Financing Employee Mutuals

New employee-owned social enterprises that have ‘spun-out’ of the public sector have been the source of much interest over the last year or so. The Government has big ambitions for more public sector workers to explore the development of such employee mutuals, building on the last Government’s programme in the health service and other sectors.

At Social Finance, we think that the excitement is justified. Such social enterprises have potential to combine the social ethos of the public sector with an organisational structure that enables them to confront pressing social challenges in more flexible and entrepreneurial ways. Community health care providers that have spun out of the NHS, for example, are already using their independence to develop models of care that span traditional health and social care boundaries or to specialise in providing better, person-centred support for particular vulnerable groups of patients.

Yet through our work in supporting mutuals, we are also very aware of the challenges such groups of employees face. Should they fail to adjust quickly to the new commercial environment which they will encounter upon leaving the public sector, they may find that they lose contracts to public or private sector competitors – competitors that are often able to fund new developments or absorb losses for the sake of building market share. High on the list of barriers many face is a lack of finance. Even large community health mutuals with a turnover in excess of £25 million, often have less than £1 million of assets; barely enough to cover the next couple of weeks of costs, let alone to develop major new services.  

This week we have therefore published a short Technical Guide to Financing Employee Mutuals, co-authored with Dan Gregory who has been at the forefront of supporting new mutuals over recent years. In it, we draw on our experience to help groups of staff to consider the finance they might need in order to spin-out and once they are a social enterprise.

Overall, our message is positive: spinning out is difficult and risky, but those who achieve it have exciting prospects for innovation and greater productivity in the delivery of public services. Investors are keen to explore forming partnerships with them. Accessing finance will, however, require careful planning, right from the start of establishing the new organisation. Social investors, who seek a combination of a financial return and a social impact, will often be particularly interested in financing mutuals, but such investment can take some time to arrange. Setting up the social enterprise with a structure that can receive external investment can be important, as can consideration of how an organisation’s social impact will be measured. The lesson from our analysis is to consider these issues early. By the time an organisation is running out of cash, it can be too late to attract investment.

By Ben Jupp, Director at Social Finance

Prevention: better than cure?

At Social Finance we’ve been looking at the track record of preventative services in many spheres. In the first part of a series of blogs Harry Hoare looks at barriers to funding preventative programmes.

Why don’t more preventative projects get funded? It’s surely not for lack of political interest. For decades, politicians of every stripe have been promising to transform the NHS from a sickness service to a wellness service. Meanwhile Labour MP Graham Allen’s work on early intervention has been roundly lauded by the Coalition Government.

The logic is so simple it’s got two proverbs: not only is prevention is better than cure but a stitch in time saves nine. Whilst a detailed cost-benefit analysis may find that the savings do not accrue at an exact 1:9 ratio (it might even be greater), there is increasing evidence across crime reduction, children’s care and drug recovery that preventative programmes – programmes that attempt to intervene early to prevent problems growing – have the potential to generate significant savings for Government.

So why haven’t we witnessed a national roll-out of prevention? Maybe it’s political short-sightedness. Maybe more acute problems take priority. Sometimes, even, conservative professions might prefer the status quo. 

Rarely do those managing preventative services get the blame.

Yet if one looks at the track record of many preventative programmes in recent years an interesting pattern starts to emerge, which should start to raise some questions about how many preventative services are run. Performance of most preventative programmes is incredibly variable. Perhaps, they don’t get funded because backing such variable services is not just expensive, but also risky. Variation in outcomes is by no means the preserve of preventative services but there may be factors that make poorly implemented preventative programmes more liable to produce bad results.

Government, rightly, has a duty to spend our money wisely, on programmes that have been successful in the past and to manage the risk of funding costly new programmes that may not achieve the desired outcomes.

Crime Reduction Programme

Some years ago, the Home Office launched an ambitious £250 million crime reduction programme over a three-year period with the aim of taking an evidence-based approach to preventing crime. The programme was beset by multiple problems from recruiting qualified staff to project management and there is a large literature documenting this ‘implementation failure.’ Evaluators point to low levels of programme fidelity and high staff turnover as causes of the programme’s lack of success.

As a result, the outcomes showed significant variation with negative results in a third of areas in which crime increased over the same period. If implemented well, savings from a crime reduction policy can generate cashable cost savings that exceed the cost of the programme.

