They don’t actually exist yet, but Social Impact Bonds, launched with a flourish last month by Nick Hurd, the Minister for Civil Society, are already proving highly controversial.
Social Impact Bonds, or SIBs, allow people to invest in social projects, funding intensive help for the country’s most deprived families. It has been estimated that 46,000 families fall into this category and collectively cost the public purse over £4 billion a year, or around £100,000 per family.
Looking at ways to cut this cost, the government has come up with SIBs. They are intended to fund projects providing early intervention and helping these families out of poverty and the deprivation caused by addiction, poor education, antisocial behaviour and crime.
So what’s in it for the investor? If these projects prove successful, they are promised a healthy return on their investment by receiving a share of the money the government has saved over four years.
Social Impact Bonds are to be piloted by four of the most government friendly Tory councils: Westminster, Hammersmith & Fulham, Birmingham and Leicestershire. Projects are promised to be up and running by next spring. It is hoped that £40 million could be raised in these pilots alone and, says Nick Hurd: “The four local authorities that will pioneer this work will take a bold and exciting step.”
Not everyone is so excited, however. Doughty Guardian columnist Polly Toynbee has attacked the idea, saying: “It’s a novel solution for extreme inequality, inviting the rich to make money from the poor.”
Many others with experience in this field are also sceptical about how the success, or otherwise, of these projects would be judged. Laurence Demarco of Scottish social enterprise network Senscot says: “I think it’s impossible to measure the impact of early intervention with children, and I can see a litigation nightmare between investors and government over whether it has worked.”
And as the government said in launching the bonds: “If they are successful and families are taken out of deprivation and long-term dependence on the state, the taxpayer will repay the investments with a decent return. If not, then the taxpayer won’t pay.”
That uncertainty means it’s doubtful whether SIBs would be an attractive prospect for the average investor. However, the government isn’t stopping there. Bonds are just one of a whole range of social investment products the government is planning to launch, including social ISAs aimed at ordinary people.
Nick Hurd says: “Even me, with my paltry savings, could invest in social ISAs and get financial and social returns.”
The focus on social investment and finance, says the government, is all part of its Big Society agenda, and includes the launch earlier this year of Big Society Capital, a social finance bank which aims to increase investment in society. It received its first £400 million of capital from dormant bank accounts.
Such funding, however, is not just this government’s concern. Social Impact Bonds were first suggested two years ago by Social Finance , an organisation set up in 2007 to build up a social investment network in the UK.
Sir Ronald Cohen, co-founder of Social Finance and a leading figure in this field, predicts such bonds will be worth “tens of billions” worldwide within the next two decade. He says: “It is not enough to increase the standard of living at the high end. It is right at the same time to worry about those who are left behind.
“I think societies everywhere will come to the conclusion that an important part of the capitalist system is having a powerful social sector to address social issues, because government doesn’t have the resources.”
The question is: do you?
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