The UK has “sleepwalked” into a dysfunctional market for children’s social care with local authorities forced to pay excessive fees for privately run services that often fail to meet the needs of vulnerable children, an official report has concluded. The Competition and Markets Authority (CMA) called for an overhaul of the £6.5bn UK market for children’s residential and foster care, saying it had found “significant problems” with the provision of the privately dominated services. Private companies were too often failing to provide the right services in the right places, it said, with children frequently placed in homes miles from where they live, often separated from their siblings, and unable to access care and therapies they need. More than a third of children in England in residential placements were placed at least 20 miles from their home base, away from friend and family networks, while one in six siblings were placed in separate homes, contrary to their care plan. Authorities across the UK told the CMA that it was especially difficult to find placements for older children and those with more complex needs. Private providers in England account for 75% of children’s homes. Lack of an appropriate children’s home placement meant some young people were placed illegally in unregulated settings, the CMA reported. Profit margins were “materially higher than expected”, the competition regulator said, with the largest residential home providers posting 22.6% in recent years on prices that averaged more than £150,000 a year for each place. Private fostering agencies were chalking up average profit margins of 20% a year. The CMA said while the quality of most private services appeared to be good, many providers – especially those owned by private equity groups – were carrying highly risky levels of debt. Were a private provider to go bust “in a disorderly manner”, local authorities could struggle to find alternative accommodation for children, it said. Andrea Coscelli, the chief executive of the CMA, said: “The UK has sleepwalked into a dysfunctional children’s social care market. This has left local authorities hamstrung in their efforts to find suitable and affordable placements in children’s homes or foster care.” The CMA urged the government to step up oversight of private providers of care, help local authorities to improve the way they manage care markets and support councils to set up more in-house fostering agencies to compete with private companies. It noted that that while recruiting and retaining staff for children’s homes was a “significant barrier” to the creation of new provision, the high levels of profit generated privately meant it was “perhaps surprising that wages have not risen” or greater investment been made in training staff. However, it stopped short of banning for-profit care or imposing price or profit caps on private providers. It said there was no evidence that state provision of children’s homes would be any cheaper, and the capital costs of building a new generation of publicly owned homes would be major, and require “significant political intervention”. A government review of the planning system was necessary, it said, to overcome frequent local public opposition to new children’s homes, “most of which appears to be based on outmoded or inaccurate assumptions about children’s homes and looked-after children”. There have been widespread concerns – including from the government-commissioned review of children’s social care – about the sustainability of the children’s social care market after big rises in the numbers of looked-after children over the past decade, coupled with growing pressures on local authority budgets as a result of austerity funding cuts. A Department for Education spokesperson said: “All children and young people deserve to grow up in stable, loving homes. That’s why we are working hard to raise standards for children in care and why we commissioned an independent review of children’s social care, which will set out to radically reform the system.”