The UK Minister for Civil Society has announced that four local authorities will run trial social impact bond schemes, offering contracts to charities and social enterprises to tackle what he calls ‘the pointless cycle of crime and deprivation’. The government’s Office for Civil Society (OCS) is to ask private and charitable investors to purchase social impact bonds worth up to £40 million that will fund new schemes to support ‘problem families’ in the London boroughs of Westminster and Hammersmith & Fulham, and local authorities in Birmingham and Leicestershire.

The scheme draws its inspiration from the UK’s original social impact bond, currently running to reduce reoffending among former inmates of Peterborough prison, which is the brainchild of Social Finance (see the interview with SF’s Sir Ronald Cohen on the Alliance website, 1 January 2011), and it’s an idea that has also been garnering some support in the US in both governmental and philanthropic circles. The Obama administration announced pilot schemes in the areas of job training, education, juvenile justice and children’s disabilities in February this year, while the Rockefeller Foundation has become a supporter to the idea on both sides of the Atlantic, investing $500,000 in the Peterborough scheme. In the case of the new UK schemes, the councils in question will devise a contract that specifies targets for families, which might include an increase in school attendance, a fall in criminal behaviour or a reduction in drug or alcohol abuse. Charities and social enterprises will then bid for the contracts and find private and social investors to provide financial backing. Although the OCS will act as sponsor and supporter of the schemes, it will not fund them. A spokesman said the department estimated that the four projects would require a total of about £40 million in working capital over a four-year period, while OCS itself has made up to £300,000 available to offer technical support to the councils in order to design the new tender documents. He added that Big Society Capital, formerly known as the Big Society Bank, might be able to offer some investment in the scheme, an idea which seems likely as Sir Ronald Cohen figures largely in both Big Society Capital and the social impact bond idea. Sir Ronald is on record as saying that social impact bonds will be worth ‘tens of billions of pounds’ worldwide within the next two decades (see Alliance eBulletin, July 2011 – subscribers only).

Meanwhile, the promoters of such schemes seem likely to proceed a step at a time. One US critic wondered whether the data collection they would require would prove excessive and, while the assessment of the Peterborough pilot scheme was generally positive, it raised some outstanding questions the concept needs to address – in particular, that the risk in relying on payment-by-results models is that providers focus on members of the target group who are the easiest to help.

For more information

Third Sector Online, 26 August 2011