Social Impact Bonds are not a magic bullet, but they can be useful
Wednesday 12 July 2017By:
- Chih Hoong Sin
On 6 July 2017, we delivered a webinar on the Life Chances Fund (LCF) and Social Impact Bonds (SIBs) timed to raise awareness of the latest LCF call-out. As an independent public interest organisation, we are not in the market to “sell SIBs”. Instead, our mission is squarely on working with public services to enhance social impact.
Despite SIBs having been around since 2010, there is still a relatively low level of awareness. I have written elsewhere about how myths and misunderstandings abound in the context of a lack of transparency and limited, albeit improving, learning and sharing. I have also argued elsewhere that an innovation, such as SIBs, may be abandoned because of dissatisfaction with early versions of it, which may not have fulfilled the creative potential that may be on offer.
We maintain that SIBs are not a magic bullet. Nonetheless, we believe they have value particularly when considered as part of a wider suite of responses to financing and delivering public services.
Those interested in the LCF should not start with the position of: “I want to do a SIB”. If all we have is a hammer, then everything looks like a nail that needs pounding. We should start with clarity over the problem we are trying to solve. Work is then needed to explore whether the potential solution is amenable to outcomes contracting. Where the issue at hand lends itself to being tackled through an outcomes-based commissioning approach, we then need to consider whether social investment adds value or whether there are other more appropriate ways of financing and delivering an outcomes contract.
While not exhaustive, we present three reasons for why and when SIBs may make sense for commissioners.
- The space to innovate – When budgets are tight, there can be aversion to taking risk. New, untested, interventions may be overlooked as the risk of failure is high. Commissioners do not want to be seen as ‘gambling’ on things that prove not to work. Under a SIB model, the financial risk of failure is transferred onto social investors. Commissioners only pay for outcomes, and not for failure. In this way, SIBs can be seen as one way of protecting the space to innovate.
- Driving efficiency – With established services, there may be less inclination to adopt a SIB approach. There is, however, emerging evidence from evaluations that SIBs can drive higher levels of outcomes even for proven interventions. Of course, it is still too early to conclude that SIBs always drive higher performance, and more evaluations are needed. Nonetheless, if this early finding is true, then SIBs can be said to drive greater efficiency in existing interventions. Process evaluations report consistently that the SIB model, by aligning incentives, encourages commissioners, providers and social investors to work together and ‘pull in the same direction’. Where they work best, SIBs have been shown to have helped join up the ‘different worlds’ by breaking down institutional and cultural barriers to effective partnership working.
- Availability of top-up funds – At this point in time, the £80million LCF represents a time-limited window of opportunity for commissioners to tap into additional funds to help pay for outcomes. With top-up contributions from the LCF typically around 20 per cent of the overall financial value of outcomes, commissioners stand to ‘keep more of what they save’. This top-up contribution is obviously meant as a ‘sweetener’ for more commissioners to engage with SIBs. However, just to portray it as such is to oversimplify things. SIB funds like the LCF, its predecessor the Commissioning Better Outcomes Fund, and others, perform a more important function of helping to break down commissioning silos. There is clear recognition that many of the social issues that SIBs have been deployed to help solve are entrenched and cross-cutting. For example, tackling alcohol dependency not only has implications for the use of health and social care services, but also for housing, criminal justice agencies, etc. Working out ‘who pays and who saves’ can be hugely challenging, and can stand in the way of effective co-commissioning. Many have argued, nonetheless, that top-up funds like the LCF are not sustainable over the longer term. In the meantime, they do provide the opportunity for at least testing out different models of co-commissioning. It is of interest to note that there are already efforts underway to develop SIBs that do not rely on top-up funds. It will be important for learning from these efforts to be shared more widely.
In conclusion, I reiterate the importance of being clear about the rationale for developing a SIB. For commissioners, this is especially pertinent as there are a range of alternatives for raising capital, some more cheaply than others. There needs to be a clear case for using public monies under a SIB model, with effective communication around how SIBs can add value.
Dr Chih Hoong Sin, Director, Innovation and Social Investment
Additional video and interactive content is available via the Webinar Webex site here. Note – it is best to access using Chrome or Firefox.