In its latest report, Managing children’s residential care, the NAO examines the Department for Education’s (DfE) response to mounting challenges facing local authorities. While most children’s homes are rated good or outstanding, many children are still not placed in settings that meet their needs, leading to poorer long-term outcomes.
Key Findings
- In March 2024, 67% of children in residential homes were placed outside their local authority, with almost half (49%) living more than 20 miles from home.
- Many children face frequent moves, confinement without consent, or placements in illegal, unregistered homes.
- Care leavers are more likely to be out of education or work compared to peers.
- Councils are competing for places in a market where 84% of homes are privately run, often giving providers the power to select children based on profit rather than need.
The Competition and Markets Authority (CMA) found that between 2016 and 2020, the 15 largest private providers averaged profit margins of 22.6%, with placement costs rising above inflation.
The NAO warns that the DfE lacks sufficient data on providers’ and councils’ costs, making it difficult to assess whether charges are fair or to curb excessive profits. Although reforms such as greater cost transparency and oversight measures are planned by 2028–29, the NAO says progress is too slow.
DfE Response and Reforms
The DfE is focusing on prevention to reduce the number of children entering care, and the Children’s Wellbeing and Schools Bill includes changes based on the 2022 CMA and MacAlister reviews. Regional commissioning pilots have also begun, but a national rollout has yet to be confirmed.
The NAO recommends the DfE:
- Provide a clear vision for the residential and foster care market, including its oversight role.
- Support councils in maintaining homes and reducing reliance on costly new builds.
- Work with the Department of Health and Social Care and the Ministry of Justice to improve placements for children with complex needs.
- Introduce measures to strengthen staffing and skills across the sector.
NAO Comment
Gareth Davies, head of the NAO, said:
“The residential care system for looked-after children is currently not delivering value for money, with many children placed in settings that don’t meet their needs. Local authorities are forced to compete for limited places in an under-supplied market, driving high costs. Our recommendations are designed to help DfE, and local authorities find better solutions for looked-after children whilst they tackle this market failure.”
