Social Impact Bonds have been heralded as a magic bullet, and alternatively dismissed as hype. A more modest, realistic, and longer term vision is what we need now
Last week’s launch of Big Society Capital has sparked renewed debate regarding the untapped potential of social finance to solve an array of problems – from homelessness to reoffending, to prevention hospital readmission.
The most hotly debated social finance model, Social Impact Bonds, has been developing for nearly two years in a growing number of pilot areas. Those involved are extremely enthusiastic about the potential of SIBs as they enable private investors to fund schemes aimed at tackling social problems. Success criteria are set and, if the scheme meets them, investors are paid a return by the relevant commissioning public body (the local authority or government department).
The public body can justify this cost based on the savings achieved (such as reducing re-offending, preventing hospital admissions etc which saves money in the longer term). If the scheme fails, the investors see no return, so the risk remains with them.
For years, invest to save arguments have been made in health and social care, criminal justice, homelessness support, and so on, without anyone really grasping the nettle and properly funding preventative work with the expectation of making substantial savings in the longer term. And this is often due to limited budgets which are always spent where there is most need, at the acute end of support.
SIBs represent an injection of up-front cash which breaks this vicious cycle – so it’s understandable why the concept is so seductive. For local and national government, SIBs represent a way of passing the cost to the private sector of all that good preventative stuff that they know works, but cannot afford (or have not had the political will) to pay for.
But recent discussions regarding SIBs suggest initial enthusiasm is being replaced with caution – even cynicism – as the finer details are digested. It turns out that SIBs throw up more questions than they answer. How will returns be calculated? What evidence will be used to demonstrate success and predict savings (which will no doubt be based on sketchy assumptions about future outcomes)? Being able to demonstrate social value and cost savings has always been a stumbling block for service providers, thwarting many in their attempts to win contracts from commissioners and grants from central government.
SIB funding might be from a different source, but private investors will be no less demanding than commissioners when it comes to evidence of impact, as this dictates the likely size of return on their investment. Then there is the time frame – will the public body need to realise the savings before paying the return? This could take years. In reality, the local authority or department will pay the investor their return when a scheme has achieved its stated aims, without ever really seeing a cashable saving (which will no doubt be enjoyed by many different agencies). In which case, the problem of a lack of funding for preventative work has still not been overcome.
But getting tied up in these potential flaws risks us dismissing SIBs as being too difficult to implement before they have left the starting blocks. One can readily envisage that under the right circumstances, SIBs could be successful. Where there is a clear (single) indicator for success, where savings are well evidenced, achievable in a shorter time frame and enjoyed by a single stakeholder, returns for investors are more easily calculable and an attractive prospect. Yes, this narrows the field for SIB applications somewhat. And one might argue that such well evidenced schemes are already funded by local authorities – or at least were.
Might SIBs simply become a way of undoing the cuts being made to grant funding? These more modest, context specific applications may not be the game changing vision the government cherishes for SIBs, but in a time of decimated service funding they may still be a welcome method of securing up-front investment.
And who’s to say that over time, as SIBs become more widely used, investors will not become more willing to take risks and providers more adept at demonstrating impact? This could begin to breathe life into less tried and tested innovations that tackle complex social problems. SIBs have been both heralded as a magic bullet, and dismissed as hype – but it’s a more modest, realistic, and longer term vision for SIBs that we need now.
