Why and how the Scottish Government must end private provision of children’s care
Policy Paper
Credits — Common Weal Care Reform Group. Lead author Nick Kempe with support and contributions from Craig Dalzell, Marion MacLeod, Kate Ramsden and Mark Smith
Overview
“The Promise”, the Scottish Government’s plan to implement the 2020 Independent Care Review of out-of-home children’s care, made a number of aspirational statements including the intent to remove profit-making from such care. The paper examines how much profit is extracted from this care sector, why these statements must be backed with solid action to remove such profits and how to do so.
On 17th June the Scottish Government introduced the Children (Care, Care Experience and Services Planning) (Scotland) Bill (‘the Bill’) to the Scottish Parliament. The Bill’s origins lie in the ‘Promise’, the plan for the implementation of the 2020 Independent Care Review, a major review of out-of-home care for children in Scotland. The Scottish Government had accepted the recommendations of the Review in full, and the Bill’s alleged purpose is to progress those recommendations that required legislative change.
The Promise made a number of aspirational statements, several of which related to the question of private, profit-making companies providing care services for children. Examples include, “Scotland must avoid the monetisation of the care of children and prevent the marketisation of care”; “Scotland needs to take a different approach to how it invests in its children and families. There is no place for profiting in how Scotland cares for its children.” and, “Scotland must make sure that its most vulnerable children are not profited from”. These aspirations were, however, qualified by the statement that, “The application of that principle must be delivered in a way that does not impact the current delivery of good, important services for children”.
The intentions of the Promise are referenced in the policy memorandum accompanying the Bill, “The Promise is clear that there is no place for profiting in how Scotland cares for its children and that Scotland must avoid the monetisation of the care of children and prevent the marketisation of care by 2030”. The memorandum and the Bill, however, go on to set out very different approaches to tackling this issue in foster care and in children’s residential care while failing to make any proposals to end profit-making, or the potential therefore in community or adoption services [Kempe, 2025]. No new analysis of the monetisation or marketisation of children’s care is offered in the policy memorandum. The Scottish Government has not even reported on what local authorities spend on private providers of children’s residential care although a Freedom of Information request in 2024 found that just 15 of Scotland’s 32 local authorities had spent £218m on privately run residential services [Goodwin 2024]. Instead, the Scottish Government appears to have relied on the reports produced by the Competition and Markets Authority three years ago on the children’s social care market to formulate its proposals [CMA 2022].
Rather than following the example of Wales, which now has legislation intended to eliminate profit from children’s care services, the Scottish Government has chosen to replicate what is in place in England, where the UK Government has set out plans to prevent companies from making ‘excessive’ profits from children’s residential care services. It is proposing to introduce provisions to allow Ministers to set requirements for greater financial transparency and powers to set a profit cap. The Scottish Government’s justification for taking a similar approach is that the Competition and Markets Authority found that there were lower profit levels in Scotland than England and Wales. They also wish to ensure, “sustainable provision of future residential childcare placements in Scotland”. In other words, they feared that public services would not be able to accommodate the children currently placed with private providers were these providers to withdraw from the market.
Most of the 79 organisations responding to the Scottish Parliament’s consultation on the Bill [Scottish Parliament 2025] were supportive of the commitment made in the Promise to remove profit from care but there were almost no suggestions for how this could be done or whether the Scottish Government’s proposals for greater transparency were workable. Only a handful of organisations, including Who Cares? Scotland, Unison Scotland and The Highland Council (which stated “What the Bill is proposing falls short of the commitments made in The Promise, as limiting profits does not equate to abolishing profits”) criticised the Bill for not going far enough. Moreover, many of the respondents repeated claims about the risks of removing private providers from the market without making any suggestions of what would be needed for the public and voluntary sector to fill the gap.
