Yesterday, Iain Duncan Smith gave a speech at a Reform conference about the future of the welfare revolution (his choice of word – drawn from Beveridge’s declaration that “a revolutionary moment in the world’s history is a time for revolutions, not for patching”). Broadly, the speech was about the fundamental reasons his approach is different to that which went before, namely:

1) A focus on outcomes, rather than inputs – measuring the welfare system on whether it gets people into work and out of the limbo of long-term unemployment, rather than on how much money is poured into it.

2) Insisting that an effective welfare system is a money-saving venture. As he put it the welfare state should assist and encourage a “positive life change that drives down demand for welfare, in turn reducing spending…our reforms are forecast to save a total of nearly £50 billion cumulatively across this Parliament“.

It should be noted that the second is of course an appeal to the Treasury as well as voters – the two groups whose consent he needs to carry out his revolution.

In terms of what he’s done, we’ve all heard the achievements – more jobs, higher employment rates and troubled families turned around. The man who went into Government proclaiming a social mission to help people escape worklessness has been true to his word. He expects that Universal Credit will deliver even better things on all those fronts, when it fully comes to pass.

The big question, then, is what’s next? Interestingly, it’s something we’ve heard relatively little about, but which has the potential to change what we understand the welfare state to be. By extending the payment by results principle of the Work Programme into the battle against other social ills, he proposes to massively increase the range of social investment programmes underway across the country:

“…any improvement in a social problem comes with a value attached, as Government pays out less for costly remedial action – be it to cope with homelessness, poor health, family breakdown, educational failure or any number of other complex challenges that we will face in future. Take for example the cost of supporting child in care – estimated at over £60,000 per year. The cost of keeping a first-time young offender in jail – over £20,000. The cost of someone sitting on jobseeking benefits for a year – £10,000. £90,000 for just a single life that goes off track.

So we know the cost of failure all too well. But equally, positive social outcomes have a value too. By monetising this value and underwriting the return… Government can then create a bond into which others invest. If the programme delivers the outcomes, investors see a return whilst Government pays not for the process of tackling the problem, but for success at the other end.”

It’s a medley of good, conservative principles. Paying by results. Reward success. Opening up to competing approaches to find what’s best. Recognising that social ills don’t just harm those directly involved, they harm the taxpayers funding the clean-up afterwards. Accepting profit in the public sector in return for changing lives for the better.

He laid out four crucial rules to make these Social Impact Bonds work:

  • “…if the project ends up being botched, no results mean no pay-out.”
  • It would be open “to a whole host of groups who might never before have seen themselves as part of the solution for positive social change: be it private sector companies, high-net worth individuals, venture capitalists and more.”
  • “…for councils, as we look to the future, it means the end of going cap in hand to central Government, reliant on ever-changing political whims and uncertain short-term grants. Instead, local Government will be able to leverage its own long-term investment, freed up from central control…”
  • And it would be underpinned by “the ‘fidelity guarantee’: an assurance that exactly what you pay for is what is delivered…[to put] a stop to what has too often been the downfall of Government programmes in the past: that in implementing a successful programme, it ends up being modified – tinkered with to the extent that what was paid for, isn’t what is delivered.”

So a wide source of funding for social projects, with investors rewarded on the proof of successful outcomes only, localised rather than centrally controlled and protected from the uncertainty of political meddling.

According to the Welfare Secretary there are already 24 such bonds in place, funding schemes dealing with all sorts of issues from knife crime to mentoring children. He wants there to be many more.

It’s good news for welfare policy, but really this is part of a pattern that I suspect will be more clear in a few years’ time. As well as social policies like this, the Government is trying out similar payment by results principles in the work of rehabilitating former prison inmates (another mission which is both morally right and good for taxpayers).

It’s interesting that while the DWP is open to such radical thinking, in education it is still being ruled out – after all, a ban on profit in the education sector would also mean a ban on these kind of Bonds, and thus the innovation and money that come with them. Will the political consensus always be that “no profit” is more important than solving the problems of illiteracy and innumeracy? Or will that view change when the fruit of Duncan Smith’s approach in welfare is seen?