As the Competition and Markets Authority investigates England’s children’s social care market, David Rankin of Punter Southall Analytics asks whether the growing role of private equity is driving up costs at the expense of vulnerable children.
As the Competition and Markets Authority (CMA) launches an investigation into England’s children’s social care market, renewed questions are being asked about the growing role of private equity-backed providers and whether the current system is delivering value for taxpayers or the best outcomes for vulnerable children.
The review comes amid mounting concern over rising costs, limited availability of placements and reports that commercial incentives are increasingly shaping parts of the sector. A recent Financial Times investigation highlighted how regulation has struggled to keep pace as investor-owned providers have expanded.
The figures are striking. Children’s social care now costs the state around £3bn a year – an average of £384,020 per child, around six times the annual cost of sending a child to Eton. Yet despite this unprecedented level of spending, many children continue to be placed far from their homes, families and schools, raising serious questions about whether the market is working in their best interests.
The CMA’s investigation provides an opportunity to examine why costs have escalated so dramatically, whether current market incentives are serving children rather than investors, and what reforms may be needed to create a more sustainable system.
The cost of privatisation
Commercial incentives in children’s social care have attracted private equity firms and other investors looking to make a profit. The result has been a sharp rise in costs with the most expensive placements exceeding £1m a year and fees having risen by roughly two-thirds in real terms since 2015.
England has one of the highest rates of private homes in children’s care in the world. Currently, 84% of places in care are run by for-profit private providers, compared with just 5% in France. In the past decade, the number of for-profit homes has more than doubled, going from 903 in 2014 to 2,247 in 2023. The sector has also attracted a wide range of investors with no background in care – the Financial Times reported that plumbers, hairdressers and landlords have entered the market, all seeking potential financial gains.
The quality of care inside these homes has deteriorated alongside the rise in private ownership. Macie, who was sent to a home at 14, told the Financial Times that she was allowed outside for just 15 minutes a day unless she completed chores for additional time. She described her first home as depressing, with furniture glued to the floor. She was later moved to an unfinished house with no working toilet. Her education was also neglected, with staff actively discouraging her from completing her GCSEs as they did not want to do anything that had any physical or financial burden. Her experience reflects what happens when profit is prioritised over the basic needs of vulnerable children.
Because of the skewed commercial incentives, providers also tend to open homes in areas where property is cheap rather than areas where children need them most. For example, Lancashire has 17 times more care places than it has local children who require them while, on the other hand, four London boroughs have no private provision at all. This has resulted in half of all children in care being placed more than 200 miles away from home, and one in seven children moving three or more times a year.
The business of children’s care
The five largest owners of children’s homes in England are all privately owned:
1. Amalfi Midco Limited (CareTech): 220 homes
2. G Square Healthcare Private Equity LLP (Keys): 156 homes
3. Picnic Topco Limited (Esland): 68 homes
4. HCS Group Limited: 59 homes
5. Liberi Topco Limited: 52 homes
The two largest, Amalfi Midco and G Square Healthcare, together account for 9% of all places in children’s homes and are both backed by private equity.
Ofsted found that the 15 largest providers averaged operating profit margins of 22.6% on children’s homes between 2016 and 2020, with weekly placement fees rising from £2,977 to £3,830. Fees in children’s social care have increased around 3.5% above inflation each year. These levels of return show that parts of the industry are generating excessive profits from the care of vulnerable children.
Can the regulators turn the tide?
In early 2025, the Secretary of State for Education, Bridget Phillipson, formally wrote to the CMA requesting a review of the children’s social care market. The CMA accepted the request and confirmed it will launch a market investigation, expected to begin this summer with a final report due by 2027. The investigation will examine whether the structure of the market, including the rise of private equity backed providers, is working in the interests of children and local authorities.
This is not the first time the CMA has looked at this sector. In 2022, the CMA conducted a review which found that the market was not functioning well, highlighting rising costs, a lack of suitable placements and insufficient competition. However, meaningful reform did not follow, and the problems have since got worse.
The children’s social care investigation follows a pattern of CMA market investigations into what it describes as ‘essential markets’, including road fuel, infant formula, dentistry and veterinary services. Similarly, in both the dentistry and veterinary markets, the CMA found that an influx of private equity led to rising fees and declining quality for consumers. The investigation will now examine whether similar market dynamics are affecting children’s social care.
Ofsted, the regulator responsible for inspecting children’s homes, has also acknowledged that the current system is not working. It has stated publicly that the regulatory framework is ‘bent out of shape’, struggling to keep pace with the rapid growth of privatised homes.
What happens next?
The CMA investigation is now a much-needed opportunity to ask difficult questions about who children’s social care is really serving. If billions of pounds of public money are being spent while too many children are moved far from home, education and support, the current model cannot simply be judged on financial returns. Ultimately, success should be measured by the lives it helps rebuild, not the profits it generates.
David Rankin is the Managing Director of Punter Southall Analytics
Images: Benyamin Bohlouli/UnSplash and David Rankin
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