The further consultation the Scottish Government launched in August 2025, on Financial Transparency and Profit Limitation in Children’s Residential Care completely fails to consider the question of how profit could be removed entirely from children’s residential care. Instead, it asks how it could monitor profits more effectively and, potentially, at some unspecified time in the future, limit profit making [Scottish Government 2025]. We regard this consultation as deeply flawed and as failing to address a fundamental principle. Our response to the formal consultation questions has been published separately [Common Weal 2025].
Common Weal has produced this paper partly in response to that consultation, but, more importantly, to make the case for eliminating profit and removing private companies from the provision of children’s services. It is based on an analysis of the current children’s residential care market in Scotland and the profit being made from looking after vulnerable children.
It includes a critique of the CMA report, which shows that profits are even higher than the CMA estimates. It explains how it would be neither costly nor particularly risky to end private sector involvement in children’s services. It then goes on to argue that we cannot afford not to invest the money currently leaking out of children’s services into improved support for children, the need for which was described in the Promise.
Key Points
The Scottish Government has committed to removing profit from fostering services but has reversed its stance on doing the same for residential child services.
There are two kinds of residential care offered – residential only or residential with integrated schooling.
There are 369 Children’s Homes in Scotland of which 180 or almost half are provided by the private sector. Seven of these are for children with learning disabilities. Between them these offer a total of 1,859 places. But private Children’s Homes are smaller on average so while almost half of homes are privately operated, that only represents about 37 per cent of children in care.
Scotland has nearly twice as man private sector care places than it needs – half of the places filled in Scotland appear to be for children from outside Scotland sent here by their local authority or unaccompanied children of asylum seekers.
The residential school market is separate and smaller, with 31 residential schools in Scotland offering a total of 466 places. Of these, 18 are run by voluntary organisations and 13 in the private sector with no public sector provision in Scotland.
Profits in residential children’s services in Scotland were £28,000 per child. This compares to £44,000 per child in England. The Scottish Government has not checked or updated these figures but we show some providers in Scotland declare higher profit levels than the English average.
Foster care (which is not included in residential children’s services) have a profit level of £9,100 in Scotland, compared to an average of £8,600 across Scotland, England and Wales.
This is hard to explain since foster care services are supposed to be non-profit in Scotland and so the surplus should be zero. It also seems entirely non-consistent because this is given as a reason to make foster care all not-for-profit but yet a profit rate of four times that amount is acceptable in the Children’s Homes sector.
That represents £10.2 million pounds being extracted from child residential services in private profit. This is a significant sum of money and represents four times the amount per child the proposals in the Bill to extend aftercare services to children who leave care before 16 will cost over their lifetimes.
The Scottish Government has presented this as indicating the private sector is not more expensive, but this is because staff in the private sector are paid less and so have lower levels of training and professionalism. In addition, private care homes charge the public sector ‘extras’ for services which would be included in public provision, like escorting children back to their families.
There is also an occupancy problem in the private sector. Any vacant place can wipe out the profitability of a Children’s Home and so there is a constant pressure to maintain full occupancy. An incentive not to return children to their families is a perverse one to include in a care service.
This can all lead to children being placed in homes far from their family home. This is not good for the child or the family.
The amounts of share capital in an average private sector care provider is £100 or less which means most services have been financed through loans. The source and amount of loan interest is not shown in abbreviated accounts and so may be from parent companies and so may represent unreported profits.
Owners extract profits in unreported ways. First, by very high pay. One of the few Children’s Homes which report this paid a director £346,800, about twice that paid to the First Minister. Another way to make unreported profit is to lease properties from yourself at exaggerated rates. This appears to have been behind the financial collapse of at least one care home. Another is ‘management charges’, unspecified charges transferred to parent companies. One care company with no employees charged £812,000 for this. Another is through loans – providing interest-free loans to parent companies from surpluses (these are not technically profits) or providing loans to themselves at excessive interest rates.
The trend direction is clear; the share of the market taken by private providers is increasing and they are merging and buying each other out and this is leading to a concentration of a small number of very big suppliers, as has happened in the adult care sector. This will only increase their market power.
