Funding for transformation: the role of social investment in public services

21 Mar 16

Financing initiatives like social investment bonds offer an opportunity to take forward service reforms at a time of public sector austerity

Public services over the last five years have been dominated by unprecedented level of change: City Deals, public health reforms and devolution on the one hand and on the other, service cuts, efficiencies and a myriad of conferences which usually start with a picture of the Barnet Graph of Doom.

Local areas are therefore looking for new sources of investment to achieve the outcomes they and their constituents want. A number are turning to social investment to commission and deliver public services in a more integrated, preventative and outcome focused way. But how could this work?

Social investment offers an opportunity to pump prime service transformation, whether that is through investment in preventative services that deliver savings later down the line, or through better aligning the perverse incentives created by siloed government approaches.

To date, social investment in public services has been used when there is a clearly defined target beneficiary group and desired outcomes for the group. Through social investment bonds (SIBs), social investors have provided working capital for charities and social enterprises to deliver outcome-based contracts. For example, Ways to Wellness is a programme that has received upfront social investment to deliver social prescribing to people with learning disabilities in Newcastle. If improvements in wellbeing and reduction in hospital use are achieved, social investors will be repaid. If not, then the social investors lose their investment but the organisations delivering the services are shielded from the financial risk. Last year’s Spending Review announcement of a further £105m to stimulate SIBs means we will be seeing many more of these across a range of issues including homelessness, youth unemployment and mental health.

Yet, this should not be the limit of social investor involvement in public services. There is an opportunity for wider scale transformation, pump primed by social investment, and there are a number of early stage ideas in development. With devolution on the horizon, some areas are developing public service transformation funds to pool money from across different local and national government programmes around person centred outcomes. As payments based on outcomes tend to be in arrears, it is likely social investment will be needed to support these funds. The move to capitated budgets, accountable care organisations and expansion of community based care models is also creating a need for upfront working capital to drive innovation and service redesign.

Although local areas will be in the driving seat, central government has a significant role to play. Many of the benefits of local transformation will accrue to central government departments such as the Department for Work and Pensions and Ministry of Justice. So, these departments need to consider the outcomes they want to achieve and the price they are willing to pay for them if localities take the lead. The Budget sets out an opportunity for government to build on the economic devolution achieved so far and focus on how public services could be commissioned and delivered locally to achieve better outcomes.

All of this is not without its challenges. Defining outcomes, developing metrics and putting a price on them can be difficult in public services – too often the data and the analytical capacity isn’t there. Many of the initial programmes took a long time to set up but over time we’re seeing the time and cost slowly decrease. Additionally, as we know from initiatives such as Total Place and Community Budgets, bringing different public sector players to the table can be tricky. As a result Big Lottery Fund and Cabinet Office have been designing initiatives such as the Commissioning Better Outcomes Fund to smooth this process and help pave the way for collaboration around outcomes.

It is early days but the appetite is there to think differently. There is a developing provider market looking to deliver services in a different way and a social investment marketplace with over £100m potentially available for these projects in the future. Big Society Capital recently launched expression of interest for a new fund manager to make investments in outcome-based contracts (having previously made an investment into Bridges Ventures to run a SIB fund that has to date invested in 14 SIBs).

As we look ahead to a time of great change for public services, we hope that local areas engage with these developments and consider how social investment could play a part in their plans – to deliver better outcomes with better local services.

  • Daria Kuznetsova Big Society Capital
    Daria Kuznetsova

    Daria Kuznetsova is the strategy and market development director at Big Society Capital

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