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

Executive summary

1. Between 11 August and 6 October 2025, the Scottish Government carried out a public consultation on its proposals for introducing greater financial transparency and profit limitation in children’s residential care services. This summary presents the key findings from that consultation.

2. The consultation contained 18 questions addressing (i) the overarching principles relating to financial transparency and profit limitation, (ii) the form financial transparency should take, (iii) a proposed Ministerial power to limit profit in children’s residential services, and (iv) the perceived impacts of the proposals.

3. In addition to inviting written responses to the public consultation, the Scottish Government held six engagement sessions to discuss the proposals with stakeholders.

The responses and respondents

4. The public consultation received 31 responses – 23 from organisations and 8 from individuals. Organisational respondents comprised seven care provider organisations; six public sector, regulatory and professional bodies; four organisations with a focus on children and young people or care-experienced people; and two membership bodies which represented a range of care provider organisations. A further four responses were received from organisations that could not be assigned to any of these categories.

5. It is important to be aware that all the care provider organisations that submitted responses to the public consultation were registered charities in Scotland. There were no official organisational responses from private sector care providers. In addition, just two local authorities and one health and social care partnership submitted responses. Given the relatively small number of responses received (31 in total), this suggests that there are likely to be gaps in the stakeholder views presented in the analysis report.

6. The engagement sessions organised by the Scottish Government were attended by more than 100 participants, including around half of Scotland’s local authorities and both private and not-for-profit care providers. This suggests that these sessions reached a wider range of stakeholders than the public consultation and therefore the views expressed in these sessions may provide a fuller and more accurate reflection of the views of stakeholder groups.

7. This summary provides an overview of the main findings of the consultation (including both the public consultation and engagement sessions). It then separately presents the key findings from the public consultation and engagement sessions.

Summary of main findings of the consultation

8. The main findings from the public consultation and engagement sessions are as follows:

Responses to the closed (tick-box) questions in the public consultation suggested support for the Scottish Government’s proposals to increase financial transparency and introduce measures to limit profit-making by children’s residential care services.

Respondents’ comments – both in the public consultation and at the engagement sessions – indicated that they had a range of concerns about the proposals. These included concerns about the administrative burden the proposal would place on care providers, the impact on services (availability and quality), including the potential to lead to the closure of some children’s residential care services, and the impacts this would have on vulnerable children and young people.

Respondents emphasised the need to define key terms such as ‘profit’ and ‘excessive profit’ within the context of children’s residential services. They also wanted to see further research, analysis and engagement to inform any processes for addressing a concern (mainly from local authorities) about the perceived high cost of residential care services for children and young people.

Main findings from the public consultation

The principle of financial transparency (Questions 4 to 6)

9. Most respondents to the public consultation (20 out of 26 who answered the question) indicated that they supported the principle of increased financial transparency in children’s residential care services. However, respondents also highlighted concerns about the proposals, or they caveated their support, saying that the requirement for increased financial transparency would need to be carefully designed to avoid placing an overly onerous, complex, or unnecessary administrative burden on care provider organisations. There was a view that any new requirements should be proportionate, avoid duplication, and demonstrably add value to information that was already in the public domain.

Scope of the proposed legislation (Questions 1 to 3)

10. Respondents generally agreed that any provisions relating to financial transparency and profit limitation should apply equally to children’s residential care homes and residential schools (20 out of 26 said ‘yes’), and other services such as secure care (22 out of 27 said ‘yes’). They also thought that the provisions should apply both to both private and not-for-profit services (20 out of 26 said ‘yes’). However, there was also a recurring view that charities should be excluded from the provisions, given their existing governance and scrutiny arrangements.

11. Respondents advocated a consistent approach across different service types that would allow more accurate comparisons to be made between the costs of different service types. A consistent approach would also prevent ‘loopholes’ whereby services could move from one service category to another to avoid being subject to the provisions. There were, however, repeated calls by some respondents to require all children’s residential services in Scotland to be registered charities. This, it was argued, would address concerns about financial transparency and excessive profit-making.

Financial transparency information

12. Respondents had a range of views about the format that financial information should be provided in. Suggestions included: (i) audited annual accounts, (ii) financial returns to the Office of the Scottish Charity Regulator (OSCR) (for charities only), (iii) a more detailed version of forms submitted to Scotland Excel (SXL); or (iv) a new standardised form.

