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UK ministers are in exploratory conversations with local government about bringing accommodation for asylum seekers back under direct public control after criticism of the profits made by outsourcing companies.
The Home Office has been talking to council leaders about how a locally run system might work were it to exercise break clauses in existing asylum contracts, according to people familiar with the conversations.
The Financial Times reported last week that ministers have been “shocked” by the profits made by outsourcers Serco, Mears and Clearsprings since they were awarded contracts to operate accommodation for asylum seekers five years ago.
As a result they are exploring the possibility of exercising break clauses in 2026.
In parallel, the Home Office is looking at new models of providing asylum accommodation, including the potential for local authorities to take over.
This could mean a move to a model similar to before the system was first outsourced in 2012.
Greater Manchester’s combined authority, overseen by Labour mayor Andy Burnham, is among those to have had initial discussions with ministers.
However local leaders have clear red lines, including a cap on the number of asylum seekers placed in their area.
The topic is particularly highly charged following anti-immigration riots across the UK in August, in which hotels housing asylum seekers were repeatedly targeted.
Concerns about the placement of asylum seekers date back much longer, however. Many councils in poorer parts of the UK have long viewed the number of people placed in their areas as disproportionate.
Local authorities also complain that they have no advanced notice of placements by private contractors and that people are dumped on them with little additional support. Some have previously taken legal action against the government over high asylum seeker numbers.
In Wednesday’s Budget, the Home Office was told to find more than £2bn in asylum cost savings by 2025/26 as ministers eye an overhaul of a system under acute strain.
The last major change to the system was in 2019, when the Conservative government awarded new 10-year contracts for accommodation provision to Serco in the Midlands, North West and east of England; Mears in the North East and Yorkshire and the Humber; and Clearsprings Ready Homes in the south of England.
Those providers are responsible for sourcing and operating accommodation for people awaiting a decision on their asylum claim.
The contracts, which contain break clauses after seven years in 2026, have proved profitable for all three companies. On Thursday, Clearsprings — whose principal business is Home Office accommodation — reported a 60 per cent increase in pre-tax profit to £120mn, citing high demand for asylum housing. Serco reported a 5 per cent increase in overall profits between 2022 and 2023 to £249mn.
While the contracts stipulate any surplus profits should be funnelled back to the government, the Home Office conceded in a freedom of information response that the Treasury had received nothing between 2019 and 2022.
One person familiar with conversations between Greater Manchester and ministers said that in theory, a locally controlled system could save the government money, while giving councils better sight of placements and more ability to manage both housing stock and support.
But a second person was sceptical of such an outcome. Should responsibility be handed over, they said, local leaders would demand a cap on future numbers and a new funding system.
There is also local nervousness about the political risks of taking over provision of asylum seeker accommodation.
Four of the riots during August’s unrest were in the Greater Manchester conurbation, including at a hotel used to house asylum seekers.
A spokesperson for the Greater Manchester Combined Authority said it was not “currently” having any direct conversations with the government about taking responsibility for asylum accommodation, “but we are open to discussions about this as we move forward”.
An “equitable national dispersal system” remained a “key ask” and a “prerequisite” for any such move, it said, as well as a “meaningful long-term funding package” to support asylum seekers.
Serco told the FT previously that it had won its contracts “following a competitive tender to ensure that value for money was achieved for the taxpayer”.