Financial transparency and profit limitation in children's residential care: consultation analysis

7 Business Regulatory Impact Assessment (Q17)

7.1 The Scottish Government sees the completion of a Business Regulatory Impact Assessment (BRIA) as best practice in relation to the development of new policies. A BRIA is intended to help policy officials assess the costs, benefits and risks of any proposed legislation, regulation, or guidance on the public, private or third sector or regulators. A BRIA is, thus, an important tool in the policy development and can help Ministers and officials in considering policy options and making decisions.

7.2 Question 17 invited stakeholders to provide feedback on the partial BRIA prepared by the Scottish Government in relation to their proposals on financial transparency and profit limitation. ^[4]

Question 17: Do you have any comments on the partial Business and Regulatory Impact Assessment? Please explain your answer.

7.3 Note that the partial BRIA was made available online shortly after publication of the consultation paper and a copy was sent at that point to stakeholders. However, not all respondents were initially able to access the online version of the partial BRIA and at least one organisational respondent noted that they had only obtained a copy just before the consultation deadline and so had been unable to comment on it. This organisation subsequently submitted their comments to the Scottish Government and these will be considered in drafting the full BRIA.

7.4 Some respondents (8 in total) replied to Question 17 simply saying ‘no’, or ‘we do not have a view on this’. However, 12 respondents (8 organisations and 4 individuals) provided substantive comments some of which were lengthy and detailed.

7.5 One respondent made a number of points in relation to the BRIA. These largely incorporated the wider range of comments made by other respondents at Question 17, and are summarised here. This is followed by any additional comments made by other respondents.

• Definition and measure of profit: The BRIA refers to ‘excessive profit’ but has not defined this. This is a significant omission. The way in which excessive profit is defined and assessed will be crucial to ensure fairness, consistency and credibility.
• Quality, cost and outcomes: The BRIA does not discuss the relationship between quality of provision, cost of care, and service type. The outcomes for children must be a central consideration in any financial analysis. Other essential factors are the support, pay, and conditions of the workforce which all impact on recruitment, retention and quality of care.
• Recognise market complexity and different financial structures: The need for financial transparency is recognised, but the BRIA should go further in recognising the diversity of care provider models – including group structures, inter-company arrangements and potential cross-subsidisation practices. Financial flows are not always visible at the service level and may obscure the true nature of profit and reinvestment. This may be particularly relevant where a parent company is an international private equity firm.
• Enforcement and risk to children: (Note that this point was a dominant theme across all responses at Question 17.) The Scottish Government should give careful consideration to the consequences for children of any proposed enforcement measures. Concern was expressed about the suggestion that services could be deregulated for non-compliance with financial transparency provisions, regardless of how well that service is supporting the children and young people in its care. The loss of a children’s home due to non-compliance could have significant impacts on the children in that home. The wellbeing of children must be the primary concern.
• Interpretation of market trends: The BRIA notes the expansion of private provision but should not assume that this trend is inherently negative or indicative of profiteering. The Scottish Government should explore the reasons for this trend in greater depth – for example, by examining commissioning practices, placement pressures and workforce dynamics. It was noted that the Competition and Market Authority’s (CMA) report did not recommend banning for-profit care services or capping prices or profits. This should be reflected in the BRIA.
• Procurement and contractual integration: Financial transparency measures should be integrated with – and not duplicate – existing procurement systems and contractual processes. The BRIA should clarify (and correct certain statements in relation to) how the current SXL framework agreement for residential childcare services works in practice.
• Administrative burden and sector fragmentation: The BRIA notes the potential for increased administrative costs but should specifically consider the possible differential impact on small providers. Additional reporting requirements could result in the closure of some current services.
• Evaluation and review: The commitment to ongoing monitoring and review is positive. This could include a baseline assessment of current financial practices and market conditions, and the development of a clear evaluation framework to assess the impact of the measures over time.

7.6 The final main recurring point, raised by a range of respondents, was the need for further engagement with stakeholders – and care providers, in particular. Respondents urged the Scottish Government not to take any final decisions in relation to the proposed legislation without ‘clearer insight’ and further consultation.