Financial Transparency and Profit Limitation in Children's Residential Care: business and regulatory impact assessment

Executive summary

Rationale

This BRIA relates to provisions on Social Care policy in section 8 of the Children (Care, Care Experience and Services Planning) (Scotland) Bill. This is a partial BRIA as the Scottish Government is currently consulting with key stakeholders to further inform the bill provisions regarding financial transparency and profit limitation in Children’s residential care.

The Promise published the conclusions of the Independent Care Review in March 2020 and Scottish Ministers accepted those in whole. In relation to children’s residential care, The Promise is clear that there “is no place for profit in how Scotland cares for its children” and the Scottish Government supports this principle.

The landscape of Children’s residential care has changed significantly in recent years. The number of private residential children’s homes in Scotland has continued to increase (now standing at 48% of Scottish provision) as has the demand on service capacity. The Scottish Government is keen to ensure that children and young people’s care needs are met fully and met on a basis which provides value for money in how public funds are expended. This means there is a need to comprehensively understand the services that are being provided by children’s home services and providers in addition to the fees they charge and the costs which are being met by local authorities. In turn, the aim is to examine the understanding of “profit” and “excessive profit”.

Therefore, subject to Parliament’s agreement of the Bill, the Bill proposes regulation-making provisions for the Scottish Ministers with a view to enhancing financial transparency which, subject to consultation requirements, would require certain residential childcare providers to provide financial and other relevant information about the operation of their services. Improved transparency is essential for the public sector in terms of ensuring agency for local authorities in managing their budgets and making decisions about residential care placements. This information should also improve public and stakeholder confidence in excessive profit not being generated from children in need of care and that public funds are being effectively directed to the care and support of vulnerable children.

Following this, if excessive profit is found, the Bill also proposes further regulation-making provisions which, again subject to additional consultation requirements, would enable the Scottish Ministers to impose a profit limitation requirement on those providers where satisfied that was necessary to do so, having regard to the public interest in securing that service providers are providing care on terms which represent value for money and having regard to the wellbeing of children being looked after by local authorities, the interests of local authorities and the interests of service providers (including the opportunity to make a profit).

This approach forms only one part of work to better understand the current landscape of residential childcare. The Scottish Government will work with the sector to fully consider this issue among other intertwined drivers, such as capacity, workforce challenges and learning and development pathways, commissioning and procurement arrangements.

Options

The proposed measures in the Bill, subject to Parliament’s agreement will:

1. Enable Scottish Ministers to make provision by regulations to require providers of residential childcare services run by persons other than Local Authorities to publish and provide financial information pertaining to the operation of those services, and submit those returns to Scottish Ministers, including in such form as set out in the regulations, and;
2. In light of that financial information, the Bill will also enable Scottish Ministers to introduce regulations to limit the profits of the providers of those services, in accordance with a framework to be set out in those regulations, where such profits are considered by Ministers to be excessive.

This approach will not prohibit further non-legislative options being taken forward to improve residential childcare in Scotland.

The option to remove profit completely is not being taken and detail on this decision is given at section 1.4.

Sectors affected

The Bill will primarily affect the Children’s Social Care Sector, namely, private and not-for-profit providers of children’s care home services and school care accommodation services. Further to this, it could potentially have indirect impacts upon other sectors due to the involvement of a variety of different services procured and utilised by children’s homes. For example, there could be indirect impacts upon mental health services that are involved with children and young people’s care. The BRIA aims to uncover these impacts.

Engagement completed, ongoing and planned

A public consultation on these Bill provisions will be undertaken over Autumn 2025. The results of this consultation will be published, and they will be used to inform any further development of legislation. This will be supplemented by a programme of sector engagement.

We also meet with the UK Government, the Welsh Government and the Northern Ireland Executive on a regular basis to understand and learn from their experiences of progressing this issue across the UK. We recognise that some providers will operate across the UK nations, and so we will consider policies across the UK as we create provisions in Scotland.

Anticipated impacts (intended and unintended, positive and negative) and mitigating actions

There will be operational changes at business and service levels in order to improve the provision of data in this area. We understand that there will likely be administrative costs as these changes take place.

We will implement these changes carefully so as to burden services with as little additional reporting as possible. Working out how to do this, while still collecting the information needed, is one of the aims of the consultation. As part of this, we wish to work closely with organisations such as Scotland Excel and the Care Inspectorate to understand the information already available.

If the changes were implemented without care, there could be a risk of market exit by for profit service providers. However, by consulting closely with those service providers, and making clear that it is greater financial transparency that is the target of these measures, we believe this will be mitigated. Any later actions, should excessive profit making be found, would also be subject to further consultation with the sector.

We do not believe that these measures should have any impact on the quality of care offered to looked after children and young people.

Enforcement/ compliance

Measures will allow for services to have their registration with the Care Inspectorate removed. However, this would only be if there was a refusal to provide information, or if – after the further consultation outlined above has taken place – excessive profits were found and a profit limit not adhered to.

Evaluation and monitoring of implementation/ review of BRIA

A full draft of the BRIA will be laid at the conclusion of Stage One of the Bill, however this will be monitored and updated as the Bill moves through Parliament.