“The structure of the children’s social care market has inevitably been affected by the government-led public expenditure cuts over the last five years, as local authorities dictate the quantity of services provided and which companies provide them. However, the sector has avoided the widespread cuts seen in adult social care as only a few areas have seen spending fall. The Children and Families Act has led to many reforms, particularly with SEN care and adoption, but further changes to the market are still required. The dual role of LAs as commissioners and providers of care can still disrupt the efficiency of the market and the lack of suitable local market information increases the likelihood of children’s care needs not being met.”
– Lewis Cone, B2B Analyst

Market size

Total expenditure in the children’s social care market reached an estimated £10.2 billion in 2014/15, representing growth of 3.2% on the previous year and an overall rise in value of £1.9 billion, or 22%, compared to 2010/11. The annual rate of change has fluctuated between 1.6% and 8.2% since 2010/11.

Figure 1: UK Market for Children’s Social Care, 2010/11/2014/15, (£ Million)
[graphic: image 1]
Source: MBD analysis of DfE, StatsWales, Scottish Government and DHSSPSNI data and MBD and Trade Estimates

England accounted for approximately 78% of all expenditure in 2014/15, rising by 27% over the last five years to just less than £8 billion. Expenditure growth in Scotland over the same period was considerably lower at 4%, while Welsh expenditure is estimated to have increased by 13% to £590 million in 2014/15. Northern Ireland has seen a rise of £20 million, or 7%, over the last five years.

Figure 2: Segmentation of UK Market for Children’s Social Care, by Country, 2010/11-2014/15, (£ Million)
[graphic: image 2]
Source: MBD analysis of DfE, StatsWales, Scottish Government and DHSSPSNI data and MBD and Trade Estimates

The 22% increase in expenditure between 2010 and 2014 was effectively stimulated by a 6% rise in the number of children requiring social care. Significant differences were, however, recorded between the countries of the UK. In total, the number of children looked after across the UK increased from 88,128 in 2010/11 to 93,554 in 2014/15.

Figure 3: Number of Children Looked After, by Country, 2014/15, (% of UK Total)
[graphic: image 3]
Source: MBD analysis of DfE, StatsWales, Scottish Government and DHSSPSNI data and MBD and Trade Estimates

Market trends

Expenditure on special education increased by an estimated 24% between 2010/11 and 2014/15, from £4.2 billion to £5.2 billion. Special education expenditure continues to be the single largest sector of the market, with a 51% share by the end of the review period. The share of total children’s social care expenditure accounted for by children’s homes is estimated to have declined from 17% in 2010/11 to 13% in 2014/15. Fostering care now accounts for just less than 21% of all children’s social care expenditure in the UK, compared to 22% in 2010/11. Other expenditure on looked-after children, which includes a variety of services, reached £1.53 billion in 2014/15 and accounted for 15% of total expenditure.

Figure 4: Segmentation of the UK Market for Children’s Social Care, by Type of Care, 2010/11 and 2014/15, (% of Total Market)
[graphic: image 4]
Source: MBD analysis of DfE, StatsWales, Scottish Government and DHSSPSNI data and MBD and Trade Estimates

The number of children placed in children’s homes in the UK reached 8,912 on March 31st 2014 and July 31st 2014 (in Scotland), representing an annual 2% increase. Average cost per child reached a review peak high of £167,000 in 2011/12, before subsequently falling in each year to a review low of £150,000 in 2014/15. This decline highlights increasing independent provision in the sector.

Figure 5: UK Children’s Home Placements and Average Annual Cost, at 31 March of each year (England, Wales and Northern Ireland) and 31 July of each year (Scotland), 2010/11-2014/15, (Number of Children and £000)
[graphic: image 5]
Source: MBD analysis of UK Government data and MBD estimates

In 2014, 74% of children’s homes in England were independently operated, though there are clear regional differences. Independent provision ranges from 84% in the West Midlands to 51% in Yorkshire and the Humber.

Figure 6: Children’s Homes in England, at 31 March 2014, by Region, (% of Homes)
[graphic: image 6]
Source: MBD analysis of Ofsted data

As of 31 March 2014 (England, Wales and NI) and 31 July 2014 (Scotland), there were 63,375 foster care placements in the UK, representing an increase of 1% on the previous year. Between 2010/11 and 2014/15, the number of foster placements rose by 11%, while the cost to receive such care increased by 18%.

Figure 7: UK Foster Care Placements and Average Annual Cost, at 31 March of each year (England, Wales and Northern Ireland) and 31 July of each year (Scotland), 2010/11-2014/15, (Number of Children and £000)
[graphic: image 7]
Source: MBD analysis of DfE, StatsWales, Scottish Government and DHSSPSNI data and MBD and Trade Estimates

According to DfE data published in September 2014, 18% of all pupils have a special educational need, equivalent to 1.5 million pupils. It is estimated that 45% of special education is now provided by the independent sector, up from 36% in 2012. The coalition-led push of the academy programme over the last few years has made it easier for private companies to provide education, which has helped boost the independent sector’s share.

Independent suppliers, including private companies and voluntary bodies, have taken an increasing role in children’s social care, accounting for 49% of expenditure in 2014/15. Between 2010 and 2014, the level of spend directed to the independent sector increased by a significant 51% to more than £5 billion.

