Continuing our series of blogs about Social Impact Bonds, Nigel Ball from Government Outcome Labs responds to a previous blog from Laura Seebohm, and discusses his take on how they can be used by the voluntary sector.

Social Impact Bonds (SIBs) started under New Labour and can be understood as part of a long trend in the UK of engaging external organisations in the delivery of public services. Since 2008, there have been dozens of SIBs tackling all sorts of social issues, and they have been touted as a panacea for some quite distinct systemic issues. Do SIBs help public service commissioners work more preventatively? Do they help align siloed budgets and link siloed delivery? Do they enable innovation? Do they increase funding to the voluntary and community sector? It is possible that they do all these things, or none of them. While years of hype and government backing have made SIBs famous, we are in danger of forgetting why we ever thought they were a good idea in the first place.

One thing that is certainly true is that SIBs provide neither commissioners nor service providers with something for nothing. Those who have come to SIBs hoping for a quick budget boost have generally been disappointed. At its heart, a SIB is a way to make an investment into the delivery of a public service by an external provider, based on the belief that said provider can achieve some tricky social outcomes. By its nature, investment needs to be repaid, often with interest. What makes a SIB unique is that the investor only gets their interest if things go well, and if things go badly, they may lose some (or all) of the money they invested. This happened in the first ever US SIB (though in that case, the majority of the investor’s capital was repaid by a foundation who had provided a guarantee). It has happened in the UK, too – though, perhaps unfortunately, much less publicly.

In an earlier Clinks blog post on this topic, Laura Seebohm, Director of Operations at Changing Lives, shares some of her experiences of SIBs from the provider’s perspective, having been “closely involved in one SIB which never came to fruition; another which has run for three years, and another just starting.” Some might question whether the arrangements that Laura is referring to are SIBs in the truest sense, as the commissioners do not pay on outcomes (PIRU, 2015, p.27) – but it is fair to say they share some SIB-like features.

Many of Laura’s criticisms are valid. SIBs can be complex and over-reliant on well-funded intermediaries. And performance management should certainly not create an additional financial burden for provider organisations – the experience that Laura describes points to the need to ensure that providers in SIB projects are adequately resourced for management time, as well as for the intervention itself. But what might be viewed as over-zealous and intrusive management could also be seen as an opportunity to build trust and capacity. A qualitative evaluation of the DWP Innovation Fund SIBs noted that building such relationships was not always easy, but that “it was acknowledged that much learning, capacity building and organisational development had taken place” through this process (Insite/DWP, 2016 p.29). Likewise, the qualitative evaluation of the London Homelessness SIB indicated that delivery staff felt they had become “much more rounded as workers” and were “positive about the flexibility they have to support clients in the most appropriate way for them.” (ICF/DCLG, 2015, p.21).

Like any contract, SIBs are not immune to the risk of incentivising providers to chase after pre-determined targets, rather than to work with individuals to effect meaningful change long-term. But this behaviour is not unique to SIBs – any contract based on volumes runs this risk. True, a badly designed SIB will exacerbate it; a well-designed SIB can mitigate it. We have seen both. A good example of the latter was the first UK SIB, which everyone knows all about: Peterborough Prison. By paying out only a cohort-level reduction in re-offending, the providers were able to offer “an individualised service, responsive to the identified needs of each service user”, which allowed for “changing and adapting the approach” (RAND Europe/MoJ, 2015 pp. 4-5). Since Peterborough, few SIBs have been designed in the same way, because the methodology for triggering payments has proved hard to replicate; nonetheless, it has been reported that other SIBs since have enabled similar flexibility in delivery.

There is no question that greater transparency is needed if SIBs are to achieve the promises of their proponents, or build on some of the encouraging learning so far. Commissioners seldom understand the parameters within which to design an effective contract; providers sometimes feel excluded from the heart of the process. We need to be able to say which SIBs have worked and which haven’t; what makes a good SIB and what makes a bad one. We need SIBs to become much easier to set up and run, by making sure the knowledge behind setting up and running them is fairly distributed. All of this relies on existing market players opening up their books and databases.

SIBs are unlikely to be the right tool for all the problems that they are being applied to. For sure, we need other ideas. But something needs to change in the way public agencies in local areas – especially Local Authorities – play their part in tackling the most challenging issues in society. These public institutions have enormous power to influence the way issues like homelessness, unemployment, addiction, mental health, and many others, are tackled, yet they too often struggle to account for the interconnectedness of these issues. The default for many local public agencies is siloed in-house delivery combined with short-term grants to voluntary and community sector organisations. Continuing like that is surely not the answer to tackling these issues meaningfully.

Most would agree that we can improve the way public agencies and charitable organisations work together and use their respective strengths to address each other’s shortcomings. For all the excessive hype, SIBs might yet prove to be one way to do this. If, in the end, we do abandon SIBs, we need to make sure we have learnt all we can and feed that learning into whatever comes next. As someone who has worked all their career in and around the voluntary and community sector, and having set up a SIB myself, I feel sure that carrying on as we are will not improve the way sectors work together to tackle complex social issues, and nor, ultimately, will it improve outcomes for people in need.

Nigel Ball is the Deputy Director and Head of Commissioning Support at the Government Outcomes Lab at Oxford University’s Blavatnik School of Government, and was previously Chief Development Officer at West London Zone, which was financed by a SIB.