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I am pleased that my own council of Hammersmith of Fulham is to be a pilot for the Social Impact Bonds – along with Westminster, Leicestershire and Birmingham.

With these Bonds, people are able to invest in social projects and be paid a return from the taxpayer if the projects are successful.

Cllr Stephen Greenhalgh, Leader of H&F Council, says:

"The social impact bond is a really exciting idea that is in tune with Hammersmith & Fulham Council's belief in the hand up rather than the hand out. We need real innovation if we are to address the entrenched culture of entitlement and dependency amongst our most chaotic and troubled families."

Nick Hurd, Minister for Civil Society has launched the programme and it is estimated up to £40 million could be raised by the four pilots. If they work the potential nationally is huge. It is estimated that the public service bill for the 46,000 most deprived families is over £4billion a year, almost £100,000 per family. Often these families suffer from multiple problems such as addiction, abuse and a lack of education. Services currently tend to focus on a single problem of a single person.

Hurd says:

“We must not be afraid to do things differently to end the pointless cycle of crime and deprivation which wrecks communities and drains state services. Social Impact Bonds could open serious resources to tackle social problems in new and innovative ways.

“We want to restore a stronger sense of responsibility across our society and to give people working on the frontline the power and resource they need to do their jobs properly. Social Impact Bonds could be one of many Big Society innovations that will build new partnerships between the state, communities, businesses and charities and focus resources where they are needed. The four local authorities that will pioneer this work are taking a bold and exciting step.”

There is some degree of cross Party support for the idea. Labour MP Graham Allen produced a report saying the Bonds could be especially effective in terms of early intervention.

Frankly what have we got to lose? With payment by results for the outcomes achieved if the project fails it will be the investors who lose out rather than the taxpayers. The risk is transferred. If targets are missed no money is paid out. If targets are exceeded the return could be considerable. Backers of the idea include Sir Ronald Cohen (who could come up with £40 million from his back pocket if he had a mind to.) Private funding will allow innovation. There will also be the rigour that, even philanthropists, will be rigorous about the effectiveness of the programme as it is their own money that is involved.

Shadow Cabinet Office Minister Tessa Jowell is waiting for more detail. She asks what if "providers cherry-pick members of the target group who are easiest to help?" It's all relative I suppose. But it doesn't seem these 46,000 families that constitute the "target group" have proved easy to help – at least so far as the state is concerned where its efforts have proved an expensive failure.

But she is right that the details will be important. An experiment has already started in Peterborough Prison where the "target group" are all those prisoners with sentences of less than 12 months. If the investors achieve a reduction in the re-offending rate of 7.5% over a period of six to eight years they get their capital back. If they don't reach the target they get nothing. If they exceed it they get a yield of 2.5% to 13%. The re-offending rate is measure in comparison with a match group of prisoners elsewhere without SIB intervention.

Of course it is too early to see if it will succeed – but the initial report suggests it is going pretty smoothly. There will be lots of issues to be resolved. For instance if it succeed why should the Ministry of Justice have to pay out all the dividend? Wouldn't a reduced re-offending rate also save money for the Department for Work and Pensions? How would all these arrangements fit into procurement rules? There will certainly be bureuacratic obstacles but they seem to have been overcome in Peterborough Prison. The investment has been raised. The St Giles Trust are getting on with it.

Often the term "investment" is thrown around in terms of public services. This is an example of where it has some real meaning. Polly Toynbee calls it "fool's gold". She suggests it would be simpler just to have increased borrowing to allow more public spending. Yet again she spectacularly manages to miss the point.

 

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