Providing appropriate care, support, and opportunities to children and young people so that they get the best possible start in life, whatever their circumstances, is essential. Across the country, multiple agencies, charities, layers of government and public services are involved in trying to achieve this.

But the funding landscape for this work has been subject to considerable change over the past 12 years. During that period, spending on children’s services by local authorities in England can be roughly divided into three distinct phases. The first phase occurred between 2010-11 and 2016-17. In response to significant funding cuts from central government, councils reduced spending on children’s services by almost £1 billion, a fall of 9% in real terms. Small increases in local authority revenues led to a second phase. Average annual growth rates of around 2% meant that, between 2016-17 and 2020-21, expenditure grew by almost £660 million.

In 2021-22, local authorities in England entered a third distinct phase in their spending on children’s services. In that year, spending increased by more than £800 million, an 8% rise on the previous year.

In this respect, the third phase represents a break from the past, but in other ways there is continuity with recent history. Over the past 12 years, the nature of spending has transformed. With demand and costs intensifying, children’s services have consumed a growing proportion of local government budgets over time. As a result of financial pressures intersecting with the need to fulfil statutory duties, councils have radically changed the kind of services that they fund.

Combined spending on early intervention services, such as Sure Start children’s centres, family support services and services for young people, has fallen by more than 45%, while total expenditure on late interventions, like youth justice, safeguarding and child protection, and children in care, has risen by almost half (47%). In 2021-22, children’s services funding was typified by this approach, with more than £4 in every £5 of the additional £800 million going into late intervention services.

More specifically, it is the spiralling costs of services for children in care that has driven growth in spending. Since 2010-11, real terms expenditure on the care system has increased by more than £2 billion, a rise of almost two-thirds (61%). Additional spending of almost £500 million in 2021-22 meant more than one-fifth (22%) of that increase occurred in 12 months alone.

A 25% increase in the number of children in care in the last 12 years partially explains this, but a dramatic transformation in the kind of care that children receive has also played a significant role.

Residential care is by far the most cost-intensive care intervention. Since 2010-11, the number of children entering residential care has increased by almost four-fifths (79%) and spending has increased by almost two-thirds (63%). In total, 90% of that additional residential care spending has gone to the private sector, leading to local government spending on for-profit provision more than doubling since 2010-11.

With almost universal acceptance that the current system is failing, the Department for Education (DfE) has outlined plans for wide-ranging and radical transformation of children’s services. At the heart of the proposed reform is the recognition that the system must be rebalanced away from cost-intensive late intervention services and towards earlier support for families and children.

Investment is needed in order to give local authorities the financial breathing space required to deliver this transformation. Analysis of local government expenditure over the past 12 years indicates that the size of the future funding settlement it will take to deliver this change will be significant. Spending increases of £1.5 billion over the past five years have not rebalanced the system towards early intervention services, slowed demand, or made local government finances more sustainable. Instead, additional spending has followed a now well-worn path to high-cost services for children in care.

Local authorities are unlikely to be able to break this cycle if they are unable to afford to service growing demand in the short-term and simultaneously invest in the kind of reform that will rebalance the system over the longer term.

The opportunity to deliver a system which enables a greater number of children to stay with their families, more young people to grow up in stable and loving homes, and fewer children experiencing abuse, neglect, harm, or exploitation, means the stakes for delivering this change could not be higher.

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