The Health and Social Care (Wales) Act 2025 series – eliminating profit from the care of looked after children
What does the eliminating profit agenda of the Health and Social Care (Wales) Act 2025 (“the 2025 Act”) mean?
On 24 March 2025, the 2025 Act received royal assent. This article will focus on the Bill’s eliminating profit agenda.
The Eliminating Profit Agenda
The 2025 Act seeks to eliminate private profit from the care of looked-after children, by ensuring that residential, secure accommodation and foster care for looked-after children can only be provided by not-for-profit organisations, such as those in the public sector or charitable organisations.
The 2025 Act aims to achieve this objective byamending Part 1 of the Regulation and Inspection of Social Care (Wales) Act 2016 (“the 2016 Act”) and Part 6 of the Social Services and Well-being (Wales) Act 2014 (“the 2014 Act”).
The 2025 Act has amended the 2016 Act in such a way that it now imposes a requirement upon providers of restricted children’s services (secure accommodation and/or fostering services), other than local authorities, who are registered with Care Inspectorate Wales (CIW) to be a “not-for-profit entity”. This amendment can be seen in Section 3(1) of the 2025 Act.
For the purposes of the 2025 Acta not-for-profit entity is defined as:
- a) a charitable company limited by guarantee without share capital;
- b) a charitable incorporated organisation;
- c) a charitable registered society; or
- d) a community interest company limited by guarantee, without share capital.
The Welsh Government considers that the above models will satisfy the principle that there must be no payment of dividends to shareholders or members, and that any trading surpluses should be reinvested into the service in question.
A not-for-profit entity will also be required to have objects or purposes that primarily relate to the welfare of children, or such other public good that the Welsh Ministers may determine.
Section 75 of the 2014 Act currently places a duty on local authorities to secure sufficient accommodation, so far as is reasonably practicable, to meet the needs of their looked after children. The 2025 Act, at section 10, amends section 75 of the 2014 Act to instead require a local authority to secure sufficient accommodation provided by not-for-profit entities either within or near to its area.
The 2014 Act also contains a duty which requires local authorities to place looked after children, who cannot live with either or both parents, in a children’s home or with foster parents. Section 10 of the 2025 Act amends this duty to require a local authority to, where such circumstances arise, place the child in accommodation provided by a not-for-profit entity unless that is inconsistent with a child’s well-being.
In addition to the above amendments, the 2025 Act has introduced section 75A into the 2014 Act. This new section requires local authorities to prepare an annual sufficiency plan detailing, amongst other things, how they will be taking steps towards reducing and eliminating dependence on for-profit providers.
In the event that a local authority were to find that none of the available not-for-profit placements would be consistent with a certain child’s well-being, it would be able to place the child in a “supplementary” for-profit placement. However, this supplementary placement would need to be approved by the Welsh Ministers, as set out in the new section 75B (b) of the 2014 Act.
Implementation timeline
The intention of the Welsh Government is that the relevant provisions of the 2025 Act will be brought into effect so that:
- new providers registering with CIW will be required to have not-for-profit status from 1 April 2026; and
- any current for-profit providers will need to transition to a not-for-profit entity and register with the CIW, by 1 April 2027 unless benefitting from the transitional provisions set out in the Bill.
The Welsh Government state that the transitional provisions will prevent for-profit providers from registering new homes, approving new foster carers and will also mean that they will be unable to accommodate new children except subject to approval, sought by the placing local authority, from Welsh Ministers.
Before the 2025 Act received royal assent on 24 March 2025, , the Senedd’s Health and Social Care Committee (“the Committee”) undertook Stage One scrutiny of the 2025 Act.
As part of this process the Committee issued an open call for evidence, which took place between 24 May and 28 June 2024. The Committee received 39 responses from various stakeholders.
In response to the call for evidence, the Chartered Institute of Public Finance and Accountancy (CIPFA) stated that:
there is the risk that eliminating the profits of providers will lead to a series of significant, unintended consequences. These consequences include the handing back of contracts, the closure of services, market failure, workforce leaving the market during a time when there is a workforce crisis, loss of skills, disruption to placements, negative impacts on looked after children’s outcomes, the investment required being more than estimated, and more.
The CIPFA were not the only stakeholder to show scepticism over the Act’s eliminate profit agenda. In contrast to the majority of support for this section of the Act, a small number of stakeholders said they did not support the eliminate profit provisions, arguing that the policy was driven “more by political ideology than empirical evidence”, and that more effective commissioning of services would be a better alternative to the approach taken by the Act.
In addition to this, private and independent providers of children’s services have argued that profit did not mean poor quality services or outcomes for children and young people. Harvey Gallagher from the Nationwide Association of Fostering Providers told the Committee that independent providers “offer really high-quality … services for children with complex needs—more complex needs than the local authorities are able to provide for themselves—and they do it at a good value for money”.
