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Solace blog

12th May 2016

Better outcomes and better value: the promise of social impact bonds

Every local authority wants to deliver better outcomes for its most vulnerable young people and adults. But in an era when budgets are under ever-greater pressure, and social challenges are getting ever more complex, is that a realistic aspiration?

Our experience with social impact bonds (SIBs) suggests it can be.

Our Residential Migration Programme in Birmingham – which is SIB-funded – helps to move looked-after children in Birmingham out of residential care homes into stable foster placements. As anyone involved with children’s services will know, keeping children in care homes tends to have a detrimental effect on their life outcomes, as well as being extremely expensive for local authorities. So there’s a clear imperative to get these children into stable foster families.

Unfortunately, as anyone in children’s services will also know, this is easier said than done. Finding the right foster family is hard. Making the placement stick is harder still.

Our programme tries to solve this problem by expending substantial time and resource on getting the family match right in the first place and then providing wrap-around support for the family in the early years of the placement – including care-experienced mentors who help the young person navigate the change.

Common sense suggests that this kind of intensive therapeutic intervention should increase the chances of a placement succeeding and thus drive better outcomes for the young people – but it’s extremely difficult for local authorities to justify the kind of additional up-front investment it requires, at a time when they’re supposed to be cutting costs.

It’s in situations like these that SIBs can play a significant role. In our case, a social investor (Bridges Ventures) provided the up-front working capital required to deliver the programme, and Birmingham City Council agreed to pay us a fixed amount for every positive outcome we delivered. In other words, the council doesn’t pay anything at all unless it ends up with more children in secure foster placements – at which point they’ll have saved substantial sums of money on residential care places.

In children’s services, where there is a very clear and quantifiable cost saving if the right social outcome is achieved, the case for SIBs is a compelling one: it effectively allows local authorities to invest more in the short term to unlock cost savings in the long term.

But as a delivery provider, we think the case for SIBs is actually much broader than this.

By paying for outcomes (rather than inputs or activities as they have done traditionally), Government commissioners give organisations like ours much more flexibility around how we deliver our intervention: we can change the aspects that aren’t working, and adapt to the changing environment. Over time, that should make providers much more efficient at delivering the outcomes Government wants.

At the same time, outcomes contracts can make sure that the incentives of different stakeholder groups are properly aligned. In some policy areas, the benefits of a social intervention won’t necessarily accrue to the department best placed to commission that intervention. These structures are proving to be a useful way of bringing these different groups together as co-commissioners.

Another key benefit of SIBs is that they broaden the pool of potential service providers available to commissioners – because they give mission-led organisations the balance sheet strength and management resources to compete for outcomes contracts. Working within the SIB structure is not an easy ride: it imposes a social impact measurement and management discipline that some of these organisations may not be used to. But our experience – and that of other providers we have spoken to – is that this helps us deliver more efficient, more effective programmes.

To date, the primary focus has been on using SIBs to finance innovative new interventions. But in light of the benefits above, we think the much bigger opportunity is for local authorities to use SIBs to drive better performance within the existing services they provide to vulnerable young people and adults – particularly in areas like children’s services, homelessness, health/social care, and youth employment. The Government currently spends about £230bn a year on ‘human services’ like these (out of its annual pot of c. £730bn), of which about a third is outsourced. So while SIBs currently account for a minuscule portion of this – about £20m of contracts per year – there is plenty of room for growth.

Many commissioners still worry that SIBs are too complex and expensive. That’s understandable; the early SIBs were complex, because the various parties involved had to make it up as they went along, and that made the process costly. But as more SIBs are completed, the process of commissioning them is getting simpler, faster and cheaper. In the case of fostering, for example, we pushed for a much simpler structure than had been used for previous SIBs; now, local authorities have a prototype they can use to construct their own outcomes contracts. And there’s plenty of support available from central Government too, notably via the newly-launched Government Outcomes Lab.

This drive for greater efficiency must continue; because in these straitened times, SIBs will only succeed at scale if they can offer commissioners better value than any available alternative.

But assuming it does, SIBs have the potential to help local authorities achieve better outcomes and better value from their core services, and in ways that are positive for service providers. In the current climate, that’s an enticing proposition.

By Paul Riley, Executive Director – Strategic Developments and Partnerships at Core Assets