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The first Social Impact Bond

24 March 2010

This guest blog comes from Toby Eccles, Development Director at Social Finance.
Social Finance is a UK organisation looking to transform the ability of the third sector to respond to society’s changing needs by enabling greater access to a variety of investment instruments.

It’s been a whirlwind few weeks finalising the first Social Impact Bond with the Ministry of Justice, the UK government department. For those of you unfamiliar with the concept, the Social Impact Bond (SIB) is a new, innovative way of increasing the amount of money spent on services that tackle social problems before they become entrenched and expensive.

Money is raised from social investors, on the basis of an agreement with government that the latter will pay for positive social outcomes generated from the services. For example, in the case of adapting older people’s homes so that they have grab rails and non-slip floors, the improved social outcomes could be fewer hospital stays due to falls. The money from government to pay for the outcomes comes from the savings it makes in acute spending. The SIB that Social Finance have agreed with the Ministry of Justice focuses on short sentence offenders, with payments made if reoffending is reduced. You can read more about it here.

One question that we get asked regularly is ‘This looks like a really good idea, why hasn’t it been done before?’ Social Finance has certainly been aided by the financial crisis and the expectation of budgetary pressure. This has led to a greater willingness to do things differently and take risks that might not have been contemplated in easier times.

I also think the answer lies in the range of expertise that has been needed to get to this point. Complexities included agreeing the accounting treatment for outcomes payments with Treasury, defining their tax status with HMRC, agreeing their value and method of measurement with Ministry of Justice and capturing all this in an investable, outcomes-based contract.

For all of these streams of work, we have been asking politicians, civil servants, accountants, lawyers, statisticians and other professionals to break with their normal way of working and look at something new. While it has taken 18 months or more, it’s been amazing the way that momentum has gathered and champions for the idea have emerged inside and outside of the UK government. Without them we wouldn’t be here. Due to their efforts, there is now a precedent, which will hopefully allow the next set of Social Impact Bonds to be done rather more easily.