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Prices Data Must Lead To Wider And Deeper Discussion Before Decision Making

Prices data must lead to wider and deeper discussion before decision making

This publication is a companion document to the NCERCC/Revolution Consulting research study into prices paid by local authorities for children’s homes places

The above study acts as an authoritative reference on the matter for anyone involved in children’s social care. Its results are consistent with the findings of the Personal Social Services Research Unit’s annual unit cost calculations based on local authority returns to the Department for Education

This document is one of a series of publications drawing attention to many of the issues arising and inviting discussion.

The situation is one where all involved in the care of children must engage with the complexity of the situation. We need sophisticated thinking and strategy, simplification of the issues will not suffice.

The website Re:thinking children’s commissioning is designed to facilitate this collective endeavour.

Note and thanks

Extracts from the following document have been utilised throughout this discussion document. The extracts have been made applicable to England and are used to analyse or amplify findings from this study


Copyright statement

© NCERCC owns the copyright and publishing rights to this report. No part may be reproduced, stored in a retrieval system or transmitted in any form or by any means without prior written consent.

Disclaimer: Though every care has been taken to ensure accuracy of the material contained, liability can be accepted for errors or omissions.

Local authorities have a legal duty to look after children and young people who are placed in their care.

The needs of young people in residential settings have been researched many times.

The range is wide and deep. Given the range of needs there can be no single typology. Young people who are looked after in residential care have had sometimes a series of life experiences that have resulted in very serious challenging or self-harming behaviours and a range of social, emotional and mental health need , complex disabilities and conditions

The profile of many children currently living in children’s homes demonstrates the complexity of their needs:

  • they tend to have had more placements than children in foster care;
  • they tend to have significant emotional, social and behavioural difficulties;
  • more than a third are assessed as having special educational needs;
  • they are six times as likely to have mental health problems compared to other looked after children;
  • three quarters are reported to have been violent or aggressive in the past six months, with the same proportion reported to have put themselves at risk;
  • nearly half have suffered abuse or neglect and there is evidence that some young people may have experienced abuse or neglect which was unidentified prior to admission;
  • they are more likely to have had lower levels of educational engagement, advancement and achievement than other placement options; educational growth can be rapid on experiencing a settled matched residential placement;
  • at leaving care they are more likely to have low levels of educational attainment compared to their peers, and other placement types, though they may have grown rapidly in their later years when settled in residential care;
  • the vast majority are aged over 12 and around two-thirds are boys;
  • the average age of a child in a children’s home is 15+
  • 29% of children in children’s homes had had at least 5 previous placements.30% stay less than a year

A response that meets needs require diversity of provision

There is no such thing as a children’s home, as a single typology, only children’s homes, a plurality as a creative response to need.

NCERCC’s research review What works in Residential Child Care looked at some of these questions and concluded, at that time, Looked After Young People’s needs could be seen to correspond to three groupings

  • children with relatively simple or straightforward needs who require either short-term or relatively ‘ordinary’ substitute care
  • children or families with deep rooted, complex or chronic needs with a long history of difficulty and disruption, including abuse or neglect requiring more than simply a substitute family
  • children with extensive, complex and enduring needs compounded by very difficult behaviour who require more specialised and intensive resources such as a therapeutic community, an adolescent mental health unit, a small ‘intensive care’ residential setting or a secure unit.

Current conditions demand and supply summarised

  • The numbers needing residential settings are rising.
  • There is insufficient supply to meet demand.
  • The costs of these settings are rising, individual placements, and in total. LAs are finding it difficult to keep expenditure within budgets. This will be even harder to manage in future as councils face mounting financial pressure.

Spending – Prices and Costs

The NCERCC/Revolution Consulting study found the average price paid for a children’s homes place in the private and voluntary sector in the year to 31 March 2019 was £3,970 per week.

An FOI was asked of all LAs. At the time of writing there are returns from 125 LAs. 9535 placement costs were included.

LAs identified that the basis for their in-house costings was typically not on a comparable basis to the full pricing of independent sector homes. (This is discussed later in this document, with a detailed schedule). Respondents highlighted that the costs for in-house services do not include overheads or capital costs, and the per-bed calculation usually assumes 100% occupancy.

A comparable average weekly cost of LA homes, adjusted for the factors described above is £4,761 per week.

On the basis of the data to hand the two totals are not be taken and used as comparable by any party. They report prices paid internally and externally. They do no take into account levels of need or any other factor influencing price.

