Kerching children in care: the scandal of CareTech
Despite Government promises to get tough on profiteering in children’s social care, businesses continue to plunder local councils
The plunder of children’s services by business is one of the big scandals of our time. Children’s homes, special schools and foster care services are increasingly run for profit. Almost every time a child is removed from their family, somebody, somewhere cashes a cheque.
While local council children’s services face a daily financial struggle to keep the lights on, businesses extract hundreds of millions of pounds every year, with little regard for what ultimately happens to children and young people in care.
Everyone wants a slice of the cake. At one end, speculative local property chancers try their luck with a single children’s home as an alternative to buy-to-let or a house of multiple occupancy. At the other end, private equity (and even the Abu Dhabi sovereign wealth fund) deploy offshore investments to build portfolios of children’s homes, using increasing risky ‘innovative’ financial instruments to extract money and avoid tax.
The Labour Government promised to get tough on profiteering in children’s social care but the plunder continues. Latest financial results from CareTech, the biggest provider of children’s homes and foster care, lay bare the scale this scandal.
Last year local councils paid CareTech companies more than £500 million for the care and support of children and young people. But £1 in every £4 paid by councils was not actually spent on children but went to CareTech’s banks and investors. A total of £146 million was swallowed by what CareTech’s auditors euphemistically call ‘finance expenses’.
These expenses mostly arise from paying for CareTech’s mountain of debt. The company’s owners include private equity funds and wealthy offshore investors who are paid generously for their support. For example, of this debt, £415 million is paying 13.08% a year. One of CareTech’s biggest backers is Three Hills Capital Partners, which is currently owed almost £300 million.
CareTech’s founders, the brothers Farouq and Haroon Sheikh, pay themselves multimillion-pound salaries as well as charging CareTech rents on properties that they own. They have leveraged the risk free cashflow from the UK social care business to establish a business in the Middle East called AS Group, which has now been sold. Another company called Smartbox, also developed with local council funds, has also been sold.
There are may who defend the privatisation of children’s social care, including high-ranking officers in local councils. The great and the good of children’s services enjoy rubbing shoulders with senior executives from companies like CareTech. New regional care cooperatives increasing talk of ‘partnership’ with private providers as the way forward.
Others say that CareTech and other private equity backed firms are not typical of the sector. Many homes are owned by small providers. Yet the culture of CareTech is pervasive. Much of the investment in the sector is driven by the prospect of a big pay day when CareTech comes calling. Almost every children’s home and foster care agency is run with at least one eye on a possible disposal. Commercial estate agents lurk at every event. Investors are assembling groups of homes which are then hawked around.
Everyone talks about the ‘social care market’. What they really mean, but can’t bring themselves to say, is that it is a market in children. These homes have modest intrinsic value, but become sought after because of who will be sent to live there.
Meanwhile, CareTech continues to prosper. Technically, this company has just recorded another £100 million loss for the year. But nobody cares. Because this is financial engineering on a grand scale. There is a bottomless pit, into which councils will continue to pour millions of your hard-earned pounds.
CareTech’s financial results, which form part of filings by a company called Amalfi Cleanco Limited, are here.