Care companies are insisting on unnecessary and expensive support packages for vulnerable children to boost their profits, a council leader has claimed.

Barry Lewis, the Tory leader of Derbyshire county council, said that former family-run businesses acquired by private equity groups were trying to get “as much cash as possible” out of local authorities.

“They insist on wraparound care when it’s not needed,” he said. “If you don’t go with that package, they go to another local authority. It’s become an extractive market.”

Councils have a statutory duty to accommodate the growing number of children requiring residential care. Lewis said councils have to accept excessive care packages for children as there is a national shortage of places in children’s homes. “At the moment, there are about 20 kids for every placement,” he said. “It is a seller’s market.”

One care company charged the council £652 a week for in-house education provision after the child had already transferred to a college. On another occasion, the council was billed £192 a week by a care company for extra activities that never took place. A different private provider added £1,000 to a weekly bill without providing any evidence for why it had done so.

Lewis called for a cap on fees charged by care chains. He said councils were being extorted by some companies. “We are being treated as diamond mines. It is an extractive process of trying to get as much cash as possible out of local authorities.”

The east Midlands authority, which includes Chesterfield and Matlock, has seen spending on private residential care for children balloon from £14m in 2018 to £34m in 2023. The figure is projected to increase to nearly £47m this year.

These rising costs have forced Derbyshire to make cuts to other services. The council needs to make savings of £39m in 2024-25. The single biggest factor is the increasing cost of children’s social care.

“It is very difficult for us to control because we have the statutory duty placed upon us [to look after children who cannot be cared for by their parents] and because the market is distorted,” said Lewis. “It’s profiteering on the backs of young people.”

Derbyshire is considering cutting £3.9m from children’s centres and early help services for families. “We will see young people falling on challenging times in the future and ending up in our care,” said Lewis. “That’s the perversity of having to pay [these increasing care costs].”

He added that the outcomes for looked-after children were often poor in private placements: “We get placement breakdowns and education is an issue. They go into the adult world with very few prospects. That’s not what we want for our young people.”

The government announced £500m of additional funding for social care in England in January. But Lewis said that it was not enough. “It is a very small sticking plaster for a very large wound,” he said. “The amount of money we got was £3m to £4m.”

Over the last three decades, the private sector has almost completely taken over children’s residential care, as local authorities have been encouraged by successive governments to outsource services.

Now more than 80% of care homes in England are run to make a profit, with large, debt-laden chains owned by private equity investors increasingly taking over smaller companies. Unlike the Welsh and Scottish governments, UK ministers are not seeking to eliminate profit-making from the care of children in England. Instead, the government’s reforms are focused on rebalancing the market by boosting commissioning power and providing capital funding for councils to build more homes.

The Children’s Homes Association, which represents many private providers, said it recognised the challenges local authorities were experiencing.

“Residential childcare is the most complex sector of children’s social care and it is vital to be cautious in oversimplifying high-level cost data,” said Mark Kerr, the association’s chief executive.

A Department for Education spokesperson said: “Profiteering in the children’s homes market is wholly unacceptable. We are working with Ofsted and the sector to develop a new financial oversight regime to increase financial transparency across the sector and investing £259m to support local authorities to create more placements for children in high-quality and safe homes.”