Evaluating the Efficacy of Social Impact Bonds

Project Overview

prison and cells

At a time when government finances are stretched there is growing interest in finding new ways to fund public services which improve social outcomes. One new funding model currently being tested is a Social Impact Bond (SIB).

A SIB is a form of payment by results (PBR) in which funding is obtained from private investors to pay for interventions to improve social outcomes. If these interventions succeed in improving outcomes, this should result in savings to government and wider benefits to society. As part of a SIB, the government agrees to pay a proportion of these savings back to the investors. If outcomes do not improve, investors do not receive a return on their investment.

Because service providers are paid in advance under a SIB, this form of PBR removes the upfront costs of service delivery from government and shifts the financial risk to private investors. Service providers do not bear financial risk, which allows a greater scope for involvement by not-for-profit and third sector organisations. Additionally, SIBs offer investors new opportunities for social investment with a 'blended return' (a mix of financial and social return).

In September 2010 the UK Ministry of Justice supported by Big Lottery Fund launched the first ever SIB for funding public services. Social Finance, a financial intermediary, obtained approximately £5 million of investment funding from private individuals and charities. This fund is being used to pay for interventions for offenders serving short prison sentences (less than 12 months) at HMP Peterborough, a prison in eastern England. If reconviction events fall by 10% or more (compared to a matched control group) for each cohort of 1,000 offenders released from the prison, the Ministry of Justice will make an outcome payment and investors will have made a return on their investment.

The Evaluation

RAND Europe was commissioned to evaluate the development, implementation and operation of this first ever SIB. Potentially lasting up to eight years, the evaluation will

  • identify early lessons from the development and implementation of the SIB to inform other PBR pilots
  • examine the services funded by the SIB and their effectiveness at reducing reconvictions by Peterborough prisoners
  • assess whether, and if so how, this funding model leads to innovation and greater efficiency
  • analyse costs and benefits of the SIB

RAND's evaluation will provide some of the first evidence on the operation of this funding model, informing the possible development and roll-out of SIBs in other policy areas and in other parts of the UK.