Many distinctive policies have been successfully introduced by the devolved Scottish Parliament. So why is Scotland looking to England for a sustainable funding model?
Over the years since devolution, Scotland has largely embraced its new found devolved powers. This can be seen by the clear policy divergence from other parts of the UK. Free personal care, abolition of prescription charges, abolition of bridge tolls, freezing council tax and the high profile policy of free university tuition. All of these measures have proved popular, but recent debate has turned to considering just how sustainable they will be in years to come.
Understandably, England’s citizens, with no devolved powers of their own, will be entitled to look north and ask why these benefits should not be extended here? Before doing so however, a key question remains to be answered. Are they sustainable in the long term?
There has been some recent debate on sustainability in the Scottish Parliament. And ironically, many are looking to emerging innovative practice in England to provide some answers. The Parliament’s Finance Committee recently held a round-table debate on the topic of fiscal sustainability. The intention was to explore what innovative funding models have been tested and could be introduced in Scotland.
It was the Social Impact Bond that was the focus of evidence for the Finance Committee. This is something largely unknown in Scotland but in which England is leading the way, with a clear ‘made in England’ stamp on the world’s first social impact bond. The evidence given to the Committee by private sector witnesses described how the initial private investment is made for a specific social outcome. If they are met then investors will obtain a return in exchange for their initial outlay.
Witnesses to the Committee described how the bond would support preventative spending, currently one of the Scottish Government’s pillars of reform. The practical example used was the Peterborough prison social bond. The intention of that scheme is to reduce re-offending. Risk is transferred to the private sector investor and if re-offending crimes reduce within a specified parameter then private investors will share in public sector savings. Only if the schemes fail will there be any cost to the public purse.
The availability of private finance for an innovative funding model with seemingly little public sector risk would appear to be an obvious and attractive one for Scotland’s policy makers. But it was noticeable at the Finance Committee that one member asked a pointed question on ‘transfer of risk’. In his view, PFI risk hadn’t in fact been transferred; he asked whether there is any evidence that ‘real risk’ is being transferred in the case of social impact bonds. It was also suggested that outcomes might be met, but without any savings, given that prison places would be filled anyway.
There was no response to this point from witnesses. No one was prepared to talk through, even in academic or theoretical terms, whether the definition of risk and its transfer has shifted in the journey from PFI to social impact bonds. This left one of the more interesting questions unanswered.
But perhaps understandably. The social bond mechanism itself is still new and given the long term nature of the outcomes, its success in financial terms - including any revised definition of risk - is still a work in progress. The question of whether the bond itself is a sustainable option has of course yet to be seen. For that answer Scotland will be watching England with interest.
Don Peebles is policy and technical manager at CIPFA in Scotland.
