Ministers must get to grips with the “national scandal” of England’s shadow child social care system, the children’s commissioner has warned, as a report reveals the number of children in unregulated settings has increased by more than 370% in five years.

Some of the most vulnerable children in England are being temporarily placed in unregulated caravans, Airbnbs and holiday camps, which risk the “accumulation of increasing levels of harm for children who have already faced enough distress for several lifetimes”, according to the report.

Analysis of Ofsted data has shown that cases of unregistered homes in England increased from 144 in 2020-21 to 680 in 2024-25, which experts say is likely to be an underestimation of the true figure, according to the policy analysts at Public First, who conducted the research for the charity Commonweal Housing. The Care Standards Act 2000 legally requires all children’s homes to be registered with Ofsted.

Private companies have been accused of charging local governments “exorbitant” fees to look after children in unsuitable settings when a bed in an Ofsted-inspected children’s home or fostering placement cannot be found. According to the report, it was not unusual for for-profit providers, which operate more than 80% of child residential homes in England, to charge £20,000-£40,000 a week for each child.

Social workers and child social care leaders have told the Guardian that they have been given the “Hobson’s choice” of placing a child – often with the most complex needs – in a last-minute uninspected setting or leaving them at a police station or on the street. Senior practitioners told the report’s authors that unregistered placements had changed from something they might see “once every six months” to something that crosses their desk “at least once a week”.

The report’s author, Gil Richards from Public First, said not every unregistered placement was poor but because of the nature of the shadow system the “state just doesn’t know what is happening to these children”. Some registered providers feared taking high-risk children would damage their Ofsted ratings and would rather leave beds empty than accept a child linked to gangs, who repeatedly went missing, or who displayed extreme behaviour.

One social worker said the youngest child she had placed in an illegal setting was just five; another said they had been forced to place a child in a caravan. A former director of children’s services at a local authority said senior figures were aware they were behaving unlawfully but had to act “when there was no other solution”.

The use of illegal care homes was a “national scandal”, said the children’s commissioner, Dame Rachel de Souza, who published a report in January which found that 669 children were in unregistered homes on 1 September 2025.

“I have been warning about this practice for years, and I need leaders at every level to grip it urgently,” she said. “Hundreds of children with complex needs each year are in placements operating without regulation or safeguards because there are simply not enough good, safe options to give them the quality of care they need.”

The children’s minister, Josh MacAlister, said those running illegal settings “must be registered with Ofsted or face serious consequences”. He added: “We are cracking down on the scourge of illegal homes through new laws that give Ofsted the power to issue unlimited fines and shut down illegal homes.”

Ashley Horsey, the chief executive of Commonweal Housing, said the report was “very worrying”, adding: “It tells us that hundreds of children are finding themselves at the sharpest end of a failure of policy and a failure of regulation, when local authorities have no other option but to place them in unregulated settings.”

The extreme risk such settings exposed vulnerable children to was demonstrated by the recent case of an at-risk teen who was put in an unregistered home, plied with alcohol and sexually assaulted by the two ex-soldiers being paid by a private firm to care for her. The 15-year-old had been moved 300 miles to escape sexual exploitation, LBC and the Bureau of Investigative Journalism first reported.

The report from the children’s commissioner found that 44% of children in unregistered placements were in an illegal children’s home and 7% were in AirbnBs, holiday camps or activity centres. The average placement lasted six months, but 89 children (13% of the total) had been there for more than a year. One child had been in a “holiday camp/activity centre” for almost nine months. The weekly cost of such illegal placements was £10,500; 36 of the children looked at were in placements that had each cost in total more than £1m.

In January, the public accounts committee, described the children’s residential care market in England as “dysfunctional”, with one in 10 children in an illegal, unregistered home. No unregistered provider has been prosecuted for running an unlawful setting.

Ofsted told the Guardian it had started several prosecutions but as they were going through the courts it could not comment further. “Too many children are being placed in unlawful settings where they’re at risk of harm. The use of these placements must stop,” said a spokesperson. “Ofsted is working hard to investigate unregistered children’s homes and compel them to either register or close.”

Prosecuting was a “lengthy and expensive process”, it said, but added that measures in the children’s wellbeing and schools bill would “allow us to act more quickly”.

Government sources said ministers had made “huge progress in a short space of time on an area of government that has been ignored for far too long”, pointing to an £88m drive to create 10,000 new foster care places.