Background to the report

In March 2024, there were 83,630 ‘looked-after children’ in England, many of whom were vulnerable and had complex needs. Local authorities have a statutory responsibility for the care, safety and welfare of looked-after children, which can include providing a place to live.

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Residential care includes children’s homes, secure children’s homes, and supported accommodation which allows older children to live more independently. Most settings within the residential care market are run by private companies, with the remainder run by local authorities or the voluntary sector. All providers must register with, and are regulated and inspected by, Ofsted.

The Department for Education (DfE) oversees the regulatory framework and national approach to children’s social care. The Ministry of Housing, Communities & Local Government (MHCLG) part-funds care through grants to local authorities, with local authority revenue covering the remaining spending.

Between 2019-20 and 2023-24, the local authority costs of supporting looked‑after children in residential care increased by 96% to £3.1 billion, contributing to wider local authority budgetary pressures. However, with the number of children in residential care increasing by just 10% to 16,150, other factors have contributed to cost increases.

Scope of the report

This report assesses DfE’s response to challenges faced by local authorities in placing looked-after children in cost-effective, high-quality residential care in England. It:

  • describes the characteristics of looked-after children, and how the current residential care system works in terms of costs and outcomes
  • examines the underlying reasons behind increasing residential care costs
  • assesses DfE’s understanding, approach and response to supporting local authorities to meet their statutory duty to house looked-after children

Video summary

Emma Willson, the report’s director, summarises our findings.

Conclusions

The cost of supporting looked-after children in residential care almost doubled between 2019-20 and 2023-24, to £3.1 billion. And, with these vulnerable children not always receiving the support they need, the residential care system is not delivering value for money. A shortage of places for some looked-after children, particularly those with more complex needs, has driven cost increases.

The demand for places, along with a largely private provider-led market has led to local authorities competing for places and providers charging higher fees. The estimated annual spend per child in a children’s home has increased from an average of £239,800 in 2019-20 to £318,400 in 2023-24 in real terms – and more children are living in residential care settings that are not best suited to their needs.

DfE recognises the scale of the challenge and has started to respond. Alongside investing in preventative care and fostering to reduce residential care demand, it is progressing legislation to improve financial oversight of private providers and encouraging local authorities to collectively commission places. These measures are taking time to implement with, for example, draft legislation introduced in December 2024.

To ensure these changes deliver a residential care system that works, DfE needs to improve its understanding of the system, set out what it wants the market to look like and support local authorities to make effective decisions.

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Publication details

Press release

View press release (12 Sep 2025)

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