Somebody else’s money?

Following on from the publication last year of our report on social investment, several of our clients are now beginning to consider whether a Social Impact Bond could be an effective way of financing innovative models of service delivery. Essex County Council is leading the way for testing Social Impact Bonds (or SIBs) in local government, having recently established a SIB to help vulnerable young people at risk of going into care and when we spoke to a member of the Cabinet Office’s Social Investment and Finance Team this week, they confirmed that they are expecting SIBs to become more prevalent in local government, in particular when the results of the first SIB in Peterborough are published in 2014.

SIBs are designed to fund interventions that could improve the outcomes of a particular group or population, placing the burden of risk of delivery (and cost) on investors (and potentially providers), rather than a public body like a Council. Because of these attributes they are becoming attractive to local authorities that are seeking transformative ways to improve the outcomes of target populations that may often have high costs of care and require higher levels of upfront investment to secure a long term but much more positive outcome.

This all sounds very appealing but we believe there are several key questions to answer when a council is considering a SIB:

  • Are there service providers in the market who have the capability and capacity to deliver any new SIB-funded interventions?
  • Are the potential savings sufficient to whet investors’ appetite to be involved?
  • Could a SIB meet the needs of the disparate potential stakeholders?
  • Are there interventions available or in use that could help improve the outcomes under focus of the SIB?

There are some really exciting models being developed between local authorities, investors and the third sector (for example the new Allia SIB for Essex manages to gives a minimum return to investors of 100 per cent of funds invested by actually making two social investments at once, with very different levels of risk) – we’re really looking forward to seeing how these work in practice.


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