However it can be said that as LAs, and any other party, do not have all the necessary information we do not know if the best use is being made of resources, financial or human. For example, they may set a target to reduce expenditure on independent provision without being aware of how much it costs to make alternative, in-house provision.

Without reliable information about quality, costs and outcomes, such decisions cannot be made in the best interests of the children concerned and the community more generally.

Quality of care

The Ofsted outcomes of inspection have been sustained. We know the quality of care.

There is broadly the same range of outcomes of inspections and of costs for homes across all ownership types.

A strategy making best use of all homes is needed – provate-public partnership

The data regarding prices and outcomes being within a small range suggests that a public-private partnership approach is possible making use of all available homes according to a strategy.

This requires a strategic approach to managing services with greater partnership working and wider inclusive level playing field commissioning.

This type of strategic approach does not exist. Neither Government nor LAs as yet have clear strategies and detailed, realistic plans for residential child care, based on predicted needs.

Having no strategy results in spot purchasing

There has been no strategic approach to planning and commissioning these services, almost all residential places in the independent sector are currently ‘spot purchased’, planned only from the moment that a child is identified as needing a place.

This had advantages and disadvantages for LAs and providers. One example of an advantage is that with diverse LAs seeking places there can be closer matching of need to provision. A model of care, trained and supported staff team, and assured admissions criteria are three aspects that go to create the environment for ‘creating the environment for excellence in residential practice’ as described in a recent Ofsted social care commentary.

One disadvantage is the result is that decisions for some children are being limited by space available but from a small number of scarce resources, rather than space being created as a result of analysis and strategy to meet need.

Placement decisions should be based on clear information about the needs of the child and the types of care provided in different settings. If the best option for a child is to be placed with an independent provider, councils should already have arrangements with independent providers that will help ensure the right placement is available for that child.

It also means that councils place children with a large number of different providers. It is a complex task to manage all the relationships . This in turn makes it difficult for providers to work in partnership with LAs to plan for and develop their services to meet predicted needs.

It is important to understand the complexity of costs

Pricing is complex. The range of weekly fees generally reflects the range in needs and services being purchased for individual children. Each child in a home requires different care and this leads to different prices. The same service is not being delivered to each child, or across several homes. Unit costs are not possible.

What varies the most is the number and specialisms of staff, depending on a child’s needs. For example, a child who may harm themselves or others may need more staff to be available to support and control them, while a child with learning difficulties or sensory impairments may need more specialist tuition and therapy. As staff costs account for 75 to 80 per cent of placement costs, this will have a direct and significant impact on weekly costs

Property costs are typically only a small proportion of the overall costs of a placement. The attention given to this aspect of costs diverts from others.

Tendering is time and is expensive

Independent providers report that tendering for services involves a significant investment of their time to provide only a few child care places, and this can result in fewer responses being received to tender invitations from LAs.

The amount of work involved for LAs in preparing and undertaking a tender exercise for such specialist services can be significant, and this reinforces the need for a national, or at least joint, approach to commissioning and a greater focus on partnership working with providers. If more LAs and providers work together there will be less duplication of effort for both providers and councils without losing any of the benefits. However there are individual LAs, sub-regions, and regions all working to different arrangements.

Often it is not appreciated how much it costs to set up (around £1m per home)

Two important aspects necessary for an improved approach

  • LAs need to ensure that their commissioning staff have the appropriate knowledge, experience and skills in the care of young people.
  • Providers need to ensure their staff have the appropriate knowledge, experience and skills in commissioning.

In-house and independent

Sometimes LAs are placing children with independent providers because they do not have suitable places in-house, or any places in-house. There then starts an often lengthy search for matching and availability.

About one third of LAs do not have a children’s home and some that do have them for needs other than SEBD/SEMH, for example they are short breaks. Sometimes councils prefer to place children with in-house homes whenever a place is available, and consider external options only when the in-house options are unavailable or unable to cope.

These decisions seem to be made on an assumption of economy and efficiency reasons.

Where councils seek to maximise the use of their own provision, this approach can lead to:

  • decisions being made without all (and possibly the best) options for the child being considered
  • more decisions on independent placements being made in an emergency, when in-house provision cannot cope any longer with particularly challenging behaviour or specialist needs
  • sometimes unsuitable placements which break down more often, resulting in more change and less stability for the child
  • the needs of the child not being effectively met.