Teenage Pregnancy Strategy

The Government launched a concerted national campaign of improved sex education, access to contraception and programmes to help teenage mothers return to education, training, or employment (ETE) in an attempt to bring down the UK’s high teenage pregnancy rate. Overall £250 million was spent between 1999 and 2008.

Good results have been patchy. Whilst there was an overall downward trend in the under-18 conception rate of 11%, this falls far short of the 50% reduction target and the absolute number of teenage pregnancies has risen in as many years as it has fallen.^[1] An independent evaluation notes ‘considerable variation in progress around the country. Some local areas have applied the Strategy very successfully and reduced their under-18 conception rates by more than 26%. A few other areas have failed to make any impact and their rates remain relatively unchanged.’^[2] London, for example witnessed increased teenage pregnancy rates in some areas^[3] and there is ‘marked regional variation’ in the ETE outcomes across the country.^[4]

Budget-Holding Lead Professionals (BHLPs) in Children’s Services

The Government ran a series of pilots to test the effectiveness of the BHLP model in the UK following the success of policies in the US. Wraparound Milwaukee allowed BHLPs to commission additional services for children and young people with additional needs so that the decision maker became the budget holder.

The results of the UK pilots were very disappointing. ‘School attendance was just as likely to worsen in respect of children and young people in the BHLP sample as it was to improve.’ ^[5] Furthermore, attendance actually decreased (by 0.7%) for each additional £1,000 spent on statutory and voluntary sector services for children. ‘With the benefit of hindsight, some pilot managers acknowledged that the BHLP pilots had at that particular time constituted a step too far.’^[6]

The pilots were implemented during a time of change for children’s services and failed to achieve anything near expected outcomes. The episode demonstrates that a good evidence base from is no guarantee of good outcomes.

Programme Variation

When one thinks about it, such variation is unsurprising. The problems which preventative services seek to tackle are often inherently complex. There are long chains of causality between intervention and outcomes and this means that those delivering programmes often get little feedback on how well they are performing, because impact is not apparent for some years or simply not systematically measured. It you are a poor heart surgeon, it will be very quickly obvious to you and your managers if more patients are dying than typical. If you are a poor social worker, you may not face the same scrutiny.

For us, the test of good social investment in prevention, such as through Social Impact Bonds, is therefore not just about whether it provides greater funding for prevention per se. It is equally about whether they can reduce such variations in performance. In order to reduce programme variation, controllers need a good strategy for managing implementation risk.

Social Finance will be exploring the issues surrounding funding prevention, management of implementation risk and the value for money of social impact bonds in the run up to hosting a conference in June 2012.

 

By Harry Hoare, Analyst at Social Finance

 

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[1] The Monument Trust, Reducing teenage pregnancies and their negative effects in the UK (2009)

[2] Teenage Pregnancy Independent Advisory Group Annual Report 2008/09 (2009)

[3] Final Report, TPSE Teenage Pregnancy Strategy Evaluation (2005)

[4] Teenage Pregnancy Independent Advisory Group Annual Report 2008/09 (2009)

[5] Budget Holding Lead Professional Pilots in Multi-Agency Children’s Services in England National Evaluation (2009)

[6] Ibid.

At the starting line…

Imagine the following social enterprises:

A)     A group of patient hotels, built alongside hospitals to give patients some recovery time before returning home. New mothers can stay with their families, getting used to breast feeding and acclimatising to the arrival of a new life. Worried parents can stay near their children – in for an operation. The NHS saves money by freeing up beds, and having a single place to go for health visitors and community nurses doing their rounds. The patient and their family have a better experience, staying in an affordable, well-managed, customer driven hotel.

B)      A social enterprise that develops new technology for improved learning in primary schools. Building on the initial development it successfully markets it to schools, children and parents enabling it to be used in 75% of schools within five years.

C)      A large scale prime contractor, making a significant contribution to getting three million people back to work as the economy improves. It integrates the efforts of charities and social enterprises to deliver government contracts on a payment by results basis, and is able to compete effectively with the private sector. Its social focus and understanding do not make it an undemanding client, far from it. But its focus is on ensuring that the charities it works with are sustainable and that it uses integrated case management data to constantly improve results for its service users.

