The tension between competition oversight and wider concerns about private provision of children’s services has been illustrated again in the lead up to Christmas 2019.

In mid-December, the Competition & Markets Authority (CMA) unconditionally cleared National Fostering Agency’s (NFA’s) acquisition of Outcomes First Group (OFG). Both businesses are active in the three main children’s services segments (i.e. fostering services, children’s residential homes and specialist schools). NFA is the largest private provider of fostering services in the UK, while OFG is one of the ten largest providers of children’s residential homes in England (albeit with a England-wide market share of only 2%).

NFA’s purchase of OFG is part of a wave of consolidation in children’s services. To date, the CMA has not identified any significant concerns when reviewing these transactions and NFA’s acquisition of OFG was no exception. At a national-level, private and charitable fostering services has become more concentrated in recent years (with the ten largest providers having a 60% national market share), but ownership of children’s residential homes is still quite fragmented (with the ten largest operators having 30% England-wide market share).

The CMA’s approach to the NFA/OFG transaction was consistent with past reviews.

  • In-house provision of children’s services by Local Authorities (LAs) is not considered to compete with private or charitable providers. This is based on LAs’ preference for placing children with in-house services before using private or charitable providers.
  • In children’s homes, homes that cater for children with different needs (e.g. special educational needs vs. social, emotional and mental health conditions) are considered as separate markets.
  • In fostering services, all private and charitable providers are considered to be part of a single product market, but with differentiation between providers based on specialisms and complexity of the children that are catered for.

(The CMA’s approach is discussed further in our recent competition risk assessment for children’s homes, and our September 2018 blog on NFA’s acquisition of Acorn Care and Education.)

NFA’s acquisition of OFG did not trigger the CMA’s 30% market share threshold for a more detailed review in any locality in relation to children’s homes or fostering services. In specialist schools, the 30% threshold was close enough to being breached in one area (in the West Midlands) for the CMA to take a more detailed look. However, it concluded that the NFA and OFG schools were not close competitors given that they cater for children with different needs.

The tension between the CMA’s easy merger clearance decision and wider concerns about private sector involvement in children’s services was, however, shown in comments made Children’s Commissioner for England just before Christmas. Publishing a report on Christmas Eve, the Commissioner called on the Government to address the number of children placed outside their local area in the review of children’s care promised in the Conservative Party election manifesto. More controversially, she criticised the profits being made by private firms providing residential care for children.

The CMA has a difficult balancing act in any market when the evidence on market shares, prices and customer choice point to relatively easy merger clearance decisions, but significant concerns are being expressed by customers, suppliers, other regulators, politicians and/or lobby groups about what is happening in an industry. The comments by the Children’s Commissioner are not isolated. They follow, for example, a call by the House of Commons Housing, Communities and Local Government Committee in May 2019 for a CMA investigation of children’s residential care market.

A market study (or a more detailed market investigation) is a useful tool for the CMA to get to the bottom of these issues, and decide whether stakeholder concerns are a result of poorly functioning markets or are (perhaps) driven by ideological concerns or competing interests. A market study, for example, allows the CMA to evaluate whether private sector profits are at a level that is indicative of market power being exercised. This type of analysis is difficult to carry out in the context of reviewing an individual merger, and can inform recommendations (or requirements) for market reform and/or a different approach to merger control in the sector.

The 2019 digital markets review shows how this approach works. A broad-based review highlighted concerns about large tech firms acquiring small start-ups in a way that was slipping under the CMA’s radar. This led to a new digital markets strategy by the CMA and a much more aggressive approach to reviewing acquisitions. The CMA is currently reviewing recent acquisitions by both Amazon and Google. It is also taking a more detailed look at the digital advertising market. Similar experiences can also be pointed to in other sectors including the groceries supply chain and private healthcare.

Our view is that the Government and the CMA may find a market study in children’s services a useful way of responding to stakeholder concerns. It would be consistent with the Government’s manifesto commitment, while also allowing it to keep the review evidence-based and arm’s length. As such, we believe that providers of children’s services should bear in mind the possibility of such a review and, consistent with this, exercise care when formulating pricing and other market strategies.

To discuss the issues in this blog, feel free to get in touch with Andrew Taylor or Nick Warren via