Further responses, upon this section of the 2025 Act, can be seen at paragraphs 37 to 66 of the Committee’s Stage One report (“the Report”).
The Committee’s Recommendations
Overall, a majority of the Committee recommended that the Senedd support the general principles of the 2025 Act. However, the Report also contains 14 recommendations which specifically relate to the eliminating profit agenda.
A selection of these recommendations can be seen below:
- Recommendation 2 – “The Welsh Government should continue to work with partners to explore business models currently not provided for in the Bill [Now the 2025 Act] that would promote the principles of social enterprise whilst still being not-for-profit”.
- Recommendation 3 – “The Welsh Government should amend the Bill [now the 2025 Act] to include regulation-making powers to enable the Welsh Ministers to take steps to close any loopholes enabling extraction of private profit from the care of looked after children, should they become apparent in the future. Such regulations should be subject to the affirmative procedure”.
- Recommendation 8 – “The Minister should review the evidence from stakeholders setting out their significant concerns about the transition timescales proposed by the Welsh Government, and their potential to exacerbate existing sufficiency problems, in order to assure herself that the policy is deliverable within the timescales proposed, without having a detrimental effect on looked after children and young people”.
A summary of the Committee’s recommendations can be found at pages 7 to 11 of the Report.
Well-being and Future Generations Act 2015
The Well-being of Future Generations Act (“WFGA”) requires public bodies in Wales to consider the long-term impacts of their decisions, to work better with people, communities and each other, and to prevent persistent problems such as poverty, health inequalities and climate change.
The WFGA outlines seven legally-binding well-being goals for specified public bodies to consider in its future decision making. These are:
- A prosperous Wales
- A resilient Wales
- A healthier Wales
- A more equal Wales
- A Wales of cohesive communities
- A Wales of vibrant culture and thriving Welsh language
- A globally responsible Wales
Section 6 of the WFGA provides that, amongst others, the Welsh Ministers and local authorities are required to “maximise its contribution to achieving each of the well-being goals” as part of their decision making.
As such, before the 2025 Act was passed into law, the Welsh Ministers were required to consider its impact and had to contemplate whether the 2025 Act would improve the social, economic, environmental and cultural well-being of Wales, and looked after children in Wales.
The Social Partnership and Public Procurement (Wales) Act 2023
The Social Partnership and Public Procurement (Wales) Act 2023 (“the SPPP”) aims to improve the economic, social, cultural, and environmental well-being of people in Wales by strengthening the role of social partnership within strategic decision-making. The intended effect of the SPPP is to promote cooperation, strengthen policy and improve outcomes, through dialogue between social partners, achieved in social partnership.
The SPPP imposes a Social Partnership Duty on public bodies in Wales. This duty requires public bodies, listed within section 6 of the WFGA, in so far as is possible, to seek consensus or compromise with their recognised trade unions, or, where there is no recognised trade union, other worker representatives, when setting their well-being objectives and making decisions of a strategic nature about the reasonable steps they intend to take to deliver those objectives.
As such, Welsh Ministers and local authorities were required to consider social partnerships and socially responsible procurement when considering the implementation of the 2025 Act and when considering procuring health and social care services.
It should be noted that Part 3 of the SPPP (Socially Responsible Procurement) is not yet in force and will enter into force at a time determined by the Welsh Ministers.
Consultation on the removal of profit from children’s care
There is a consultation which proposes changes to already existing regulations related to the registration of service providers and the need for annual reports to be provided by the service providers. This allows CIW (acting on behalf of Welsh Ministers) to have essential information to determine whether a provider meets the non-profit requirements, as set out in the 2025 Act,
The consultation also focuses on a proposed approach to monitor and enforce the necessary provisions, specifically the provisions regarding unreasonable or disproportionate financial arrangements entered into by providers of restricted children’s services.
This consultation is a vital step to ensure that the government’s aim of ensuring that public funds are reinvested to improve services, experiences and support professional development as opposed to allowing corporate entities or individuals to make a profit.
It should be noted that the entire 2025 Act has not come into force yet. The Welsh Ministers have decided that a phased enforcement over a period of time would be the best approach.
How Blake Morgan can help
Blake Morgan has significant experience in advising upon health and social care matters. Should you require advice upon how the Health and Social Care (Wales) Act 2025 may affect you, or your business, please contact Eve Piffaretti or Tina Whitman.
If you require advice upon the SPPP, or any other procurement matters, please contact Blake Morgan’s procurement expert Tomos Lewis.
This article was co-written by Eve Piffaretti and Luke Williams, first published on 7 November 2024, and updated by Kaya Williams on 25 July 2025.
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