The Scottish Government has treated removing profit from children’s residential care as if it is very difficult but in fact there is no obligation to send any contracts to the private sector and a procurement framework for not-for-profit care already exists. There is no reasons to believe that the Scottish Government’s stated fear that it would lose capacity if it committed to only non-profit care is well-founded since the same staff would be looking for the same job.
For this reason, the provision of care could easily be transitioned to a non-profit model.
The profit margin in the private sector is such that the better terms and conditions in the public sector could be met without additional investment.
A simple audit of care buildings would indicate how much it would cost to buy out existing buildings and transfer them to the public sector.
The biggest barrier to a shift to a non-profit system is the fragmented nature of services as they stand. A central team in every local authority should reverse this and instead of countless ad-hoc placements, would coordinate the care provision across the whole local authority. This would ensure continuity of care for individual children and would result in a more cohesive service.
So long as the Scottish Government holds its nerve then it is highly likely private providers would be willing to negotiate their exit from the system and for any who walk away, there are already procedures to enable government to take over that provision. There will certainly be very little sympathy for profit-extracting private businesses.
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There are two main types of children’s residential care services. Residential schools provide education on the premises. They are registered with the Care Inspectorate, either as School Care Accommodation Services, sub- type Residential Special Schools, or as Secure Accommodation services (residential schools). School Care Accommodation Services also include private boarding schools, such as Loretto and Gordonstoun, and hostels provided by local authorities for children who live too far from their nearest secondary school to travel there each day. Boarding schools and hostels are not included in the figures analysed below. The second type are registered as Care Homes, sub- category Children and Young People (Children’s Homes). These do not provide education on the premises and children would normally attend local schools. There are significant differences between residential schools and care homes in terms of their size, staffing and capital value. Our analysis therefore considers them separately.
Far more children are placed in children’s homes than residential schools and the market is as a result much bigger. As of September 2025, the Care Inspectorate [2025] recorded that there are 369 Children’s Homes in Scotland providing a total of 1859 places of which 180 or almost half are provided by the private sector (seven of which are for children with learning disabilities). That broadly accords with the limited information in the Financial Memorandum to the Bill which states that the number of private children’s homes in Scotland has increased from 47 in 2012 to 171 in 2025 and now comprise 47% of all establishments. The proportion of places, however, provided by the private sector is lower at 37.5% (698 out of 1859 places).
The explanation for this is that private sector homes are on average smaller than local authority or voluntary sector homes. Private sector homes range in size from 1-11 places, compared to 1-14 for local authorities and 1-28 for the voluntary sector. The average size of a children’s home is 3.87 places for the private sector, 5.98 for the voluntary sector and 6.29 for local authorities. While the voluntary sector provides a few large homes it has more homes in the 3-5 range compared to local authorities. The average size of a children’s home is far lower than it was 30 years ago and reflects a policy drive to make children’s homes smaller, less institutional and more like family homes.
One of the reasons privately owned care homes are smaller is that many private providers initially entered the market by offering to care for looked after children with very high levels of need in small settings, where such needs are more easily met, and with very high levels of staffing (hence the children’s homes which are registered for one child). Few local authorities had such provision and, because the need for such services tend to be periodic rather than ongoing, turned to the private sector rather than commissioning such services with other local authorities.
All children’s homes now only require relatively small buildings and many now operate out of mainstream housing, sometimes in local communities and sometimes out in the countryside. The capital investment required to create a new children’s home is very low and, if a property is leased, consists only of certain conversion costs which may be necessary to meet Care Inspectorate registration requirements. This is a key point in the analysis that follows. The proportion of the children’s care home market which is privately owned and the capital value of the assets it uses to provide services is still relatively small in comparison to the adult care home market, which is now dominated by large care homes provided by private providers. With private sector provision for children continuing to expand and into new types of care there is a strong argument for urgent action.
