Social Impact Bonds for improved child outcomes

On 14th May, former Prime Minister Gordon Brown called for a £1bn children’s Social Impact Bond to expand services and help 4.3 million children living in poverty, 3.4 million of whom were born after 2010. He said in The Guardian, ​“one innovative way to finance this within current fiscal rules is by learning from the worldwide success of Social Impact Bonds whose funding is frontloaded by foundations and corporate investors”. Gordon Brown cited the success of the country’s first Social Impact Bond in Peterborough, pioneered by Social Finance to support prison leavers, which succeeded in reducing reoffending by 9% against a Ministry of Justice target of 7% and investors repaid in full with a 3% per annum return. 

What is a Social Impact Bond and how could it support the ambition to expand children’s services and reduce child poverty? This is an introduction to social impact bonds and how they have evolved over the past 15 years to support better outcomes for some of our country’s most complex challenges.

What is a Social Impact Bond? 

Social impact bonds (SIBs) are a form of payment-by-results contract between government and non-state service providers, including non-profits and social enterprises. Unlike conventional payment-by-results contracts in which payments are triggered by service provider activities (e.g. training courses provided), impact bonds are a form of outcomes-based contract, in which some or all payments are triggered by verified changes to service user outcomes (e.g. numbers of young people securing and sustaining employment). This difference in focusing on outcomes supports people to think longer term, beyond simple short term results, and has supported a partnership approach that is centred around the person. Impact bonds harness social investment to fund the upfront delivery of services by non-profit service providers, on the basis that the investment is paid back if and only if outcomes have been achieved.

When were impact bonds developed?

The first impact bond was developed and launched by Social Finance in 2010 with a focus on reducing rates of reoffending among short-term prisoners in Peterborough. Since then, nearly 300 impact bonds have been launched worldwide supporting better outcomes for a wide range of populations. Social Finance has supported the design, contracting and delivery of over 50 outcomes-based contracts and impact bonds across a range of issues and contexts.

What is a ​‘social impact fund’?

Social impact funds are mechanisms to pool capital to support multiple outcomes-based contracts. Pooling capital through such structures reduces the transaction costs of designing, contracting and managing outcomes-based contracts, including impact bonds, by harnessing specialist teams and fit for purpose legal, data and financial management systems across a number of contracts. 

Outcomes funds pool government and / or philanthropic funding to pay for better outcomes once they have been delivered. 

Outcomes investment funds pool social investment and / or grant capital to provide upfront funding to non-profit and social enterprise service providers participating in outcomes-based (pay-for-success) contracts.

How have impact bonds supported better outcomes for children and young people in the UK? 

Impact bonds have been used to drive a range of better outcomes for children and young people in the UK and internationally. UK examples include: 

• The Essex Edge of Care Social Impact Bond – Social Finance supported the development and management of this SIB that improved outcomes for adolescents at risk of going into care. 
• The Energise and Teens and Toddlers Social Impact Bonds – launched as part of the DWP Innovation Fund, Social Finance supported the investment structuring and management of these.
  
• SIBs to support vulnerable young people at risk of becoming Not in Education, Training or Employment (NEET).
• The Skill Mill – Social Finance advised on and supported the management of social impact bonds to scale social enterprise solutions to improve outcomes for young ex-offenders. 

Other applications of impact bonds in the UK have included: place-based support for vulnerable children and families; support for pre-school children not meeting age-related expectations with regards speech and language, and social-personal skills; and reengagement support for teenagers at risk of exclusion from education. 

What opportunities are there for more impact?

In line with Gordon Brown’s recent article, we believe there is both significant need and real opportunity for social impact bonds to drive better outcomes for vulnerable children and young people in the UK. To this end, we are currently developing two new groundbreaking initiatives in this space: 

1. A Maternity Transformation Fund — a new initiative to bring social investment alongside NHS funding to drive better outcomes for mothers and babies. 
2. The Early Inclusion Collective – a cross-sector partnership recognising the critical importance of ensuring that our most vulnerable children are seen and safe.