Private equity firms ‘ripping off the taxpayer’ in children’s social care sector

Private equity firms are “ripping off the taxpayer” in the children’s social care sector and making huge profits, Parliament has been told.

Concerns were raised by peers in Westminster over private equity profiteering after it emerged last month that the number of children’s care homes in the hands of these firms has doubled since 2018.

Accountant Lord Sikka demanded an investigation into the role of these investment companies in care homes and healthcare.

The Labour peer said: “Private equity has already devoured care homes such as Southern Cross and Four Seasons, which actually have more subsidiaries than General Motors.

“Profiteering, asset stripping and tax avoidance are the basic business model of private equity.

“Studies have shown that private equity in care homes is making profits in the range of 30-40% of revenues.

“That is clearly unacceptable and it is very poor value for public money.”

Fellow Labour peer Lord Wood of Anfield (pictured) said: “The current mixed economy in the children’s care market is completely broken.

“Private equity providers are making high profits in the sector, increasing their margins, carrying large levels of debt, yet expanding their share of the care market at the same time, while increasing numbers of councils are facing crisis or even bankruptcy.”

Another Labour colleague, Lord Whitty, added: “The problems apply to the whole of the social care sector.

“Those who pay for their care, whether it’s for elderly parents or the local authorities for children and others, who are very vulnerable people, are in effect subsidising private equity profits.”

Education minister Baroness Barron told the House of Lords that the Government “isn’t against profit-making, but is against profiteering”.

She said: “We recognise the concerns raised, particularly around large providers with complex ownership structures and we would also agree that sometimes placement costs are too high.

“That’s why we are providing £259 million of capital funding to support local authorities to increase care placements and ensure they meet children’s needs and we will be introducing a new market oversight regime that will increase transparency on debt structures and profitability.”

She explained that the Competition and Markets Authority has looked into this and made recommendations, which are behind the Government’s plan for a reformed market oversight regime.

Lady Barron said that the Government will bring forward legislation to this effect “when parliamentary time allows”.

The minister noted the £36 million boost for the foster care sector, adding: “We believe that having much greater transparency will go some way to addressing the concerns.

“But really, the fundamental thing that has to shift is having fewer children in children’s homes and more children in foster care and that is why the Government is placing so much emphasis on supporting foster carers and indeed kinship carers.”

Former Labour minister Lord Watts said: “It seems from the minister’s answers that the Government is quite happy for these companies to rip off the taxpayer.

“When is the Government going to do something about ripping off the taxpayer who are adding to debt and making huge profits?”

Lady Barron responded: “I’m not aware of the specific cases and I think it’s dangerous to generalise in this area.

“We have seen disgraceful behaviour by some providers.

“You will remember the case of the Hesley homes, which were unforgivable child abuse going on in those homes.

“That’s not what we are seeing across all of the sector.

“What we need is to move those children who don’t ended to be in children’s homes out of children’s homes into foster care or kinship care and that’s where we’re focusing.”

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