Labour MP Graham Allen has published a second report on early intervention for children and young adults calling on the government to set up an Early Intervention Fund to raise £200m in private investment for payment-by-results schemes.

The report Early Intervention: Smart Investment, Massive Savings, outlines how early intervention schemes can be funded either with existing resources or by attracting new money and emphasised that the government needed to be more creative to bring in non-governmental funds.

In January, Allen’s first report into early intervention highlighted the savings that could be made in the long term by addressing social problems early.

It would work in a similar way to social impact bonds with investors paying for the service delivery costs of an early intervention scheme run by a voluntary organisation.

Investors would then receive a return from the local authority if the scheme meets the early intervention targets agreed in the contract with the local authority.

According to the report 27 local councils are ready to run pilot schemes.

Allen also recommends that the government set up an independent Early Intervention Foundation to promote the Fund, spread best practice and work alongside government.

He said: “There are no ‘magic bullets’ in this report just a tough, practical guide to changing our spending culture from late intervention to early intervention, which has to be driven inside Whitehall by ministers and officials, and outside Whitehall by an independent Early Intervention Foundation.”

The report suggests the Foundation should be sustained through a £20m endowment which would be co-funded by government and private philanthropic sources.

Sarah Teather, the children’s minister, said: “Mr Allen makes a number of good and valuable recommendations. The government views these as a positive step forward and we will respond to them in due course.”