The Case for Change

Introduction

Across Wales and England, over 91,000 children are looked after by the state. Most children are placed in foster care — 67% in England and 68% in Wales. However, a very significant proportion of children are placed in residential care facilities: 16,150 children in England and 887 children in Wales.

In the past 10 years, we have seen a decline in the supply of foster care across both Wales and England, a trend which is set to continue. This, combined with an increase in the number of looked after children and the increasing complexity of children’s needs, has placed more emphasis on residential care to provide places for vulnerable children in our society.

The provision of care homes is dominated by the private sector, with over 75% of homes run by for-profit entities in both England and Wales. New care homes are opening at a rapid rate. More homes opened in England in 2025 — 450 — than in any previous year, while 48 new homes opened in Wales. The majority of this growth was from the private sector. More relevant for Homes for Kids, since 2021 the number of charity-run facilities in England has risen by only 10. In Wales, charities registered only five homes in the last financial year.

Most children not represented in the table are housed in foster care, with the remaining children being adopted or placed in formal kinship agreements.

The sector is characterised by high prices and a disparity between the supply and demand of children’s homes. This manifests itself in insufficient capacity for those with more complex needs and a spatial mismatch in placements. These issues are putting significant fiscal strain on local authorities while simultaneously delivering poor outcomes. Children are too often placed:

• far from family and their social network;
• in settings ill-equipped to accommodate more complex needs; or
• in unregistered, unregulated and ultimately illegal facilities.

This means many of the most vulnerable children in society are not receiving the stability and care they desperately need.

A care system which fails to meet the needs of children in its care creates far-reaching consequences. Promise Scotland demonstrates that Scotland loses approximately £1.6 billion annually due to system failure in current care provision and the resulting poor outcomes for those with care experience. This figure represents the combined impact of approximately £875 million in additional public service costs — including healthcare and custodial services — and approximately £732 million in lost income tax and National Insurance revenue as care-experienced people earn less than non-care-experienced peers.

This is an upper-bound estimate because care-experienced people may have circumstances which limit their income potential, and the cost of additional use of public goods incorporates human costs which will never be realised financially. Even so, the figures demonstrate the considerable fiscal impact of an underperforming social care system. More importantly, they show that looked after children have significantly worse life prospects, including lower incomes, poorer physical and mental health, and a higher probability of criminality. Although this gap may never be fully closed, a more functional care system that prioritises child outcomes would narrow it and improve lives.

To address these issues, all local authorities will need to develop plans to improve sufficiency and invest in intervention. However, the current pattern of growth in care facilities and real cuts in local authority funding make the solution as remote as ever.

Understanding the issues affecting the care home sector

Ofsted highlights insufficient supply of care homes as “the most intractable” issue in the care home sector. The schism between supply and demand is demonstrated by unsuitable placements. In Wales, 34.4% of children in care homes are placed outside their local authority and 622 children — 6.8% — had three or more placements in 2025. We can see similar patterns in England: the North West accounts for 26% of care home places but only 18% of demand.

This decoupling of supply and demand is laid bare when local authorities have no placements available which can meet a child’s needs and are forced to place children in unregistered facilities. Last year, Ofsted identified 710 unregistered facilities. Because the unregistered market exists to meet urgent demand, providers can extract exorbitant fees. Local authorities spent a total of £439,648,762 placing children in these unregulated settings, putting additional financial strain on already stretched budgets.

Why supply remains insufficient

Insufficient supply can be attributed to a variety of factors. Most new care homes are owned and managed by private companies. This is a symptom of local authorities facing budgetary pressure and multiple competing priorities. Excessive bureaucracy adds cost and subdues investment from the non-profit sector, including arduous planning processes, the requirement to have a registered manager before applying for registration and an inability to transfer a manager across facilities.

Local authorities also have great difficulty credibly forecasting demand. This prevents them from sending reliable signals to promote investment in areas of need, both in respect of complexity and location. A more pernicious argument, also shared by Ofsted, is that these signals are not strong enough to countervail the profit motive. Rather than need, expansion of for-profit capacity can therefore be determined by profit margins, which is congruent with the opening of care homes in areas with cheaper housing.

Prices and bargaining power

An inability to reliably predict demand also contributes to higher prices. Lacking certainty, commissioners over-rely on spot placements rather than cheaper block contracts because they do not want to make financial commitments for services they may not need. Risk aversion, budgetary constraints, differences in governance, difficulty aligning priorities and finalising cost-sharing agreements also lead to underuse of collective bargaining by local authorities.

These factors, combined with supply shortages and private-sector profit maximisation, leave commissioners with minimal bargaining power. This allows private equity-backed firms and unregistered providers to charge extraordinary rates, reaching up to £63,000 per child per week — £3.3 million annually. Despite these prices, local authorities are often unable to provide their own placements at a cheaper rate than private options.

Profit, ownership and market fragility

Exploitation by the private sector is made more evident by the behaviour of one provider with a highly opaque ownership structure, ultimately based in Jersey. When listed on the London Stock Exchange, the company reported pre-tax profits of £66 million. Since delisting, it reports pre-tax losses of £99 million despite making an operating profit of £53 million and increasing cashflow to £567 million.

