Local authorities could be paying more than £530 million a year to place vulnerable children in unsafe homes, including those that have failed to stop child sexual exploitation.

A Byline Times investigation found that a quarter of the UK’s worst children’s homes run by companies are now owned by private equity or serial investors, including the Qatari Government. They include homes found with “blood and faeces” smeared on the walls and those that have illegally used restraints.

Former Children's Commissioner Anne Longfield branded the figure "extraordinary" and told Byline Times that the system in place to care for the UK's most vulnerable children is “completely dysfunctional" and "broken".

Councils have allowed problematic homes to continue operating by handing over taxpayers’ money.

Secure homes for vulnerable children have historically been run by local councils, but an increase in demand – as well as funding cuts – means that local authorities increasingly rely on private companies.

The number of privately-owned homes has increased by 21% since 2021.

According to Ofsted, 85% of facilities are now run by profit-making companies. Almost half are run by chains, each with 10 or more separate children’s homes, and many are owned by private equity firms – including eight of the UK’s 10 biggest.

Ofsted told Byline Times that, under current legislation, it has "no powers in relation to large providers" and can only report on "individual homes, rather than larger children's home groups or owners".

Analysis by Byline Times of more than 3,000 individual Ofsted reports reveals that 588, or 19.6%, were branded as “inadequate” or “requires improvement” at their last full inspection.

Of these, 109 were run by private equity firms or serial investors.

A media report on children's homes last July suggested that providers are paid at least £200,000 a year for each youngster. Based on the national total of 13,528 children’s home places, this newspaper calculated that the average taxpayer cost for funding 2,651 failing homes is around £530 million a year – or £1.4 million daily. More than £1.1 million of that estimated daily cost would be paid to private providers.

While noting that the figures were alarming, Longfield told Byline Times that they are likely to be even higher because the £200,000 per child figure has increased, and could be “driving councils to bankruptcy, or adding to a lot of financial pressures they’re under”.

Another concern, Longfield added, was that private equity-owned chains are not often local so children are “sent far away from their support networks”.

“Some children have said to us in the past 'we actually don't know where we are on a map'," Longfield said. "And 'we're so used to being moved, we don't even unpack our bags'.

“We’re letting these investment companies get away with providing really poor quality responses to really vulnerable children while they make an eye-watering amount of money. “It’s just a completely dysfunctional, broken approach to providing specialist care for our most vulnerable children.”

The Ofsted reports on failing homes paint a disturbing picture, and tracing the ownership of the homes is complex, with huge chains of shell companies existing between the companies running them and their owners, with some subsidiaries based in tax havens such as Jersey and others mentioned in the Paradise Papers.

One of the chains analysed – the Senad Group – was owned by the Qatar Investment Authority, the global investment arm of the Gulf autocracy’s Government.

Hundreds of children’s homes have been shuttered in the past five years – many after facing enforcement action or receiving scathing Ofsted inspections.

At one private-equity owned home, inspectors found “blood and faeces smeared in the bedroom and the en-suite bathroom”, broken toilets and one room that “smelled strongly of urine”, while a lack of proper safeguarding from staff led to an increase in children “going missing, allegations of inappropriate sexualised behaviours and heightened behaviours which necessitate restraint”. Despite the findings, most of the homes remained open.

Children were “physically assaulted and threatened” by other children without staff support and were repeatedly denied food and “left hungry” by staff, another report noted.

At another home,  Ofsted identified that staff , including duty managers, had subjected children to “the inappropriate use of physical restraint and single separation” – the term for isolating and locking children in rooms – when the “legal criteria” for doing so had not been met.

Inspectors at an ‘inadequate’ home in Warrington previously found that its residents were being sexually exploited by men in the local community but nothing was done by staff to support them.

A Department for Education spokesperson told Byline Times that “we recognise some of the concerns associated with profiteering, particularly with regard to large providers with complex, and sometimes opaque, ownership structures”.

The spokesperson added the department is “working with Ofsted and the sector” to establish a new oversight regime that would increase transparency on “ownership, debt structures and profit making across both independent fostering agencies and residential children’s homes”.

"Our focus remains on ensuring our most vulnerable children are receiving the excellent care and education that they deserve,” they added.