Social impact bonds: don’t believe the hype

With an unexpected general election approaching it’s a good time to consider the progress of the social impact bond (SIB) – an instrument so popular with politicians that it may be more widely recognised as a political emblem than as an innovative form of payment-by-results contracting.

For former prime minister David Cameron, a sense that Britain is the best at something proved motivation enough for some morale boosting showing off in a speech to the Social Impact Investment Forum back in 2013: “We have created the first social impact bond – with more of these bonds in the UK today than in the rest of the world put together.”

But for others SIBs offer something far more important. The former government work and pensions secretary Iain Duncan Smith is an advocate of the model.

In a 2011 speech he outlined the potential for SIBs to transform public services: “If we get this right, it could mean a change to the whole way that Government and the private sector work together to solve social problems. Government could benefit from more capital up front to invest in savings to the public purse. The private sector could get new opportunities to see returns on their investment.”

With most governments in the developed world nonplussed by a situation where demand for public services is rising faster than tax revenues, the theory of SIBs – the chance to commission innovative services that generate long-term savings and only pay for them if they work – is a no brainer.

While Duncan Smith may have retreated to the backbenches, the government’s support for the idea remains undimmed.

Speaking in 2016, minister for civil society Rob Wilson reinforced the message, explaining: “Social Impact Bonds, or SIBs, are increasingly being deployed to deliver public service reform that cuts to the heart of some of the biggest challenges that we face as a country.”

SIBs will become the norm for the way many of the more challenging public services are funded in years to come

Wilson added that the new outcomes top-up programme Life Chances Fund, launched last summer, represents: “a down payment on a social impact bond market that I hope and expect to be worth more than £1 billion by the end of this parliament” and claimed the SIB model: “will become the norm for the way many of the more challenging public services are funded in years to come.”

While there’s potential for endless debates on whether SIBs really are a good idea (or which version of a SIB is a good idea) almost everyone apart from government spokespeople can agree that Wilson’s use of the of word ‘increasingly’ is laden with optimism.

My recently published report, Social Impact Bonds: An Overview of the Global Market for Policymakers and Commissioners, outlines the number of SIBs launched each year since 2010 (based on publicly available data):

• 2010 - 1
• 2011 - 0
• 2012 - 13
• 2013 - 1
• 2014 - 9
• 2015 - 7
• 2016 - 1*  

With initial SIBs commissioned by central government, the long-term intention was to create a locally-focused market for SIB contracts: councils and other local public sector agencies would cover the bulk of outcomes payments with tops up from central government.

With a few exceptions, this is not working. Councils can’t or won’t commission SIBs. In most situations, they can’t afford to pay for innovative approaches to services even if they do work. The potential long-term savings SIBs offer are no use if you have no money now.

As a result, current top-up scheme Commissioning Better Outcomes is struggling to spend its money. Life Chances Fund will face many of the same challenges.

In government though, enthusiasm for SIBs remains uninhibited. In her Charity Commission annual lecture earlier this year, current PM Theresa May’s vision of the “shared society” included a reference the UK’s “global leadership on social impact bonds”.

Where or what are we leading the world to? Seemingly, it’s mostly about the journey.

* My research cites the EBSI SIB which was poised to launch at the end of my data collection period in June 2016. This SIB ultimately did not launch but HCT did successfully launch a SIB later in 2016.

Photo credit: Mary Ann Clarke Scott

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