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September 29, 2010

Payment by results to unlock new investment

If necessity is the mother of invention, the economic crisis should throw up some interesting funding innovations.  One just appearing on the radar is the Social Impact Bond. Its proponents think it has the potential to release millions of new investment into the sector.  SIBs are based on the premise that investors in a project or service will only receive a return based on results.  Sounds a good idea to incentivise local projects but its critics argue that there is still no satisfactory way to measure social outcomes

Chrisanthi Giotis , Social Enterprise Magazine

The official launch of the first Social Impact Bond pilot happened recently at the place that will make or break the concept – HMP Peterborough.

It is hoped that the re-offending rate of short-term prisoners leaving that prison will be reduced by 7.5 per cent thanks to intervention programmes run by civil society organisations, and funded through trusts and individuals who have invested in the Social Impact Bond (SIB).

Investors will only receive a return on their money, paid by the government, if the re-offending rate drops by the target amount.

Prisons minister Crispin Blunt will preside over the official launch. He said: ‘We want to actively involve individuals and voluntary and community organisations – not just in tackling crime and re-offending but in helping to keep people out of the criminal justice system in the first place.

‘This payment by results pilot is both innovative and imaginative. I am delighted to be launching it.’

Justice secretary Kenneth Clarke said: ‘As part of our radical approach to rehabilitation we are considering a range of payment by results schemes like the SIB.

‘The voluntary and private sectors will be crucial to our success and we want to make far better use of their enthusiasm and expertise to get offenders away from the revolving door of crime and prison.’

The government will be able to afford to pay investors returns of up to 13 per cent because of the money saved by keeping prison places down. The payment increases depending on how much the drop in re-offending exceeds the target of 7.5 per cent however the total cost of the project for the treasury is capped at £8m.

Social Finance, which invented and runs the SIB, expects to close the £5m investment fund by the end of the year. It has also received funding from the Big Lottery to help develop SIBs in other areas of social need.