Children’s Wellbeing and Schools Bill

Lord Nash Excerpts

Tuesday 17th June 2025 Lords Chamber

Knee-jerk reactions and assumptions that, “Oh, they’re just ripping the system off” are often based on the views of people who know nothing. Let us face it. There may be people who are ripping you off as well, but both are out there. In trying to get a good idea of what the Government are actually trying to get out of this, we all agree the principle, but then we have dozens of different assumptions about what that means. So if we can find out what the Government mean in this series of amendments, it will probably be able to work. Hopefully, this will be something that, as much of this Bill has been, is essentially cross-party. It is about how we get the right answer here, because the Government—as in all good democracies—have brought forth a slightly reactive Bill. They are dealing with problems that exist. I do not say that as a great criticism of the Government: it is simply that that is the situation we are in. I hope that the Minister will be able to give us an idea of how the Government’s thinking is going around about the transparency, how we get out and how, for instance, if you think that someone is grossly overcharging you, you are actually saying that is happening. That is what I hope we will get out of this discussion.

[Lord Nash (Con)]

My Lords, I rise to support Amendment 134A, tabled by the noble Baroness, Lady Sanderson. I also believe that the transparency of prices should extend to the SEND sector. I agree we need responsible, not highly leveraged, private investment. I understand why the Government are bringing forward these provisions of a profits cap and monetary penalties, because, of course, none of us wants cowboys looking after our children. What worries me, however, is that these kinds of assets are already very out of favour in the private equity sector, which is struggling to sell the assets it has. The provision of the profit cap and monetary penalties or fines is just going to drive capacity out of the sector, and I really am worried about this. Who is going to replace the inevitable lack of capacity that I am sure will result as a consequence of these provisions?

In an ideal world, of course, many of us would like all provision for these kinds of children to be run by charities or the public sector, although some public sector operators have had their own problems. We do not, however, live in an ideal world; the public sector has no money, and charities are struggling to raise money. Most of the private equity operators are highly professional operators, very concerned about their reputation and safety and the quality of their provision, and we need to encourage them. Otherwise, we will have—and I predict this will lead to—a massive shortage of capacity as a result of fines and caps. I am, however, all for full transparency.

[Baroness Thornton (Lab)]

How does the noble Lord feel that we need to make the transition to the kind of system that we want, if he is so worried about the reduction in capacity? How do you deal with the profit gouging that has gone on? If you sort of say you do not have profit gouging, what happens when the suppliers walk away?

[Lord Nash (Con)]

Transparency is a good start. I think it is the case, and I know there are vastly different prices charged around the country, perhaps for different reasons, property prices or whatever; but I think transparency is key. I agree with the noble Lord, Lord Addington: I think that trying to interfere in markets is generally dangerous and you generally have unintended consequences. Everybody knows that I am a career venture-capital private-equity guy, but I do know that these assets are completely out of favour.

There are a number of groups that have these assets and cannot sell them, and we are just going to run out of money, so I think the Government need to be very careful. I say that as somebody who is very concerned about this sector, and that is why I am here. I do not have any magic solutions, but I think that, if people are threatened with fines, who is going to want to run these homes? Individuals. It is something that needs to be thought about very carefully.

[Baroness Bennett of Manor Castle (GP)]

The noble Lord has just essentially agreed with what I said, that some of these entities are financially unstable and uncertain. Would the noble Lord understand, at least, the argument that it is better to bring these back? These facilities are going to have to stay open: we need them. It is better to bring them back into non-profit hands in an orderly manner rather than, if one of these private equity companies goes down, having an immediate crisis. What do the Government do then?

[Lord Nash (Con)]

The care sector is slightly different, for the reasons people have mentioned. But what are we going to do—nationalise it for nothing? Are we going to become a communist country? Are we going to pay for it, and if so, where will that money come from? Anyway, even if you deal with the ownership issue—obviously, I do not agree with the idea of nationalisation—threatening people who operate them with fines just does not seem reasonable. That is why I support the amendments on limiting fines and not applying them to natural persons, as opposed to corporations.

[Baroness Barran (Con)]

My Lords, I will speak to Amendment 140A, in my name, and propose that Clause 14 do not stand part of the Bill.

Before I turn to my own amendments, I add my support to my noble friend Lady Sanderson’s Amendment 134A. As we have heard, it would bring much needed transparency to the children’s homes market and help to level the playing field for smaller and larger providers. Of course, this transparency would help the negotiating position of local authorities and regional care co-operatives in future. I thank my noble friend Lady O’Neill of Bexley for making it real and giving us very practical examples.

Equally, the noble Baroness, Lady Tyler of Enfield, made important points about the level of profit in the area of supported accommodation. As I understand it from the CMA report, it has some of the highest margins in the sector and today provides about two-thirds or three-quarters as many places as children’s homes do, at just over 6,000, or 7% of the market for looked-after children.

