When the social impact bond at Peterborough Prison was announced in 2010, it was the first of its kind in the world. Social impact bonds are payment-by-results initiatives—where a social intervention is financed up-front by private investors who stand to achieve a return on their investment if the intervention works.
The potential benefits from this way of financing social service provision include the ability for government commissioners to redistribute financial risk when trying a new initiative, and the provision of new forms of capital to be activated to finance public services and achieve social good.
Since the Peterborough social impact bond initiative began, at least 44 social impact bond programmes have been put in operation, with more in development. While these are mostly in the UK, they have also taken root elsewhere, primarily in the United States. The approach represents an innovation in financial mechanisms used to fund social services.
The development of social impact bonds has been accompanied by claims that they would encourage innovation in the social interventions that they pay for. However, whether social impact bonds themselves encourage innovation remains unclear. A recent Brookings Institute report highlighted that social impact bonds have not generally encouraged innovation in service delivery, and our own research into the Peterborough initiative raises questions about the role of social impact bonds in creating innovative services.
The Peterborough social impact bond financed a pilot initiative to reduce reoffending. This involved individualised “through the gate” support for prisoners before, during and after their release from prison. The initiative provided help with housing, substance misuse, finance and employment, among other issues. Many aspects of the Peterborough initiative were innovative, or new and different compared to what was previously available. The pilot introduced a new service—there was previously no such support for short-sentenced prisoners in the area. Another innovative feature was that the social intervention was adapted and changed in response to local conditions and the needs of prisoners, for example, by adding a job-training initiative.
However, providing individualised and responsive services and encouraging flexibility in the implementation of programmes are not unique to social impact bond initiatives. Indeed, virtually all of the innovations identified at Peterborough (other than the social impact bond financing mechanism) can be found in other traditionally funded initiatives—not financed with social impact bonds—currently or previously in place in the UK. Our findings suggest that innovation might be more likely to be present within initiatives that are novel (such as pilot programs), involve dedicated and enthusiastic partners and a focus on outcomes. Social impact bonds are one tool that can encourage these sorts of initiatives.
Based on our research for a RAND Europe evaluation of the Peterborough pilot, there is no strong reason to believe that social impact bond financing was essential to these innovations being realised in Peterborough. These new practices would have been possible whether the funds had come from a social impact bond, another social or “impact” investment vehicle, another kind of payment-by-results contract, or direct funding from government. Additionally, social impact bonds are not used only to finance innovative interventions—a number are supporting programmes that have an established evidence base or have been tested elsewhere.
The important questions arising from our findings in Peterborough are:
- How can the fresh-thinking evidenced in some social impact bonds be replicated in interventions financed or funded in other ways?
- What can service commissioners and delivery organisations learn from social impact bond environments?
- How can these lessons be put into place as part of different approaches to commissioning and funding public services?
Another key message stemming from our research is the need to evaluate the social impact bond financing approach separately from the impacts of the interventions they finance. This would test whether the same interventions under a different financing or funding approach might bring similar results.
Social impact bonds are one of many potential vehicles available to finance or fund public services, and have emerged at a time when government finances are stretched. However, there is limited supporting evidence to support the assumption made by some proponents that social impact bonds offer a particularly effective way to spur innovation in service provision and will only have beneficial effects. Those involved in the development and delivery of social impact bonds should challenge such assumptions, and seek to generate and use robust evidence about the impacts of social impact bond financing on service delivery and outcomes.
Moreover, the innovations and social interventions developed in social impact bond-financed initiatives may be applied to other service delivery contexts. The learning and innovations identified in the Peterborough pilot can therefore inform future policy initiatives aimed at reducing reoffending—regardless of how they are funded.
Emma Disley is a research leader and Chris Giacomantonio is a senior analyst in RAND Europe's Communities, Safety and Justice programme. They are also contributing to an ongoing evaluation of social impact bonds in health and social care in the UK.