Councils spend £125m on illegal children’s care

Published: 08 September 2026. The English Chronicle Desk. The English Chronicle Online.

Councils across England are spending more than £125 million a year to place some of the country’s most vulnerable children in care settings that are not legally registered, an investigation has found, exposing the scale of a rapidly expanding market created by a severe shortage of suitable accommodation.

Analysis of local authority payment records covering the past two years found that more than 480 private companies received about £250 million for around 1,800 placements in unregistered children’s homes. The figures highlight how councils are increasingly turning to private providers when registered homes cannot accommodate children with complex needs or challenging behaviour.

Operating a children’s home without registration with Ofsted is a criminal offence. Yet unregistered settings have become widespread, with almost every council reportedly using some form of illegal provision. Ofsted has identified 710 unregistered children’s homes in 2026, compared with 144 in 2020.

The situation has raised serious questions about safeguarding, public spending and the ability of England’s care system to provide appropriate homes for children who may already have experienced neglect, abuse, instability or trauma.

Children placed in these settings can require intensive support, sometimes involving several carers working around the clock. Such arrangements can be extremely expensive. At least nine councils have paid more than £1 million for individual placements, while the average payment recorded for an illegal placement exceeded £150,000.

The investigation found that businesses from outside traditional social care have entered the market, including property developers, construction businesses, security companies, musicians and former military personnel. The financial incentives have created a growing industry around the shortage of registered places.

England’s children’s commissioner, Rachel de Souza, said the findings demonstrated systemic weaknesses in the care system and warned that children should not be treated as commercial opportunities.

The growing reliance on unregistered provision has also exposed a difficult dilemma for councils. Local authorities have a legal responsibility to find accommodation for children in their care, but many say there are simply not enough registered homes available, particularly for older children whose behaviour may present significant risks.

That shortage has allowed unregistered providers to fill a gap that the formal care system has struggled to address. However, the absence of Ofsted registration means children may not receive the same level of regulatory oversight expected in registered homes.

One of the largest companies identified in the investigation is Prospero Health and Social Care, a London-based nursing and staffing agency. Over two years, it received £7.6 million from 14 councils for staffing 86 placements in unregistered children’s homes.

Prospero has advertised positions for child support workers in what it described as “unregistered settings” across England and Wales. The company maintains that it provides staffing services rather than operating illegal children’s homes.

It said decisions concerning placements, assessments, care plans, supervision and control remain the responsibility of the relevant local authority. The company also said its recruitment advertisements referred to various environments arranged by councils and were not intended to suggest that Prospero operated the accommodation.

Ofsted, however, has stated that agencies can potentially be considered responsible for running an unregistered home when their employees provide day-to-day management while council staff are absent. Local authorities can also face legal responsibility where they arrange or rent unregistered accommodation in which a child lives.

Safeguarding concerns have added another layer to the controversy. Seven of the 14 councils that used Prospero workers in illegal placements told investigators they had received complaints concerning the company’s care staff.

There were 44 allegations between January 2024 and April 2026 that staff had harmed children or presented a risk to them. Sixteen allegations were upheld, while four were found to be unfounded. Other cases either remained unresolved or had unknown outcomes.

Prospero said safeguarding concerns involving its employees were referred to the appropriate authorities and that its workers were subject to enhanced criminal record checks. It also stressed that an upheld safeguarding concern does not automatically establish that a child was harmed.

The company said no local authority had suspended or terminated its relationship with Prospero because of a safeguarding matter. It also emphasised that the £7.6 million represented staffing revenue rather than placement fees or profits and said most shareholder payments came from other parts of its business.

Regulatory pressure has increased following a series of troubling cases. Ofsted announced a tougher approach after reports highlighted serious safeguarding failures involving children accommodated outside the registered system.

One particularly serious case involved a 15-year-old girl who was abused by two former soldiers with criminal records while staying in an illegal home in County Durham. The case prompted strong criticism and renewed calls for the government to end the use of unregistered accommodation for children.

Ofsted secured its first conviction for operating unregistered children’s homes last month. Catalyst Care Ltd was fined £92,000 after being found to have operated three unregistered homes in Kent. According to Ofsted, the company received more than £1.7 million from local authorities between 2022 and 2025.

Its directors have subsequently been prohibited from holding financial interests in children’s homes. Among them was Davidson Lynch-Shyllon, a songwriter and music producer who has performed at major music events.

Another concern involves allegations of links between unregistered care providers and criminal activity. One Merseyside-based operator, SafeSpace4U, has faced investigation by Ofsted over its operation of unregistered homes. Its headquarters are owned by a convicted drug dealer, although the company’s owner has denied that he is involved in the business.

The investigation found that at least seven councils had used SafeSpace4U, placing it among the most frequently used illegal operators in England.

Another feature of the expanding market is the use of what providers describe as short-term crisis or activity placements. Regulations allow looked-after children to spend up to 28 days in certain unregistered facilities while on holiday. Ofsted believes some providers have used the provision to accommodate children for much longer periods than intended.

At least 11 companies have been identified as offering such 28-day placements, with six among the country’s most prolific unregistered operators.

The Durham teenager involved in the serious abuse case had been placed with a company under a 28-day activity arrangement. Her stay eventually exceeded the permitted period.

Another provider, Creative Outdoor Group, has also faced questions about placements that allegedly went beyond the 28-day limit. A former care worker claimed that one child spent several months living in a tent on a farm.

The company disputed the account, saying the child had chosen to camp for some nights while spending other nights in a house. Its owner said the organisation provided emergency respite care and that children normally had permanent addresses elsewhere.

The company also argued that it was not registered by Ofsted because it provided respite care and psychological support. Ofsted, however, has said registered children’s homes can provide similar services.

The financial scale of individual placements illustrates the pressure on councils. Thurrock council, for example, paid DMC Consulting Services £2.7 million for a two-year placement involving two children.

The council said it carried out quality checks and regularly visited the unregistered accommodation. The company’s owner declined to comment on the council’s business.

For councils, the issue reflects a difficult balance between finding immediate accommodation for children who cannot safely remain at home and ensuring that the places they enter meet legal standards.

For children, however, the consequences can be much more personal. Many have already experienced disruption and trauma before entering care. Moving between temporary hotels, rented properties, activity centres and other unconventional settings can add further uncertainty to lives that require stability.

The growing use of illegal care homes therefore raises questions extending beyond the amount of money being spent. It highlights a shortage of suitable registered placements, gaps in oversight and the difficulty of protecting children when the formal system lacks capacity.

The government’s challenge is now to reduce reliance on unregistered accommodation while ensuring councils have enough appropriate registered homes for children with complex needs. Without that capacity, regulators may continue to face a difficult choice between enforcing the law and leaving local authorities with nowhere to place children who urgently need somewhere safe to live.

The latest enforcement action suggests the regulatory environment is becoming tougher. But the rapid rise in unregistered homes indicates that enforcement alone may not resolve the underlying problem.

Until the shortage of suitable registered care places is addressed, vulnerable children and the public purse are likely to remain at the centre of a market that has grown largely because the formal care system has struggled to meet demand.