13. In terms of the information that should be required in financial submissions, it was suggested that services should be asked to provide information about (i) the costs of delivering the service (and any explanation of where these differ from what was budgeted or agreed at the time of commissioning), (ii) the quality of the service (based on Care Inspectorate / Education Scotland reports), (iii) and profit or surplus made in delivering the service and what this will be used for, (iv) the purpose of any reserves, and (v) planned reinvestments (for example, new services, workforce development, resources, etc.).

14. Respondents generally thought that financial information should be provided at the level of an individual service, a provider organisation, and a parent / associated company (20 out of 23 agreed with this). It was suggested that requiring financial information at all these levels would give a complete picture of an organisation’s accounts. At the same time, there was a recurring view that any requirements should be proportionate to the size and type of the provider and avoid duplication.

15. While some respondents (19 out of 24) thought that any financial information collected from care providers should be used to watch for potential market failure, others suggested that there were better sources of information for this purpose – including the Care Inspectorate’s overview of registrations and closures.

Profit limitation (Questions 12 to 16)

16. Most respondents (18 out of 26) said they agreed with the proposed measures on profit limitation. Respondents said that this was in line with the view in The Promise that there was no place for profit in caring for Scotland’s children. They also thought the proposed measures would help ensure that public money was focused on providing the best quality of service and best outcomes for children and young people. Respondents did, however, raise questions about how the proposals could be designed to take account of all organisational structures and provider types. Respondents who disagreed with the measures offered two main views: they thought the proposals did not go far enough, or they were concerned about the impact on services and, ultimately, on the children and young people using those services.

17. Those who were concerned about the impact of the proposals on services thought that introducing restrictions on profit (or surplus) would reduce the funds available for service delivery and development. This could stifle innovation and introduce challenges to services in maintaining service quality, availability and sustainability. Smaller, more specialist providers were seen as particularly vulnerable to this.

18. However, an alternative view was that the measures were not particularly onerous; would ensure that public money was retained within services and spent on care; and would offer transparency and accountability which might, in turn, enhance the quality of care provided. Some respondents also said that any impact of the measures on profit limitation would depend on how the provisions were designed and implemented.

19. Respondents highlighted the importance of adopting a clear definition of ‘profit’. While some offered possible definitions, others raised issues about the challenges involved in doing so. A key concern was the need for clarity about how any definition would apply to charitable organisations, which are, by definition, not profit-making.

Partial Business Regulatory Impact Assessment (Question 17)

20. A range of comments were made on the partial BRIA. A dominant theme was the proposed enforcement measures. Respondents queried whether services would potentially be deregulated for non-compliance with financial transparency provisions – regardless of the quality of those services. Respondents noted that the loss of a children’s home due to non-compliance would have a significant impact on the children living in that home, and they called for the wellbeing of children and young people to be the primary consideration in the development of any enforcement measures.

21. Respondents also highlighted the need for further engagement with stakeholders – and care providers, in particular. Respondents urged the Scottish Government not to take any final decisions about the proposals without undertaking further consultation.

Other comments (Question 18)

22. A range of additional comments were made at Question 18 (by just one respondent in each case). These included, for example: (i) the need to address disparities that exist for young people transitioning from children’s to adult residential care services, (ii) the need to develop additional children’s residential services across Scotland, and (iii) the need for reform in relation to commissioning children’s services. There were also questions about who would be responsible for managing, analysing and responding to financial disclosures from children’s residential services, and for enforcing compliance.

Main findings from the engagement sessions

23. Most local authorities who took part in the engagement sessions supported the principle of removing profiteering from children’s residential care services – mainly due to what they saw as the excessive cost of some services, and the increasing demands on local authority budgets.

24. Care providers, by contrast, were uncertain about the rationale for the proposals, seeing them as a disproportionate response to circumstances in England and Wales that do not generally exist in Scotland. This group noted that good quality residential services for children and young people are expensive. They also pointed out that all children have different needs, and these can change. They did not agree with the concept of a ‘unit cost’ for providing care to this vulnerable group.

25. Participants in the engagement sessions were generally concerned about the possible unintended impacts of the proposed legislation. All agreed that there was the potential for negative consequences for Scotland’s most vulnerable children and young people. They urged caution and care in taking forward the proposals and called for further consultation with stakeholder groups. They also called on the Scottish Government to undertake further research and analysis to inform the development of the proposals. The need to define key terms, such as ‘profit’ and ‘excessive profit’, was seen as crucial.