Revealed: top 10 children’s care providers made £300m profits

The 10 largest providers of children’s social care placements made more than £300m in profits last year, according to research that will fuel concerns over profiteering by private providers.

Michael Savage  

As pressure mounts within government, regulators, councils and fosterers over the provision of care for the country’s most vulnerable children, analysis seen by the Observer reveals the growing role of private equity companies in many of the biggest suppliers of care home and fostering places.

Profits among the top 20 providers of care home and fostering places now amount to 20% of their income. Despite the pandemic last year, their overall profits rose by more than 14% from 2020, according to the study commissioned by the Local Government Association (LGA).

The findings follow a series of warnings that marketisation of children’s social care is leading to some damaging outcomes. Several figures within the sector have reported children being placed far from their support networks where homes could be built more cheaply, or placed with families who lack the skills to provide the right care.

It comes months after a highly critical Competition and Markets Authority (CMA) warned that the UK had “sleepwalked” into a dysfunctional market for children’s social care, with councils struggling to pay for expensive places that often failed to meet the needs of the child.

An official review of children’s social care in England has been commissioned by the government and will report later this spring.

There are hopes that the review will back reforms in England as a result of a growing consensus around the issues within the current system. Councils have reported that spending on residential placements has increased by 84% since 2015, and that they are now diverting funds from areas such as early help for families to meet the spiralling costs.

The LGA’s analysis, compiled by Revolution Consulting, found that eight of the 10 largest providers of children’s social care, which includes fostering, children’s homes and other services such as residential school places, now have some kind of private equity involvement. Total income of the largest 20 was more than £1.6bn, with 60% made by the largest four providers – Outcomes First, CareTech, Polaris and Priory, now called Aspris.

It also confirms many of the concerns over the level of debt taken on by some of the groups, which many council figures believe is making child social care provision even more precarious. Nine of the top 20 providers had more debts and liabilities than tangible assets.

“What matters most for children who can’t live at home is that they feel they are safe, loved and supported, in homes that best suit their need,” said Lucy Nethsingha, deputy chair of the LGA’s children and young people board.

“While many providers work hard to make sure this is the case, it is wrong that some providers are making excessive profit from providing these homes when money should be spent on children.

“Despite increasing their children’s social care budgets, most councils are overspending each year as costs continue to soar. Yet the largest privately-run companies, which provide many residential and fostering homes for children, continue to bring in huge profits. At the same time, many carry significant levels of debt.

“Stability for children in care is paramount if we are to help them to thrive. It is therefore vital that there is oversight of the financial health of these providers to help catch providers before they fall, and ensure company changes don’t risk the quality of provision.”

Outcomes First, CareTech, Polaris and Aspris, were all asked for comment, but either declined to do so or did not respond.

Some recent cases have brought home some of the long-running issues in children’s care. In January, Ofsted inspectors suspended the licence of one children’s home in Bolton after finding that a boy had not bathed, changed his clothes or been provided with a home-cooked meal for four months.

UK’s biggest housebuilders hand top bosses bumper bonuses

Persimmon and Taylor Wimpey, Britain’s two biggest housebuilders, handed their chief executives bumper bonuses last year, when building bounced back amid a house price boom.

Julia Kollewe 

Persimmon boss Dean Finch received a total pay and bonus package of £2.6m last year, the York-based builder’s annual report showed. That compared with £218,326 in 2020, although he only took over as boss in September of that year.

His pay included a £725,000 salary, a £1.3m annual bonus, and a buyout award of £404,384 to make up for earnings he lost out on when he left his previous employer, National Express.

Finch’s fixed pay and benefits of £833,742 was 32 times the £26,005 that Persimmon’s lowest-paid quartile were paid last year.

However, Finch’s package was still well short of the £110m proposed bonus for Jeff Fairburn, who served as Persimmon’s chief executive until November 2018. The bonus was cut to £75m and Fairburn promised to give a “substantial” amount to charity, but he was still ousted in November 2018. It prompted public outrage, especially as the housebuilder partially relied on the government’s help to buy programme for its sales.

The £29bn help to buy scheme, which is aimed at first-time buyers and ends next year, was criticised by a House of Lords report in January for failing to “provide good value for money” for the taxpayer.

Fairburn has since made a comeback with Berkeley DeVeer, a Wetherby-based housebuilder in which he acquired a controlling stake in January 2020. A year later, the company acquired another builder, Avant Homes.

At Taylor Wimpey, the outgoing chief executive Pete Redfern received a total pay and perks package of £2.8m last year, up from £1.1m in 2020, according to its annual report. It included a cash and share bonus of £1.3m whereas in 2020, at the height of the pandemic, the company decided to cancel executive bonuses.

