Question proposed, That the clause stand part of the Bill.

It is actually quite difficult to talk to clause 13, as it looks as though pretty much all the important detail here is to be worked out in regulations. Of course, the Government should support local authorities to minimise the risk of disruption to children in homes or independent fostering placements from providers getting into financial difficulty, and financial oversight should indeed be part of their registration conditions. So far, so good.

However, proposed new section 30ZE(2) of the Care Standards Act 2000 states that a financial oversight condition

“is a condition specified in regulations made by the Secretary of State for the purposes of this section.”

Subsection (4) lists examples such as size, the number of children looked after, geographical concentration and so on. Though this area is being left to regulations, could the Minister say more about the sort of thresholds the Government are considering for these metrics—particularly as the Secretary of State will have so much power, including to alter all the criteria in regulations? Although this is broadly a sensible measure, it is quite an open-ended and new power.

The clause is already quite long, but the Opposition wondered about an improvement, perhaps as it goes through the other place, to fundamentally change the registration approach for any new market entrants, so that it is a condition of delivery that they provide financial transparency up to the parent company level, give a quarterly going concern update to the regulator and provide financial information as reasonably requested by the regulator. Has the Department considered similar requirements, so that all providers would have to give full financial transparency as a matter of course and further investigation would follow if concerns were raised?

We are completely sympathetic to proportionality in regulation, but in this case we could reasonably put the onus on providers to share the information systematically, rather than having to wait for a tip-off from a whistleblower or for a concern to become apparent. Sometimes it is the analysis of consistently reported data that provides the tip-off that there is a problem.

To use an example from a slightly different field, in my constituency I have been involved in cases where the integrated care board is regulating GP practices, and I have always thought there is a strong case for ICBs to get more data up front. Twice, when there has been a problem in my constituency and I have talked to the ICB afterwards, it seemed to me that if it had been getting financial data, the issue would have been obvious and there would have been signs long before whistleblowers ever went to the Care Quality Commission. I wonder whether consistent reporting analysis of data would allow us to see problems coming before we get to whistleblowers and other problems down the line. One issue is therefore whether we should have reporting on a more regular basis.

The Opposition have worries of the same kind about this clause as we did about clause 11, though in this case, instead of an improvement plan, it is called a recovery and resolution plan. Again, thinking about independent schools, there is a risk that time and resource get spent preparing the request for the plan, writing the plan, challenging the plan as needed, writing a better plan and going through iterations. In the case of these providers, do we have the financial expertise, either in Ofsted or the Department, to assess the plans? It looks as though there is a recognition that we do not, because proposed new section 30ZI includes the power to arrange for an independent business review. That makes sense, but for reasons best known to the Bill drafters that does not appear to include scrutinising the recovery and resolution plan. I am not sure why not. I do not know whether that is a slip of the draftsman’s pen, as they say, or whether it is deliberate.

My understanding is that Ofsted already has the power to inspect the financial position of schools, but there is a limit on what it does because of the need for a high level of expertise to pick through these cases. Looking at the accounts of a school or group of schools is simpler than analysing the complex debt and ownership structures that we see in some of the private equity-owned children’s homes.

In practice we know that the market is so tight for placements that the loss of even a smaller provider would be disruptive, and the timing of the issuing of the advanced warning notices set out in proposed new section 30ZJ will be terminal for the affected businesses. Page 47 of the policy summary states that the regulations may be extended in scope,

“so that they may provide that a person is not fit to carry on an establishment or agency if a parent undertaking has failed to comply with the financial oversight scheme.”

I am unclear where that provision is in the Bill. Perhaps the Minister could clarify that, because it is quite a complicated clause. Are there any other potential extensions of the Secretary of State’s power by regulations here? Could the Minister clarify the thinking behind allowing Ofsted to determine that someone applying for registration is not a fit and proper person to manage an organisation in this area?

I have some specific questions for the Minister. Can he clarify whether the clause only applies to for-profit businesses, or whether charitable providers in the sector will also be included, and how that would work for them as non-profits? What will the threshold be for children’s social care providers to be considered “difficult to replace” enough not to have to provide the information listed to the DFE? What proportion of providers are we talking about? Does the Minister have a sense of what the threshold will be and what proportion of the market will be outside it?

How often has there been a

“sudden or disorderly market exit”,

as the policy summary says, of “‘difficult to replace’ providers” in the past? It would be good to have a sense of how often these considerations would have applied in the past. Can the Minister give any examples of how the powers in this clause would prevent that from happening? The maximum monetary penalty for non-compliance will be set out in regulations; does the Minister have any sense of what that might be, or why?

