Some ifs and buts around Social Impact Bonds

Last week, I looked at the way SIBs have emerged as a popular new idea in social policy. Here, I will go into a bit more detail about the pros and cons of using them.

The potential benefits are not all being realised—while the risks remain

One popular claim for SIBs is that they will encourage innovation. This is because the procurer of the service only pays if the outcomes are achieved, so the risk is passed on to the investor. The investors are, in turn, supposed to be motivated by the desire to find out new things—and make a return if the new approach works. This so-called ‘black-box’ commissioning approach, focused on outcomes, should mean we can pick up what works for other more conventional approaches to delivering services.

But, while this potential for innovation is real, so far investors and commissioners have seemed keener to go with proven interventions, rather than back something truly new and innovative. In that case, one can argue that SIBs are a rather over-complex and expensive (in money and time) way of just pushing through a known intervention or programme. From another angle, even claiming the private sector is putting money at risk is sometimes an illusion: in some SIBs, charitable funders have taken virtually all the risk leaving the private sector investor with an upside only. And in any case, in the end the public purse will still need to pick up the consequences if things go wrong.

There has also been hope that SIBs may help us scale up once we do find successful interventions—a problem most charities struggle with, not least because they have to raise yet more grants and donation income to do so.

But at this stage we don’t really know if SIBs will in fact scale one way or another—certainly, few appear to have received follow-on funding so far or to have been duplicated elsewhere. There is a very real risk they will fall at the common hurdle for social policy and charitable activity in proving unable to do so, even with repayable finance in the picture.

SIBs may also give a boost to the important but difficult agenda around early action, not least by overcoming two problems:

  • the issue of finding a way of providing upfront funding in the name of making savings further down the line
  • the challenge of silo budgets and the fact that the budget aided by an early intervention often isn’t the same one which pays for it.

A large number of SIBs so far have been in this preventative space (like reoffending or preventing children going into care), so could help bring this agenda forward.

But to many they seem a complex and small-scale way to achieve these benefits that could be achieved in other, simpler ways—for instance by arranging public sector spending and accounting more sensibly.

And given that SIBs are partly just outcome-based contracts, the risks of ‘creaming and parking’ are ever present and the complex designs used to try and avoid this have not always worked.

So far SIBs have usually been about securing cash savings for the public sector, and less about other concepts like well-being. If we want to move to more broad aims for SIBs we may find problems. As Chih Hoong Sin of the OPM has argued, an intervention which reduces the social isolation of a group is likely also to uncover unmet needs and put them in touch with services, so raising public sector costs—at least in the shorter term. Will policy-makers really be keen to pay for this sort of SIB?

SIBs do help instil a culture of robustness into the charity sector and social policy

While the jury is still out in terms of SIBs as a major policy tool that will dominate in the future, they have undoubtedly brought a key benefit to thinking about social policy. SIBs bring a very valuable emphasis on, and incentive to, rigour.

Often the key to success in a SIB revolves around the application of hard data analysis, so all parties need to identify and enumerate needs and costs. And SIBs can bring the much firmer project management that investors tend to demand. There is a need for longitudinal data to assess progress, which itself puts pressure on the government to provide access to administrative data including through things like the Justice Data Lab. SIBs also need proper control groups or baselines against which to compare progress. Finally, there is the desire—shown in the Educate Girls development impact bond—for feedback in real time to the front line, so that programmes can be adjusted as we go.

As the Social Finance report—mentioned in my previous blog—says, the process of developing a SIB ‘leads to a more detailed understanding of the issue and the way the current system handles it, providing insight into how such systems could be improved beyond the context of one Social Impact Bond’. This is all to the good. Where SIBs are a part of creating system change which lives on beyond any SIB—both in the way a particular intervention challenges existing ways of doing things, or because the rigour associated with SIBs in general challenges our way of doing social policy—then we really might be having serious impact. Their continuation as a class can then be seen as of secondary importance. Some reviews like that by Brookings do try to reflect this balance.

SIBs are just one item in the impact tool box

At NPC we work hard to get the concept of impact into the non-profit system. This isn’t something that suddenly erupts and leads to an abrupt change: it is a long, hard slog and one where we have made much progress over time. So while SIBs have and will almost certainly continue to make a useful contribution, asserting too much attribution to them for these changes, or hoping they will form a new paradigm for delivering services in themselves, would be unwise. They are a useful implement in our policy tool box, but they are not the full monty. If we keep asking them to be so, we are in danger of undermining the good that they can and do bring.

Read part one here.