There is some fanfare today about the announcement of a small number of further social impact bond pilots. The idea is now coupled with the notion of introducing more extensive private funding through what have been termed rather speculatively 'social ISAs'.
There are some cheerleaders and some naysayers. Its not surprising: the idea has attractions but it also makes many suspicious that this could become another complex 'conjuring trick' (courtesy PFI) from which the winners will seldom be public sector institutions. More significantly, if PFI was largely about building things; SIBs are about services for some of the most vulnerable or troubled in our society at a time when many services are suffering very significant reductions in funding and when the pressure on our preventative and rehabilitative programmes is more intense than ever in the wake of the recent wide spread disorder in our major cities (I appreciate that I will already have annoyed some by uttering the phrase PFI in the same breath as SIB).
Having watched the development of the SIB idea by the Young Foundation and then the initial application in Peterborough here are six questions which are worth asking about SIBs:
- would we be interested in this in the absence of the cuts in public expenditure? There is a world of difference between SIBs as a substitute rather than a supplement to public spending. The recent damning report on PFI suggested that from now on in every case where that mechanism is being considered the public expenditure option should be fully appraised. The Allen report on early intervention where some of these ideas were proposed a few months back also suggested that there were now some opportunities to re-develop a local government bond market. In short are SIBs to be considered against the full variety of other opportunities in terms of their costs and their benefits so that they are horses for courses rather than a one trick pony
- will SIBs really transfer risk? As ever the key is good design. The PFI experience is largely bad, but not entirely so. The big question is whether the interests of investors in securing the return of their capital with some gain can genuinely be married up with the interests of the public sector in securing real improvements in outcome without massive complexity or introducing false incentives (see below) and how widely such an approach can be applied across different outcomes and services.
- who will decide on when and how SIBs should be used? Despite a long and generally laudable tradition of charitable trusts which have chosen specific aims for their investment, many people remain concerned that it should not be for philanthropists to decide on which services or groups in society are funded. That is a job for politicians. But this concern becomes even more pressing an issue if the baton is passed to instituional investors - if the notion of moving to a more undustrial scale of operation were ever achieved via social ISAs and the like. For many people, picking investment either on moral grounds or on the basis of returns - rather than need - is not attractive.
- will SIBs really stimulate innovation and doing things differently? This is where social entrepreneurs start salivating with excitement and we all know that innovation needs some incubation. But the question on SIBs is whether any innovation is down to the SIB and payment by results or whether better working between organisations (which is largely what is needed) could be achieved in the absence of a different financing vehicle. So in short have SIBs and PBRs required some things to happen which could have happened through other means, including through pooling of budgets to recycle up front savings across a wider range of organisations as an incentive to greater integration
- are the potential costs and complexity justified - the more so when what is measured as outputs or outcomes can be a huge problem if they are wrongly idenitfied or measured? This takes us right back into the whole imbroglio of the target culture. The fear for some will be that the targets used to gauge success will encourage gaming or a focus on what can be measured rather than what is important
- can mechanisms of this kind possibly be deveoped sufficiently quickly and have wide enough application given that SIBs are a small pilot but massive reductions in services are happening now? The question about whether the technical issues can be overcome and then whether the mechanism is suitable for more than a relatively small number of situations will take some time or may prompt what might be little more than a stab in the dark. But the loss of services and the loss of opportunities for more integration and prevention are being felt now.
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