Unregistered Children's Homes Charging High Fees Despite Being Illegal
The bungalow does not resemble a typical children's home. A sheet of privacy film is incorrectly placed outside a window and is peeling. Inside, the wallpaper is flaking, carpets are worn, and doors are broken. This children's home is unregistered and therefore illegal, yet the provider charges a council in another part of the country £13,000 a week to care for a vulnerable teenage girl requiring support from three full-time staff members. There are no books, toys, or games available.
Nearby, another illegal children's home operates from a council house. The tenant sublets the property to a company charging a different local authority thousands of pounds weekly.
Five years ago, investigative reports into such placements led directly to a government ban on the use of unregulated children's homes in England. Investigations revealed children as young as 11 were housed in homes unregistered and uninspected by Ofsted, including squalid flats, tents, caravans, narrowboats, and a home under police surveillance for suspected gang activity.
Reports also exposed cases where a girl was trafficked from her home and sexually abused, and a boy was kidnapped from another home to sell drugs. A Newsnight investigation highlighted teenagers being abandoned to organised crime.
The 2021 ban on placing under-16s in such homes aimed to end this practice. However, councils struggling to find placements are placing more children than ever in these now illegal homes, at significant taxpayer expense. Some unregistered placements reportedly cost up to £2 million per child annually.
Dr Mark Kerr, chief executive of the Children's Homes Association, describes the sector as a "Wild West" and calls the situation the result of a decade of systemic failure to develop specialist provision for vulnerable children.
While most children are fostered, adopted, or placed in legal children's homes, local authorities face challenges accommodating children with complex needs who are often the most expensive to care for. Approximately 800 cases in England involve councils placing children in unregistered homes despite the ban, according to the Public Accounts Committee.
The Scale of the Problem
Counterintuitively, the use of illegal children's homes has increased alongside a surge in registered children's homes, which doubled from 2,209 to 4,455 over eight years, according to Ofsted. This growth occurred despite only a 9% increase in children in care during the same period.
Sources indicate this rise results from a rush of new providers entering the market, including private equity and property investors, many without prior care experience. Prices have surged accordingly. Council spending on children's residential homes in England has doubled in four years and tripled in eight. Four years ago, some companies reported profits of 40%.
Staffordshire council paid £2.6 million last year for a registered placement for a teenage girl requiring up to five staff. The council cites a national shortage of specialist homes and notes the NHS covers half the placement cost.
The average placement in a registered home now costs £6,100 weekly or £318,000 annually.
However, unregistered homes, which Ofsted tracks due to their brazen operation, are the greatest concern.
Visits to many such homes reveal poor environments for children who have experienced severe abuse and neglect before entering care.
One caravan in Lancashire housed a 12-year-old boy under a company that also uses narrowboats, with children frequently moved between the two. His brother, in contrast, has been in a stable and less costly foster placement for years.
In Portsmouth, a flat above a shop housed a 14-year-old known to be at risk of jumping from windows.
A whistleblower described seeing a boy living in a house where the sofa was supported by bricks, and another witnessed a child barricaded inside a room.
Chereece, a care leaver, recounted being moved between holiday homes in Wales for months, sometimes twice weekly.
"It was an absolute nightmare. Different staff, different young people - I felt like I was a prisoner."
Many children in illegal homes reside in terraced or suburban housing in northern England, where rents are cheaper. Clare Bracey from the charity Become notes that one in five children in care live at least 20 miles from their original homes.
Even illegal placements can be extremely costly. Freedom of Information requests reveal multiple illegal homes charging over £2 million per child annually in extreme cases. Rising costs reduce funding available for early interventions that might prevent care placements, according to the Local Government Association.
Reasons Behind Councils' Use of Illegal Homes
Despite their illegality, councils place vulnerable children in substandard, unmonitored settings due to a shortage of suitable registered homes for children with complex needs.
Approximately 10% of children needing residential care are placed in illegal homes. These children are sometimes violent, require restraint, or must be locked under High Court Deprivation of Liberty orders for their welfare.
Previously, many were placed in secure children's units, which are locked facilities with limited and costly availability. Cornwall recently paid £63,000 weekly for such a placement.
Councils claim they have no alternative but to use illegal homes.
"It's a situation akin to removing the 'sickest patients' from hospitals and placing them in backstreet clinics," says Anders Bach-Mortensen, associate professor of social care at Roskilde University.
Property Investors and the Rise of 'New Buy-to-Lets'
Despite increased supply, placement costs have risen. Some registered home directors attribute this to profiteering and an influx of property investors converting rental properties into children's homes.
