Evaluating the Efficacy of Social Impact Bonds

Project Overview

RAND Europe has been commissioned by the UK Ministry of Justice to evaluate the world's first Social Impact Bond (SIB), an innovative payment-by-results mechanism to fund public services. Implemented in a prison in Peterborough in eastern England, this first SIB aims to reduce reoffending by prisoners who have served short custodial sentences.

Background

At a time when government finances are stretched there is growing interest in the UK and internationally 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). RAND Europe has been at the forefront of this development, undertaking research into the world’s first SIB, implemented in a prison in the East of the UK in 2010.

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. 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 the SIB at HMP Peterborough. The evaluation will

  • identify lessons from the development and implementation of the SIB to inform other PBR pilots
  • investigate how, if at all, the pilot leads to reduced reoffending assess whether, and if so how, this funding model leads to innovation and greater efficiency
  • examine wider costs and benefits of the SIB

RAND's evaluation provides 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.

Midterm Findings

The Phase 2 report from the payment by results Social Impact Bond pilot at HMP Peterborough, by Emma Disley and Jennifer Rubin, sets out the mid-term findings from a study of the pilot in Cambridgeshire, UK. The report is based on interviews with 39 individuals involved in the design, implementation and ongoing operation of the pilot (other than service users).

Perceived success factors included:

  • The intervention, called the One Service is delivered by voluntary, community and private sector providers who are paid up-front for their services.
  • The One Service coordinates support for offenders from a range of local agencies and fills gaps in existing services.
  • Cooperation and support from HMP Peterborough facilitates the ‘through the gate’ elements of the One Service.
  • The intervention model has been modified during the pilot to ensure services are available to meet the needs of cohort members.
  • SIB funding was perceived to be more flexible than traditional sources

Publications