LAs may have underestimated their in-house costs due to weaknesses of their methodology i.e. excluding capital costs

In the NCERCC/Revolution Consulting study there was admission by some LAs that they were unable to determine how much they spent on the key elements of direct cost.  We do not know how much is included in the sums of which we are advised is spent on staff salaries and goods and services, or overheads, such as human resources, finance and legal services which may be provided centrally in council).  These sums are included in the fees by independent providers.

Audit Scotland found estimates for other costs ranged from one per cent to 24 per cent of the overall, with no clear reason being evident for these considerable differences.

The NCERCC/Revolution Consulting study used the method for LA homes costs of adding in overheads and notional capital costs at 30% = £937. Gross up factor for less than full occupancy (85%) = £4,761. £3,110 + £937)/0.85.

A reasonable estimate is that adding a calculated percentage for lower figures in the  returns to this NCERCC/Revolution Consulting study shows them then being in the region of the higher sums from some LAs. This estimate would increase the average weekly costs of LA provision.

The value of the provision to the LA that has homes may not solely be financial and include other factors, such as co-location of services.


Another factor contributing to costs is the level of occupancy. Not every place is filled on every night of the year, and providers will plan for an occupancy rate of less than 100 per cent to allow them to respond to placement decisions.

In some LAs, in-house provision may be preferred to the extent that an occupancy rate of 90 to 95 per cent, or even higher, will be assumed.

Independent providers consider that a planning level of between 80 and 85 per cent is more realistic.

LAs cannot make reliable comparisons between the cost of their own provision and the fees they pay to independent providers unless they take into account all the elements of direct cost and the average occupancy levels of their own provision.

Residential placements: the elements of direct cost

All the key elements of direct cost need to be included.

  • Employee payroll costs Salaries, National Insurance and superannuation, costs of temporary and sessional staff and support staff
  • Employee other costs Staff travel and subsistence, training and development, professional fees and registration, mobile phones and recruitment costs
  • Professional fees for services for children
  • Fees paid to external individuals or organisations for therapeutic services, counselling or other specialist services for the direct treatment or care of children and young people
  • Property costs Rates, rents, loan repayments and property insurances, ordinary repairs and maintenance, upkeep of grounds, furniture and fittings (replacement), heating and lighting, cleaning
  • Supplies and services
  • Provisions, clothing, social activities and community participation, supplies for children and young people, other supplies and services, excluding children’s personal living expenses Local administration costs
  • Non-property insurances
  • Ofsted and other registration/membership fees
  • Administration, printing and stationery, telephones, postage, company cars, leasing arrangements, other general office costs.
  • Also fees paid to external lawyers, accountants, auditors, etc
  • Children’s personal living expenses, toiletries, postage, telephone calls, clothing allowance, pocket money, savings,
  • Travel expenses
  • Costs associated with activities, hobbies, leisure interests
  • Christmas and birthday presents, annual holiday (for long-term placement)
  • Central overheads
  • Contribution to central costs such as payroll, HR, IT, finance, legal, etc and senior management costs

In LA accounts these can be distributed across many budget headings and are excised from the total costs quoted.

Indirect costs – the individuality of the costs to maintain placements

The full cost of placing and maintaining a child in residential care is not just the direct cost of providing the place in-house, or the fee paid to the independent provider. It includes the indirect costs of all activity undertaken by social services and others to set up and maintain the placement.

This includes care planning and reviews, visits by the social worker and the family and any additional therapeutic or specialist resource required.

Some of these costs can vary significantly, particularly if a child has a number of placement moves or where a placement is some distance from the council area.

The direct costs (including overheads) pay for the core services that all children need – somewhere safe and comfortable to live, food, clothes, toiletries, hobbies and activities and other day-to-day items. Education and therapeutic treatment is included in direct costs where it is provided as part of the standard service, for example a residential school for children and young people with autism.

The costs of maintaining and supporting placements is the part that varies most because it depends on the needs of the individual child, their circumstances, how long they are looked after, how often they move placements, the placement(s) chosen for them and what is included in the fees.

We have seen no public evidence of LAs estimating the full costs of different types of care or the processes that support them, and they have not made use of costing models.

It is important for councils to understand the cost of maintaining and supporting placements, so they can not only achieve value for money but can be sure that they are directing resources at their priorities and making the most efficient use of the resources they have.

