It can be difficult to secure public funding for innovative ways of delivering public services. Governments typically spend money on programmes that have been rigorously tested, evaluated and measured.
This is the case even when the economy is buoyant. It is even truer when public finances are tight. As a result, public services and social programmes can remain unchanged for decades.
But it’s well worth public bodies considering new ways of ensuring citizens receive vital, innovative services. A new type of investor has recently entered the public sector market. These 'social impact' investors are filling the innovation funding gap, investing in demonstration projects where they earn their money back once the projects deliver some key outcomes. These funding agreements are called social impact bonds, although they are not bonds in the conventional sense.
Once the case for the new intervention has been made, the government can decide whether to adopt the interventions as established policy measures. To date most social impact bond projects have focused on social services. This reflects a frustration with the reactive character of many UK public services – that is, they address the problems of children, young people and adults today, but do not spend enough time and effort on preventative action.
Many social impact bond investors and issuers believe that concerted preventative action – for instance with young ex-prisoners – could stop individuals from going down a lifetime path causing harm to the community, their families and themselves, thereby saving the state significant sums and improving the well-being of a community.
I am convinced that social impact bonds have a role to play in local government, the prison service and beyond. For example, there is no reason why the principle could not be extended to the health arena, via a health impact bond. This could involve a concerted programme being put in place to help people with diabetes actively manage their condition, or support people who drink too much or are overweight to change their lifestyles and improve their health prognoses as a result.
Such investments are now being explored by a number of the country’s more progressive public service providers. A new £14m Social Impact Bond Fund was launched at the end of April, backed by the government’s social investment bank Big Society Capital. It is its largest signed investment commitment to date.
In addition, the prime minister has indicated that he plans to use the UK’s G8 presidency to draw attention to impact investing – leading to speculation that the topic may make it onto the agenda of next month’s G8 Summit.
In anticipation of organisations increasingly considering whether social impact bonds might be appropriate in their arena, we have produced a guide to assessing their feasibility. This is from both an investor and commissioner perspective. Social impact bonds will not be right in all situations and four feasibility criteria – relating to policy, providers, finances and stakeholders – need to be carefully considered.
After all, a project must support policy objectives, rely upon the existence of expert providers with the capacity and capability to deliver the required interventions, deliver payments that appeal sufficiently to investors and have the backing of other stakeholders, including those who look after the project client base; the carers, teachers, probation officers and so forth.
I foresee social impact bonds having their day in the sun during the coming months. But this will be for projects that have clearly identified their target population and interventions - and that are innovative and demonstrably different from the services that exist today.
