Consultation on removing profit from children's care

The Welsh Government’s Programme for Government contains a number of key commitments relating to a new vision for how we transform children’s social care.

At its heart, the Welsh Government wants to support more children to remain with their families with fewer children and young people entering care. For those children in care, we want them to remain close to home so they can continue to be part of their community and for their stay in care to be as short as possible, consistent with meeting their well-being and development needs. 

There is a clear commitment to ‘eliminate private profit from the care of children looked after’ as a key component of this radical agenda. 

Removing profit from care is about values and needs based provision. We want to fundamentally change how we provide services to children and their families as part of a network of local, community-based services that have the welfare of the young person as their absolute priority. 

While the commitment is about transitioning to a not-for-profit model of care in Wales this is not about like for like replacement of one provider by another. The shape and scale of provision needs to evolve, including models of care, wrap-around support and models of ownership. 

The policy intent is to ensure that public money invested in accommodation for care experienced children is not extracted out as profit, but instead any surpluses are reinvested back into the system to support better outcomes, services and professional development. Our children’s services are there to protect and care for young people in our communities, providing a lifeline for those in difficult situations. A key consideration of this work is to ensure a strong focus on returning children who are in placements away from their homes and communities, where that is consistent with their well-being.

On 24 March 2025, the Health and Social Care (Wales) Act 2025 (‘the 2025 Act’) became law in Wales. The 2025 Act includes provisions intended to restrict the extraction of profit by providers of children’s home services, secure accommodation services and fostering services. These are known collectively as ‘restricted children’s services’.

The 2025 act sets out a series of arrangements, some intended to take effect from 1 April 2026, that will ultimately restrict the provision of those services (except where provided by local authorities) to ‘not for profit’ entities registered with Care Inspectorate Wales (CIW). To be a recognised ‘not for profit’ entity, a provider must:

• have objects or purposes that primarily relate to the welfare of children (or any other public good the Welsh Ministers may prescribe)
• operate under one of 4 types of undertaking:
  • a charitable company limited by guarantee without a share capital
  • a charitable incorporated organisation
  • a charitable registered society
  • a community interest company limited by guarantee without a share capital

These permitted not-for-profit models identified in the 2025 Act all satisfy the principle there must be no payment of dividends to shareholders or members and that any trading surpluses should be reinvested into the service (including building appropriate reserves and capital expenditure).

To ensure the policy is not undermined by practices which go against its spirit and intention, the 2025 Act also provides that any unreasonable or disproportionate payments made by a not-for-profit provider of restricted children’s services must be taken into account by the Welsh Ministers when deciding if a provider is a fit and proper person to be registered.

Timing of arrangements

The intention is for relevant provisions of the 2025 act to be brought into effect through subordinate legislation at the appropriate time so that:

• From 1 April 2026: no new for-profit providers of restricted children’s services (children’s home, secure accommodation and fostering services) will be able to register in Wales.
• From 1 April 2027: no additional beds or foster carers can be added by existing for-profit providers of children’s home, secure accommodation and fostering services.
• Not later than April 2030: there will be no new placements of children with existing for-profit providers of children’s home, secure accommodation and fostering services by English local authorities, except in exceptional circumstances specified in regulations, or by Welsh local authorities, unless there is ministerial approval via the supplementary placements process set out in the 2025 act.

The consultation covers 3 main elements relating to the implementation of the 2025 Act from 1 April 2026

• The proposed approach to registration for restricted children’s services from 1 April 2026 and potential changes to the Regulated Services (Registration) (Wales) Regulations 2017 to accommodate this.
• Proposals for how the annual returns process should change to require providers of restricted children’s services to demonstrate they continue to meet the definition of a not-for-profit entity and potential changes to the Regulated Services (Annual Returns) (Wales) Regulations 2017 to accommodate this.
• The approach to monitoring and enforcement of the amended fit and proper person test, providing that unreasonable or disproportionate financial arrangements entered into by providers of restricted children’s services are evidence to which the Welsh Ministers must have regard when deciding if the provider is a fit and proper person. 

The background and a description of the proposed approach for each of these areas is set out in the below sections. 

This section relates to questions 1 to 4 of the consultation.