At the moment, unfortunately, all of these are next to impossible to make happen. Funding for social enterprises is simply not available to start projects at scale, take them to scale, or in areas that aren’t fashionable or relatively easy to understand. For the first time, with the launch of Big Society Capital, this can change.

It all started for me with a call while I was on holiday, half way up a mountainside on a Greek island in 2005. Would I be willing to work as the secretariat to a Commission on Unclaimed Assets, set up to work out what could usefully be done with money that had got lost in the banking system? It will take six months and is going to be chaired by Sir Ronald Cohen…

18 months later in March 2007, our report “The Social Investment Bank, Its organisation and role in driving development of the third sector” described an engine to bring new investment into the social economy. During that time I had the opportunity to meet many leading social entrepreneurs, charity leaders and activists, learning of the exciting and important work that they were doing, and the potential they had to make a difference.

But despite all our efforts, the UK faces a number of familiar social and economic challenges

• Better supporting those with complex needs/multiple problems – who have experienced little improvement in wellbeing during the long boom
• Youth and long term unemployment – that threatens to leave us with a ‘social debt’ which exceeds even our current financial debt
• Ageing population – with more than half of government expenditure likely to be directed to the over 65s within the next few years (>20% GDP)
• Stubbornly high economic inequality and social fragmentation – that undermines individual wellbeing and the collective capacity to address common problems such as the need to shift to a low carbon economy

Each of these needs investment and innovation to make a real difference. This is the opportunity that Big Society Capital represents.

As part of its response to these complex challenges government has its own agenda for change for social organisations and enterprises. This includes mutualisation, personalised budgets, payment by results and transfer of assets to communities. All these create opportunities and challenges. All require investment.

Over the last decade we have been feeling our way towards a new more mixed social economy, less reliant on monolithic state provision, with a mix of social enterprise, charity and private sector provision. In addition we need more and better services to those in poorer communities, better fitting their needs and without charging more to those who have least. Without Big Society Capital it is hard to see how such new models can gain the investment and traction they need to become mainstream.

Big Society Capital is however just the start. We know there are individuals and organisations with the capacity and interest to make a real difference to our society. We can also see investors who would like to invest in our society, looking to achieve a measure of both social and financial return. But the gap between the two is still very wide and the infrastructure of intermediaries, funds and advisers is still nascent.

It will take a while for this infrastructure to catch up, and for potential social entrepreneurs to start to see the opportunities, but at last we have the potential to create over time a vibrant innovative, high impact social economy.

Because the infrastructure on which it sits is still emerging, Big Society Capital needs wider support. It needs the support of grant makers and early social investors to build up some of these elements and to co-invest. It needs the community around it to now shoulder more responsibility, not less because it has arrived.

It also needs people to be patient. To quote Bill Gates “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” Investing fast almost invariably means investing badly. Yes it has been a long time coming. But now it has arrived BSC needs time to do its job.

Finally from me a thank you to Matthew Pike – for calling me that day in Greece, and for his temporal optimism, which persuaded me to join the social investment community. I hope that those in the social investment community, and across the Big Society Network, will join that optimism and support Big Society Capital as it stands at the starting line for what is a long road ahead.

By Toby Eccles, Development Director at Social Finance

This blog was originally written for The Big Society Network

Social Impact Bonds Get Street Wise

We are very pleased to see today’s announcement by Grant Shapps and Boris Johnson of £5 million of additional funding to pay for improved outcomes for entrenched rough sleepers in London through a Social Impact Bond.

Rough sleepers are among the most vulnerable people in society. In the UK, the average age at death of people in hostels or registered with homelessness services is less than 45 years old. Most of those sleeping rough have one or more support needs involving alcohol, drugs or mental health. They are 35 times more likely to commit suicide than the general population.

London is estimated to account for more than half of all rough sleeping in England. While the majority spends only one night out, 40% returned to the streets for a least two nights.

Over the past few months, Social Finance and the Young Foundation have worked with the Greater London Authority and Department of Communities and Local Government to assess the feasibility of using Social Impact Bonds to improve outcomes for this group.

We concluded that payment by results contracts, backed by social investment, would offer a real opportunity for service providers to explore new ways of tailoring their services to meet the needs of rough sleepers in London. It is anticipated that the contracts will pay for reductions in rough sleeping and improvements in stable accommodation, employment and health.

