Six of the 10 largest independent groups of providers of children’s social care had more debts and liabilities than tangible assets last year, local authority leaders say.

The Local Government Association (LGA) is concerned this debt is placing the stability of placements for children in care ‘at risk’, particularly as those providers offering the most homes for children increasingly operate using a private equity model which relies on large debt to drive growth.

The LGA called for greater national oversight of companies providing homes for children in care, as the Care Quality Commission (CQC) does for adult social care provision.

The collapse of adult care home provider Southern Cross in 2011 led to a legal duty for the CQC to monitor the financial health of the ‘most difficult to replace’ adult social care service providers.

However, no such duty exists for children’s social care providers.

The LGA, citing research by Revolution Consulting, also warned that in just three years, eight of the biggest providers merged to become the three largest groups.

In addition to worries about debt levels, councils are concerned about the impact of such consolidation on children’s placements, with no system in place to track the impact of such mergers on issues such as quality and children’s outcomes.

‘A varied market for homes for children in care helps councils to make sure these children get the right homes for their needs, and both in-house and independent provision are key,’ said Cllr Judith Blake, chair of the LGA’s Children and Young People Board.

‘Fewer and fewer providers are now dominating that market. Much of the growth of those providers has been fuelled by enormous loans, which will at some point need paying back yet this research shows many of them do not have the assets to do that.’

‘We cannot risk a Southern Cross or Four Seasons situation in children’s social care,’ Cllr Blake continued.

‘Stability for children in care is paramount if we are to help them to thrive and an oversight scheme is needed to help catch providers before they fall, and ensure company changes don’t risk the quality of provision.’

Cllr Blake also warned that providers should not be making ‘excessive profit from providing placements for children.’

The six largest independent providers of children’s social care services made £215m in profit last year, with some providers achieving profit of more than 20% on their income.

‘What matters most is that children feel safe, loved and supported, in placements that best suit their needs and that provide good value for money,’ she said.

‘The Government’s promised review of the children’s care system needs to look at how the market for children’s social care placements is impacting on children’s outcomes.

‘It should also consider how we can better support in-house provision and smaller providers, and work with councils and providers to improve transparency of costs.’