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Solving the growing crisis in children’s social care

Author: ICAEW Insights

Published: 15 Oct 2021

The piecemeal nature of procurement in children’s social care services, coupled with local authorities’ financial struggles, is creating a chaotic and ultra-competitive market that is not sustainable.

Andrew Rome has worked in children’s social care for 21 years, having cut his teeth in finance and accountancy over the previous two decades. He now works as a consultant, working to improve the interface between local authorities and private service providers. 

Children’s social care procurement is somewhat of a chaotic mixed bag. English local authorities tend to buy services on a spot-purchase basis, whenever the need arises. Private providers are investing large amounts of money with no guarantee that they will get any placements in a given month. Occupancy rate is critical due to their high fixed costs. 

“Nobody's really bringing the parties together in a sensible commercial way,” says Rome. “I’ve been around the sector long enough to experience the two extremes.”

There was a time when fewer children were being referred to children's services, but there was quite a lot of supply in the market. The balance of power was with local authorities and councils, which exerted considerable pressure on fees. Some providers shut down as a result. 

Now, the balance of power has shifted dramatically. Demand is through the roof and local authorities are struggling. Providers are cautious about opening new facilities because of the risks involved. The balance of supply and demand has shifted, so prices are rising. 

“The local authority narrative is that they’ve had years of austerity from the government,” says Rome. “They’ve run out of funds for children's social care, and private providers are charging extortionate prices. There is some really unhelpful dialogue going on in some quarters.” 

The Department of Education, which has the central government oversight of children's social care, has initiated an independent review of children's social care. The chair of the review, Josh MacAlister, started work on the review back in March. “He put out a challenge to the Competition Markets Authority to look at the economics of the sector. Except he used phrases such as: ‘there are indefensible levels of profit being made in the sector’. So he has unfortunately disclosed a bias against private sector involvement already.” 

On 9 September the CMA announced they will not be instigating a market investigation. Their findings from the market study of the last six months and any recommendations arising therefrom is expected later this month.

It has resulted in a very tense market, and England’s vulnerable children are caught in the middle. Under the Children Act of 1989, local authorities are legally obligated to house them in appropriate facilities. Financial data from those authorities show that they are massively overspending on their budget each year, says Rome. The coronavirus pandemic has compounded that financial pressure. 

“It's a pretty unique time for local authority finances. They were in that overspending position coming into the coronavirus period. We had already seen a couple of local authorities effectively declare themselves bankrupt, through a Section 114 Notice.

“The government, so far, has not shown a willingness to allow a local authority to completely fall over financially. But we've come close with Northamptonshire, and then Croydon. These are serious situations.”

Solving this problem won’t be easy. The ship has really sailed for local authorities to provide these services themselves, having divested themselves from children’s services over the past 25 years. Carers need a lot of training, support and experience to operate effectively. Setting up new facilities requires a lot of upfront time and cost. There is an assumption that it would cost less if local authorities ran these services, but Rome says the evidence (for example from the PSSRU) suggests it would actually be more expensive. 

It’s unlikely that central government will help with additional funds. Local authorities are expected to fund children’s social care from existing sources. The argument from central government, says Rome, is that local authorities have not proven themselves to be efficient with their spending to get any more funds. 

A better approach would be to improve the commercial interface between providers and local authorities. With guarantees that authorities will use at least 80% of their services for a five-year period for example, they should be able to negotiate better fees from providers. 

Rome has negotiated some of these arrangements between local authorities and their providers. It is more economical, he says, but it takes a lot of thought and careful contracting to get right. Often, it needs a group of local authorities to put something together to re-risk the commitment they give to the provider.

“If five authorities will guarantee to fill up a provider’s provision, suddenly the economics of the provider changes dramatically. That’s reflected in the price and the children and young people get a better, more stable service”, he said.

There are currently very few of those kinds of contracts in place, which means the crisis remains. The shortage of provision means that children might be sent 200 miles for a space that three other local authorities are competing for. 

“The worst possible outcome from the various reviews and studies this year is that a number of recommendations are made, but the government can't afford them, and the whole thing just drifts even further.”

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