The value of Social Impact Bonds

It was Jack Straw, as justice secretary, who planted the seed for the first Social Impact Bond (SIB) a year ago and Ken Clarke who celebrated its germination at Peterborough jail in the autumn. But what sort of plant is it? Who will harvest its fruits and are they good to eat? So how does SIB work? Essentially, a group of investors says to the government 'we will purchase the services of voluntary organisations to create an agreed, desirable, achievable and quantifiable social change over a defined period of time. In doing so we will save you money. If we are successful, you will pay us a return which makes the investment worth our while, but which is less than the cost to you of maintaining the status quo.' In the Peterborough case, a consortium of charities is being funded to reduce the re-offending rate of male prisoners who serve less than a year inside by at least 7.5% over six years. The degree of success will be measured by comparison with a control group who do not get the intensive mentoring and support that these men will enjoy. The savings to the taxpayer are clear: fewer people going to prison, less burden on police and courts and reduced social costs. The greater the reduction above 7.5%, the greater the return on the investment. If the target is not reached it is the investor who takes the loss. What is remarkable about SIBs is that the commissioner sets the agenda; the SIB funds public services from sources not previously utilised; it diversifies the voluntary sector's funding base; it breaks down the silos of traditional service provision and it gives all parties, government, investor and charity, an incentive to succeed. Most importantly – unlike other 'payment by results' schemes – it does not offload the financial risk of outsourcing services onto civil society. Critics say that SIBs will target the lowest hanging fruit. But doesn't every organisation choose which contracts it bids for? They say that SIBs favour schemes with quick results, but six years (or longer) is so much better than the annual or three-year commitments which the state normally awards. Scalability is a challenge. The SIB already underway targets one group of prisoners in one prison. The highest financial returns will accrue if reconviction rates fail to fall at other prisons, so exaggerating the comparator. If SIBs were universal, how would the comparator be calculated? We are told that early intervention with socially-challenged families raises aspirations, achievement and health outcomes and reduces offending rates in the next generation. Sure Start's outputs are complex, often intangible and very long term; they cater for local rather than national need; and they face the same funding crisis as everyone else. As early intervention, so long advocated by Graham Allen MP and now endorsed by ministers, takes root, will the professional risk takers – the investment community – show their true community spirit by getting their hands dirty in the Sure Start garden? SIBs are not beds of roses so much as essential tools to have in the shed. Whatever challenges they raise, the potential benefits from SIBs in localities around the country are immense. Tom Levitt is the founder of the Sector 4 Focus consultancy which promotes partnerships between businesses and charities