Over the next few months, we look forward to supporting GLA to design and implement a procurement process that will get the best out of service providers and social investors to make life off the streets a reality for more of this group.

By Louise Savell, Director at Social Finance 

Hallelujah! Davos debates value of CSR

I read Gillian Tett’s recent FT article “How ‘good’ does a shampoo need to be?”   whilst barely suppressing a desire to shout “Hallelujah!”

This is not due to any desire to increase the sheen and brilliance of my personal hirsuteness (I don’t think “I’m worth it” and one of my colleagues believes I arrange my hair by sticking my fingers in the mains every morning…)  Nor was it a desire for a morning bout of office four part choral harmony.  But rather it was delight that there are some corporate folks out there who perhaps, even just a little bit, get it.

And now they’re talking about it at Davos.  The world is indeed changed.

I’ve never been a huge fan of CSR departments.  The principals on which they are established are sound enough, but the out-working has often failed to be anything other than an under-funded extension of the marketing department.  Why send city professionals out to paint fences for charities?  Let the painters paint, the bankers bank and the shampoo manufacturers continue to give us dreams of unrealistically shimmery hair.  Yet suddenly a number of major corporations are standing up in a very public forum and stating that corporate social responsibility “is at the core” of their activities.  And they are genuinely trying to mean it.

Ms Tett’s article asks if this is a good thing and I, for one, say unequivocally yes.  Corporate behaviour is responsible for much of the destruction we wreak upon the planet and society in general – be it through emissions, habitat destruction, turning a blind eye to (or, worse, funding) the oppression of workers in sweatshops and the like .. the list is endless.

And yet, as with all power, the ability to do good is always at least equal to the ability to cause harm.  Corporations have enormous global reach.  They can be nimble, responsive, entrepreneurial.  They have immense resources – both financial and intellectual.  They have smart, motivated employees who just need to be given the freedom to innovate.  They are not bound by the red tape of internal government policy.   They can, if they try, run their business profitably without destroying people and the planet in the process.  (Well, most of them can.)

Externalities are real.  Just because we don’t price the majority of them into the cost of goods and services doesn’t mean they don’t exist.  And they’re becoming more real.  Think carbon tax.  Think consumers walking away from products they don’t want to be associated with.  True wisdom and insight sees that not only is sustainable business a moral imperative, it will quite simply be the more profitable option over the long term.

The FT article goes on to state “But there is a powerful counter-argument” along the line that companies should just worry about making money and governments alone should solve societal woes.  This is, not to put too fine a point on it, complete and utter rubbish.  The British manufacturing executive quoted as muttering “The fact that companies are doing all this CSR stuff just shows that government has failed” is completely missing the point.  A dinosaur who should be final-salary-pensioned-off quickly.  Is it acceptable for me to drop litter on the street and point to the local authority street sweeper who will pick it up?  Is it acceptable for me to steal from my neighbours and say that the police should be doing a better job in stopping me?  So why should corporate behaviour be any different in a global community?

Business, society and government are intrinsically linked – more so every day – and cannot be simply thought of in three separate buckets.  And who pays for everything that a government does anyway?

Gillian Tett states that her views lie along a middle course; actually, I think there’s only one sensible course.  Of course governments need to set the rules and they should supply both the carrots and the sticks to encourage good citizenship.  And likewise they should continue to be responsible for the social policies and institutions that a civilised, democratic society needs.  But as with all good citizenship, things function best when all parties understand that it has to be about more than just sticking to the letter of the law.  Let’s create and support companies that understand they have an intrinsic social contract – just as each of us does individually – and who respond accordingly.  Let’s enable and encourage those who want to do well, to do better.  And let’s penalise those who demonstrate a blatant disregard for everyone else.

Let us start waking up to the fact that companies are global citizens – huge, powerful ones who can be a friendly giant or a big bully.  The decision as to how they behave ultimately lies with the CEOs and as global consumers, shareholders and voters we need to start persuading them to play nice.  Or they are the ones who should be worried.

And what of the CSR departments once their companies have embraced 360-degree responsibility – are they just to become glorified internal environmental and social auditors?  Or how about developing them into wholly-owned social enterprises taking the parent’s skill set to those who couldn’t otherwise access it?  Let the painters paint – and give them ladders, brushes, dust sheets, cans of paint and everything else they need.