The Scottish Government’s Looked After Children statistics [Scottish Government 2025] state that there were the equivalent of 365 placements in private sector children’s homes (“other residential”) for 2024 (up from 282 in 2014). This means that of the 698 places provided by the private sector only just over half are required for the Looked After Children to whom the Scottish Government made the ‘Promise’. The Financial Memorandum to the Bill suggests that the rest are filled with cross-border placements, i.e. children placed by local authorities outwith Scotland, and unaccompanied asylum seekers.
Unfortunately, there are no accurate statistics on this though there is no reason to suppose our assumption is not broadly correct. It is worth emphasising that the Promise made a specific recommendation about this:
“Scotland must stop selling care placements to Local Authorities outside of Scotland.Whilst this review is focused on children in Scotland there must be acknowledgement that accepting children from outside Scotland is a breach of their fundamental human rights. It denies those children access to their family support networks and services. It also skews the landscape for Scotland so that there is a lack of strategic planning for children, meaning that children can be put in inappropriate settings if demand has spiked.”
Regrettably, after explaining how it has acted to reduce the number of cross-border placements in secure care, the Scottish Government effectively proposes that reducing other cross- border placements is a matter for the UK Government. In doing so it has its head in the sand. If the UK Government does end cross-border placements then the Scottish private care market will face collapse and many homes will close. In other words, many of the problems that people fear could happen if children’s homes were made not-for-profit will happen anyway. The relatively small number of privately provided children’s homes together with the fact that Scottish local authorities only fill a proportion of the places means that they would be an easy place for the Scottish Parliament to introduce legislation that would start removing profit from the care system.
The residential school market is different but its total size is significantly smaller. There are 31 residential schools in Scotland offering a total of 466 places. Most are either set in their own grounds or, in the case of the four secure care services, operate from specially designed buildings and so have relatively high capital costs compared to children’s homes. This could make it more challenging to replace such services. Although none are currently operated by local authorities 18 of the 31 are operated by the voluntary sector and so are already not for profit. Moreover, of the 13 private residential schools, nine have between four and seven places, far fewer than most of the voluntary sector schools, and are more like children’s homes in size and scale so would similarly be relatively easy to take over or replace.
The CI’s data store also records the number of full-time equivalent staff for each service, although this information is likely to be less accurate than the number of places offered as it depends on annual staffing returns from providers. A comparison of the number of staff per place shows the following across the three sectors: local authorities 2.26 staff per child whereas staffing in the voluntary and private sector appears higher - 2.7 and 2.8 staff per child respectively. There are various possible explanations for this including the average home in the public sector being larger, which enables fewer staff to be on shift at non-peak times (e.g.overnight), the levels of training and the skills of staff and the dependency levels of children as considered above. It appears the higher staffing ratios in the private sector may be as much about the containment of children with challenging behaviour as it is about delivering better outcomes.
The higher proportion of staff to places in the residential sector is at least partly explained by the employment of teachers and associated education staff.
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The CMA report in 2022 was not the first to analyse profit in children’s services. In 2020 the Local Government Association commissioned an analysis of the publicly available evidence on the ‘financial performance’ of the largest independent sector children’s social care provider organisations operating in England. This included both private companies and voluntary organisations [Rome 2020]. Four updates have been published since which are an invaluable source of information on the largest providers, a number of whom (Caretech, Care Visions, Aspris and Outcomes First) operate in Scotland.
The CMA report, however, has particular significance, as the CMA is the market regulator and because it also produced a subsidiary report for Scotland. That report clearly stated, “The decision to move away from for-profit provision is rightly for the Scottish Government to take and involves considerations that go beyond our scope as a competition authority”. But it did also state: “In moving forward with this, however, we recommend that the Scottish Government carefully considers the points we have raised as part of the planning, funding and monitoring involved in the process of directly restricting for-profit provision, to ensure that this is achieved in a way that does not inadvertently result in negative outcomes for children.” The Scottish Government appears to have used those points, which include the lower profit levels reported in Scotland and the potential risks involved in ending the private care market, as an excuse to withdraw from the commitments made in the Promise.
