaker, merely attempting to limit profit in children’s care, but we support their pledge and decided to investigate the extent to which profit was being extracted from children’s care and what could be done to eliminate it. This is important given that around a third of Registered Places for children’s care in Scotland and around half of children’s care homes are delivered via private companies
Our latest policy paper, “Why and how the Scottish Government must end private provision of children’s care”, is the result of that investigation.
In short, we found that on average, private companies are extracting around £28,000 per child, per year in profits and other extracted surpluses – this figure is less than the £44,000 profit made on average per child in England but it’s still high when the Government’s acceptable target level is zero. In foster care specifically where, unlike in England, profit-making is explicitly illegal, companies are still able to legally extract around £9,100 per child per year. This is higher than the £8,600 made from foster care on average across the other three UK nations which is surprising given that not just the morally acceptable level but also the legal limit in Scotland should be zero.
There is an explanation to all of this. The word “profit” has quite a narrow definition in accounting terms. It’s merely the surplus left over when expenditure is subtracted from income. In a “for-profit” company, this surplus is often distributed as a dividend to owners and shareholders. If a company is explicitly a “not-for-profit” organisation then they are prohibited from doing this, but as our investigation found, there are ways of extracting money from the system other than by distributing dividends.
One way is to boost expenditure by paying our the surplus in wages. We found instances of Directors of these care companies being paid more than twice the salary earned by the First Minister. Unfortunately, this “trick” doesn’t often extend to all workers. Front line carers in private care companies are often paid substantially less than their public sector counterparts, alongside losing out on worker benefits such as recognised union affiliations, collective bargaining or better conditions.
“Ultimately, we found that if the Scottish Government wants to keep both the spirit and letter of its promise to eliminate profit from children’s care then this is too complex a topic to simply try to regulate away.”
Other tricks include splitting a care company into a “not-for-profit” subsidiary that delivers the care and a “for profit” umbrella company that owns the care homes. The subsidiary is then charged well above market rate for renting the buildings, or pays high interest charges on loans given to them by their parent company or even ends up “loaning” their own surplus to the parent company which is then never expected to pay that loan back (in some cases, the not-for-profit is eventually simply folded and the for-profit parent wipes their “debt” from the books, having long since pocketed and distributed the money).
Ultimately, we found that if the Scottish Government wants to keep both the spirit and letter of its promise to eliminate profit from children’s care then this is too complex a topic to simply try to regulate away. There are too many loopholes or other financial vehicles available to companies to allow them to keep extracting money from children’s care in ways that would still allow them to say they are operating on a “not-for-profit” basis.
We presented the Scottish Government with six recommendations at the end of our paper to help them meet their pledge but the most important is that instead of trying to regulate these private companies they must instead just bring children’s care into the public sector. Doing so would allow direct democratic oversight over things like excessive pay (as we can see in current political stories around the pay of directors of bodies like Scottish Water) while guaranteeing that surpluses aren’t being boosted by underpaying front-line workers. It would also make it much easier to reinvest surpluses not just into front-line care but also into the facilities and other services that are involved in children’s care. Every pound being extracted as a “service fee” to an opaque management company is a pound not being spent caring for vulnerable children.
We support the Scottish Government’s pledge and Promise to eliminate profit from children’s care. This, we believe, is the best way to do it.