Background

Section 3(3) of the 2025 Act inserts a new section 6A into the Regulation and Inspection of Social Care (Wales) Act 2016 (“the 2016 act”). Section 6A(1) states:

To be registered in respect of a restricted children’s service, a person who is not a local authority must be a not-for-profit entity

During development of the 2025 act, ministers indicated their intention that this section be brought into effect so that from1 April 2026 no new for-profit providers of restricted children’s services (children’s home, secure accommodation and fostering services) will be able to register in Wales.

Proposed changes to registration of new providers

To enable implementation of the requirements in section 6A, changes will need to be made to the Regulated Services (Registration) (Wales) Regulations 2017 (“the registration regulations”). This is because the registration process will need to change so that CIW receives the necessary information to determine whether new providers seeking to register from 1 April 2026 meet the definition of a not-for-profit entity. 

To be a not-for-profit entity, section 6A requires 2 conditions to be met. Condition 1 is that the objects or purposes of the entity must primarily relate to the welfare of children, or such other public good as the Welsh Ministers may prescribe.

Condition 2 is that the not-for-profit entity must be one of the following types of undertaking:

• a charitable company limited by guarantee without a share capital
• a charitable incorporated organisation
• a charitable registered society
• a community interest company limited by guarantee without a share capital

We intend to amend the Registration Regulations to require that an applicant seeking to register must provide evidence that it meets these two conditions. This will include:

• Evidence that they are a type of not-for-profit entity permitted by section 6A.
• Details of the organisation’s registration with the Office of the Regulator of Community Interest Companies where the organisation is a Community Interest Company limited by guarantee without a share capital (“CIC”).
• Details of registration with the Financial Conduct Authority (“The FCA”) on the Mutuals Public Register where the organisation is a charitable registered society, as well as evidence that HMRC has recognised their charitable status.
• Evidence of the objects or purposes of the not-for-profit entity. It is envisaged this would be achieved by submitting the organisation’s constitutional documents such as articles of associations and memorandum of association.

Proposed approach for existing for-profit providers seeking to re-establish as a not-for-profit entity

As a result of the 2025 act’s implementation, some existing for-profit providers of children’s home, secure accommodation and fostering services may seek to re-establish their businesses under one of the permitted not-for-profit models set out in the new section 6A (and listed above). In these circumstances a provider would need to apply to CIW to register the new entity as a service provider. 

Section 3(2) of the 2025 act requires that such an application to register the new entity must contain information to satisfy the Welsh Ministers that the service provider meets the not-for-profit conditions in section 6A. The Welsh Ministers may only grant an application if they are satisfied that the service provider meets these conditions.

As with the registration of new providers it is intended that the registration regulations will be amended to require that an applicant seeking to register must provide evidence that it meets the conditions in section 6A. This will include the same information requirements as listed earlier in this chapter. As with the case for new providers, the registration regulations already require a charity number to be provided if an applicant seeking to register is a charity.

We recognise that if an existing for-profit provider of a children’s home, secure accommodation or fostering service is already registered with CIW and wishes to re-establish their business and register as a not-for-profit entity, then some of the other information requirements which would ordinarily apply to a service provider registering for the first time may not be necessary, as CIW may already hold the information it requires.

In practice, CIW will therefore only ask these providers for information and documentation it needs to satisfy itself that the entity meets the new not-for-profit conditions set out in section 6A. In addition to the requirements for new providers listed earlier in this chapter, this is also likely to include a focus on determining whether any new responsible individual (RI) is eligible and suitable, and that the provider's documents, policies, and procedures are all aligned with the new legal entity that has been established.

Proposed approach for existing not-for-profit providers

As a result of the 2025 act’s implementation, all existing not-for-profit providers of children’s home, secure accommodation and fostering services will need to apply to CIW to vary their registration so as to demonstrate they meet the not-for-profit conditions set out in section 6A. In doing so they will avoid becoming subject to any conditions imposed on existing service providers by regulations that are intended to be in place by April 2027 to prohibit them adding any new beds or foster carers (see Background section above).

As set out in the preceding sections, any application to vary registration would need to contain the same information as for new providers listed earlier in this chapter to satisfy the Welsh Ministers that the service provider meets the conditions in section 6A to be a not-for-profit entity. Welsh Ministers may only grant an application to vary if they are satisfied that the service provider meets these conditions.

The approach to information collection set out above would also be applied in respect of existing not-for-profit providers.