The Scottish Government has used the findings in the CMA report that profits in children’s services in Scotland were £28k per child per annum compared to £44k in England and the private sector as a whole is smaller to try to create a new debate on what profit levels might be acceptable. It has done this while also accepting the CMA’s finding that in foster care between 2016 to 2020, “the average operating surplus per child was £9,100 in Scotland, compared to an average of £8,600 across all three nations”. The CMA report expressed surprise at this, given all foster care providers in Scotland are supposedly already required by law to be not for profit. While this helps explain the proposals in the Bill to tighten up on foster care providers by requiring all to be charities, it does not explain why the Scottish Government believes that making £9,100 per child in foster care is unacceptable whereas making three times that in residential care is of so little cause for concern.
The latest Looked After Children Statistics report that 1,324 children and young people were in residential care settings in 2024 and suggests that, of these, a minimum of 365 were in placements provided by the private sector. Multiplying 365 by £28,000 would equal £10.2m., so if the figure is still correct, the total amount is significant and is more than will be saved by closing the profit-taking loopholes in foster care. Every pound extracted in profit is a pound less for something else. This is a significant amount of money which could be invested in supporting children as the Promise advocated. For context, £28k a year is four times the amount per child the proposals in the Bill to extend aftercare services to children who leave care before 16 will cost over their lifetimes. It could also be invested in support for families to reduce the incidence of out of home care.
While the CMA report found the gross cost of providing residential services was not significantly different between the private and public sectors, this failed to take account of a number of crucial points. The first relates to staffing costs. In Scotland, staff working in the public sector are better paid, have better terms and conditions and are generally better trained. That means the main cost element of providing services for children, which is staffing, is per person higher. The private sector pays less and takes the difference in profits. Even if ending private care provision in children’s services did not impact on the public sector’s bottom line or free up money to invest elsewhere, it would improve the position of staff who are fundamental to the relationship-based care provision advocated by the Promise.
The second is that the nominal cost/fee for a place in a children’s home or residential school is not the only cost incurred by local authorities in supporting looked after children Where a local authority cannot meet an individual child’s needs from within its own services, it often means that, not only are children placed with private providers, they are more likely to be placed at considerable distance from their families, homes and communities. This is why children from England are often placed in care homes in Scotland, a practice which the Promise said the Scottish Government must stop. Placements distant from children’s own communities means higher costs incurred by social workers travelling to attend statutory reviews and planning meetings and in supporting families and children to maintain links. It is not uncommon for private sector care providers to charge for ‘extras’, such as staffing to escort a child to maintain family contact or to attend formal proceedings such as Children’s Hearings and, in some cases, to increase the staffing ratio because of the needs of a particular child. In the public sector costs due to a child’s additional needs would be met from within service budgets.
Thirdly, and most importantly of all from a financial perspective, is that the single greatest factor that impacts on private sector profit levels (or indeed on voluntary sector financial viability) is occupancy rates. With the move to smaller children’s homes, occupancy has become an increasingly important factor. If a vacancy created by a child moving on is not filled completely it can wipe out profit completely. Some companies have made staff redundant in such situations, thus losing continuity and expertise. There is, therefore, a perverse incentive for private and voluntary providers not to strive to enable children to return home, or to their home community, as quickly as possible. For the same reasons, some providers may refuse to offer places to the children with highest care needs because if the placement breaks down, they will be left with another vacancy. Unfortunately, the Looked After Children statistics do not provide data to enable comparisons about length of stay and placement breakdown by sector.
Issues relating to occupancy and risk of breakdown, particularly for children with profound and complex needs, are primary reasons why many local authorities started to outsource their children’s services. Operating with less than 100% occupancy rates was seen as unaffordable and it seemed to make financial sense to try and pass those risks to others. What was completely missed in this, however, was that local authorities could have managed these risks had they either jointly commissioned services with neighbouring local authorities or negotiated with their workforce to create more flexible services which covered both the children’s home and local communities, allowing staff to work with other children when their home was not full (or at quiet times). Such a model would also enable staff to maintain relationships with a young person when they moved out of a service and support them in the community.