Redfern has run the company for 15 years and is handing over to Jennie Daly, the current group operations director, who becomes chief executive at the annual meeting in late April. Her total remuneration rose to £1.3m last year from £515,000 in 2020.

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Taylor Wimpey’s median pay and benefits for employees is £46,455, while the lowest quartile is paid £31,651.

Revenues at the housebuilder rose 54% from 2020 to £4.3bn last year, similar to its pre-pandemic revenues, while profit before tax jumped 157% to £680m. This was still below its 2019 profit of £836m.

Persimmon made a profit before tax of nearly £1bn last year, up by a quarter from 2019, as it completed 14,551 homes, generating revenues of £3.6bn.

The Berkeley Group chief executive Rob Perrins is the highest-paid boss of a UK housebuilder. He received just under £8m in salary and share bonuses last year. Most of this, £7.3m, was a payout from a 2011 long-term incentive plan, a share bonanza that also prompted public criticism. The seven-strong executive team at the London and southeast-focused builder collectively received around £24m in pay and perks last year.

Persimmon and Berkeley declined to comment.

The Productivity Puzzle back in the news

Friday’s Times Editorial picked up on Richi Sunak’s mention of the need to accelerate growth and productivity. Old arguments rehearsed yet again with three being stressed: private sector investment, education and technical training, and a culture of innovation. It ends with the statement that Britain’s economic prospects and the wealth of the nation rest on breaking a cycle of low productivity. 

We have been here before with our Local Enterprise Partnership HotSW. 

These are all good things to do but Owl’s personal view is that we need to change fundamentally our short-term business and financing culture. Not until companies and financiers stop looking for quick gains but take the long term view, ploughing profits back into investment in the “tools of the trade”: plant, machinery, training and human capital, will we start to improve.

In crude terms: stop asset stripping, seeking to make a quick buck and paying directors obscene multiples of the average wage.

Increasing productivity means getting more output for each hour worked. A happy and motivated staff are key.

It’s not going to happen is it? 

The Times view on Rishi Sunak’s conundrum: Productivity Problems

The Times Leading Article 

“Productivity isn’t everything,” the Nobel laureate Paul Krugman has written, “but in the long run it is almost everything.” Sustainable gains in living standards are only possible if output per worker goes up and Britain’s performance has long been disappointing. Hence, in his spring statement, Rishi Sunak stressed “creating the conditions for accelerated growth and productivity”.

The chancellor is right to perceive the urgency of the challenge. Unless the puzzle of low productivity can be solved, household incomes will stagnate and the country will become relatively poorer. Mr Sunak’s proposed remedies are sensible but they are long term. The risk is that Britain will meanwhile be locked into a cycle of depressed output, real wages and tax revenues.

For most of the postwar era, Britain’s productivity grew by 2 to 3 per cent a year. Between the financial crash and the pandemic, however, it barely expanded at all. Judged by output per hour, its productivity is roughly at the level of Italy, whereas the American economy is estimated to be a startling 23 per cent more productive than Britain’s. The equivalent figure for France is 18 per cent higher, and for Germany it is 10 per cent. Mr Sunak stresses three issues: private sector investment, education and technical training, and a culture of innovation. These are sound aims. The chancellor points to the fact that in Britain corporate investment amounts to 10 per cent of GDP, compared with an average in countries within the Organisation for Economic Co-operation and Development (OECD) of 14 per cent. He has signalled that in the budget this autumn he will provide further tax breaks for business investment.

In his budget last year he gave generous capital allowances for corporate investment in plant and machinery to the end of 2022-23. Whether an extension of this approach will be effective depends on the investment being something the companies would choose to do if financial conditions allowed. Investment is vital but it can sometimes be wasteful, as happened in the dot-com bubble 20 years ago. Tax breaks will work if they bring forward investment programmes that give a more than proportionate boost to national income. The same test holds for public sector investment in infrastructure.

On vocational training, Britain again lags the OECD average. Tax incentives to boost training of workforces in skills is valuable, but the effects are unlikely to show up in the data in the immediate future. Lastly, encouraging innovation through regulatory reform and tax credits for research and development works with the grain of the market. The history of capitalism is dotted with inventions that boost productivity, such as containerisation or the microchip. The market economy allows entrepreneurs to succeed, and government should encourage this activity with financial incentives.

For Britain the problem is urgent. Its productivity record is poor and it has lagged behind the eurozone and the OECD since 2016. Uncertainty over Brexit has deterred investment and constrained productivity growth. It is Mr Sunak’s task to help turn that performance round. The levers available to him are limited, for wealth creation depends on private enterprise rather than the state. These are the right areas to be looking at, however, and the chancellor’s aims are sound. Britain’s economic prospects and the wealth of the nation rest on breaking a cycle of low productivity.