Social Impact Bonds: A tool for reforming public services?

Can social impact bonds help us reform public services? And if they work, can we scale the benefits more widely? Catherine Erskine and Neil Stanworth, evaluators of two new SIBs in London, share their thoughts.

At Ecorys UK and ATQ we recently studied two very different Social Impact Bonds (SIBs) – one focused on collaboration and one on prevention. It’s still unclear if SIBs can truly reform public services, but together these examples do show the potential of the model to address some difficult issues, and suggest the possibility of replication elsewhere. 

Both these SIBs are supported by top-up funds from the Big Lottery Fund’s Commissioning Better Outcomes programme; we studied them as part of an evaluation of the programme (read the in-depth reviews here). 

West London Zone: a model for collective action 

The West London Zone (WLZ) SIB was launched in September 2016 for three years, delivering an early intervention model adapted from the US that brings together a partnership of local services within a community in London. It aims to support young people at risk of poorer life chances who are falling through the gaps of services.

Integral to the partnership is a dedicated professional – a 'link worker' – who is based at the young person’s school and who coordinates the additional support they need.

The WLZ SIB was actually termed a Collective Impact Bond, emphasising the shared vision and crucial role of collaboration in this case. Most SIBs support cross-sector working, and co-commissioning of public services is often talked about. But it is rarely achieved: services with similar interests continue to operate (and are budgeted for) in silos. 

In WLZ, there is more scope for both providers and commissioners to work together. Local authorities, schools and philanthropists were already funding services in the same part of London, but independently. The SIB however, incentivises them to bring the money together and share the cost of a new service, with joint representation in contract governance. This could arguably be done without a SIB, but involving a social investor meant that WLZ could simultaneously test this innovative commissioning model and an untried service, at low risk to those paying for it.

The SIB incentivises funders to bring the money together and share the cost of a new service, with joint representation in contract governance

Similarly, the argument for early intervention and shifting resources away from crisis services is compelling, but in practice hard to achieve in isolation when money is so tight. In WLZ, the SIB has risen to that challenge with each commissioner party paying their share of service costs in outcome payments (as in other SIBs) when there’s evidence that the service has made a difference. 

The opportunity to scale the WLZ model is also built into its design. In its first year it has engaged more schools, whose role is vital as the main source of referrals to the service. The aim is that over time other nearby local authorities will also come on board, enabling WLZ to expand its reach and supporting its wider, place-based reform in the targeted area of London. Such decisions will be evidence-led, as new relationships and contracting structures are tested and then embedded.

HCT: Investing to save cash and change lives

The HCT Independent Travel Training SIB is a very different model, supporting young people with special educational needs to travel independently on public transport. 

First contracted in Lambeth in February 2017, the benefits of this SIB are similar to the classic preventative, ‘invest-to-save’ model: if more young people use the local bus, demand for specialist transport by minibus or taxi falls. And while the potential cost savings for the public purse are important, so are the wider benefits for young people with special educational needs. Increasing independence to travel while at school has been proven to translate into increased confidence and independence in other aspects of life, with a lifelong positive effect on overall health and quality of life.

Many local authorities know this, but can only spend a small amount on travel training alongside the specialist travel they have a duty to provide. This SIB is attractive and relatively low risk for them, as the investor is providing up-front capital, and the authority only pays when the young person can travel safely by public transport. This means the Council can increase the volume of training they commission, creating a virtuous circle as demand for specialist transport further decreases, and true cashable savings can be made. 

The investor is providing up-front capital, and the authority only pays when the young person can travel safely by public transport. This means the Council can commission more training 

The SIB model in this case is simple: it involves only one local authority and one service provider, and measures one outcome. This means that it too can be replicated, and scaled. So far three very different authorities in England (Lambeth, Norfolk and Surrey) have signed contracts with HCT. If and when HCT delivers results, there should be opportunities for attracting further authorities to do the same. With each replication, the transaction costs should be lower for both the investor and HCT, making the model more sustainable.  

Disrupting the status quo

Both HCT and WLZ have the potential to positively disrupt the status quo in public sector systems, and challenge assumptions about how services need to be financed to be sustainable in the long term. Once there is evidence of these interventions working, both SIBs have a plan to scale their success – one by further consolidating available resources locally to support early intervention; the other by replicating the service with other commissioners facing similar challenges also wanting an evidence-based solution that is sustainable.

While WLZ and HCT represent very different directions for SIBs, the successes and challenges encountered during the set-up processes were more similar than you might expect – from defining the target group, setting the outcomes, engaging key stakeholders and agreeing the contract terms. Comparing experience across the two therefore sheds some light on how the development of SIBs is shaped by what the project is trying to achieve, but also how some experiences are universal. The in-depth reviews offer more details on this. 

The jury is still out on whether the development teams’ aspirations and assumptions will come to fruition, for either WLZ or HCT. We'll be visiting each SIB twice more during the Commissioning Better Outcomes Fund evaluation – look out for our second report, focusing on the operation of each SIB and progress towards achieving their outcomes.

Ecorys UK and ATQ are following the journey of 10 SIBs supported by the Big Lottery Fund’s Commissioning Better Outcomes programme – all evaluation reports published to date are available here.  The Big Lottery Fund is the largest funder of community activity in the UK, using money raised by National Lottery players to help communities thrive. Since June 2004 it has awarded £9 billion to projects that benefited millions of people. 

Photo by Pau Casals on Unsplash