Financial transparency and profit limitation in children's residential care, consultation response

Q1: Do you agree that the provisions outlined should cover both children’s residential care home services and residential schools provided by persons other than a local authority? Y/N

YES – wherever public funds are the main source of income for an organisation

Can you give reasons for this?

We strongly support the principle that care should be driven by compassion, stability, and the best interests of children and young people, not by profit. In common with The Promise, we believe that there is no place for profit in how Scotland cares for its children. In addition, there is an ethical imperative in making the best use of public funds and taxpayers’ money for the benefit of our communities.

The Independent Care Review and subsequent work under The Promise made it clear that the marketisation of care undermines the relational and rights-based grounding that children and young people need. Profit-driven models risk prioritising financial outcomes over the quality and consistency of care. Organisation or shareholder expectations for profit can lead to a race to the bottom in wage rates, training and support for staff.

We support proposals that seek to limit or eliminate profit within children’s residential care services. We believe that public and third sector models, grounded in accountability, transparency, and child-centred values, are better positioned to deliver the kind of care Scotland has committed to under The Promise.

However, the current phrasing of the proposals is vague and leaves considerable room for interpretation regarding what constitutes “extensive profit.” As a result, we question whether the proposals, in their current form, can lead to meaningful change. Nonetheless, we welcome the intent to safeguard against increased marketisation of children’s care services in the future.

We encourage the Scottish Government to continue working collaboratively with stakeholders to ensure that any transition away from profit-based models is carefully managed. The focus must be on maintaining continuity of care and safeguarding the wellbeing of children and young people.

Whilst we welcome this potential positive change within Children’s Services, an equally concerning issue is the role of profit in residential care for adults, see national-care-service-scotland-report.pdf. This impacts not only the public purse but the finances of individuals and their families, often dramatically.

Q2: Do you agree that both Not-for-Profit and Private services should be included in these proposals?

YES

Can you give reasons for this?

Parity of scrutiny across public, third sector and private service providers is important in understanding the true cost of care provision for children and young people. Without including not-for-profit, private and charitable services, it will be possible for providers to change their legal status to avoid scrutiny. This would undermine the intention of the Bill.

Fostering and adoption services are required to have a charitable status. It would be sensible to keep the same model across the sector to avoid driving provision in unhelpful ways.

Q3: Should the Bill provisions also cover other services such as secure care?

YES

Can you give reasons for this

Secure care is a specialist form of residential care and should be included. It provides essential support to some of the most vulnerable young people, who need skilled, compassionate staff able to provide a high level of care to meet very complex need. Where profit is a factor in service provision, there is a danger that compromises are made in staffing levels, professional development and service provision to maximise profit levels. This impacts negatively on the young people who most need this support. Secure care is expensive. Providers have to employ well-qualified and experienced staff and attend to the fabric of buildings whether all places are filled or not.

Q4: Do you agree with the proposal to increase financial transparency? Y/N

YES

Could you give your reasons for this response?

Children have a right to receive high-quality care from local authorities who hold corporate parenting responsibilities for them, whether provided directly by the local authority or through third sector or private providers. Financial transparency across all providers enables comparisons of costs and service provision across all providers which can support local authorities to meet their duties in the most cost-effective way. It may also provide early warning of any issues in provision, or unintended impacts of this legislation, such as a reduction in provision.

Q5: What implications will financial transparency have on the different types and sizes of residential children’s homes?

This is not SASW’s area of expertise.

Q6: How could we minimise any negative impacts you have outlined above?

This is not SASW’s area of expertise.

Q7: In order to cause the least impact to businesses, what format do you believe the financial transparency request should take? i.e. audited annual accounts or a more detailed version of the information captured in forms such as those provided to SXL or CI.

We would suggest that the impact to businesses should be balanced against the imperative to provide effective and cost-efficient services for vulnerable children. In which case we would expect annually audited accounts to be made public with a concomitant reduction in financial reporting to the Care Inspectorate and SXL to prevent duplication of effort.

Of central importance, and not currently clear, is to whom this information will be reported to, how they will make analysis publicly available, the costs of providing such a service, and who will be responsible for funding that service. We believe this is of paramount importance because this system, run well, could provide early warning of service or market failures.