There are issues about pace that we have raised in relation to other clauses. Although I am sympathetic to what Ministers are trying to do, there is a nervousness that digging into the finances of these things will not necessarily be straightforward, and I would like reassurance that there is a plan to be able to do that. I also wonder whether there is scope to make this a prospective rather than a reactive process, so that we have the opportunity to mine that data and analyse it, to see whether it is telling us anything about problems that are coming down the line before they happen.

We heard from the right hon. Member for East Hampshire about the involvement of larger and smaller-scale providers in children’s social care, and the Bill covers the other places that children and young people can make their home in. I think we all agree that there is a need for a wide range of options, so that we can determine what is best for individual children and young people when they are finding their home.

Clause 13, however, is particularly relevant to larger-scale providers because of the sheer number of children who would be affected should one of those providers experience unexpected or unreported financial difficulties. No young person should be faced with losing their house overnight, and this measure would help to secure provision for those children in a planned way, as opposed to a reactive situation where a number of places have to be found overnight.

The clause also follows the Competition and Markets Authority’s recommendation to emulate the equivalent schemes we find in adult social care. That is long overdue in child social care. It adds safeguards that allow for transparency and security, which we welcome when we are dealing with children’s social care and the homes that they will hopefully have for a long time.

We are aware that a provider of children’s social care places suddenly closing their provision as a result of financial failure could have a significant detrimental impact on the care and stability of children and young people where they live. Currently, local authorities have no way of knowing whether a private provider or its corporate owners are at risk of failing financially. If a large provider were to fail and suddenly exit the market without warning, it could be difficult for local authorities to find alternative placements for those children or places that appropriately meet their needs. That is why we are developing a new financial oversight scheme in children’s social care, as recommended by the Competition and Markets Authority, which will for the first time increase the financial and corporate transparency of difficult-to-replace children’s social care providers and allow accurate real-time assessment of financial risk.

The scheme will give local authorities advance warning of failure, so that they can take swift action and minimise disruption to the most vulnerable children. Those in the scheme will be required to submit a recovery and resolution plan containing information on risks to providers’ financial sustainability and plans to reduce those risks. The Secretary of State may also require providers or a corporate group member in the scheme of heightened financial risk to undergo an independent business review. We will provide details of the RRP and the IBR through guidance.

I thank the shadow Minister for his comments and questions and my good and hon. Friend the Member for Portsmouth North for her insightful contribution. The shadow Minister asked a number of questions about how the scheme will work in practice ahead of the regulations, and made a number of points about which providers will be in scope of the financial oversight scheme.

It is worth saying that the scheme will be proportionate and target only difficult-to-replace providers and their owners according to their size, market share and geographical concentration. The scheme will apply to private, voluntary and charity providers of children’s homes, including dual registered special schools and independent fostering agencies operating in England. We will also extend the measure to supported accommodation, and we in the future may look to extend it by regulation to residential family centres. Local authorities routinely manage placements of individual children in the event of closures of smaller services, so we do not think those need to be covered by the scheme.

To answer other questions raised by the shadow Minister, the Bill sets out the foundations of the financial oversight scheme, exercisable through the Secretary of State’s powers. We know that the children’s social care placement market is dynamic and we will use these measures and powers to set out the detail in regulations, which will enable my Department to review and update the details in line with future changes to the market. We will publish guidance alongside the regulations, setting out how the scheme will operate in practice and enabling providers to understand what the scheme requires of them.

The shadow Minister asked why Ofsted is not leading the financial oversight scheme. The forensic financial analysis required to fulfil the scheme’s aims extends beyond Ofsted’s remit as a largely quality-focused regulator. Given that Ofsted is not a financial regulator, we will build on my Department’s existing capabilities and market oversight functions to undertake the specialist work required to develop the scheme. A Department-led scheme means that we can play a stronger co-ordination role should a difficult-to-replace provider exit the market, enabling a quick multi-agency response.

Finally, how many providers will be covered and how many placements they represent, we want the financial oversight scheme to deliver an effective oversight function that is proportionate and not overly burdensome. We therefore want to introduce a scheme that covers difficult-to-replace providers only, as recommended by the Competition and Markets Authority. We will determine how many providers will be subject to the scheme as we develop the regulations. Providers who meet the conditions will include private, voluntary and charity providers; we may look to scale the number of providers in the scheme up or down in future ,according to market developments, to ensure that we continue to meet the aims of the scheme.

Question put and agreed to.

Clause 13 accordingly ordered to stand part of the Bill.