Amendment 141, in the name of the noble Lord, Lord Addington, seeks, as we heard, to extend the profit cap to independent special schools. As the noble Lord understands extremely well, this is a very complex area, and one has to be careful, given the range of provision. Some of these homes offer short-term respite to foster carers, for example, so any changes would need to be thought through carefully to avoid unintended consequences.

Along with others, and not just on my Benches, including the noble Baroness, Lady Tyler, I cannot support Amendment 174, in the name of the noble Baroness, Lady Bennett of Manor Castle. Our starting point is that there needs to be greater capacity to limit price increases and ensure a choice of suitable care. We were very clear when we were in government that we do not condone profiteering in this market, but we have concerns about how the transition in Wales will work to a market where there are no for-profit providers. Obviously, the problem of very high pricing will only be exacerbated, as my noble friend Lord Nash just explained, if sufficient new capacity is not created quickly or even if capacity is withdrawn. Such an approach cannot be considered in England until the Government have invested in new, not-for-profit or social enterprise capacity, whether that be in the local authority or in the voluntary sector, as the noble Baroness, Lady Thornton, very ably outlined.

I confess that it is slightly curious to be in a position of challenging the Government’s attempts to regulate and limit the profits of some actors in this industry, which have rightly drawn criticism from the CMA, local authority leaders and indeed many in your Lordships’ House. My amendments to this clause and the others in this area are definitely not about defending a group of companies that can well defend themselves; I am simply trying to test the viability and impact of the Government’s proposals. It is important, because there is such a level of frustration with the behaviour of some of the actors in this sector that we risk having a confirmation bias that anything we change it to will be better. We need to test these proposals and be confident that the solution the Government propose will work.

As we have discussed at numerous points in Committee, there is a fundamental problem with the lack of residential care capacity, whether that be in relation to fostering, children’s homes or supported accommodation. The Competition and Markets Authority described the current shortfall as a “fundamental failure” in market functioning, imposing, in its words,

“severe limitations on the ability of the 206 local authorities in England, Scotland and Wales, who purchase placements, to engage effectively with the market”.

We need a clear plan to address this shortage. My fundamental concern is that the measures in Clauses 12 to 18 will not have the desired impact that the Government seek—and that, across your Lordships’ House, we all seek. Amendment 140A is simply an example of why I do not think the plan for a financial oversight regime as presented in the Bill has been properly road-tested and that we can have confidence in its impact.

New Section 30ZI, to be inserted by the Bill, gives the Secretary of State the power to arrange for an independent business review by an external qualified person. You would assume that, in such cases, almost the first thing that they would look at, if it existed, would be the recovery and resolution plan set out at new Section 30ZG, but it is not even mentioned. There is a list of things that they should look at, but the recovery and resolution plan is not mentioned. It would be fundamental for them to look at that plan, given that it covers, according to the Government, the

“nature and extent of any risk to the financial sustainability of the person … the action the person proposes to take”

to address this, as well as

“impacts on local authorities, and children”.

That makes me lose confidence that this has been properly thought through. I hope that the Minister can either add it to the list of things that independent business reviewers will look at, or, more importantly, reassure me and the Committee that this area has been properly considered.

My opposition to Clause 14 standing part of the Bill is probing. The proposed financial oversight scheme for children’s social care represents part of the regulatory response to the market failures identified by the CMA. As with many parts of the Bill, much of this scheme will be set out in regulation. The scheme requires information from parent undertakings, but, as the Minister knows, private equity structures are notoriously complex and opaque. I wonder whether she is concerned whether providers might restructure to minimise oversight burden—how will the Government mitigate this? I am not clear how the scheme will address jurisdictional limitations on enforcement for offshore-based organisations. I would be grateful if the Minister could explain that, or write to me if the answer is particularly technical or it is not at her fingertips. It is reasonable to question whether the DfE has or will acquire the specialised financial and private equity expertise needed to analyse complex corporate structures and financing arrangements effectively—I think this fly in the Chamber has been sent in by a private equity firm.

Similarly, is the Minister confident that local authorities have the capability to respond to advance warning notices? Is she concerned that the act of alerting local authorities about the financial fragility of a provider could lead to them withdrawing placements, leading to the financial collapse that the scheme seeks to avoid? I would be grateful if she could set out how the Government think that the contingency planning will work. I wonder whether the Government have had conversations with providers about how they expect to create realistic plans, given the prevailing market conditions. Surely existing supply shortages will make rapid replacement extremely difficult, and emergency placement costs are already unsustainable.

There are a lot of questions about the impact that this will have on the shape of the market. Will it actually result in more concentration in the market, because the 40 largest providers will have gained the confidence of local authorities? Could it result in financial pressures on smaller providers where there is less transparency?