Council‑run placements cost taxpayers over £125 million a year as vulnerable children are sent to unlicensed care homes, an investigation reveals

A shadow market thrives on a bed deficit

A joint probe by The Guardian and the Bureau of Investigative Journalism has uncovered that English local authorities are spending more than £125 million annually to place at‑risk children in facilities that operate without proper Ofsted registration. The money, drawn from public funds, is being funneled to a growing network of private operators who fill the gap left by a chronic shortage of approved beds for the most vulnerable youngsters.

The investigation traced payments made between 2020 and 2023 to dozens of companies that run „home‑style” accommodation for children deemed unsuitable for foster care or residential units. Many of these providers lack the safeguards required by the education and children’s services regulator, leaving children exposed to inadequate supervision, substandard living conditions and, in some cases, abuse. Officials say the shortage of licensed beds forces councils to turn to any available option, even when it means breaking the law.

The research identified more than 200 placements each month in homes that have never been inspected by Ofsted. Some operators charge councils upwards of £1,200 per week per child, a rate that far exceeds the cost of a regulated residential setting. Council finance officers admit that the urgency of finding a roof over a child’s head often outweighs concerns about compliance. „We are under immense pressure to act quickly,” said a senior social worker who asked to remain anonymous. „When a child is at risk of being taken into care, we sometimes have no choice but to use whatever accommodation is available, even if it isn’t officially approved.”

Why are children being sent to illegal homes?

Data shows that the number of unregistered placements has risen by 40 % since 2019, mirroring a 25 % increase in the overall demand for out‑of‑area care. The shortage stems from a combination of reduced funding for local authority children’s services, a decline in the number of approved residential homes, and stricter eligibility criteria for foster placements. As a result, councils are compelled to contract with private firms that operate in legal grey zones, often without transparent oversight.

Parents, carers and children themselves have reported a range of problems in these unlicensed settings. Complaints include lack of qualified staff, insufficient safeguarding procedures, and inadequate educational support. One former resident described the home as „more like a cheap hotel than a safe place for a child.” Advocacy groups argue that the profit motive drives these operators to cut corners, prioritising occupancy over wellbeing.

Local authority leaders acknowledge the dilemma but point to a lack of central government support. „We need more funded, inspected places,” said a council director of children’s services. „Until the system is expanded, we will continue to rely on whatever capacity exists, even if it is not ideal.”

The scandal has prompted calls for urgent reform. MPs are demanding a parliamentary inquiry, while the Children’s Commissioner has urged the Department for Education to tighten monitoring of any placements funded with public money. Failure to act could see more children placed in unsafe environments, eroding public confidence in the child protection system.

Frequently Asked Questions

What defines an illegal care home? A care home is illegal when it operates without registration or inspection by Ofsted, the body responsible for ensuring standards in children’s residential settings.

How many children are affected? Investigators estimate that several thousand vulnerable children have been placed in unregistered homes across England over the past four years.

What steps are being taken to stop the practice? The government has pledged to review the funding formula for children’s services and to increase the number of approved residential places, while Parliament considers a formal inquiry into the use of illegal homes.