Indirect costs include

  • Social workers’ and IRO time
  • Commissioning/ contracting staffing
  • Quality Assurance staffing
  • Independent advocacy services
  • Additional support, eg extra tuition, specialised therapeutic treatment, counselling,
  • Educational psychologists’ time
  • Travel costs
  • Other services, eg translation/ interpretation
  • Central overheads for children’s services, eg property, administration and management costs
  • Education costs (if not provided as part of placement)
  • Children’s Services administrative support and management

Market position and Sufficiency statements

There is underappreciation that there are 152 competitor LAs for the scarce resource of children’s homes placements. Every LA needs to be able to attract providers to meet the needs of its children

Many market positions statements have not been based on an evidenced detailed needs analysis identifying the amount of need, level of need, and combination, with an analysis of the past 3 years along with trend forecasting. A detailed needs, using detailed descriptions of needs and demand at various levels is necessary

A market position statement needs to appreciate the diversity of providers with regard to models of care and their various business models.

The majority of providers are small. The LA needs to demonstrate the needs and identify the business case for a provider

Whilst LAs produce Sufficiency statements, often descriptive rather than analytic, about the current situation rather than what is needed, it is rare to find an understanding of the factors creating insufficiency, and where this does occur it is often directed towards provider actions or inactions without LA responsibility being included.

In a shared responsibility the LA might assist providers in meeting the risks that are preventing places being made available. Equally providers may assist the LA understand the aspects of their services/personnel that need to change to enable placements. For example, it might be earlier placement.

Both may gain from intelligence needed about the providers, their quality of care, occupancy levels, or from a gap analysis of needs and places.

With regard to Market position/Sufficiency statements there are some key messages to make, avoid and make as opportunities for joint exploration

  • Meeting need is the method to most effective spend, ensured supported occupancy of the right child in the right place at the right time, is the way to maximise investment
  • Avoid statements regarding reducing the spending and use of residential care. This is a negative message likely to deter providers
  • Key question = residential care has a history of innovation – what is preventing it? The current spot market purchasing of children’s homes places vacancy risk at the door of the providers, and a shift to sharing this risk offers an opportunity to reset the commercial and operational boundaries.

Best value

The duty of Best Value requires councils to make sure that services keep improving while maintaining an appropriate balance between quality and cost.

While LAs have included objectives in their future planning to reduce the number of children they place in residential care, we cannot see formal reviews of service requirements leading to a plan for arrangements before setting this target. Without a full understanding of the cost and quality of all options, councils cannot demonstrate that at a strategic level they are achieving Best Value for looked after children in residential care.

LAs have a duty to achieve an appropriate balance between the quality and costs of the services they provide. To achieve this, they need to understand not only how effective different types of service are in meeting children’s needs, but also have accurate information about the full costs involved for each.

LAs need to be able to demonstrate that they are achieving value for money for residential child care. Value for money is achieved through ensuring a good balance between the quality of a service, in terms of the outcomes it achieves, and its cost. LAs cannot be assured that they are achieving value for money as there is insufficient clarity about the quality of services and outcomes and the costs of all types of provision available.

Although LAs know how much they are paying for places in the voluntary and private sectors, the lack of strategic commissioning means they have little control over it. LAs cannot demonstrate that they are using the most cost-effective provision as they do not have full and accurate information to conduct options appraisals or compare alternatives. LAs cannot effectively target resources without knowing what different services cost

Difference in spend by LAs

The total amount spent by each LA on residential child care placements varies.

The reasons need researching

The NCERCC/Revolution Consulting study is the only database that exists that will support this analysis. The two organisations have an advised methodology waiting to be commissioned.

Many LAs residential child care budgets are unrealistic

Many commissioners will privately say that overspends are in fact what is costs to provide care for young people with very high needs.

The research of Bywaters et al shows how reductions in family and community services results in more children needing statutory interventions and services. This results in the budgets for these services becoming overspent. As the level of care and numbers rise so necessarily does the spending required.

It is important that the potential benefits of commissioning arrangements are balanced with the costs of the exercise. It is also vital that the focus of commissioning is firmly targeted on improving the quality of services and outcomes for looked after children.

LAs need to understand the costs involved at all intervention stages in order to direct resources effectively. Having this information readily available will enable councils to make firm policy decisions on improving the lives of vulnerable children and their families. Research suggests that investing in early intervention services for vulnerable children and families can mean that fewer children need to be looked after by their local council and more go on to live successful, economically active adult lives.

However there is no indication that this will reduce the numbers requiring residential options as these needs occur through differing origins and at later ages than usually for early intervention.

It is necessary to fund both early and specialist high level interventions.

Looking at LAs budgets allows the insight that directing spending from residential options is likely to prove to be insufficient to fund early interventions. Reduction in numbers and spending of residential child care is not a solution to the funding of early intervention. It may provide a small amount of additional funds but these are likely to be smaller than could make a significant difference.

