Home Politics The LGA's Screaming Lunacy About Profits At Children's Homes

The LGA’s Screaming Lunacy About Profits At Children’s Homes

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The Guardian tells us of a new report from the Local Government Association talking of the extreme – capitalist, bourgeois even! – profits being made by the private homes that care for children on the local authority dome. This cannot stand, bring it all back in house and so on.

Except that the report is such screaming abdabs that not even Richard Murphy would agree with the accounting here.

Councils have called for financial oversight of England’s privately-run children’s care homes after research showed some of the biggest private equity-owned providers were collectively making hundreds of millions a year in profits.

The Local Government Association (LGA) also warned that the increasing indebtedness of some of the largest private providers risked triggering a Southern Cross-style financial collapse, potentially leaving vulnerable children without a home.

“Providers should … not be making excessive profit from providing placements for children,” said Judith Blake, chair of the LGA’s Children and Young People board.

Nationalise it all!

A study published on Friday by the LGA found the six biggest private children’s care providers made £219m in profits last year.

Some providers recorded profits of more than 20% of income,

Lampposts! Piano wire!

So, we go look at the report and this is the calculation we find:

The largest twenty provider organisations studied in this project have income of
£1.54 billion, an increasing proportion of the spending by local authorities on
fostering, children’s homes, and other social care services including residential
school places and leaving care.

Aggregate profits measured using the popular EBITDA method (Earnings before
Interest, Depreciation and Amortisation) amount to £265 million at an EBITDA
margin of 17.2%.

No, that is it. They do not then go on to give us net profit figures.

Think this through for a moment. So, you’re going to run a home. Doesn’t really matter which sort of home. You need to buy a home. A mortgage is the normal way of doing this. Mortgages require the payment of interest. Further, you’ve got to maintain the home – that depreciation. So, two of the large – not necessarily largest, but large – expenses aren’t being included in our estimation of the profit.

They’re telling us something close to the operating profit, not the total profit. Another way to put this is to say that they’re looking at the current budget and not the capital one.

That’s bad enough. But the very same report goes on to say:

it said, while four of the seven largest provider groups had debt and liability levels that exceeded their assets.

Yes, they’re both claiming massive profit margins and also vast debt levels. They do this by removing the costs of debt from the profits.

It’s left as an exercise for the reader to calculate local authority budgets without interest or maintenance. Think how low council tax can go!

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