Fourthly, it is important not to lose sight of the human costs for children placed far away from home. Inevitably, distance erodes contact and relationships, not just between children and their families and friends but between children and their social workers and other professionals. While there is no published data on these additional costs or methodology for expressing opportunity costs in financial terms, this would not be difficult to work out.
Even if one sets aside these issues, analysis of provider accounts for services which operate in Scotland shows that some providers have been declaring profits greater than the £28k found by the CMA.
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Most private children’s services, including residential schools which require the most assets to operate, have been set up with very little share capital. Typical the amounts of share capital is £100 or less (there are some examples in Appendix 1). This shows that the setting up of most services has been financed through loans, either from banks/other non-related financial institutions or from related parties. The amount being charged in loan interest rarely appears in accounts but the amount being paid to third parties needs to be considered when considering the total amount of profit that is being extracted from children’s services
Profits are not only taken out of companies by shareholders in the form of dividends but by means of transactions with related parties in which internal pricing decisions are used to move profit from one company or party to another. The accounts of children’s services providers provide examples of how this is being done.
Directors’ Emoluments
While most of the companies operating children’s residential services directly controlled by individuals/families submit abbreviated unaudited accounts, which consist only of a balance sheet, Care Visions submits full accounts which show its highest paid director, who appears to be the owner, paid themselves £346,800 in the financial year. Owners can reduce declared profit levels by paying themselves what they want. While this is subject to income tax, it is still money lost from the childcare system.
Leases
There is evidence that the OpCo/PropCo model – which has long existed in adult care homes and was used to extract capital from Southern Cross leading to its financial collapse in 2011 – is being applied to Children’s Residential Services and that profits are now being extracted via leases for properties. Inspire Scotland Ltd (see below) provides an example.
Internal Management Charges
This is where another member of a group of companies charges above normal market rates/ makes a large profit on the provision of its services. For example, in 2024 Care Visions Ltd employed no staff but charged Care Visions Group Ltd, which operates the Children’s Homes, £812k for ‘central expenses incurred’.
Internal company loans
A parent company or directors can take money out of a company in two main ways. The first is by using surpluses to make interest free loans, usually unsecured, to other companies within the group (this appears under the debtors line in accounts). If that other company then defaults on the loan, what would otherwise have been profit is effectively lost. Recent example of companies doing this are Falkland House Ltd and Hillside School (Aberdour) Ltd (See Appendix 1). The second is by a director or parent company lending the business money and then charging even higher interest than would happen on the markets. This is very difficult to track because of the limited information given in company accounts but it helps explain how increasing numbers of profitable services are now owned by companies with enormous debts.
There may be some small providers in Scotland who are investing all the public money they receive in ensuring the quality of the service they offer is as high as possible. This does not justify failing to address the wider problem. Indeed, there are ways the Scottish Government could seek to recompense such small providers for their efforts while at the same time removing profit from the care system (as we explain below).
It is important to appreciate, however, that this mixed market of private children’s services providers is continually evolving and its direction of travel is inexorably heading towards increasingly large operators as has happened with the adult care home market. The two residential schools operated by Falkland House Ltd, now operated by the Outcomes First Ltd (see Appendix 1), provide another good example of that. This has implications for market transparency, as was explained by the LGA update report:
“Across the same timeframe, acquisitions and mergers activity at the provider level returned to pre-Covid levels in 2021/22 after a pause when Covid first appeared. Notable amongst transactions are the Outcomes First Group announcing a split of the organisation, with some substantial closures and repositioning of homes as part of that reorganisation; Caretech delisting from the London Stock Market and returning to private ownership; Aspris being formed to merge Priory and Sandcastle;
Keys merging with Accomplish, and the Witherslack Group being brought under the ultimate control of the Government of the Emirate of Abu Dhabi. One consequence of this activity is a disruption in the visibility of information that helps us to assess the financial performance of the sector. It is however still possible, with some careful analysis, to gain significant insight of the 2021/22 period that is the most recently reported by both Government and provider organisations.”
