A sceptical view of ‘social impact bonds’

Yesterday’s ‘Analysis’ programme on R4, ‘Criminal Rehabilitation: A Sub-Prime Investment?”, was essential listening — it’s here on the BBC iPlayer for  the next seven days. Part of the programme looked at the role Social Impact Bonds (SIBs) might play in improving criminal rehabilitation outcomes by enabling private investors to derive a financial return by funding such programmes.

The theory is that the financial risk is removed from the delivery agent (a third sector organisation, for instance) and passed on to “socially motivated investors”; the cost of service delivery is removed from the public spending balance sheet; the third sector provider gains long-term funding for a proven model of service delivery; and, if it all works out, the external investors receive a financial return triggered when outcomes of the programme — in this case a 10% reduction in re-offending — reach a specified level.

The first pilot SIB, which has some ten investors — mainly charitable foundations — and is worth about £5m is currently being delivered by the St Giles Trust.

What was most interesting about this is that even some of those involved in originating the SIBs idea — such as Geoff Mulgan, previously at Demos and now at the Young Foundation — now seem sceptical that they can be made to work.

His view is that given the limited availability of funding from the charitable and philanthropic sector, SIBs will almost by definition outgrow the financial capacity of this sector to fund them — “they are inherently unlikely to be scaled-up,” he says. But he also adds that the more successful SIBs are, the less they are needed.

What Mulgan meant by this is that while SIBs may offer an important “transitional” device in refocusing the public sector on service models based on investment and prevention. The government can borrow more cheaply than any commercial market can, so if the government identifies successful delivery methods that genuinely do reduce re-offending and create significant savings in public expenditure elsewhere, then why not just commission those services directly and pocket the difference rather than pay it out to investors?

“The irony is, the more successful this approach,” Mulgan says, “the less you need intermediary financial organisations to help you – often at considerable cost.”

Criminology specialists were also sceptical that the proposed levels in reoffending reduction could ever be achieved. More significantly, not one of the academics or policy specialists appearing in the programme said they would be willing to put their own money into a criminal rehabilitation SIB.

The interviewee who was most bullish about SIBs was justice secretary Ken Clarke, but sadly he wasn’t asked whether he would put his own savings into one.

Leave a Reply