State of the Sector 2019 report:
Jonathan Stanley, ICHA, shares his concerns on reading the analysis.
We need all homes to be working in a financial, emotional, professional environment, where all feel a belonging, experience being involved with colleague commissioning caregivers, everyone working in a focused, child-led way, effectively, with sensitivity and acceptance, promoting co-operation, attentive to others’ self-esteem. However, this report shows we are at a delicate moment for children’s homes.
There is continued resilience of provider morale despite the many challenges of operating in the children’s homes sector. Do not mistake this as being more than a short and small recovery from the recent years. There is still much to be done to assure the healthy sustainability of children’s homes’ provision in England. The report shows that national and local government should be mindful of the consequences of seeking any reduction in spending on residential child care. We do not need to trigger a crisis that could come from unplanned reactive spreadsheet actions. Providers want to work with local authorities to plan the way forwards.
This report provides representative factual data that will correct errors of fact and interpretation. This is the necessary solid reference that acts as the focus for any research or comment. The data shows that profits are modest, far from the exorbitant claims made by some commentators. This report is a full stop to
the anecdotal and apocryphal.
The key findings and data of the report
The key findings and data of the report
• As small providers still make up a large part of the overall market, it is therefore even more important for strategic commissioning approaches to recognise that stability of existing profitability is an important influence on the intent to invest in further capacity.
• Demand forecasting of needs and numbers is seen as a positive way forwards for LAs and providers to work together. Close partnerships, open communication, is seen as bringing the potential for a more effective economic outcome for all parties, as well as encouraging investment in the required additional capacity and innovation.
Small increase in confidence but 59% of respondents are at best unsure about the market but this is more marked amongst the small providers, where 68% are, at best, unsure.
Referrals and occupancy are rising. The level of need is rising. The matching of need to provision is a crucial factor.
Prices of placements
The key determinants of differential pricing are related to the individual child’s complexity of needs and the staffing and other resources needed to meet the needs.
• All placements are costed according to individual need. The intensity of staffing and other resources needed to meet those needs, most strongly influences price levels.
• The most frequently used price is £3,875.
• The average price is £3,722.
• Range of £1,000 to £7,000.
• The average in 2016 £3,273 per week.
• There has been an increase of 3% per year, consistent with RPI increases in the same period, and only marginally ahead of CPI.
Turnover and Operating Profit
• Just over half report increased income, but about a quarter report a decline.
• Smaller providers fare worse, with about one third reporting increased turnover, and a further one third reporting decline.
• The overall modest improvement in profitability does not match the turnover growth overall. Small providers fare worse than the larger providers with about one third reporting profit increases.
• EBITDA shows a mean of 4.78% Small providers on average report profitability in a range 0.5 – 1.5% lower than the market, as a whole.
• About one third report a deterioration of reserve levels and report declining operating profit levels.
• Smaller providers are more likely to report declining reserves.
• There are more providers reporting declining reserves than increasing reserves.
• 9 out of 10 providers are investing in their existing services to maintain or enhance quality and outcomes.
• 65% of providers are considering additional capacity added to existing homes or invested in new homes.
• Smaller providers are less likely to use external bank funding for investment, and more likely to need to rely on positive cashflow from profitability of existing operations.
Context and Quality of care
• The National Audit Office report and some Select Committees have commented on the twin competing challenges of the increasing numbers of looked after children requiring children’s homes services and increasingly overspent local authority placement budgets.
• Today around 75% of homes are privately funded, local authorities have less than 25%, and voluntary organisations are a very small %.
• The 2018 annual report of the Chief inspector states that over 97% of inspections found homes meeting Quality Standards or better, and over 80% Good or Outstanding.
ICHA CEO Emeritus
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