Introduction

The National Audit Office (NAO) has published a significant report on Managing children’s residential care (September 2025).

It highlights the financial pressures, market dysfunctions, and risks to children’s outcomes within the residential care system in England.

This is not only an issue of budgets and markets. At its core, it is about ensuring that children in care are safe, supported, and able to thrive. The NAO’s findings have major implications for local authorities, providers, and policymakers — and raise important questions about how the sector can respond.

This briefing summarises the NAO’s key findings and explores the implications for the sector, before outlining how Cordis Bright can help.

Key findings from the NAO report

Costs are escalating…

Spending on children’s residential care has almost doubled in five years, from £1.6bn in 2019-20 to £3.1bn in 2023-24 – a 96% increase.

The average annual cost per child has risen to £318,000, with some highly specialised placements significantly more expensive.

However, during this time, the number of children in residential care has increased by just 10%. Clearly, other factors are contributing to these cost increases.

…but supply is short

There are persistent shortages of suitable placements, particularly for children with complex needs. The sector’s inability to respond to children with complex needs has driven up costs.

Many children are placed far from their families, and one in seven children experiences multiple placement moves in a single year.

The market is imbalanced, with quality and safety concerns

Provision is dominated by large private providers, many of which are backed by private equity. Profit margins are high, averaging around 22% among the 15 largest providers.

Transparency over what constitutes a “reasonable” cost is limited.

Moreover, the use of unregistered – and sometimes illegal – homes is rising, driven by shortages in registered provision. Local authorities often have no clear alternatives to these placements.

Policy reform is underway, but slow

The government has committed £2bn to children’s social care reform and introduced the Children’s Wellbeing and Schools Bill, which aims to cap excessive profits and strengthen oversight.

However, the NAO warns that progress is slow, and oversight remains unclear.

Why this matters

Behind the financial headlines are real risks for children and families: instability, distance from their communities, and placements that don’t meet their needs.

The system needs urgent reform to ensure care is not just available, but safe, sustainable, and centred on children’s wellbeing.

Implications for the sector

The implications for the sector are as follows:

• Local authorities face extreme budget pressures, making value-for-money analysis and robust commissioning more important than ever. Sufficiency planning needs to be strengthened, with more focus on forecasting demand, shaping markets, and planning for children with complex needs.
• Providers should expect growing scrutiny of costs, profits, and governance, particularly for those with complex ownership structures. Pressure will grow to demonstrate quality, transparency, and compliance with regulation.
• Policymakers need stronger oversight and regulatory frameworks to steer reform effectively. Transparent financial data and clearer benchmarks for “reasonable” costs will be critical to driving reform.

What the report analysis missed

The NAO report gives insightful analysis of the situation across England. However, it misses the fact that there is significant variation at a local level, with some local authorities facing far greater pressures than others. These different levels of stress will mean solutions cannot be one-size-fits-all.

Cordis Bright will soon be publishing our Looked After Children Services Stress Test which explores these pressures in more detail. For earlier versions, see here and here.

How Cordis Bright can help

At Cordis Bright, we bring evidence, analysis, and practical support to help local authorities, providers, and government navigate these challenges.

The report notes the 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.

We can support by providing:

• Needs assessments and sufficiency support: we offer needs assessments of children with complex needs to support the system identify opportunities to improve provision and increase impact on children and young people.
• Evaluation of transformation programmes: we evaluate programmes designed to improve outcomes for looked after children, identifying relative strengths and areas for development and offering real-time action planning support to learning from findings.
• Service reviews: we provide service reviews of commissioning functions, identifying opportunities to improve the performance of these teams as well as undertaking cost benchmarking and value for money reviews.
• Market research: we support not-for-profit providers of children’s social care to identify opportunities for expansion. This includes analysis of demand and supply as well as research with commissioners. For commissioners, we offer support to expand the children’s social care market and identify opportunities for regional collaboration.

Next steps

If you would like to discuss the implications of the NAO report for your organisation, or how we can support with planning, evaluation, or quality improvement, please get in touch with Colin Horswell.