What all this evidence suggests is that the Scottish Government’s proposals to increase the financial transparency of providers poses an almost insuperable challenge. Significant resources could be invested with very little likelihood of making much difference, though it appears, so far, that the level of accountability proposed will require little more than the submission of audited accounts. Limiting, rather than removing profit would then add even more complexity. One would need to establish not just what constitutes a ‘reasonable’ level of profit but also how much of this sum could ‘reasonably’ be transferred to parent companies for management, leases on buildings, loans and other services. Other measures would also be needed to prevent parent companies borrowing significant sums of money as interest free loans on an unsecured basis.
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The Scottish Government’s consultation appears to assume that ending profit in children’s care services would be fraught with risk without providing any analysis of the market or the risks of procuring services through it. This is puzzling because Scotland Excel [2025], which procures on behalf of local authorities, has operated a Children’s Residential Care and Education Flexible Framework Agreement since 2014, which includes 39 out of c55 Providers, and undertakes market analysis for all its contracts.
The existence of the framework agreement, a type of contract which allows local authority to purchase services as and when they want with no commitment, shows that very little of the private sector, if any, consists of services commissioned by individual local authorities and that children are placed on a spot contract basis.
What this means is that local authorities are under no obligation to place children with specific providers and unless a provider can attract placements, it will fold. This provides an important mechanism by which withdrawal from private market provision could be managed and some local authorities have developed experience in this area [Unison 2025].
The two main components of residential children’s services are staff and buildings. The fear of the Scottish Government appears to be that if profit in these services were to be abolished, private providers would immediately withdraw from the market, that these resources would be lost and chaos would result with serious consequences for children and young people. In fact, the risk of this happening is very low.
Firstly, the staff working for these services need jobs and the vast majority are likely to be willing to continue to work in the children’s care sector if their employer decides to shut up shop, so long as there was an alternative in the local area. Local authorities could therefore, in developing alternative services, simply take on these staff. Moreover, given better pay and conditions that exists in local authorities this is likely to be attractive to the staff involved. From a local authority perspective, this increase in staff costs would be paid for by money that would otherwise be extracted from staff in profits. For example, adopting a very conservative assumption of £20k profit per year per place, the average children’s home offers 3.87 places and employs 11.23 FTE equivalent staff meaning there would be up to around £7,000 per head per year available to improve the pay and conditions of staff. A transfer of staff is also likely to be attractive to providers as it would reduce the amount they would have to pay out in redundancy costs.
Secondly, there is the issue of buildings. The Scottish Government should ask Scotland Excel to assess, as a matter of urgency, the total tangible assets of the private sector, as reflected in their accounts, to work out the total cost of buying out or replacing the physical assets of the sector. The total is not a lot compared to the profits being earned and a buyout could be financed through the Scottish National Investment Bank or through other models such as has been developed in Wales [Inside Housing 2025]i. It is worth emphasising here that a significant number of providers (e.g. Hillside School (Aberdour) Ltd have almost no tangible assets and lease the buildings from which services operate. Some of these leases are for a period of years and were placements to suddenly end would represent a significant liability to providers. It would be in the interests of these providers, therefore, for local authorities either to take over the leases in areas where care homes were needed (a significant number of children homes are in areas where property is cheaper and are not where they are needed) or to co-operate on a plan for the service operating from the building to be phased out.
In theory, therefore, removal of profit from children’s care services is not difficult. The main issues are practical. Provision across Scotland at present is very fragmented from both a local authority and provider perspective and the main challenges are about how to plan/co-ordinate replacement provision and the withdrawal process across local authorities, including where local authorities take over existing services.
