The increasing privatisation of children’s care homes is “playing into the hands of abusers” and putting children in danger of exploitation, according to a new report, seen by the Observer.

Market forces are being allowed to dictate the housing and care of vulnerable children over their best interests, the study concludes, putting them at greater risk from “county lines” drug gangs that are known to target homes.

The intervention comes from the Howard League for Penal Reform, which spoke to hundreds of people involved in children’s residential care as well as police, homeowners, staff, social workers and children.

The report reveals that companies that own homes in the increasingly privatised sector are placing them in poorer, more disadvantaged areas, so more children are moved from their support networks. Three-quarters of homes in England are now private.

It also finds that local authorities facing increasing pressure to place children are being charged huge fees by private providers without guarantees about how money is spent. Costs sometimes exceed £200,000 a year for a single placement.

The Howard League warns that councils are struggling to take on large providers after a series of major mergers in the sector. The six largest independent providers of children’s social care services made £215m profit in 2019.

Children in care are known to be targeted by county lines gangs, who groom them to move drugs up and down the country.

“The current residential children’s homes structure is playing into the hands of abusers and contributing to the growth and geographical spread of the problem,” the report states. “With the primary focus on profits this means that children’s homes are usually situated in less expensive parts of the country and frequently in disadvantaged areas.

“Too often children are placed wherever a bed can be found. The lack of places for children in care has led to what one police officer described as children being ‘dumped’ in emergency placements, sometimes into environments where people who are already exploiting children are operating and which puts them in danger.”

There are now calls for the government to look at the childcare home market as part of a promised review of the care system. Andrew Neilson, director of campaigns at the Howard League, said: “The whole business model of ‘county lines’ has particularly thrived in the residential care market because children in residential care in England in particular are being moved around at the mercy of market forces, not their best interests.”

Judith Blake, chair of the Local Government Association’s children and young people board, said provision from independent companies would continue to be important, but warned that although councils tried to place children in homes near their family, soaring demand was creating problems.

A government spokesperson said: “Local authorities are required by law to ensure that accommodation for children in care is of high-quality and – most importantly – that it is safe.

“We continue to work with the police, courts and care settings to keep these children safe and in education.”