The tale of the scruffy rabbit: How we launched the…

Toby Eccles
Toby co-founded Social Finance in 2007.

In 2010, I was on the team presenting the first finalised Social Impact Bond (SIB) to a somewhat sceptical board at Social Finance. In making our case David “Hutch” Hutchison, our CEO, described the HMP Peterborough SIB as a scruffy rabbit. But as it turned out, it was a rabbit that ran and ran!

We’ve spent two years trying to pull a rabbit out of a hat, so while this is a scruffy rabbit, it is still a rabbit.

David Hutchinson, Chief Executive of Social Finance 2009 — 2021

In 2010, despite some understandable misgivings the Social Finance Board gave us the go-head for the world’s first Social Impact Bond (SIB) at HMP Peterborough — a large prison in Eastern England.

14 years later the so-called ‘scruffy rabbit’ has spawned a small industry — research labs at Oxford and Harvard; government units in the US, the UK, Japan and others; new intermediaries; new funds; and new financing models.

The GO Labs team were kind enough to ask me to write reflections on the Peterborough Social Impact Bond (SIB) 14 years on, as part of their excellent paper that launched at the Social Outcomes Conference 2024 in Oxford.

In my contribution, I walk through the Peterborough SIB and how it works. I look at different perspectives and use cases that stakeholders saw in SIBs, which both led to their popularity and to a degree of controversy. I also assess some key challenges around measurement, sustainability and accountability, and concerns around complexity. Finally, I reflect on the attributes of successful models that can take us into the future.

What I didn’t have space for in the article was a fuller sense of the Peterborough SIB origin story. How did it come about? Who contributed and how did it come together? There are significant lessons in that story in how to get something genuinely different to happen. Also, many unsung people were involved, and I hadn’t had a chance to do them justice. This is my opportunity to put that right.

Social Impact Bonds — the origin story

In late 2007, Social Finance was two months old. Just two of us (Louise Savell and myself), with a fantastic board, put together with Sir Ronald Cohen and chaired by Bernard Horn.

The SIB idea had two routes:

Arthur Wood, then working with the social entrepreneurship organisation Ashoka, showed us the model of a Contingent Revenue Bond he was developing for sanitation in Peru. The core idea, that investors who build improved sanitation are repaid by other stakeholders who benefit from the outcomes of improved sanitation, came from him.
The second strand came from two Social Finance board members, David Robinson and Peter Wheeler. They were on the then Prime Minister, Gordon Brown’s Council on Social Action. The question they asked was “can we fund early intervention from reduced costs in downstream services” or put another way “can we pay for the fence at the top of the cliff out of the cost savings from the ambulance we’ve been sending to the bottom”.

So we took the core of Arthur’s thinking and put government as the outcome funder.

Three things were immediately obvious about our new model:

It could be a route to testing early intervention in a rigorous way, particularly where the costs of poor outcomes were high.
It could work well for foundations keen for government to take on funding for social organisations whose interventions they believed in.
For the emerging impact investment community, it was a way to demonstrate and monetize the social value of their investments.

The model generated considerable interest and some scepticism.

Making the case for the Peterborough SIB

The real work was of course still to come. By then Social Finance had grown to eight people. We focused on two issue areas, young people not in employment, education or training (NEETs) and short sentence offenders. In both areas there was insufficient support and costly poor outcomes. Social Finance Co-founder Louise Savell led the NEETs work, and Emily Bolton, Social Finance’s Executive Director and Board Member 2008 — 2020, led the work in criminal justice. We thought it important to back two horses, but quite quickly one fell away when the government announced that young people should stay in education through to eighteen, which meant that measurement in NEETs would be difficult through the changes.

In getting government traction we were strongly supported by our board giving us a hearing from ministers. This proved to be vital. I’d run the idea past an old friend of mine in the civil service who’d enjoyed telling me “I put a lot of work into keeping people like you away from ministers” – “people like you” may have been a compliment, with Andy it was hard to tell.

The civil service rightly engaged in extensive gift horse dentistry. We were not experts in government at the time and so it came as something of a shock. We only succeeded through insiders, who became convinced it was worth trying, guiding us through or finding solutions.

These internal champions were critical. Jonathan Slater, then Director of Transformation at the Ministry of Justice, persuaded the Big Lottery Fund to consider supporting a proportion of the outcomes payments. Rebecca Endean, then Director of Analytical Services guided the development of the payment mechanism and value. David Griffiths and Joe Parsons our MoJ contacts did everything they could to make it happen.

Jack Straw as Secretary of State for Justice had considerable experience and artistry in ensuring things moved forward. He explained later that by putting regular updates in the diary and refusing to cancel them, he ensured that progress would be made to avoid people having nothing to report. He also quoted Crawford’s wonderful Microcosmographia Academica, to avoid arguments of dangerous precedents.

One critical component was the treasury accounting treatment. Without Treasury’s effective buy-in, nothing would move. Stephen Timms as Treasury Secretary was vital to getting the Treasury to take a necessary second look. Chris Edgerton-Warburton “Edge”, put us in touch with Russell Coleman, the former Treasury lead in the area, now with Deloitte. Russell’s advice felt like a skeleton key, it was immediately accepted and the problem disappeared.

Getting the rabbit over the line

Finally, we got to procurement. We had 300 hours of pro bono legal advice from Allan and Overy to get us to this point. David Hutchison had joined Social Finance as CEO and his negotiating experience from corporate finance was vital as we agreed terms with the Commercial Director at the Ministry of Justice. We finished turning the pages of the contract at 1am and signed the following morning.

I haven’t even touched on the real work of the One Service in Peterborough, developed by Emily Bolton and led by the extraordinary Janette “Jet” Powell. That feels like a whole other blog that was better written by others. Nor have I mentioned the investing foundations and the likes of Danyal Sattar, then at the Esmee Fairbairn Foundation, who was so supportive. For all those I’ve missed out, I’m sorry.

So why mention all this? Firstly it seems that Jack Straw was right. The Peterborough SIB was a dangerous precedent. It was poured over by governments all over the world and used to implement change, ending up developing a whole ecosystem and driving a more outcome-oriented approach. It was far from perfect but the ripples from dropping the stone into the pond are still being felt.

For me it’s also important to recognise that doing something genuinely different requires a huge multi-layered effort. Influence and influencing skills are vital as champions and experts need to be gathered to the cause. It also requires a pragmatic willingness to accept “good enough” answers. Finally it needs the ability to bridge organisational boundaries and cultures, intermediating to bring people together.