The Innovation Fund harnessing social investment to help young people Tracy Hughes

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1 The Innovation Fund harnessing social investment to help young people Tracy Hughes Department For Work and Pensions UK Government

2 Youth unemployment in the UK Excluding students the latest unemployed figure of 730,000 is lower than the peaks of 830,000 in 1993 and 1 million in not in FTE unemployment rate (% of labour force) Despite a lower number unemployed the rate unemployed as a proportion of the labour force is higher now than in 1985 and

3 Youth unemployment in the UK Persistent offending amongst year olds is highly correlated with being long term NEET. Factors such as been excluded from school, having no or low qualifications and regular drug and alcohol misuse. Research has found that early parenting had long term consequences of being NEET for both the mother and the child. One in four young people living on difficult to let estates gained no GCSEs, five times the national average and go on to become NEET; A third of those who were persistent truants or who were excluded from school were likely to be unemployed and NEET at the age of 18; Having poor health and/or being registered as disabled also increases the likelihood of young people being NEET;

4 Harnessing social investment to help solve the issue A Social Impact Bond is a contract with the Government where the Government agrees to pay for improved social outcomes On the basis of that contract, investment is raised to fund the delivery of the services. If the outcomes are achieved the investors get their money plus a return. If they are not achieved, the investors lose their money. UK Government launched first programme delivered using Social Impact Bonds in September The Ministry of Justice contracted for reduced re-offending outcomes. The Innovation Fund launched in July 2011 and uses social investment to improve the employment outcomes for disadvantaged young people. Other Social Impact Bond schemes for troubled families and homeless people are in development.

5 Social investment The social investment opportunities in the UK are huge - UK charitable investment and endowment assets alone account for nearly 95billion. If just 5% of these assets, 0.5% of institutionally managed assets and 5% of retail investments in UK ISAs were attracted to social investment, that would unlock around 10 billion of new finance capacity. Big Society Capital is another important source of social investment. It has been established with around 400million of funding from dormant bank accounts in England. It will provide funding to new social investment projects, including the Innovation Fund. It will also help build the capacity of social investment intermediaries.

6 Innovation Fund Key objectives: Deliver support to young people aged who are disadvantaged or at risk of disadvantage to improve their employability Test the extent to which we generate benefit savings, wider fiscal and social benefits and deliver Social Return on Investment Support the development of the social investment market, the capacity building of smaller delivery organisations and generate a credible evidence base to support future arrangements

7 Innovation Fund Design principles: Contracts will run for 3 years Up to 30 million is available in total over the two bidding rounds Bids can be made for any area of the UK, provided the bidder can demonstrate a need for support in that area Bids must be made by a Social Investment Partnership comprising at least one investor and one delivery organisation. In most cases, there will also be an intermediary.

8 Innovation Fund Typical Social Investment Partnership DWP INTERMEDIARY DELIVERY ORGANISATION DELIVERY ORGANISATION Investor Investor Investor

9 Innovation Fund - Partnership Principles The investors provide the money up front and get paid when and if outcomes are achieved. The intermediary manages the investment funds, pays the delivery organisations and holds the formal contract with Government. The delivery organisation(s) will have their actual delivery costs covered so they do not take any financial risk.

10 Innovation Fund - progress to date Round 1 selection process completed and we are in the process of awarding six contracts totalling approx 16.5 million Round 2 is well underway with contracts awarded in summer 2012 Lots of interest from a wide range of investors, intermediaries and delivery bodies. 69 bids received for round 1 and a further 62 for round 2. Once the contracts are underway, there will be a robust ongoing evaluation to establish the potential benefits of the individual projects and the programme as a whole

11 Innovation Fund Outcome Funding Levels based on 3 years worth of anticipated benefit savings. Age 14 and 15 Years Improved Attitude to School Improved attendance at School Improved Behaviour at School QCF accredited Entry level qualifications (below GCSE)- 900 Age 16 Years and Over Improved attitude to School/Education Basic Skills- 900 Level One NQF or equivalent Level Two NQF or equivalent Level Three NQF or equivalent Entry into employment

12 Top three enablers to delivering social investment contracts Setting the outcomes getting the baseline right, determining the appropriate level of improvement and the rates that need to be paid to attract investors Development of new partnerships providing sufficient time and support for investors, intermediaries and delivery organisations to come together Commissioning and commercial model appropriate tendering processes, giving enough time for bids to be developed, ensuring the terms and conditions are equitable and do not discourage investors etc.