What are Social Impact Bonds Tim Gray for Northamptonshire CC - July 2016

What are Social Impact Bonds?

• SIBs are Payment by Results schemes designed to allow the commissioner of the service to pay for outcomes achieved, rather than directly for the service provided.

• Risk is transferred from the commissioner to Social Investors rather than to service providers

• This means that it is not necessary for service providers to be large commercial organisations.

• Outcomes ideally have a clear benefit to the commissioner as well as to the service user: e.g. • Reduced unemployment benefits DWP,

• Reduced offending benefits MoJ,

• Preventing children going into care benefits local authorities,

• Reduced readmission to hospital benefits the NHS

What are Social Impact Bonds?

• A way of allowing voluntary sector organisations to deliver payment by results contracts.

• A way of minimising the effect of perverse incentives in PbR contracts.

• A way for commissioners to justify taking risks on innovative approaches.

• A way of concentrating efforts on delivery of worthwhile outcomes.

• A way of freeing up those who are closest to a social problem to do what is most effective.

• A way for social investors to justify making a return.

• A way of bringing rigorous analysis to the impact of different social interventions.

• A way of introducing more focused performance management to the voluntary sector.

How do SIBs work?

Commissioner/s SPV Investors

Target Group

Delivery Organisation/s

£

£

£

£

Outcomes of value to

commissioners (may or may not

result in cashable savings)

Service Interventions

Outcomes Payments

Initial service costs

Service costs Return on Investment (hopefully!)

How do SIBs work?

But it’s not quite as simple as that…

• Investors and Delivery Organisations may both have a stake in the SPV

• Delivery organisations may be investors

• There may not even be an SPV

• Social Investors are interested in social returns as well as financial returns

• The percentage of payments based on outcomes may not be 100% - there may also be a “fee for service” element

• Social Investment Intermediaries not shown in diagram but can be crucial to success.

Three basic types of SIBs

Very broadly, you could say there are three types of SIB: 1. Introducing an existing intervention to a new circumstance e.g. • Peterborough short term prisoners • Essex multi-systemic therapy to keep children out of care or custody

2. Working with groups of people for whom it is difficult to specify a particular intervention, and different actions may be needed for different individuals e.g. • Ways to Wellness Social Prescribing • London Homelessness SIB • Fair Chance Fund

3. Improving the performance of an existing service • Base Case Zero concept

Current SIBs in the UK

• Children in care or on the edge of care • Adoption • Young People (NEETs or potential NEETs) • Homelessness • Long term health conditions • Mental Heath and Employment • Re-offending

And trying to happen in: • Older people’s wellbeing • Diabetes prevention • HIV • Youth work • Domestic Violence • Schools • Community Transport • Gang Exit • Financial Inclusion

Key issues in commissioning /designing SIBs

Outcomes that a commissioner is willing to pay for?

• Internal business case likely to be required to get agreement to funding.

• This may be predicated on cashable savings or at least nominal savings being significantly greater than the costs of the SIB.

• But there could be other reasons why the outcomes are worth paying for in the absence of clear savings e.g.

• Commissioner has a statutory or contractual duty to provide a service to the client group

• Existing underperforming service

• Political desire to achieve better outcomes for the client group

Key issues in commissioning /designing SIBs

Outcomes that can be delivered?

• How do we know and how can investors be confident that the required outcomes can be delivered? • Maybe the provider has delivered them already in another context.

• Maybe there is academic evidence

• Maybe it’s more a matter of trusting the provider’s ability to do what is necessary based on their expertise and track record with the client group

• Outcomes must be measurable and not easy to game. • This could be by use of existing data sources collecting these outcomes

• Outcomes could be statistical improvements e.g. reduction in JSA claims in a locality, reduction in offending compared to a control group, reduction in arrears for a social landlord.

• Or they could be individual outcomes evidenced for each client e.g. achievement of a qualification, sustainment of a tenancy, employment sustainment.

• Can include proxy outcomes e.g. sustainment of a tenancy for people with substance misuse problems is easier to evidence objectively than reduction in substance misuse.

Key issues in commissioning /designing SIBs Outcomes that can be clearly defined and measured.

• There may be a range of caveats around: • The precise client eligibility criteria and who polices it • The exact circumstance in which an outcome can be claimed e.g. can spells in

employment be cumulative, can a qualification be claimed for someone who already has a different qualification at that level?

• The level of involvement of the SIB in achieving the outcome in order for the outcome to be claimable – it may well be that the SIB prices in access to existing services outside the SIB when setting a tariff, but does the SIB at least have to have done some work with a client.

• There needs to be good enough evidence that the outcome has been achieved. • May require timely access to a statistical data source • May require a letter from e.g. an employer • May just require confirmation from the SIB provider, but sanctions for fraud may

need to be in place in this case. • May be more subjective if commissioners are willing to pay for this e.g. a teacher

reports improved behaviour; improvements on an Outcomes Star type measure.

Key issues in commissioning /designing SIBs Balance of risk vs value in outcomes?

• Outcomes need to be genuinely worth something to the commissioner - at least in aggregate, or the commissioner probably won’t pay for them.

• But the outcomes that are really worth something may be longer term, hard to predict, and difficult to achieve. In some cases the really valuable outcomes may occur after the SIB has finished e.g. improved long term employment record for young NEETs.

• So there may be a case for paying for shorter term intermediate outcomes which are indicative of likely longer term success e.g. sustainment of a tenancy for 3 months is worth very little if the person becomes homeless after 4 months, but may be predictive of long term tenancy sustainment and therefore worth paying for if it makes the SIB more investible, and reduces required investment returns.

• A balance needs to be achieved.

Life Chances Fund

• Life Chances Fund just launched by Cabinet Office.

• £80m top up funding for locally commissioned SIBs in several themed rounds.

• Drug and alcohol dependency – e.g. early diagnosis and treatment1 • Children’s services – e.g. reducing time spent in residential care, preventing entry into care • Young people – e.g. NEET prevention, youth unemployment and youth justice • Early years – e.g. early intervention, school preparedness and education • Healthy lives – e.g. long term health conditions, public health interventions • Older people’s services – e.g. independent living, adult social care and social isolation

• Further information about the Life Chances Fund is available on Life Chances Fund webpage

on Gov.uk website.

• Expressions of interest for the children’s services and drug and alcohol dependency themes are due by 30 September 2016. The other themes will be open to applications over the course of 2017.

• Supported by Government Outcomes Lab (GO Lab) partnership with Blavatnik School of Government at Oxford. You can find out more about the GO Lab on the GO Lab website, including updates on upcoming events, news, and information on support for local commissioners.

Questions?

timgray.london@gmail.com 07533 347316