That all gives me hope and a reason to suppress my inner cynic.

Plus it makes me think that maybe another shampoo producer has it about right .. there’s more to life than hair, but it’s a good place to start.

By Martin Rich, Director at Social Finance

Moneyline Cymru performance impresses policy makers across Wales

Recently East Lancs Moneyline (Moneyline) received plaudits from politicians in the Welsh Assembly for its unprecedented success in tackling financial exclusion in South East Wales. The politicians encouraged other social lending businesses to be follow Moneyline’s model.

In late 2009, Moneyline established five new branches of its lending business in Wales.  The five branches in Bridgend, Cardiff, Cwmbran, Newport and Pontypridd carried the brand Moneyline Cymru and aimed to provide affordable unsecured personal loans to individuals from disadvantaged communities. Since the establishment of the first offices in Wales over two years ago, Moneyline Cymru has approved 7,500 affordable micro loans to borrowers who would otherwise have taken out loans with (in the best of cases) Provident Financial or (in the worst of cases) illegal money lenders.  The most affordable of these alternatives to Moneyline would require a borrower to pay back a staggering £82 for every £100 lent. Moneyline charges between £19 and £35 for every £100 lent, depending on whether the borrower is a new or repeat customer.

The benefits to the local Welsh community are obvious.  Firstly, and most directly, the customers of Moneyline Cymru save a substantial amount on interest payments. Moneyline calculates that it has saved its customers in disadvantaged and vulnerable communities at least £2 million so far during its two years of existence in South East Wales.  This is simply a calculation of the amount of interest its customers would have had to pay had they borrowed from their next best available lender.

Secondly, Moneyline Cymru boasts a superb track record in getting its customers to save. The criticism levelled at legal providers of affordable loans to low incomes customers is always that the existence of these products encourages reckless borrowing and discourages savings.  However, in the Moneyline Cymru’s case, customers have to either have, or set up an account when taking out a loan and are encouraged to open a savings account at the same time.  Almost 100% of Moneyline Cymru’s new customers in 2011 opened such a savings account.  Any “rounding up errors” on customers’ weekly, fortnightly or monthly loan and interest repayments go into their savings account.  So, for instance, a £7.79 weekly loan and interest repayment, would see £10 debited from the customer’s account, with the difference of £2.21 accumulating in the customer’s savings account. The savings account has no minimum opening or savings amounts and allows only two withdrawals per year to help customers resist the temptation to make frequent withdrawals.  Moneyline’s customer focus groups indicate that customers value the withdrawal limitations placed on the savings account. Moneyline Cymru’s customers are encouraged to save up for birthdays, summer holidays and Christmas spending peaks.  They are also building up headroom for unanticipated expenditure and making themselves, over time, less dependent on credit for smoothing out income and expenditure volatility.

Moneyline’s solid operating performance has impressed not just Community Housing Cymru and its member housing associations (Moneyline Cymru’s operational partners and backers during the roll-out of the five branches), but also local politicians.  Across the political spectrum from Plaid Cymru to the Conservatives there is recognition that the Moneyline Cymru operating model is much better positioned to accurately price the risk of unsecured personal loans than the more savings-focussed credit union model. Moneyline Cymru is making a real difference to disadvantaged communities in South East Wales.

As placement agent for a loan capital bond that proveded part of the capital needed for the five Welsh branches, Social Finance is proud of having been part of making Moneyline Cymru reality. More businesses like Moneyline are needed across the UK – social enterprises that use solid business skills and level-headed business thinking to create sustainable operations while at the same time putting positive social impact on an equal footing with financial surplus.  We wish Moneyline continued success in expanding and addressing the geographic hot spots of financial inclusion in Wales and other parts of the UK.

By Annika Tverin, Director at Social Finance

 

Social Finance Survey shows Financial Hardship for Families with Disabled Children

Over the last two years, Social Finance worked with the Family Fund, Council for Disabled Children, Barnardo’s, Action for Children, KIDS, and others, to understand the financial needs of families with disabled children in the UK. We undertook two in-depth surveys and analysed the responses of over 6,000 families with disabled children. Our report, launched today, presents a detailed picture of the financial challenges and barriers that they face. It forms part of Social Finance’s work on financial inclusion, following on from our report into Jam Jar bank accounts published in April 2011.