The current landlord exodus from the rental market has led some to convert properties to children's homes. An online cottage industry advises landlords on flipping rentals for this purpose.
"Children's homes continue to offer a compelling alternative to traditional buy-to-lets," says a middleman marketing his ability to secure planning permission on Instagram.
One Hemel Hempstead conversion is described as a "fully hands-off investment with guaranteed income and no ongoing headaches."
Facebook groups for children's home managers and directors reveal many openly admit to running illegal placements.
Some providers blame Ofsted's registration process, calling it "broken" and enabling illegal homes to "thrive." The surge in registration applications has led to waiting times of up to 18 months for decisions.
Consequently, some homes open illegally to avoid financial ruin from rent and start-up costs.
Providers explain that registered homes often refuse to accept children with complex needs due to risks of property damage, assaults on staff, and frequent absences. Even with fees of £30,000-£40,000 weekly, they prefer to keep homes empty.
The sector's reputation suffers from the Doncaster Hesley scandal, where 106 children with learning disabilities endured systemic abuse, including being punched, hit with dog leads, and left outside overnight in winter. Ofsted received over 100 notifications before closing the homes in 2021.
Providers say Ofsted now reacts strongly to safeguarding alerts, triggering inspections that discourage accepting high-needs children.
"After Hesley, Ofsted came out really defensive: if they suddenly saw a home with lots of notifications, it would trigger an inspection. So providers started sitting back going: 'Oh, I don't want to take that child,'" says Dr Kerr.
Official Responses and Legal Challenges
When the ban on illegal children's homes was introduced, Conservative Education Secretary Gavin Williamson stated in 2020:
"The BBC had highlighted something that just needed to be changed. That isn't something that we are going to allow to continue. I think anyone with compassion in their heart realises it's not right."
Despite this, Ofsted has not successfully prosecuted any illegal home providers. The regulator reports ongoing proceedings and new powers allowing unlimited fines for illegal homes.
Ofsted prioritises registrations for urgent placements and expresses concern over some providers' profit motives.
Local authorities also break the law by placing children in illegal homes, yet no stricter regulation holds service directors personally accountable, unlike sectors such as financial services.
Some unregistered providers have started billing councils separately for accommodation and staffing through different companies to conceal operating illegal homes. Ofsted states this does not alter the illegality.
Historically, local authorities owned and ran most children's homes, but abuse scandals from the 1990s led councils and charities to withdraw. New Labour policies encouraged commissioning social care from external providers, reinforced by David Cameron's call to reduce state control over public services.
Currently, 84% of children's homes in England are privately run, compared to 17% in Denmark.
Governments have failed to address the persistent shortage of suitable placements for these children, according to Dr Kerr.
"It's always somebody else's fault: it's either the local authorities' fault or the scandalous profiteering residential sector; nobody will seem to accept responsibility," he says.
Additional pressures include a sharp decline in youth custody use and limited mental health inpatient beds, creating bottlenecks for children in crisis.
One child in ongoing mental health crisis recently spent six consecutive nights in A&E due to lack of placement options.
Government Initiatives and Future Solutions
The Westminster government aims to address the issue through the recently passed Children's Wellbeing and Schools Bill, which establishes a legal framework for placing children facing movement restrictions in children's homes.
The government also plans to create 10,000 new foster places and invest £53 million in new homes.
Critics argue these measures are insufficient. The UK's broader residential care policy remains unclear.
Welsh and Scottish governments are exploring ways to reduce private sector dominance; Wales now requires all new providers to be not-for-profit.
In February, reported that UK children's homes minister Josh MacAlister intended to cap provider profits if profiteering persists, though no official announcement has been made. The Department for Education declined to comment on this policy.
The minister stated that running unregistered homes is "wrong" and new legislation will provide additional safeguards for children in care.
Experts suggest the market failure to provide placements for children currently in illegal homes must be urgently addressed.
"One solution may be the construction of many more publicly owned children's homes, but this is enormously expensive and may require greater central government involvement given the parlous finances of most local authorities," says Anders Bach-Mortensen, also a senior researcher at Oxford University.
Another potential solution is partnerships between councils and the UK's emerging non-profit sector, which currently accounts for only 4% of children's homes compared to 29% in Denmark.
"The UK is stuck in a bind where changes are needed but 'acting rashly' could mean driving good providers out of the system," Bach-Mortensen adds.
Until resolved, the most vulnerable children in society will continue to bear the consequences.
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