A solution to the growing cost of caring for Looked After Children in England

There are 162 authorities in England that are responsible for nearly 84,000 Looked After Children (“LACs”) (source:  gov.uk). Both the size of the problem and the cost of providing these services increases in real terms year on year, while there is a £4 billion funding shortfall in the local government care system (source:  gov.uk). 

It is estimated that authorities across England spent approximately £4.7 billion on children’s social care placements in 2022/2023, compared to a budgeted figure of £4.1 billion – an overspend of almost £670 million (being 16%) (source: House of Lords Library). Budgets are up by 13.6% in 2023/2024 compared with 2022/2023 (source: LGA), and yet the costs incurred by authorities are growing still faster. 

It is estimated that the projected average expenditure on children’s social care placements per authority in 2022/2023 was £31 million, and in 2023/2024 was £35 million, with an average overspend of £4.4 million per authority for both years (source: House of Lords Library), making this a very real and growing budget pressure for authorities across England. 

The magnitude of the problem means that new cross-service innovative solutions must be found, and quickly. The fact that by 2024/2025 cost and demand pressures will add £15 billion (or a further 28.6%) to the cost incurred by authorities delivering these services since 2021/2022 clearly demonstrates that now is the moment to consider and implement new solutions. 

The obligations under the Children Act 1989 cannot currently be met adequately by the authorities or costed efficiently using solely private providers, and most of the providers that staff or operate unregulated homes are private companies. Providers received nearly £105 million from English authorities last year – equating to almost £150,000 per child and delivering to their operators an average 20% profit at the authority’s expense (source: Observer Report Link). 

At the end of March 2023 there were around 43,400 fostering households in England (source: gov.uk).  46% of those fostering homes are mainstream homes run by authorities. 18% are family and friends foster caring households and 34% are run by independent fostering agencies. However, since 2019 there has been a 7% decline in the number of mainstream fostering households, thereby pushing a greater number of children into the more expensive private sector, and further increasing the costs incurred by the authorities. 

There is therefore a clear need for authorities to have economic access to an increased suitable pool of dwellings. This would provide greater opportunities to meet obligations around the duty to provide accommodation, allow for better maintenance and visiting, improve opportunities for contact, enhance the quality-of-care planning, and promote educational opportunity. Accordingly, and most significantly, this would improve the experience for the looked after children.  It would also help to remove the 20% profit levy, causing a direct saving for the authorities while providing homes for the same number of children. 

The shift in spend away from early intervention 

As stated above, the Local Government Association has estimated a shortfall of £4 billion in our local government care system. As a result of the reduced government funding, many authorities have also reduced both the non-statutory services that they can provide, which are essential in the support of families and young people, along with financial support to some outstanding charities operating in this field. 

Consequently, the essential steps of early referrals, joint assessments, and agreed action plans across the key services that enabled many families to overcome whatever difficulties they encountered are no longer available in many parts of the country. As a result, all too often, helpful early intervention in the family is delayed until the crisis has already occurred, and as a result there is no alternative to the child being taken into care. 

Increase in private sector residential care 

An increase in private sector residential care means that authorities lose control of all or some of the type, location, and cost of provision. This leads to an increase in private equity involvement, often with up to 20% margins for the largest companies (source: Lord Wood of Anfield Debate), which can sometimes lead to dangerously high levels of debt, the risk of which is borne ultimately by the authorities and reduces available funds for the very children whom they are bound to protect. 

Children in unregulated homes 

Owing to the many and serious pressures set out above, hundreds of vulnerable children are now being sent to unregulated homes because of a chronic shortage of suitable accommodation. There has been a 277% rise in the number of children placed in unregulated children’s homes since the start of the pandemic. 

The solution 

The solution to this naturally arises from addressing the root cause of the authorities’ pressures – a serious shortage of money. 

The methods for addressing this are varied, and authorities and their advisors across the country will have different proposals and preferred approaches. From our years of experience in successfully addressing the temporary accommodation and social housing shortages (which have directly relatable pressures), we would suggest the following approach. 

Which Looked After Children would this approach benefit? 

The answer to this question depends entirely on the authority’s goals and choices, and which category and specific LACs are considered to be those most requiring relocation and immediate assistance. 

Additionally, as with any financial solution, consideration should be given to the costs saved (or “not otherwise incurred”) by housing certain LACs in best suited new accommodation types, as determined by housing sizes and specifications. To this end, the authority’s Social and Children’s Services and Finance teams might prepare an allocations schedule at the beginning of the project to promote efficiency and save officer time when identifying and re-housing LACs going forwards. 

What houses can be identified and acquired? 

The main requirement would be to purchase homes that satisfy both the immediate and anticipated ongoing needs in this area. This would be best determined by the internal Social and Children’s Services and Finance teams at the project’s start in order to work out the participating authority’s specific requirements based on their current LAC list and anticipated ongoing LAC requirements.   

Once this exercise has been undertaken, one workable option is to use the services of a purchasing agent to acquire any homes in the area (or within set areas, determined by the participating authority as appropriate), as efficiently as possible. Any homes for sale on the open market, or being delivered as part of new local development projects, would be suitable for acquisition where they meet the pre-determined criteria. 

Where does the money come from? 

The money necessary to acquire the new homes would be invested directly by a UK Life Fund. This provides comfort for elected members that the investment comes from a worthy partner, that would not place the authority at any risk of reputational damage.   

The money would be input as a capital sum, equivalent to the purchase costs of the required homes. 

What form of security is offered to the funder? 

The UK Life Fund would be acquiring a land-based interest, ensuring that the authority is not required to provide a guarantee to the funder. A suitable lease structure would be utilised to provide the UK Life Fund with the necessary comfort and security to lend the capital sum. 

This approach has been successfully utilised in a number of other projects for authorities, to generate additional homes to ease both their temporary accommodation and affordable housing pressures, and UK Life Funds’ interest in this approach has already been established. 

How is the funder repaid? 

The UK Life Fund receives an investment return for a commercially workable term. The market normative here (to obtain best funding rates) would be between 40 and 50 years, depending on the participating authority’s preferred repayment values. 

The funds to repay this investment return would be available from the costs saved by the Social and Children’s Services teams, which would otherwise be spent on considerably more expensive private operators. To this end the proposed solution will deliver a “real term saving” for the authority, whilst providing a genuine solution. 

What happens to the houses once the funding has been fully repaid? 

A great benefit is that the homes will, at all times, remain the property of the authority. The funding received is perhaps best viewed in the form of a mortgage. Therefore, once the funding is fully repaid, the homes remain the authority’s (as fully repaid and owned assets) for continued use in providing accommodation for LACs. 

Are there any downsides? 

As with any borrowed funds, they need repaying. The main requirement for the authority to ensure “value for money” would be that the Social and Children’s Services teams efficiently utilise the homes, and house the appropriate LACs, thereby cutting down external and highly expensive private operator costs. 

As a risk mitigation element, we would recommend that the authority’s repayment obligations are subject to a “cap” and “collar” metric, that would be determined by the participating authority on draw down of the funds, thereby ensuring certainty of the ongoing repayments. The existence of a “cap” on the repayments would be recommended to ensure inflation costs remained equivalent or preferably below those charged by the private operators. 

The whole purpose is to achieve a double benefit of better care for LACs and at the same time creating a real budgetary saving for the authority. 

To discuss any questions or potential projects please contact Neil Logan Green, Sara Sayer or Matthew Powell.