The source of these losses can be traced to financial costs of £152 million tied to £1.4 billion of debt. £52 million of these costs serves as repayment for liabilities from other group undertakings. The same provider remunerated key management personnel by £6.8 million per year, including £2 million in bonuses, paid £1.9 million in rent to property connected to directors and had a growth share scheme increase in value by £2.7 million in the last financial year. Does this sound like a provider putting child welfare first, or an entity using the company as a vehicle for financial benefit?

There are two further issues tied to private ownership. First, Ofsted contends that many providers lured by lucrative returns are not fit to deliver adequate care for vulnerable children. Second, the largest ten owners of children’s homes collectively own nearly 20% of all registered homes. This raises concerns about the fragility of the market if a key player exits — a plausible scenario given that many for-profit entities are highly leveraged.

Removing profit from care in Wales

To counteract the impact of for-profit actors, Wales became the first UK nation to pass legislation — the Health and Social Care (Wales) Act 2025 — mandating the removal of private profit from the care of looked after children. This law is the cornerstone of a whole-system change aimed at ensuring public money is reinvested into services rather than distributed as shareholder profit.

• 1 April 2026: no new for-profit providers can register with Care Inspectorate Wales.
• 1 April 2027: existing for-profit providers are prohibited from expanding through new beds or additional foster carers.
• 1 April 2030: placements with for-profit providers are banned, except in exceptional circumstances with explicit ministerial approval.

The immediate impact has been a rush for for-profit actors to register new facilities, reflected in new growth being dominated by private entities. As April 2030 approaches, for-profit entities will have to decide whether to convert to a not-for-profit model or exit the market. This has created concern that the Welsh residential care market may no longer be viable if there is a mass exodus. The Welsh Government has pledged £75 million to help local authorities and non-profits build capacity, although commentators doubt whether that will be sufficient in the event of a disorderly exit.

Positioning Homes for Kids

Homes for Kids will provide a planned, credible contribution to the sufficiency challenge: providing high quality through a model designed to reduce disruption and improve stability over time, working alongside commissioners and existing provision. This contribution will be especially welcome in Wales as it builds non-profit capacity.

A charitable governance structure, and the controls it necessitates, is structurally aligned to outcomes for children. Non-profit status ensures that, rather than being distributed to shareholders, all profits and surpluses can be recycled to expand capacity or improve care quality through investment in staff development and pay, children’s opportunities, or innovations that improve care.

This model is guaranteed by the Board of Trustees, who have set clear objectives to reinvest any surplus and unrestricted funding into residential provision to enhance quality, sustainability and outcomes for the children and young people we serve. This is exemplified by the Board’s commitment to publishing an annual reinvestment report showing how surpluses have been used and the impact they have had.

The benefits of recycling surpluses will be further accentuated by a charity’s ability to mobilise local partners, volunteers, philanthropic and corporate support, and wraparound community contributions in a way a profit-distribution model struggles to do credibly.

Measuring better outcomes

A trauma-informed approach to care, including Positive Behaviour Support and Active Support, places child development and opportunity at its centre and has the potential to deliver transformative outcomes. Improvements can be measured through:

• Stability: fewer moves within 12 months, longer placements and fewer unplanned endings.
• Relationships and distance: maintaining family and social networks.
• Wellbeing and safety: fewer restraints and incidents, with access to therapeutic input.
• Education: higher attendance, engagement and attainment where appropriate.
• Health: improvements in physical and mental health.
• Voice: more meaningful participation in society and engagement in shaping the future.

High-quality residential services are fundamental to giving children and young people what every individual deserves: a safe, stable place to call home and the chance to have a real childhood. When care is grounded in consistency, dignity and strong relationships, it creates the conditions in which emotional wellbeing can flourish, harm is reduced and young people are supported to grow rather than simply be managed.

Over time, this stability enables children to build confidence, form healthy attachments and move into adulthood with the skills and resilience needed to live fulfilling, more independent lives.

Concluding remarks

In a severely challenged children’s home sector, Homes for Kids will bring much-needed capacity and clear added value by expanding high-quality, values-led provision rooted in stability, trauma-informed practice and strong community connection. By operating with a charitable purpose, it will strengthen placement sufficiency, reduce reliance on crisis and distant placements, and demonstrate a loving and caring environment through transparent governance, recycling of surpluses, workforce development and consistently high care standards.

Crucially, Homes for Kids will act as a positive change agent: sharing learning, partnering with local authorities, health and education, and championing the outcomes that matter most to children and young people. By delivering complex care with confidence and operating dynamically, Homes for Kids also hopes to demonstrate the potential of a charitable model of care.

By operating as a charity, Homes for Kids blends the agility of a mission-led organisation with deep-rooted community credibility. The organisation will champion the rights of children through dedicated independent advocacy, strong safeguarding and wraparound support, leveraging the unique strength of the charity sector: placing participation and social justice at the centre of service delivery.

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