For this to work with minimum impact on children and young people and the staff who work in services, there needs to be a central planning co-ordinating team and commissioning leads for each local authority. A central team should include staff from Scotland Excel, who manage current contracts with the sector, but also people with social work expertise, with experience of managing children’s services, preferably including experience of service closure and people with HR experience to oversee arrangements for transfer of staff. This would protect the interests of children and young people as well as those of the workforce.
The most likely response to the Scottish Parliament deciding to abolish private children’s residential services provision is that most providers will choose to leave the market, either by selling up to local authorities or NGOs or by closing the service completely. For the reasons outlined above, it is likely to be in the financial interests of providers to negotiate how they exit from the service but, in the case that a provider or group of providers decided to close without negotiation, they are required to give legal notice of 13 weeks to the Care Inspectorate and, should they try and walk away before then, councils have powers to step-in and run services under Section 12 of the Social Work (Scotland) Act 1968 and Section 20 of the Local Government (Scotland) Act 2003 [Cosla 2011]. As long as the Scottish Government and local authorities hold their nerve, our expectation is that most providers would be willing to negotiate as it would be in their own interests to do so, particularly if a plan to transfer services to public control were implemented over a couple of years.
The stakeholders who contributed to the Promise, and the wider public, are unlikely to have much sympathy with those providers who have made significant sums of money out of the care system. There have, however, been a few committed individuals who have set up services as a result of their own expertise and interest in the children’s residential care and, apart from taking a salary, have re-invested any surplus in improving the quality of service. Such services are probably the ones local authorities would be keenest to keep. What often happens with such provision, which exists across care groups, is that when the founder reaches retirement age, they sell up, often to a bigger private provider, and invest the proceeds in a pension. It would often serve the public interest better if local authorities were to be able to buy up such services. There is an ethical case, therefore, for the public sector when negotiating with some small providers to purchase a service to acknowledge and recompense the owner for any contributions which have not been financially rewarded.
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This premise of this paper is that the Scottish Government needs to deliver the Promise. We have tried to show that not only does the amount of money being extracted from children’s residential care in Scotland matter but that the various ways it is extracted would make restriction of profit impossible to enforce. By far the best option is therefore to phase out private provision completely, as children and young people themselves called for in the Promise.
We have also shown that risks and costs that would be associated with ending private care are manageable and in the medium term would result in more money to invest in children’s services. Ethically, there is therefore no argument against doing so. This same approach to the outlawing of private provision should, indeed, be applied to all children’s services provided through social work and social care.
The lessons learned from phasing out private provision from children’s social care services should be then be used to start removing profit from other health and social care services, would have similar benefits and enable money to be reinvested in services rather than being extracted as profit.
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1. The Scottish Government should use its existing regulatory making powers to:
- Require any new Children’s Homes to be non-for-profit and registered with OSCR as its proposing to do for foster care providers.
- Stop any new cross-border replacements.
2. The Scottish Government should introduce regulations that require all children’s services providers to be not-for-profit within three years – the date could be set to coincide with the end date of Scotland Excel’s current framework agreement (2022-28) for children’s residential care.
3. The Scottish Government should ask Scotland Excel to provide and publish an analysis of the children’s services market in Scotland within three months, including a comprehensive analysis of the information contained in private provider accounts.
4. The Scottish Government should fund a Scotland-wide commissioning team (including staff from children and families social work, Scotland Excel and local authority staff with human resources expertise) to plan how all private provision will be phased out and replaced where needed within three years.
5. The Scottish Government should provide financial assistance to enable local authorities to develop new provision for both looked after and unaccompanied asylum seeker children by:
- Facilitating finance to enable local authorities (or the not-for-profit sector) to acquire buildings for replacement homes (e.g. through loans from the Scottish National Investment Bank).
- Financing the start-up costs of new local authority or not for profit provision.
6. The Scottish Government should commission work from within the public sector to consider how other services for children, such as early years provision, and adult social care services, could be made not for profit.
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See the pdf version of this paper for references and the Appendix