Proposed timings and transitional approach for registrations

As set out above, the proposed changes are intended to come into effect so that from 1 April 2026 any new providers of restricted children’s services seeking to register to operate in Wales must be a not-for-profit entity (unless they are a local authority). However, we intend to introduce provisions (known as transitional or savings provisions) to allow for providers to be treated as if the previous legislation applies to them if their application is submitted to CIW by a certain date in advance of the coming into force of section 6A on 1 April 2026. Applicants who submit after the date stipulated in the provisions may risk having their application refused on account of the coming into force of the new section 6A requirements and associated provisions while their application was being considered.

Introducing such a provision would give greater certainty to providers seeking to register before section 6A comes into force on 1 April 2026, about the cut-off date for when CIW would be able to consider their application under the previous legislation. An exact date has not yet been determined. However, we anticipate this would be in early January 2026.

This section relates to questions 5 and 6 of the consultation.

Background

Section 10 of the 2016 act requires registered service providers to submit an Annual Return to the Welsh Ministers (in practice, CIW) following the end of each financial year during which they are registered. This will continue to be the case for restricted children’s services.

Proposed change for confirming not-for-profit status

It is intended that the annual returns process will change in respect of restricted children’s services, through an amendment to the Regulated Services (Annual Returns) (Wales) Regulations 2017 (“the annual returns regulations”). 

Specifically, the annual returns regulations are intended to be amended to require providers of restricted children’s services to confirm that their organisation continues to meet the definition of a not-for-profit entity, as set out in section 6A.

Whilst annual returns are primarily intended to give members of the public a straightforward way to view accurate, evidence-based, relevant and comparable information about providers, our proposed amendment would also enable CIW to receive assurance from providers of restricted children’s services registered from 1 April 2026 that they continue to meet the definition of a not-for-profit entity.

Section 47 of the 2016 act sets out that it is an offence for a person to make a statement which the person knows is false or materially misleading in an annual return. This offence can result in a penalty notice or criminal enforcement. Therefore, if providers were to declare that they continue to meet the section 6A conditions, and CIW were to receive or identify information which indicates that this is not the case, CIW would then be able to take enforcement action for breach of this.

This section relates to questions 7 to 9 of the consultation.

Background

Section 6(3) of the 2025 act inserts a new section 9A into the 2016 act to provide that unreasonable or disproportionate financial arrangements entered into by a provider of restricted children’s services are evidence to which the Welsh Ministers must have regard when deciding if the provider is a fit and proper person. These specific ‘fit and proper person’ requirements only impact once the provider is registered, and not at the point of registration.

Existing regulators

Each of the 4 types of not-for-profit entities set out in section 6A (listed in the "registration for restricted children’s services" section) have an existing regulator, alongside CIW, as follows:

• Charitable company limited by guarantee without a share capital. This type of organisation is regulated by the Charity Commission for England and Wales in addition to CIW.
• Charitable incorporated organisation. This type of organisation is regulated by the Charity Commission for England and Wales in addition to CIW.
• Charitable registered society. This type of organisation is regulated by the Charity Commission for England and Wales and the Financial Conduct Authority (FCA) in addition to CIW.
• Community interest company limited by guarantee without a share capital. This type of organisation is regulated by the Office of the Regulator of Community Interest Companies (The CIC regulator) in addition to CIW.

The charitable registered society undertaking is considered an "exempt charity" under UK law. This means it does not need to register with the Charity Commission but is still subject to charity law and must comply with its requirements. All charitable registered societies must be registered on the Mutuals Public Register maintained by the FCA.

Proposed monitoring and enforcement approach

The existing regulators listed above have a range of powers to monitor and enforce the activities undertaken by the respective not-for-profit entities. These include powers to launch investigations and enquiries for activities that could come under the section 9A definition of unreasonable or disproportionate financial arrangements. Ultimately, these regulators have powers to issue official warnings and disqualify trustees (in the case of the Charity Commission), to cancel registration (in the case of the FCA) or to remove directors or bring civil action (in the case of the CIC regulator).

Given the above, CIW intends to put agreements in place with the respective regulators so that CIW is notified when these regulators have undertaken action relating to a not-for-profit entity which is also registered with CIW as a provider of restricted children’s services. Based on this (or on concerns that CIW receives directly i.e. via whistleblowers) CIW can determine whether this merits further investigation. Ultimately, if CIW then deemed that unreasonable or disproportionate financial arrangements had occurred, they would be able to use their existing range of enforcement powers, including cancelling a provider’s registration if considered necessary.

