EHP Consultancy
Portfolio for legislative and regulatory compliance, commercial knowledge, operational
and strategic governance & management in Children's social care UK
When ‘profit’ isn’t profiteering
In 2023, more than 4 in 5 children’s homes were owned by private companies (2,748 homes, 83%), which accounted for 9,648 places (77%) of 12,458 places. Of the remaining 572 children’s homes, 436 (13%) with 2,088 places (17%), were owned by either the local authority (404 homes, 12%) or a voluntary organisation running services on behalf of the local authority (32 homes, 1%).
The private sector has come under significant criticism regarding ‘profit’ to the extent of being
accused of ‘profiteering.’ However, without private sector investment and associated risk taking
and initial accumulation of debt, what would the marketplace look like?
The impact of the budget relating to the increase in employers’ national insurance is yet to
manifest. However, the proposal for ministers to create a new employer NICs band with a lower
rate of 5 per cent for workers earning between £5,000 and £9,100, or to implement an exemption
for lower-band taxpayers who work fewer than 20 hours a week would be helpful.
Local authorities already monitor breakdown in costs on an individual basis for bed prices and this
is hardly reported. Ofsted and local authorities need to better understand the economics of the
sector rather than look at a single line on a spreadsheet. What would also be helpful, is for Ofsted
and local authorities to understand the true cost of setting up a new home. This is exacerbated by
Ofsted in particular, in taking so much time in completing the registration process: During this
time, a staff team are paid salaries while the company cannot generate any income. The previously
suggested figure of ‘up to £100k ‘ investment to open a new home is more likely to be closer to
double this amount if the Registration process is prolonged. It needs to be better understood that
investment and pre-operational losses need to be paid back. With such a deterrent to private
sector investment, where would local authorities have placed 9,648 children last year? Perhaps a
boom in the unregulated provision market? Any slump in investment brings this economy crashing
down: and you think it’s bad now?
Companies need to pay back loans and other start-up debt, generate a (required) contingency,
reinvest in the business, pay good salaries, avoidance of high levels of debt, etc. The figure
suggested by the Competitions and Markets Authority suggest return on investment of up to 6%.
However, ROI and profit are not necessarily the same thing.
Therefore, acceptable levels of ‘profit’ need to be better understood – rather than the simplistic
understanding that generates allegations such as ‘profiteering.’
Is your consultant continually ‘horizon scanning’ to keep your potential business up to
Visit our site for details.