Children’s Residential Care: letter to Minister

To: Minister for Children, Young People and The Promise
cc/ Deputy First Minister and Cabinet Secretary for Economy and Gaelic          

From: From: Professor Russel Griggs OBE, Chair - Regulatory Review Group

Dear Ms Don-Innes,

I am writing as Chair of the Regulatory Review Group (RRG) to provide independent advice on proposed measures in the Children (Care, Care Experience and Services Planning) (Scotland) Bill. These consist of enabling powers for both Financial Transparency Regulations to assess profit levels in the children’s residential care sector, and for regulations to limit levels of profit within the sector if deemed necessary by ministers.

This note provides an overview of the RRG’s role and details recommendations on the pace of change, and enforcement and communications considerations.

Regulatory Review Group (RRG)

The independent RRG was re-established by the Scottish Government as part of the New Deal for Business to support Scottish Ministers in improving the regulatory environment for businesses and their involvement in that process. The RRG’s membership is detailed in the Annex. The RRG consider upcoming regulatory developments and as part of its work programme identified the proposed measures in the Children (Care, Care Experience and Services Planning) (Scotland) Bill as a scrutiny priority.

The RRG’s objectives are to:

1. Work constructively with the Scottish Government to ensure that policy officials and relevant Ministers are sighted on implementation challenges with regulations early in development.

2. Deliver purposeful and targeted written and verbal advice to the Scottish Government, drawing upon extensive expert insight from business and regulators across Scotland.

3. Support the delivery of the New Deal for Business by ensuring that the potential barriers to the success of Scottish Government policies are removed through an improved understanding of the practicalities of implementation.

The RRG’s remit is to examine and identify implementation challenges and appropriate mitigations of regulation. The RRG does not provide a view on the appropriateness of substantive policy or decisions to be taken on legislative priorities.

Financial transparency and profit limitation in Children’s Residential Care

Along with RRG members, I met with your officials on Thursday 30 October 2025. Your officials provided an insightful presentation on the policy issue and provided detailed responses to our questions. This bill provides the potential to both improve transparency within the children’s residential care sector, and to ensure that levels of profit within the sector are not excessive. It is in the spirit of supporting that endeavour that this advice is provided.

The following recommendations have been made by the RRG for consideration as part of the policy development and legislative process:

1. Consideration should be given to the role that contracts can play in delivering the aims of the bill. Stipulating financial transparency measures within new contracts could be a simple and cost-effective method of gathering information on levels of profit within the sector, without many of the potential costs that could arise from attempting to calculate levels of profit from non-contractually obliged providers. Setting out in the contract the outcomes expected of providers and on what terms and within what financial framework they have to operate will mean that the ‘profit’ issue is tackled at the outset, whereas assessing profit retrospectively as is currently set out in the Bill will always, we believe, lead to challenge and misunderstandings.

With particular regard for the role of contracts in delivering desired outcomes, we would encourage officials to look broadly across a range of sectors for any comparable regulations to find out if there are any lessons to be learned. While profit limitation is a novel form of regulation within the Children’s Residential Care sector, it is the RRG’s understanding that there are comparable measures in other regulated industries where levels of reasonable profit are calculated and mandated by the relevant regulator. Again, these measures are usually - we believe - set out in the contract at the outset.

2. There is currently no standardised definition of ‘profit’ shared across stakeholders. Scottish Government officials should recognise this and work to establish a clear and consistent understanding of what is meant by ‘profit’ for the purposes of engagement and any future regulatory measures. Developing a common definition will help to ensure clarity in discussions, reduce the potential for misunderstanding, and support the effective and consistent collection of information on profit levels across the sector.

3. The Welsh and UK Governments are progressing measures in parallel to limit profit within the Children’s Residential Care sector. RRG members would highlight the importance of continued intergovernmental engagement to ensure effective and coherent policy delivery. Ongoing collaboration between administrations will help to align approaches, avoid unintended divergence, and enable each government to draw on shared evidence, lessons learned, and best practice in implementing profit limitation measures.

4. Great care should be taken to mitigate the risk that price-capping measures may drive supply out of an already constrained sector. Officials should ensure that, at every stage of policy development, this potential unintended consequence of profit limitation is carefully considered, with particular attention given to maintaining sector viability and encouraging continued participation from existing and prospective providers. This includes assessing the potential impact on investment incentives, service quality, and long-term sustainability within the sector. The RRG encourages the continuation of engagement with the Competition and Markets Authority on the risks of intervention in this market.

The RRG invites your policy officials to return to the RRG once this work has progressed.

A copy of this letter will be published on the RRG’s webpage and has been sent to your Ministerial colleagues with an interest in this area.

The RRG would be happy to discuss the above recommendations with you and would welcome an update on how the Scottish Government intends to take this forward during the policy development and legislative process.

Yours sincerely,

Prof. Russel Griggs OBE
Chair, Regulatory Review Group

Annex

Membership of RRG:

• Chairman – Professor Russel Griggs OBE
• Fiona Richardson – Convention of Scottish Local Authorities (CoSLA)
• James Fowlie – Convention of Scottish Local Authorities (CoSLA)
• Craig Brown – Society of Chief Officers of Environmental Health in Scotland
• David MacKenzie – Trading Standards
• Ewan Macdonald-Russell – Scottish Retail Consortium (SRC)
• Susan Love – Association of Chartered Certified Accountants (ACCA)
• Douglas White – Consumer Scotland

Members are representatives of business, regulators and consumers, however, are acting independently in their RRG involvement.