Children In Care Are Big Business

The encroachment of international venture capital into the private provision of residential and foster care for looked after children is hardly news. It’s been covered regularly over the last couple of years but yesterday’s Times revealed the full extent of what many businesspeople have known for a while now, that the sector offers rich pickings without having to wait an undue length of time for a return.

One of Britain’s biggest independent fostering providers, the National Fostering Agency (NFA) was bought by one such company in 2006 and sold to another for £130m, tripling the original investment. Another fund made a 500% return in six years. Profits are maximised, says the piece, by concentrating residential units in parts of the country where property is cheaper. Rochdale, the scene of the recent child exploitation scandal, is cited as one example. Children in care are not only big business, they are an international commodity. Acorn Care is an investment for the pension fund of Canadian teachers.

In January the Telegraph reported that NFA made £3.5m profit in the last financial year. The previous year, a Deloitte’s survey revealed an annual profit growth of 35% as they came in at number 56 in the 100 most profitable private equity backed companies. Ironically, the Thunderer itself named them as ‘One To Watch’.

As ever with these things, the blanket statements unjustly tarnish the many private concerns who work hard on behalf of children and young people. The Times article (sheltering behind a paywall so no links, I’m afraid) unfairly juxtaposes the private equity information with the Rochdale scandal by puting them on the same page but there’s no demonstrable casual link between the two even if the children lived in a private residential home. Also, the piece leaves the reader blinking at some of the fees (one placement comes in at a cool £378,000 pa) but some of the most damaged young people need the most intensive, expert care.

It’s captured more attention this time round partly because it is in the Times, hardly a refuge of pinko mungbean scoffing sandal- wearing social work types but mainly because it neatly fits the zeitgeist. We accept, or are resigned to,  firms making profits and the people owning those companies making a lot of money but the fallout from the banking crisis has revealed just how wide the disparities can be. Whether it be Jimmy Carr’s tax avoidance or Bob Diamond’s payoff, we know it goes on but there are limits. I’m not entirely sure where they are but with the provision of private equity backed care for children, it feels as if we’ve reached them. Dig deeper and there’s something profound going on – big firms selling to even bigger companies, pension funds in Canada getting fat on cash from hard pressed local authorities reeling from the very cuts that venture capital in part helped to create.

It is questionable whether local authorities are receiving the best value from the majority of providers. How do they know what the unit offers, how that compares with what other places offer, how it best meets the needs of the child or young person and how do they monitor the effectiveness of the placement? In my experience, the commissioning process is often trial and error based on factors related less to a thorough evaluation of the myriad of services on offer and more to what has worked for other children in the past or the small ads in Community Care.

Once in placement, some (not all) residential establishments are virtually impenetrable to the outside observer. Notwithstanding the complexity of some of the work undertaken, there are many places where it’s hard to grasp how the methodology or philosophy is translated into practice in terms of meeting the child’s needs in their day-to-day life, let alone challenge it. That’s of course assuming that the social worker makes more than a cursory visit. From personal experience of many fostering and residential providers, it’s unusual for children to have any sort of meaningful relationship with their social worker.

We live in a mixed economy of care. Private companies can produce excellent care, there’s no question. But venture capitalists are active in the sector because it makes them money. That’s what they do. Often they buy undervalued companies, strip out the profitable assets, let the rest go to ruin, maximise profit and get out.

Venture capitalists exist for profit. This comes at two points in the process, at the point of sale and the costs of providing a service. The sole income source is cash-strapped local authority budgets that are being squeezed beyond breaking point. For the moment, it’s a seller’s market. Outweighing the pressure on authorities to cut costs is the increased demand for places as admissions to care soar at a time when there is already a shortage of foster carers and the local authority residential sector is virtually non-existent.

There are also opportunities to cut costs by limiting the services that are available. Low pay for residential workers has been the norm since I started in the sector 30 years ago. Foster carers are paid an allowance, not a fee, and no placement means no allowance and no outgoings for the company. It’s the extra services that can rack up the costs and eat into margins. Foster carers all value the support they receive from their provider but here’s a way to cut costs. Foster care is a more complex task than ever before. The providers I work with who are most focussed on children have a ratio of supervising social workers to carers of between 1 in 10 to 1 in 14. This of course is not enough in itself to guarantee a good service but it forms a foundation because the staff have the time to focus on the children and their carers, bearing in mind that actually they have a responsibility to both. Some providers, including NFA, have a ratio of around 1 in 22 to 1 in 24 and their staff work from home, thus greatly reducing the fixed costs of office space.

