Councils pay more than £125m a year placing vulnerable children in illegal care homes in England

Councils are paying more than £125m a year of taxpayers’ money to place vulnerable children in illegal care homes across England, an investigation has found.

The Guardian and the Bureau of Investigative Journalism (TBIJ) have uncovered a booming industry of businesses profiting from a shortage of beds for the most at-risk children in Ofsted-inspected homes.

Local authority payment records show that more than 480 private companies have been paid £250m for 1,800 unlawful placements of children over the past two years.

Even though it is a criminal offence to operate a children’s home that is not registered with Ofsted, almost every council in the country uses illegal care facilities.

Regulators have appeared reluctant to shut down illegal settings because councils say they have nowhere else to send traumatised, older children, whose behaviour often poses a risk to themselves or others. But growing concerns about criminal activity and safeguarding failings have led to a tougher stance, with Ofsted securing its first conviction last month.

The previously unseen dataset, obtained under freedom of information laws, identifies the companies dominating the illegal market. It shows more than £40m of public money has been paid to operators linked to care failures, including those involved in the care of a teenage girl harmed in a succession of illegal placements in hotels, Airbnbs and other properties.

Some of the children require around-the-clock supervision, with several carers, which can push up the price demanded by providers. At least nine councils paid more than £1m for a single placement.

Average earnings of more than £150,000 per placement have attracted entrepreneurs from outside the care sector. Analysis of the payment records shows property developers, builders and security company bosses, as well as musicians and ex-military personnel, are now running illegal homes.

Rachel de Souza, the children’s commissioner for England, said the findings revealed systemic failings. She said: “For too long, illegal children’s homes have been allowed to operate in the shadows, where children are treated as a business opportunity, and huge amounts of public money are spent on placements that are not properly registered or inspected.”

The market leader

The largest player in the illegal care market is Prospero Health and Social Care. The London-based nursing agency has been involved in staffing more unregistered provision than any other provider in England.

Over the past two years, the company was paid £7.6m by 14 councils for staffing 86 placements in unregistered children’s homes. It has openly advertised for child support workers for “unregistered settings” in England and Wales.

Prospero said it supplied staff but did not operate unregistered care homes. In a statement, it said: “Responsibility for placement decisions, assessment, care planning, care, supervision and control remains with the local authority responsible for the child.”

The company added that its job adverts referred to a “range of council-arranged environments in which staff might be asked to work” and were not intended to give the impression that Prospero was responsible for illegal accommodation.

However, Ofsted says agencies could be responsible for managing the home if their staff were on site day-to-day without council personnel present. Local authorities may also be liable if they book or rent unregistered accommodation where a child is living. The watchdog insists it has the power to prosecute anyone running an unregistered home, whether they come from an agency or not.

Prospero Health and Social Care has 11 offices in the UK as well as operations in Australia and New Zealand. Prospero Group’s accounts, which cover a range of recruitment sectors as well as social care, show owners Robert and Lesley Grays received more than £4m in dividends in the past two financial years.

Seven of the 14 English councils to have paid Prospero for staffing illegal placements told us they had received safeguarding complaints about its care workers.

In total, there were 44 allegations that staff had harmed or posed a risk to children between January 2024 and April 2026. Sixteen were upheld, four were deemed to be unfounded, and the outcomes of the others are either unknown or pending.

Prospero said it referred safeguarding concerns about its staff, who were subject to enhanced criminal record checks, to safeguarding authorities. It said an upheld concern was not, in and of itself, a finding that a young person had been harmed. It added that no local authority had suspended or ended its relationship with Prospero as a result of any safeguarding matter.

The company said the £7.6m represented revenue for staffing services, rather than placement fees or profits. It said most of the money paid to shareholders did not come from local authority staffing work.

A new crackdown

Unregistered care has expanded rapidly in recent years, with Ofsted identifying 710 illegal homes this year, up from 144 in 2020. One in 10 children in care are now thought to live in illegal premises at any given time.

Most unlawful operators have previously only received warning letters, but recent scandals have provoked a rethink. In July, Ofsted announced a crackdown after TBIJ exposed one of the worst safeguarding failures so far in unregulated care. A 15-year-old girl was abused by two ex-soldiers with criminal records in an illegal home in Durham. The then education secretary, Bridget Phillipson, described the case as “unspeakable evil” and pledged to end the use of illegal homes.

Last month, Ofsted secured its first-ever conviction, with Catalyst Care Ltd fined £92,000 for operating three unregistered homes in Kent. Catalyst received more than £1.7m from local authorities for operating illegal homes between 2022 and 2025, according to Ofsted.

The company’s directors – who include Davidson Lynch-Shyllon, a songwriter and music producer who has played at Glastonbury – are now banned from holding a financial interest in children’s homes.

Ofsted has also highlighted growing criminal activity in the sector. In August, TBIJ reported that Merseyside-based unregistered children’s homes operator SafeSpace4U had links to organised crime. The firm’s headquarters are owned by a convicted drug dealer, John McDonough, who has a child with the owner of SafeSpace4U, Sian O’Neill. She insists McDonough is not involved in the running of the company.

The dataset reveals that SafeSpace4U has been used by at least seven councils, which puts it in the top 2% of illegal operators in the country. It is being criminally investigated for operating homes without registration by Ofsted.

The holiday loophole

Some of the largest illegal providers use a loophole in care regulations, which allows looked-after children to spend 28 days on holiday in unregistered facilities. But Ofsted says firms are misusing the rule to operate illegally, to accommodate children on a long-term basis without a permanent legal placement elsewhere.

“They had a young boy from Cornwall … for well over 100 days … he lived in a tent,” said the carer. “The [only] facilities were a little gas cooker, and we had to walk up to the local shop every day.”

The company’s owner, Rob Hutchinson, said the boy chose to camp for several nights during the week, spending other nights in the house where he lived. “This person chose to receive his respite care in Cog so that he could camp for some of the time he was at Cog,” he said.

Hutchinson said Cog provided emergency 28-day respite care, with young people’s permanent addresses elsewhere. He added that young people placed with Cog lived in rented housing not on the farm where he lives. They occasionally stayed with Cog for longer periods of time if they were judged to be doing well, he said. Hutchinson said Ofsted would not register the company as it provided respite care and psychological therapy.

But Ofsted said many registered children’s homes provided these types of support.

Merseyside-based Servizi Care Services has published testimonials showing it has accommodated at least two children under “deprivation of liberty” orders – court orders restricting a person’s freedom. Ofsted believes any child subject to these orders should be in registered accommodation. A man answering Servizi’s phone said he “was not interested in speaking”. The company did not reply to emails.