News and Comment

Social Impact Bonds, Social Investment and the Comprehensive Spending Review

Monday 26 October 2015


Can we keep doing more for less?

George Osborne will soon be unveiling the outcomes of the Comprehensive Spending Review (CSR). For months, arguments have been put forward to support a fairer settlement for various public services. The Local Government Association’s (LGA) A Shared Commitment pointed out that local government received a larger reduction in funding than the rest of government but continued delivering core services by finding new ways of working. At the same time, they drew attention to a funding gap of £9.5 billion by 2020 if things do not change. Similar calls have been issued across public services, with adult social care, the police, and the NHS making headlines most recently.

With more cuts being planned, pressures will grow on an already creaking system. Throughout public services, the concept of ‘demand management’ has taken hold. This is not simply about predicting and planning for likely demand for services but also shifting the nature of that demand. ‘Prevention’ and ‘early intervention’ have become the mantra particularly in health and social care where we are trying to keep people healthy and out of the formal care system, thereby reducing the demand and cost pressures on the NHS and on social care budgets.

The prevention challenge

Yet we only spend an estimated 4% of the NHS budget in England on prevention programmes. Early intervention funding was cut by 48 per cent during the last Parliament, from £2.7 billion in 2010/11 to £1.4 billion in 2015/16. This cut has stopped councils from investing in services which improve children’s lives and reduce demand for more costly interventions.

The barriers are manifold. The challenge of clarifying ‘who pays’ and ‘who saves’ in the context of prevention has bedevilled a system that, despite notable efforts such as the Better Care Fund and Integration Pioneers, is still characterised by silos. Despite increasing recognition of the importance of outcomes, the system is still largely predicated upon measurement of outputs and activities.

Additionally, the ‘double running’ challenge is formidable. The interest in investing in preventative interventions does not mean that we can simply divest from remedial interventions overnight. For example, while we may want to move health services into the community, we cannot simply shut down hospitals now.

The potential of social investment

In this context, social investment may be helpful. Early intervention requires upfront investment while the financial payoff may not manifest itself for some time yet. This is challenging in the context of spending cuts and where the various players may be increasingly risk averse.

Social impact bonds (SIBs) have been put forward as a type of social investment approach that may help. On paper, SIBs seem to hit all the right buttons in terms of the language used around “new partnerships”, “outcomes-focussed”, “not paying for failure”, “supporting prevention”, taking a “longer term approach”.

Should we embrace SIBs and other forms of social investment, it is important that this is not motivated by expedience. It must also not simply be based on assertions but must interrogate the evidence around the pros and cons of such approaches in different contexts. As I discussed in a previous blog, even within the SIB world there are many different (and evolving) models, with no one model being “best” in all situations.

There is emerging evidence that SIBs can help. For example, the experience of the Rikers Island SIB shows that the model does indeed protect commissioners from the risk of “paying for failure”. OPM’s evaluation of the Essex County Council SIB has also found evidence of how social investors add value and how the SIB model helps focus minds on outcomes.

At the same time, we must not be overly messianic in pushing the case for SIBs or even social investment more generally. These are not “magic bullets” to be fired off indiscriminately. In the context of spending cuts, there is a risk that social investment is simply used as a blunt replacement for current funding without always having due consideration of what may be appropriate in different situations. While SIBs, for example, have been touted as a tool for drawing in new or additional sources of funding, a recent review by the Brookings Institute shows that the jury is still out on whether they have actually been doing this.

Saying that statutory provision is not the best approach in some circumstances is not the same as saying that statutory provision is always not desirable. Indeed, there are lots of things that the public sector does well and we must not throw the baby out with the bathwater. SIBs and social investment should be thought of as part of an array of approaches for funding different types of services. As part of the CSR, we call upon the Government to continue supporting the development of a healthy social investment market, particularly in relation to early intervention. At the same time, we encourage the Government to take a considered and evidence-based approach about where and how statutory funding and delivery can continue to impact positively on meeting the needs of different groups. By being clearer about how different funding and delivery approaches add value, we stand a better chance of deploying scarce resources more effectively to meet needs.

Dr Chih Hoong Sin, OPM Director for Business Development