Is it time to call time on social impact bonds?

In case you’re unfamiliar with Social Impact Bonds – also known as SIBs – see our beginner’s guide. Ever since the first one was launched in 2010 – to tackle recidivism among offenders leaving HMP Peterborough – policy makers in the UK and abroad have been intrigued by the SIB model. In short they are a novel way of paying for public services in which the government only pays for better social outcomes, and risk is borne by investors. This funding model is attractive to government and is one that the Big Lottery Fund is now actively promoting. The people involved in the early SIBs have been powerful evangelists – extolling the virtues of the model not just because it offers improved outcomes, but also because it leads service users, providers and commissioners to work together. Four years on from the launch of the Peterborough SIB some of the initial optimism has turned to frustration that the model has yet to become mainstream policy. Progress has seemed slow and the number of SIBs coming through the pipeline appears to be slowing down. This frustration was reflected by one participant at a roundtable event we hosted recently. They suggested that SIBs should be given only another year or two of support, before policy makers admit that this model simply won’t deliver the benefits it seemed to promise. There are good reasons for this frustration. SIBs are not panacea for all society’s intractable problems. They remain extremely tricky to establish, and have yet to prove effective at delivering better outcomes. Creating a SIB requires the support of three groups:

• investors willing to risk their money
• service providers who can promise better outcomes
• government commissioners willing to pay for these outcomes.

We know quite a lot about the obstacles on the investment and provider sides, but the difficulty of securing commissioners’ commitment remains less well-understood. The roundtable event, held in partnership with the Big Lottery Fund, was intended to get beneath the skin of these issues. In addition to funders, intermediaries and policy makers, we invited others who deal with the technical detail of getting SIBs off the ground: representatives from the finance profession, the legal profession, and commissioners from different sectors including policing, health, local government, and national departments. We heard a number of concerns, including:

• Capability: commissioners lack capacity to collect and analyse data on which SIBs can be built.
• Culture: SIBs are still seen as a new, unknown or complex model by many commissioners. Still more don’t even know they exist, even within big government departments. Cultures vary widely across commissioning authorities, but particularly in policy areas involving vulnerable people, risk-taking is rarely acceptable.
• Savings: commissioners are facing shrinking budgets, and an individual SIB will very rarely offer sufficiently significant savings to invest the upfront costs required.
• Incentives: political backing incentivises commissioners to look for new ways to commission services – and it is noticeable when absent.
• Priorities: services commissioned via SIBs tend to be bespoke, which makes them hard to integrate with pre-existing, mainstream services.

It is easy to identify problems, and much harder to find solutions. Luckily for us, we had a vibrant, engaged group, who came up with some practical ideas to take forward. One strong theme that emerged was that commissioners are crying out for easier ways to replicate successful SIBs. High profile demonstration projects would be one way of achieving this, or drawing on pre-existing SIBs to created easily-replicated, standardised models. To get around capability issues on data, commissioners would welcome simple resources that bring together the different outcomes frameworks that are used in SIBs and other payment-by-results contracts. Others go further – asking policy makers to create ‘rate cards’ for specific outcomes, which they could then build on to create SIB contracts. And commissioners felt that as well as better resources to help them overcome the high start-up costs associated with SIBs, providers could do more to actively ‘sell’ investment-ready SIBs to them. These were only a few of the good ideas that emerged. The tone of the event was positive, practical, and different to others I’ve attended in the past. Rather than the same faces discussing why SIBs are a good idea, there was greater engagement with the more important – but difficult – question of how they would be spread more widely. So to return to our participant’s original question: should we call time on SIBs? On reflection the experience of this discussion would suggest not. We may be frustrated with the slow progress being made, but interest remains high in this new way of working, and there are suggestions that the nature of the debate is changing.