Social Impact Bonds The Essex Experience. Martin Chatfield Independent Financial Consultant

Transcription

1 Social Impact Bonds The Essex Experience Martin Chatfield Independent Financial Consultant

2 Social Impact Bonds What is a Social Impact Bond? SIBs Typical Contractual Structure SIBs - Illustrative Financial Mechanism SIBs Lessons Learned SIBs The Benefits

3 What is a Social Impact Bond? Pioneered by Social Finance Ltd, first implemented in UK as part of Peterborough Prison ex-offender service in September 2010 Growing interest in SIBs around the globe UK leads the world! Essex County Council developed first Local Government SIB, focussing on vulnerable children on the edge of care The underlying principle is that social investment pays for a service intervention which produces a social/welfare improvement; This social/welfare improvement delivers a saving to the public purse (often through avoided cost), which can be used to repay the investment, plus a return Public sector only pays for delivered outcomes i.e. no capital investment or service element (although possible) - an attractive I2S option when the risk is priced Often this social/welfare improvement is not guaranteed, and therefore the investor takes a performance risk i.e. investment & return is only paid if savings materialise to the anticipated level Often savings accrue across the wider public sector, which helps makes the reform case; the SIB mechanism effectively joining up public sector commissioners

4 SIB Classic Contractual Structure Social Investors Bond Returns Investments FSA body & Support E.g. Perf mgt, company admin Contract for Services Payment for Services SIB Special Purpose Vehicle e.g. Ltd Company Contract for Outcomes Outcome payments Public Sector Commissioner(s) Funds Flow Savings Flow Contract Payment for Services Contract for Services Service Providers Intervention Services Reduced demand for public sector services = financial saving Service Users/Citizens

5 Essex SIB Structure

6 SIB Illustrative Financial Mechanism

7 SIBs...Lessons Learned? SIBs are complex because...addressing intractable social and welfare issues Defining social outcomes, and drawing a clear line of attribution from the intervention is not easy The public body providing the intervention is often not the main/sole recipient of the benefit; experience of Community Budget pilots are that often LAs are best placed to intervene, but savings typically accrue to Central Government Bodies, and in different time periods (e.g. vulnerable children = vulnerable adults) SIBs require a joined up approach across the public sector...and we re not there in this regard yet! SIBs are complex because...of public sector management practices Social investment is often thought of as private investment, and this creates defensive attitudes/approaches Where joint commissioning is required, joint financial approvals and mechanisms also necessary Cabinet Office s Social Outcomes Fund may help here, but only at margins?? SIBs are complex because...they are complex! Special Purpose Vehicle, third party investors and providers, specialist intermediaries Statutory responsibilities and Duty of Care in an outcomes driven environment SIBs are complex because...of the current market evolution Most public sector bodies lack the necessary expertise to engage directly with investors, The social investment market currently has a limited number of Intermediaries with the necessary expertise This lack of competition makes Procurement and Legal Departments nervous

8 Social Investment the Benefits Social Investment can fund operational services CIPFA accounting guidance for SIBs are they are simply a contract for service with a deferred payment period i.e. the investment is not a credit arrangement Capital investment not necessarily attractive to LAs with their ability to borrow cheaply from PWLB, For LAs, significant cuts in direct Govt revenue support, capped Council Tax = alternative funding necessity;.i.e. no longer a simple what is the cheapest funding source?? Social Investors carry the Performance Risk Social investment pays for the mobilisation and implementation of the service (niche suppliers can t afford) If no improvement in performance = no saving generated = no payment due under the contract Proof of success falls to Investors, not the Local Authority/Public Sector Commissioner; This performance risk (and cash flow benefit) must be priced to correctly inform the investment decision Public Sector Commissioners still make savings, even if only limited success The financial mechanism negotiated by ECC means that from the very first saving made, only part of this sum is used to start paying the investor for the cost of operating the intervention service etc ECC still saves ms even if the intervention is only partly successful, the investor makes a loss Important to cap investor returns to avoid excessive benefits that would give rise to negative perceptions; BUT Important to not just focus on maximum investor returns and highest levels of success; Third parties are typically Charities, Foundation Trusts, Social Enterprises etc Profit is not the driver; Council and public perceptions need to be managed and educated

9 Finally.useful stuff and Q&As Tamsyn Roberts Head of the Centre for Social Impact Bonds Cabinet Office th Floor, 1 Horse Guards Road, London, SW1A 2HQ tamsyn.roberts@cabinet-office.gsi.gov.uk SIB Knowledge Box: Big Society Capital: Social Finance Ltd: Martin Chatfield: Martin@SRMLtd.freeserve.co.uk