Considerations of the effects of a reduction in spending for residential child care

There is the need to think about how this could be effected and the affects, the consequences on a small provider sector. What is to be done regarding the large debt they have? Given that a children’s home costs around £1 million to open it takes years to begin to pay of the funding interest. Many may not be seeing that they can even now and look to sell to a larger organisation. There is the uncomfortable spectre that no RCC provider can actually recover their investment unless and until they come to sell. A reduction in fees will set the repayment date further off into the future likely to affect investor confidence. This along with a reduction in morale in providers could lead to disinvestment or aggregation/sales, both resulting in a further concentration in a few organisations. At such a point LA’s would be ‘commissioning’ or procuring from a small group of large providers providing a scarce resource.

There is another potential future in such a situation of the unplanned exiting of providers, large or small, from the sector. In such a small sector, especially with some specialisms, it would take a very small number of providers to exit to leave a very big space that could not be filled or bridged. This is not being taken into considerations and likely, even if we asked providers, they would not agree or admit such a proposition. Knowledge of residential resource closures over the decades shows that providers keep going through commitment to the children and the task of residential child care beyond reasonable and rational financial positions. A turnaround financially becomes evidentially untenable along with an overwhelming despair, identity and resilience are lost irrecoverably, and speedily. In a sector of small and often family financed provision, at least, such a situation, and the actions that could create it, needs to be kept under observation.

Quality of information to support strategy does not exist

The quality of information available about the needs, progress and costs for looked after children in residential care is generally in need of widening and deepening.

A method for assessing needs and outcomes is needed to know VFM

Alongside any scrutiny of spending there must be an investment in the best methods of discerning needs and the outcomes of care.

A profile assessment is needed to be applied nationally and the results aggregated over time.

There needs to provide a systemic and historical view. LAs can anticipate broad patterns of demand for residential child care by looking at what happened in previous years and taking account of current trends, and potential unmet need.

Only looking only at providers and outcomes on leaving is not insight.

Only if we have both spending and outcomes will be able to know VFM.

Only if we have both are we in a position to make policy decisions. This will not be possible only looking at providers.

In summary

Well-managed services are essential for ensuring that children receive the right care at the right time to achieve the best possible outcomes for them. This means having a clear strategy and detailed, realistic plans for implementing it, and monitoring and reviewing them regularly.

LAs find it difficult to plan and purchase specialist residential services for very small numbers of children and young people. Having only one or two children with particular needs and requiring a placement over a year and it can be very difficult to predict. A national approach or joint working among groups of LAs can benefit services in these circumstances. This is a different approach than being taken by the regional commissioning groups.

Improvements in the way LAs manage these services would contribute to improving the care and the longer-term outcomes for the children and young people concerned:

  • LAs are not fully aware of all the costs involved for both in-house and independent provision and what factors lead to better long-term outcomes for looked after children
  • LAs do not always have clear strategies and plans in place, either for the service overall or for the care of individual children.
  • There are weaknesses in how councils commission services from in-house and independent providers and monitor a child’s progress.
  • Where there is good practice, it is not shared well, and improvements are needed in management information.
  • Given the relatively small numbers of children looked after in residential care there is considerable scope for a national strategic approach. These services can be delivered more effectively but this will require LAs to work together with residential providers.

Key recommendations

LAs should:

  • have clear strategies and plans in place for looking after children in residential care, supported by reliable information systems and effective management processes. This will enable officers to plan, monitor and review services based on accurate forecasts of need, and to support councillors in making effective decisions and setting realistic budgets.
  • move from a transactional to a relational commissioning model
  • ensure that care plans are in place and kept up-to-date for every child and that these contain clear actions and measurable outcomes which reflect the needs of individual children
  • ensure they understand the costs and quality of all the options available when making strategic service and placement decisions. This will help to demonstrate that they are achieving value for money in residential child care.

Government should

  • provide stronger leadership and direction to support LAs to plan and improve the management of residential child care
  • identify in collaboration with LAs and independent providers the factors that lead to better long-term outcomes for looked after children
  • Identify appropriate costing models to help LAs understand the full costs of different types of provision. The unit cost approach taken currently does not provide sufficient insight.
  • Implement a national strategic approach to commissioning specialist services for small numbers of children
  • encourage and support LAs and independent providers to develop a suitable service specification and contract arrangements, ensuring there are systems in place to monitor cost, quality and outcomes.