The solution to the crisis in public sector finances is simple. If we could create a financial mechanism so investors’ funds are used up front, thereby transferring the risk to the independent sector, and then over the long term, if the public sector received £1 for every time someone talks about Social Impact Bonds, then we could wipe off the deficit tomorrow.
Cabinet Ministers talk excitedly about their potential, the Chief Economist of Goldman Sachs writes in the Financial Times about how they could solve the crisis in public finances, the Americans are sniffing around and all across the UK, social enterprises are desperate to get a piece of the action.
But if we listen properly to Social Finance – the leading proponents of Social Impact Bonds – they make it clear in their own publications (which are carefully thought through and of a high quality) then we can read about their limitations (albeit slightly hidden away in an annex).
Social Finance stress the preconditions for a successful Social Impact Bond include:
- all stakeholders need to agree how to assess outcomes;
- a target population must be identifiable, accessible, large enough but targeted enough;
- there must be confidence in the impact of the investment and that the interventions will achieve the outcomes;
- public sector savings must be larger than the costs of interventions, must be cashable and should accrue to one or two public sector agencies; and
- it must be a priority area for the public sector and for investors
Social Finance also note that the first Social Impact Bond is in a pilot phase and has not yet developed a track record.
So we have an idea in its early phases, which will only be replicated where everyone wants to address a problem and can agree how to measure the solution with a handful of beneficiaries, where we know the services deliver and where we can deliver actual cash for a budget-holder.
Social Finance should be congratulated for developing a brave and innovative idea. But we should also listen to them when they say we maybe shouldn’t get quite so excited just yet.