Families with disabled children face enormous challenges. Pressures are considerable and varied, but include fatigue, strain on relationships, limitations on mobility and consequent feelings of isolation. Over and above these emotional strains, families with disabled children face real financial challenges. These include:

• Meeting the additional cost of care for disabled children; and

• Overcoming the barriers to finding, and maintaining employment.

Parents of disabled children face a higher cost of living due to the additional expense of providing specialist care. It is estimated that parents will spend three times as much raising a disabled child as it costs for non-disabled children. The extra spend includes items such as home adaptions, childcare, household bills, transport costs and medical bills.

Responses to the Social Finance survey indicate that 69% of families with disabled children are worried about their financial situation and 61% struggle to pay their monthly bills. Nearly three quarters believe that the high costs of caring for a disabled child are the cause of their financial situation. 82% of families with disabled children currently have less than £1,000 in savings; more than half have no savings at all.

Financial difficulties exacerbate other social problems such as unemployment, social exclusion and long-term illness. Families with disabled children represent a group with specific financial needs that differ from those of the UK population as a whole and which mainstream services are not currently meeting. Addressing this gap requires positive action from both Government and financial services providers.

The report can be found here: http://www.socialfinance.org.uk/resources/social-finance/financial-inclusion-families-disabled-children-understanding-their-financia

Peterborough Social Impact Bond: One Year On

Today Social Finance publishes a report on the first year of the Peterborough Social Impact Bond and the One* Service.  What can we report after one year? We have over 500 individuals on our watch in the community. While engagement in the One* Service is purely voluntary, the proportion we are working with pre and post release is encouragingly high. There is clear evidence of an unmet need from a group who typically receive little or no support on release. Needs vary considerably across the population we are working with. Some, fortunately a small minority, suffer from very deep seated often inter-generational issues which will take considerable time to work through. A larger group, but nevertheless still a minority, are in a cycle of crime where the support we provide offers a framework for finding an alternative way of life. For the rest, it is too early to say.

The question we are inevitably asked – have we reduced reoffending sufficiently to generate a return to our investors – will only be answered in Year 4. We are measured against a very clear metric. The number of reconviction events of our cohort compared to a similar group of short sentenced male prisoners across the UK drawn from the Police National Computer. Against this objective measure, investors will either gain a return or lose their investment.

On reflection, the Social Impact Bond funding structure has brought flexibility and innovation to the project. Flexibility in terms of finance and therefore service provision; innovation in terms of the solutions and partnerships we are able to build because we are judged by outcomes and not outputs.  The enthusiasm for this project from criminal justice experts and practitioners harbours well for its success. Peterborough Prison has aligned some of its services for male prisoners with our programme and has moved to adopt some of our interventions for its female prisoners. The value of a programme which is funded for over six years is tangible both for our service delivery partners and other stakeholders. It enables them to plan and build around it. We are hopeful that not only will this project succeed but that it will encourage others to be bolder in their approach to reducing reoffending in their communities. Our sense on the ground is that we are making a difference. People say to us “If it wasn’t for you, we’d be back inside again.”

By Janette Powell, Director of the One* Service (Social Finance) 

 

Six tips for Commissioning a Social Impact Bond

As Social Impact Bonds and payment-by-results pilots develop, commissioners are increasingly asking us ‘How should I procure such a service?’.

Compared to traditional procurement processes, choosing a Social Impact Bond provider can seem daunting. Assessing the price to be paid for an outcome may require new skills. Engaging social investors in a procurement process may be unfamiliar. The temptation could be to simply avoid establishing Social Impact Bonds.

We think that such a response would be a mistake. With support from PricewaterhouseCoopers, Social Finance has put together a technical guide for commissioners. As we have set out in the guide, there are already a range of promising approaches being developed to the commissioning and procurement of Social Impact Bonds. Much is common sense. Commissioners are also able to draw on emerging experience from peers and from specialist advisers.

