How the Children’s Wellbeing and Schools Act 2026 changes the finances of running a children’s home

The Children’s Wellbeing and Schools Act 2026 received Royal Assent on 29 April 2026. Most of the coverage has concentrated on free school meals and breakfast clubs. The Act also contains two measures that bear directly on the finances of private children’s homes and fostering agencies. One is a financial oversight scheme for the largest providers. The other is a reserve power to cap the profit that providers can make.

Owners in the North West have the most reason to pay attention, because the region has more children’s homes than any other.

Will every children’s home be covered by the financial oversight scheme?

No. Section 16 of the Act sets up a scheme for providers that would be hard to replace if they failed, and it reaches up to their parent companies. According to DfE’s impact assessment for the scheme, entry will be judged on four factors: how many homes or agencies a provider group runs, how large they are, how geographically concentrated they are, and the group’s share of the market.

DfE’s working assumption is that about 40 providers will be entered initially, covering an estimated 42% of the placement market. It expects small and micro businesses to fall outside the scheme. It also accepts that some medium-sized providers could be caught through the geographical concentration test, so a group with several homes clustered in a few local authority areas is not automatically safe.

Providers that enter the scheme face several requirements:

• Regular financial and business information, supplied by the registered provider and by its parent undertaking and subsidiaries.
• A Recovery and Resolution Plan on entry, including assurance that the group has enough cash to wind down in an orderly way over a number of months.
• An independent business review, at the provider’s cost, where DfE judges there is a significant risk to financial sustainability.
• Civil monetary penalties for non-compliance, with the maximum to be set in regulations.

If the Secretary of State thinks there is a real possibility that a provider could cease operating for financial reasons, DfE must warn the affected local authorities. That is a lower bar than the “likely” threshold used in the adult social care scheme this one is modelled on.

Where the scheme stands. The legal framework is in force: section 16 came into force on 15 July 2026. Two steps remain before any provider is covered. The Secretary of State must make regulations setting the conditions that decide which providers qualify. The Secretary of State must then determine which providers meet those conditions and serve each of them with a written notice, under the new section 30ZE of the Care Standards Act 2000. At the time of writing, we have not found the regulations setting the entry conditions, or any confirmation that providers have been designated. The scheme should not be treated as operating yet, and a provider will only be in it once it has been notified.

Does the profit cap apply to smaller providers?

It could. Unlike the oversight scheme, the Act’s profit cap power is not confined to the largest operators. It allows the government to cap the profits of non-local authority registered providers of children’s homes and independent fostering agencies. DfE’s impact assessment of the cap says the level of any cap and the way profit would be measured are left to future regulations, and that the government will consult publicly first.

No cap is in force and there is no confirmed date. The government has said it will give its other market reforms time to work and step in on profits only if they don’t. Those reforms include regional care cooperatives, which DfE is already piloting in Greater Manchester. The aim is for groups of local authorities to commission placements together, giving them more bargaining power over fees.

It remains uncertain whether a cap will be introduced, at what level, or how profit will be defined. The power now exists, though, and the financial oversight scheme will give DfE better data on provider profitability to inform the decision.

Why children’s homes in the North West are in the frame

Ofsted’s 2026 statistics show 4,800 children’s homes of all types in England at 31 March 2026. That is up 20% in a year, and 85% are privately owned. The North West has 1,250 of them, 26% of the total, and added 230 homes in the year, more than any other region. Only 18% of looked-after children come from the North West.

That mismatch is one of the reasons the region attracts attention. The market is also less concentrated than the policy debate can suggest. At 31 March 2025, the 20 largest owners held around a quarter of all homes. Most of the rest sit with smaller operators, many of them owner-managed.

Obligations that already apply

Providers do not need to wait for the new scheme to be asked about their finances. Regulation 47 of the Children’s Homes (England) Regulations 2015 requires the registered provider to run the home in a way that is likely to keep it financially viable. Ofsted can ask for information to assess that viability, including annual accounts certified by an accountant, a bank reference, and details of the financing and financial resources of the home and the provider.