Q8: What explanatory information would you want to provide alongside the financial information collected to demonstrate the ways in which the finances are structured? (i.e. additional funds being saved to open a new home)

Whilst the increased or enhanced provision of services may be an admirable intention, it is important to separate out investment in services and investment in infrastructure. Enhancements that improve the quality of care offered, investments in better qualified staff, training, and improved physical environments are clearly valid reinvestments.

However, investment to increase the number of placements by, for example, subdividing accommodation, were it to occur in a system allowing profit, would mean that public money was being saved and reinvested to create greater private profit. This would deliver only the indirect benefit of increased placements to taxpayers, potentially at the expense of the comfort of children.

Q9: Do you agree that the information should be provided at individual service level, provider level and at parent/associated company level?

YES

Can you please explain your answer?

Some providers will offer small, specialist services in addition to mainstream group settings. Profits from one setting may at times be used to offset a loss made in another setting, particularly in small, specialist settings which are expensive to operate and may as a result have higher vacancy levels. It is important to provide information across service, provider and parent company levels to ensure that complex profit-creating relationships between services and associated company levels can be seen.

Q10: Is there any additional information that the Scottish Government should be collecting that is not included in the proposal above?

Nothing further to add

Q11: Would it be useful to use the financial information collected to watch for potential market failure? Y/N

YES

Can you give reasons for this?

Market failure would have consequences for children and young people directly, as well as for the ability of local authorities to deliver on their statutory duties. Using the financial information suggested would allow local authorities to monitor for potential market failure and to undertake succession planning for the future care of children and young people.

Q12: Do you agree with the proposed measures outlined above?

Yes

Could you please explain your reasons for your answer?

Not for profit businesses are able to set aside income generated to invest in infrastructure, their workforce and innovations in provision. They are also able to generate contingency which can mean that in the event of a market shock they can sustain the business without recourse to public funds. However residential childcare provision is a mixed economy and in order to understand variations in financial practice and therefore the risks that are mitigated by contingency, or the degrees of investment required at different points in the life cycle of infrastructure and workforce planning it is essential that this information is understood and analysed transparently.

Q13: How would you define profit for these purposes?

There are probably several different levels and definitions of profit; dividends paid to investors, excessive rent paid to parent companies, excessive payments to directors of services, excessive senior staff salaries. If profit is disallowed, salaried senior staff with a financial interest in the care service may increase their salaries to avoid creating excessive profit. This is something that should be scrutinised in the returns made to Scottish Government and others on the finances of services.

Q14: Could this impact a residential childcare service’s ability to meet their aims/function and objectives?

Realistic costs should be reported so that services are able to meet their aims, functions and objectives. Costs should include funds to allow providers to maintain staffing levels during periods of vacancy, particularly in small specialist settings that are more likely to have voids, but who also need to maintain a strong skill set within their staff team.

Q15: What challenges would services face in trying to reduce profit/surplus and how could this be supported?

This is not SASW’s area of expertise.

Q16: What impacts could these provisions have, both positive and negative, on providing the best care for Children and Young People?

Many care providers operate a range of different placement settings, eg homes that provide care for a number of young people, specialist placements that offer therapeutic settings and small settings that provide care for 1 or 2 two children who need intensive support. There is a danger that providers move away from providing more intensive placements as these invariably are more expensive to run per child and therefore less attractive to local authorities looking for placements.

There is also the possibility that care providers restructure or reduce the number of placements available, leading to children facing unplanned moves or changes to their placement setting. At all times it should remembered that these are childrens’ homes where unneccesary moves should be avoided or undertaken as a last resort.

The Scottish Government in conjunction with local authorities should consider risks to the market caused by increased financial reporting and seek to minimise the impact on children and young people.

It may lead to providers moving out of children's services into arenas where profit in care is still accepted, such as care homes for adults and older people.

The Scottish Government needs to develop a strategy together with local authorities to create additional provision in the public sector should this begin to happen. It should reduce the risk of this happening by extending the limits on profit to encompass adult’s services.

Q17: Do you have any comments on the partial Business and Regulatory Impact Assessment?

Q18: Do you have any other comments on the residential childcare proposals in the Children and Young People (Care and Services Planning) (Scotland) Bill?