Although each circumstance will vary, six ‘do’s’ of good commissioning of Social Impact Bonds particularly stand out:

• Do invest in a feasibility study. Better outcomes and value for money should ensue if the commissioner has defined, in advance, the social outcome and gap in services, the target population, and the potential for cashable savings, investor interest and the key features of a contract.
• Do ensure that there is a dialogue with potential providers and investors through the process. Engagement can be prior to procurement and/or with a small number of bidders after an initial qualification process.
• Do establish a procurement process that has low costs for bidders. As Social Impact Bonds are needed in new, undercapitalised markets, there are unlikely to be players with deep pockets able to afford long and complex bidding programme (neither social sector providers nor social investors). So it is even more important than usual for commissioners to establish simple processes and define their criteria in a way that ensures the process quickly focuses on one or a small number of providers.
• Do ask bidders to demonstrate that they have secured, or have a good prospects of securing, both providers and investors. This process will eliminate speculative applications because investors will only back credible providers.
• Do consider collaborating with others in order to establish a Framework or to co-commission Social Impact Bonds. This will help build the market and enable investment to be raised at sufficient scale.
• Do seek to introduce processes, such as open book accounting, good contract management arrangements and independent evaluations, so that individual commissioners and the market can learn from the development of Social Impact Bonds.

This won’t be the last word on commissioning Social Impact Bonds. On 12^th December we are hosting a webinar to share experiences. Practice should advance over time. But by following these suggestions and the other approaches set out in the paper, we are confident that many Social Impact Bonds can be successfully commissioned in the coming years.

By Ben Jupp, Director at Social Finance

Guest post: The Triple Dividend

Early action – building a fence at the top of the cliff rather than running an ambulance at the bottom – seems like common sense but, across our public services, it isn’t common practise. Why not?

This is one of the questions that the Early Action Task Force set out to address and part of the answer was contained in the Prime Minister’s response to questioning at the parliamentary Liaison Committee last week.

“If you go to the Treasury” he said “and say ‘it’s a spend to save scheme’ they will say ‘thank you very much but we’ve got a budget deficit’. That is where the social finance comes in.  I know that it is complicated and slightly wonky but the principle is simple. If you take an area of policy that is failing badly such as prison spilling on to the streets people who are committing loads of crimes and you say create a bond, put in some private capital and if you can find the solution … we will pay you by results. If you get the result government save money and we pay you for stopping re-offending. . If you don’t…it didn’t cost us anything.”

Social finance, in other words, unlocks the change. Government can’t afford to pay for the fence and the ambulance and it can’t abandon the most desperate to invest in prevention so the “last resort service” – the prison, the children’s residential unit, the mental health ward – gets funded and the prompt interventions that have might have forestalled the crisis condition do not. The creative use of independent investment can break the deadlock, leading system wide transition from acute services to earlier action.

Such transition, the Task Force suggests – in its first report published this week – was never needed more  The nation can no longer afford to wait for trouble, paying, for instance, for the unemployed school leaver who can’t read and write. We need, more than ever, best value for public money and that means investing in reading recovery programmes several years earlier. We recommend “transition planning” for the steady shift of resources from acute services to earlier action and we suggest some of the mechanisms, including the use of social finance, needed to achieve this incremental transformation.

To those in Whitehall who say “it can’t be done” we say look north. The Finance Committee of the Scottish Parliament acknowledged this year that “the current reactive approach to public spending is unsustainable. There must be a shift away from reacting to crises to a greater focus on prevention and early intervention.” They voted for a September budget that included a £500m increase in preventative spending.  ”Apart from independence”  Education Minister Angela Constance said:  “preventative spend is the most radical and exciting agenda that this government is pursuing.”

And to those who say that £500m isn’t a lot and that “steady, incremental targets” won’t achieve anything we say look back at the numerous government reports over the last two decades all making the case for earlier action in specific fields. Look at Tony Blair’s first speech as PM in which he warned of the “double jeopardy – worsening social problems and escalating tax bills.” “Government” he said, “must not fall into the trap of short termism.”  We know earlier action makes sense, socially and economically, but bizarrely we don’t do anything because we fear that we can’t do enough. If Blair had gone one step further and committed to transition targets of just 2% a year in ’97 the UK would look very different today.

Earlier action isn’t only cheaper than later action and important for social well being; it helps to reduce the deficit and to increase growth. A population that is well supported and “ready for anything” contributes more, public spending goes down and growth goes up.  This is the “triple dividend“ – thriving lives, costing less, contributing more. And, at the risk of falling out with the PM, it really isn’t all that complicated or even “slightly wonky.”

By David Robinson, Social Finance Board Member and Co-Founder of Community Links