Under the Care Standards Act 2000 (Registration) (England) Regulations 2010, providers must also submit accounts and cash flow information when they register. They must tell Ofsted if they are likely to stop being financially viable within the next six months. DfE’s impact assessment sets out these requirements. None of them depend on a profit cap being introduced.

Ofsted’s powers over parent companies are also being phased in. Some provisions on parent undertakings and the service of notices came into force on 15 July 2026. The central power is not yet in force as far as we can establish: it would let Ofsted require a provider group to submit an improvement plan where two or more of its homes raise concerns, and fine the group if the plan isn’t delivered. DfE’s implementation plan points to early 2027 for further provider oversight measures. They include allowing Ofsted to refuse or cancel registrations where a provider group fails to comply, and requiring providers who register new settings to disclose details of their wider group. That is a planned timetable and not a confirmed commencement date.

What children’s care home owners should be thinking about now

Nothing here calls for major changes on the strength of a cap that may never arrive. The direction of policy does make this a sensible time to review the financial information you have.

Know where you stand. Count the homes, places and local authority areas across the whole group, including any entities held through a parent company. Compare that with the four entry factors above, and consider how planned expansion would change the picture.

Be able to produce group-level numbers quickly. DfE expects the first submission to the scheme to take the longest, and it assumes providers with a mature finance function will find it easier. Timely management accounts, and a consolidated view across homes and companies, make that exercise manageable. They also make it easier to answer a local authority or a lender.

Forecast cash, not just profit. A Recovery and Resolution Plan depends on showing how many months of orderly wind-down your reserves would fund. Staffing costs stay largely fixed whatever the occupancy, so a rolling cash-flow forecast, with scenarios for occupancy, wages and financing costs, shows where the pressure would build.

Understand profitability home by home. Occupancy, fee levels, staffing and agency costs vary a good deal between homes. Home-level profitability analysis shows which ones carry the group, and where margins would be most exposed to fee pressure from regional commissioning.

Look at how profit is defined in your structure. The Act leaves the definition to regulations, so the treatment of any item is still open. Owners with property held outside the operating company, management charges between group entities, intra-group financing or significant director remuneration should expect those items to attract attention. Understanding how each is documented and priced now is easier than doing it under time pressure.

Check the VAT position. Care provided in a registered children’s home is an exempt supply of welfare services, as HMRC confirms in VAT Notice 701/2. VAT on costs linked to those exempt supplies may therefore be irrecoverable and become a real cost to the business. Several things can add complexity:

• Buying, converting or building a property, where the VAT cost needs to be understood before committing.
• Property held by a connected company and let to the operating company. Whether VAT is charged on the rent matters, because the operator is unlikely to be able to recover it.
• Group structures and mixed business activities, which can bring partial exemption into play.
• New homes. HMRC’s guidance says a provider is not state-regulated until its registration is approved, so supplies made while an application is pending may not qualify for exemption.

A specialist VAT review before significant investment or restructuring is usually worthwhile.

Factor regulation into growth, valuation and exit plans. A buyer or lender will want to know where a business sits against the oversight scheme and how exposed it is to a cap. Owners planning to open more homes, acquire another provider, refinance or sell should build that uncertainty into their forecasts, with a clear view of sustainable earnings and future cash needs.

Preparation should be proportionate

Financial scrutiny of children’s homes is increasing, but the three layers differ. The oversight scheme targets a small number of large providers. The profit cap is a reserve power that could reach smaller ones. The viability duties already apply to everyone. For most owner-managed operators, the immediate priority is reliable financial information, a sustainable operating model, and the ability to respond calmly if the rules change.

Speaking to us

UHY Williamson Croft works with owner-managed and growing care providers across Liverpool and Greater Manchester on management accounts, cash-flow forecasting, profitability analysis, VAT, business valuations and financial planning. If you would like to talk through how the Act affects your group, contact Taylor Rogers as below, or get in touch with our Liverpool or Manchester office.