Figure 8: Segmentation of the UK Market for Children’s Social Care, by Type of Provider, 2010/11-2014/15, (% of Provision)
[graphic: image 8]
Source: MBD analysis of Department for Education, StatsWales, Scottish Government and DHSSPSNI data and MBD and Trade Estimates

Market factors

A number of barriers restrict the market from operating at full efficiency

The Department for Education commissioned a report into the children’s social market sector that listed several factors that can influence the development and progress made by the industry. These included: a lack of common understanding or appreciation among local authorities of the best route to take in their respective local areas; some local markets being too small to be contestable; limited demand management carried out by LAs; poorly developed and disjointed commissioning processes across authorities; and a lack of transparency for funding sources, which can introduce extra cost into the system.

Public expenditure cuts strain existing social care facilities and resources, with no foreseeable change ahead

Children’s services have been relatively insulated from cuts compared to other local government services, but remain under pressure to keep costs down, with price an increasingly important factor in purchasing services from independent providers. Given the current financial restrictions and the level of unmet need, social care workers are expected to do more work than ever before. They are not only expected to deal with the emergency end of the system, but also have an active role in preventing abuse cases. The provision of care for young people with the highest levels of needs is more complex then ever before. Financial decision-making by local authorities on placements in homes has become more important, with a rising number of children needing help from a lower number of available places. In 2013/14, an estimated 2.3 million initial contacts were made to children’s social care, representing a 12% increase on the previous year and a 65% rise since 2007/08.

Children’s services are being increasingly outsourced to independent providers

Virtually all provision of children’s social care is funded by the statutory sector, with local authorities responsible for providing or commissioning children’s services. However, budget restrictions have forced authorities to restrict the costs associated with children’s services while attempting to maintain the quality of services. Children's homes, foster care and special education services are therefore all now increasingly outsourced to independent sector providers, creating market opportunities for private companies moving into ‘niche’ children’s services, or even mainstream services, providing foster care or residential school provision for children with complex needs.

The implementation of provisions made in the Children and Families Act in September 2014 was the first step towards an industry-led call for sector reform

The act’s first major change was to the adoption system with LAs now required to consider placing children with family or friends in the first instance, before then attempting to place them in foster-to-adopt arrangements with prospective adopters. Young people are also now permitted to remain in foster care until they are 21 years-old, though LAs are still able to reject these arrangements if they deem them to not be in the best interest of the young person. In England, the dual system of SEN statements for children and learning difficulty assessments for 16 to 25-year-olds is gradually being replaced by a new single system of birth-to-25 assessments and EHCP.

Companies

Children’s social care services currently operate in a mixed economy. External agencies, including commercial organisations and the voluntary and community sector, are already heavily involved in providing child protection and other social care services for children. This includes agency and permanent social workers; foster parents; residential placement; assessment centres; data and performance management suites; the training and development of social workers; and a wide range of IT and other support services.

Two of England’s three biggest private providers of foster placement are owned by private equity firms - Sovereign Capital bought the National Fostering Agency in 2006 and sold it in 2012 to Graphite Capital for £130 million, whilst Acorn Care and Education, which owns Fostering Solutions, was bought from a private equity firm for £150 million in 2010 by Teachers’ Private Capital (the direct investment division of a Canadian teachers’ pension fund).

Control of residential homes has moved consistently into the private sector, which now controls 67% of homes. Large profits are made by private equity funds in the sale and purchase of residential and fostering agencies.

Market leaders in children’s social care and special education services include the charity Action for Children, Ideapark (ultimate parent company of Core Assets), Acorn Care and Education and Priory Group.

Forecast

The value of the children’s social care market is expected to fluctuate, but record continuous growth over the next five years

Forecasting the market for children’s social care is complicated by its vast array of influences. For the foreseeable future, the government’s objective is to reduce public spending. However, considerable social pressures demand the allocation of correct resources to protect and look after children, who are vulnerable and subject to circumstances beyond their control. The children’s social care market is predicted to continue its trend of a year of high value growth followed by more subdued growth in the next until 2019/20. However, annual market growth will begin to converge towards the end of the five-year forecast and is expected to stabilise soon after this period. Market value is estimated to increase by just more than £1.4 billion from £10.8 billion in 2015/16 to a value of £12.2 billion in 2019/20 - representing an overall increase of 13%.

Figure 9: UK Market Forecast for Children’s Social Care, 2015/16-2019/20, (£ Million)
[graphic: image 9]
Source: MBD forecasts

Foster care will retain its leading position in the market, whilst SEN care is forecast to further increase market share

MBD anticipates expenditure on foster care to continually rise over the forecast period, as LA budgetary restrictions remain in place and residential home scandals are expected to emerge following parliamentary and independent inquiries. The importance of the children’s homes sector in the social care market is expected to decline over the next five years, partly due to homes costing four-times more, on a per child average, than a foster care placement, as well as the sector’s growing tendency for smaller homes. Expenditure on special education is expected to increase in each of the next five years, as the academy-conversion rate among schools is anticipated to continue to rise, making it easier for private companies to provide education. In total, growth of 30% is anticipated in the sector over the five-year forecast period.

Figure 10: UK Market Segmentation Forecast for Children’s Social Care, by Type of Care, 2015/16-2019/20, (£ Million)
[graphic: image 10]
Source: MBD forecasts

What we think

The number of children looked after is expected to continue to rise. With budgetary restrictions likely to continue regardless of the election result, children’s services will be stretched to their limits to ensure that each child has equal access to different care types. However, with independent provision becoming more dominant in the sector, concerns will remain over private company intentions and whether they are doing their utmost to provide high quality services or are foregoing this to achieve greater profitability. The popularity of fostering services may also pose problems in the near future as the UK shortage of foster families is expected to widen and become a market issue. The impact of recent child abuse scandals, and subsequent inquiries, may also lead to stronger cases for policy and regulatory changes.

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