Currently it is not known precisely how many non-local authority not-for-profit providers of restricted children’s services will register with CIW from 1 April 2026. We recognise that if significant numbers of new not-for-profit providers enter the sector this may warrant additional actions from CIW to maintain a robust monitoring and enforcement approach. Additional measures by CIW may also be required should the other regulators raise concerns, for example a significant increase in new not-for-profit providers affecting their capacity to robustly monitor and enforce in this space. Ultimately, arrangements will be kept under review during the initial years of implementation, with additional monitoring and enforcement actions to be considered should additional concerns arise.

Proposed approach to registration for restricted children’s services from 1 April 2026 and potential changes to the Regulated Services (Registration) (Wales) Regulations 2017

Question 1

What are your views regarding the proposed changes to the registration regulations? Please share any suggestions for any changes or additions you would like to see.

Question 2

What impact (including any costs or benefits) do you think the proposed changes to the registration regulations might have on different organisations or sectors within health and social care? 

Question 3

We will work to ensure that the proposed changes to the registration regulations are supported by robust guidance to help both providers, children looked-after, their families and carers understand how the system should operate. What specific topics or issues should the guidance cover to further support understanding of the changes to regulations?

Question 4

What are your views on the proposed timings and transitional approach to registrations? Please identify any implications or risks associated with these arrangements including the proposal for a cut-off date for applications to be treated as though the previous legislation applies.

Proposed changes to the annual returns process to enable providers to demonstrate continued not-for-profit status including changes to the Regulated Services (Annual Returns) (Wales) Regulations 2017

Question 5

What are your views regarding the proposed changes to the annual returns regulations? Please share any suggestions for any changes or additions you would like to see.

Question 6

What impact (including any costs or benefits) do you think the proposed changes to the annual returns regulations might have on different organisations or sectors within health and social care?

Proposed monitoring and enforcement approach to new ‘unreasonable or disproportionate financial arrangements’ section added to 2016 act

Question 7

What are your views regarding the proposed approach to monitoring and enforcement for unreasonable or disproportionate financial arrangements?

Question 8

What impact (including any costs or benefits) do you think the proposed approach to monitoring and enforcement for unreasonable or disproportionate financial arrangements might have on different organisations or sectors within health and social care?

Question 9

We will work to ensure that the proposed approach to monitoring and enforcement for unreasonable or disproportionate financial arrangements are supported by robust guidance to help both providers, children looked-after, their families and carers understand how the system will operate. What specific topics or issues should the guidance cover to further describe the proposed approach?

Other questions

Question 10

What, in your opinion, would be the likely effects of the proposals on the Welsh language? We are particularly interested in any likely effects on opportunities to use the Welsh language and on not treating the Welsh language less favourably than English. 

• Do you think that there are opportunities to promote any positive effects?
• Do you think that there are opportunities to mitigate any adverse effects?  

Question 11

In your opinion, could the proposals be formulated or changed so as to:

• have positive effects or more positive effects on using the Welsh language and on not treating the Welsh language less favourably than English
• mitigate any negative effects on using the Welsh language and on not treating the Welsh language less favourably than English

Question 12

We have asked a number of specific questions. If you have any related issues which we have not specifically addressed, please use this space to report them.

Submit your comments by 8 October 2025, in any of the following ways:

• complete our online form
• download, complete our response form and email removingprofit@gov.wales (please include the reference WG52314 in the subject of your email)
• download, complete our response form and post to:

Removing Profit Policy Team  
Social Services and Integration Directorate
Welsh Government
Cathays Park
Cardiff
CF10 3NQ

Please include the reference WG52314.

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Data Protection Officer
Welsh Government
Cathays Park
Cardiff
CF10 3NQ

Email: data.protectionofficer@gov.wales

Information Commissioner’s Office
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SK9 5AF

Telephone: 01625 545 745 or 0303 123 1113

Information Commissioner’s Office website.

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For further information about this consultation contact:

Removing Profit Policy Team
Social Services and Integration Directorate 
Welsh Government
Cathays Park
Cardiff
CF10 3NQ

Email: removingprofit@gov.wales

Number: WG52314

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