The next thing to do is to push as many services that the child needs onto local health and local authority services. If the provision of, say, psychological services is rationed or not provided at all, children wait for already over-burdened CAMHS provision. The same also applies to more prosaic but vital services like transport to and from school or contact, which these days can be several days a week or every day in the case of a baby involved in court proceedings. Exclude that from the cost of a placement and the local authority picks up the bill. Include it at premium to meet a shortfall in local authority provision and the company can’t lose.

This is not a hypothetical situation. It happens every day. No wonder the sector looks so attractive. These companies aren’t interested in the long-term, or children growing up as I prefer to think of it.

And if things get rough in the placement, the firms can always play their joker. When the going gets tough, the best carers stay rock solid and consistent, knowing that trust is established precisely at these moments of greatest challenge. As one young man once said to me, quite cheerfully, ‘I kicked off for three years, then I knew they [his carers] would stick with me so I calmed down.’ For the venture capitalists, why bother? Why bother supporting a placement that will need extra resources like time, skill and extra input when you can end the placement and move on to something cheaper, because those resources cost and more cost means less profit. Blame the child. Too challenging, unacceptable behaviour, on reflection it wasn’t the right match, we were just responding to the carers, – you name it, I’ve heard it. And so it’s another disruption because the placement was taken without proper consultation. Get them in and get them out again if it’s all too much. Ofsted don’t pick this up. The companies have legions of back office staff making sure the boxes are being ticked, and if there’s one thing that Ofsted likes more than a box, it’s a ticked box. Many inspectors can’t see beyond them and the system no longer encourages it. Blame the child – it’s the perfect businessplan.

The article quotes Kevin Williams from children’s charity TACT. I’ll leave you with his words because they are the perfect summing up:

“There is a moral question about making large sums of money from children who’ve suffered abuse and neglect. If they do profit from such children, can they demonstrate that they’re delivering the best possible outcomes for those children and not simply making money through efficiency savings, by increasing workloads and reducing training and support? I would question whether they can.”

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5 Responses to “Children In Care Are Big Business”

  1. The next thing to do is to push as many services that the child needs onto local health and local authority services. If the provision of, say, psychological services is rationed or not provided at all, children wait for already over-burdened CAMHS provision.

    Or, as seems to frequently happen recently, CAMHS, local authority and care services get into protacted arguments over who should be providing psychological therapies, with lots of letters flying back and forth, and the child in the meantime getting no psychological input from anyone. :(

    • That is to say, whose budget it’s going to come out of, n’est-ce pas? I’ve quoted an eminent psychiatrist before, “all health service administrators are anally retentive…” :( :(

      As I type, I’m listening to an interview about Alan Sugar. Why not ask him (“local authority apparatchik – you’re fired!”) or the Hotel Inspector (“darling venture capitalist, I’m really disappointed, you’ve let yourself down, this just can’t carry on”) or one of the other purveyors of commonsense to sort this out?

  2. A well balanced article I think. Well done. From the independent sector myself I recognise that the council’s desire to tender undermines the ability of the small provider. With tenders being measured more recently on 70% cost and only 30% quality those that are larger and maybe more generic, with greater economises of scale, are able to undercut some of the more specialist and smaller organisations.
    The big companies are often owned by venture capitalists. The drive for short term reduction of price means the local authorities themselves are creating a smaller pool of providers. The smaller pool brings bigger organisations, and as time goes on they become more and more attractive to investor ownership. Even when there are local authority tenders that specifically say they don’t want to push out the small providers, the way in which they measure it often indirectly discriminates against them. Unless we see a change in how local authorities commission, there will be no changes in the way they are owned. I don’t know how this could be changed.
    But, I would be more inclined to not focus on the profits of an organisation, by moreso in measuring (accurately) if they are effectivey achieving what the taxman (us all) are paying for. I am seeing every day that agencies are doing more and more of what the local authorities are unable to do because of ristriction of funds. I would be interested to find a way of measuring the outcomes (and maybe moreso the development) of the children in agency care as opposed to local authority and see if there really is a difference to their fundamental outcome. I’m not saying I know the way to achieve this however. One for pondering!

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