Residential care for looked-after children is costing councils more than ever, but many young people are still being placed in settings that don’t meet their needs, the National Audit Office (NAO) has warned.

According to the latest report from the national auditor, spending on residential care nearly doubled in five years, reaching £3.1bn in 2023–24 – an average of £318,400 per place.

Councils are forced to compete for limited spaces in a market dominated by private providers, with almost half of children placed more than 20 miles from home, the report found.

Profit margins for the largest providers have averaged 22.6%, raising concerns about value for money.

The NAO said the Department for Education (DfE) lacks access to key provider data on costs and profits, limiting its ability to tackle excessive charges or plan effectively. It recommended stronger oversight, cross-government coordination, and clearer accountability to create a fairer, more resilient system.

Responding to the report, Cllr Amanda Hopgood, chair of the Local Government Association’s Children, Young People and Families Committee, said: ‘[W]ith more children needing help with increasingly complex and challenging needs, a lack of appropriate homes and the challenges with commissioning those placements are leading to an escalation in costs.

‘The astronomical cost of care placements also means there is less money available for councils to spend on the earlier help children so desperately need.’

A Department for Education spokesperson said: 'Vulnerable children across the country have long been let down by years of drift and neglect in children’s social care, which this report lays bare. But despite this inheritance, this government is gripping the issue and taking swift action to fix the broken care system.'