Justice secretary Jack Straw and Social Finance have launched a social investment scheme aimed at reducing the reoffending rate of short term prisoners.

The Social Impact Bond (SiB) pilot scheme will be funded by a range of investors including, the private sector and  charitable foundations, and provide voluntary support for six years to around 3,000 prisoners in Peterborough who have served less than 12 months.

Financial returns to investors will be based on improved social outcomes.

If the initiative reduces reoffending by 7.5 per cent or more compared with the government, investors will receive a share of government savings. If the SiB achieves greater success, investors will receive an increasing return, up to a maximum of 13 per cent.

Social Finance will raise up to £5m to fund the Peterborough Prison pilot.

David Hutchison, chief executive of Social Finance said:

“The Social Impact Bond has the potential to unlock an unprecedented flow of finance for social sector organisations. By focusing returns on outcomes, these organisations will be incentivised to develop innovative interventions to tackle ingrained social problems which weigh heavily on our society and our national purse.

“We see this pilot as an important first step in rolling out the Social Impact Bond more widely in the future. There is scarcely an area of social or health care policy where prevention or early intervention isn't both cost effective and socially desirable. 

"We envisage that future applications of the SiB might cover such disparate programmes as enhanced support for foster carers, home care services for older people or nursing in the home for the chronically sick.”