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Local authorities in England and Wales have increased spending on the biggest children’s care providers by 20 per cent above inflation in the past two years, as companies raise prices and diagnoses of autism and other conditions increase.
Spending increased 37 per cent to £3.7bn, or 20 per cent in real terms, between 2022-23 and 2024-25, according to a report published on Wednesday by Revolution Consulting, which analysed publicly available corporate accounts of the 20 largest providers.
Local authorities are legally obliged to provide fostering or residential care for children in need, providing steady guaranteed revenues for the private equity and sovereign wealth fund owners that have flooded into the sector over the past decade.
More than half of the providers — 11 out of 20, including Polaris and Witherslack Group — have a private equity or sovereign wealth fund owner, Revolution’s research found.
The sector has also been slammed by the National Audit Office, which said last year that the providers were not “delivering value for money”. The average annual cost to local authorities of a placement in a children’s home rose to £318,400 in 2023-24 even though many homes do not meet children’s needs, the NAO said in September.
Margins on earnings before interest, tax, depreciation and amortisation were around 17 per cent at the 20 biggest providers in the year to March 2025, down slightly from 17.8 per cent in 2023.
The findings were published shortly after the Children’s Wellbeing and Schools Act gained Royal Assent at the end of April. The legislation will require additional financial reporting requirements and oversight and have the potential power to limit profits.
In March the government invited councils to apply for funding to establish regional care co-operatives, in the hope that larger purchasing authorities can obtain better deals from the provider sector.
Andrew Rome, head of Revolution Consulting, said it was “unclear” whether the move would work to drive down prices and warned that some providers would now come under pressure.
“Some of the providers are very profitable but also have a significant amount of debt, which is predicated on ‘business as usual’ and may have to be carefully handled if we are not going to see providers at increasing risk of collapse,” he said.
Witherslack, which operates 39 special needs schools and 38 care homes for children, recorded the highest annual ebitda margins of 26 per cent while profits grew by nearly 30 per cent in the year to March 2025 to £44mn. Witherslack is majority owned by Mubadala Capital, an arm of Abu Dhabi’s SWF.
Other providers including Polaris, which is owned by Capvest Equity Partners, and Keys Group, which is owned by G Square Capital, have also reported rapidly rising profits and ebitda margins of 15-20 per cent.
Samantha Jones, permanent secretary at the Department of Health and Social Care, had been a chair and director of Keys Group and an operating partner at G Square Capital before taking up her role as department head last year.
Fostering services and voluntary sector providers earned lower margins while residential providers were the most profitable. Around 84 per cent of all children’s homes are privately owned, as are around 84 per cent of independent fostering agencies, which act as brokers between the foster carers and local authorities.
Spending on residential services grew 66 per cent in real terms in the three years to 2024-25 and fostering just 3 per cent.
Witherslack said “all of its UK profits are reinvested in the firm’s UK operations”. It added that “its profit reflects the firm’s significant investment in recent years, to enable more pupils without a suitable school placement, or that are out of school due to the complexity of their needs, to receive a high-quality education”.
Amanda Hopgood, chair of the Local Government Association’s children, young people and families committee, said it was “keen to see the introduction of a profit cap as some of the largest providers are making huge profits when money should be invested in supporting children”.
