Social impact bonds should be rebranded, says government research

05 Nov 2019 News

The term “social impact bonds” is confusing and should be changed in order to encourage their use, a report commissioned by government has argued.

Social impact bonds (SIBs) are a form of payment-by-results contract in which government interventions are subsidised by social investors and delivered by charities or other social organisations. The new report, commissioned by the Department for Digital, Culture, Media and Sport and released yesterday, finds that the biggest barrier to the use of SIBs is commissioners’ ability to engage with stakeholders.

It says that the failure to reach the agreements required to set up SIBs is usually “fuelled by ideological concerns or suspicions about SIBs, which were often heightened by a misunderstanding of them”.  

The researchers say a name change could help to counter this, arguing that the current term is confusing because SIBs are not bonds. They add that the model has been promoted as a financial instrument rather than “a way of developing an outcomes-based contract to address social issues”.

The report says that while the use of social investment is “an essential feature of SIBs, and needs to be discussed in due course”, commissioners need to focus on “the reasons why an outcomes-based commissioning approach is useful”.

It says there should be a consultation among stakeholders on a new name for SIBs, but suggests that “outcomes-based contracts” and “social outcomes contracts” should be considered.

Smaller organisations struggling to engage

The report was conducted by Ecorys and ATQ Consultants. Drawing on literature, case studies, interviews with experts and a workshop, it looks at the challenges and benefits of public sector commissioners using social impact bonds (SIBs).

The report identifies particular barriers to smaller organisations’, due to their “lack of capability” to engage with SIBs. It puts this down to the “confusing SIB language and narrative”, as well as investors “often having a preferred provider”.

It had originally been thought that SIBs would encourage smaller providers because investors would cover the up-front delivery costs.

In terms of benefits, the report says “the substantial stakeholder engagement through the SIB process has helped many commissioners to foster partnerships, which has in turn supported better local collaboration.”

One provider told researchers: “It does bring unexpected value; it brings different people. An unintended consequence is building relationships... it’s about collaboration...[with] other big charities, social investors.”

Government push

SIBs have been heavily advocated by government. In 2016, the then minister for civil society Rob Wilson predicted that they would be worth £1bn by the end of that parliament.

In 2017, the government launched the £80m Life Chances Fund to underwrite more social impact bond funding. In 2018, the fund closed with the allocation of £48m to 22 projects.

According to the Government Outcomes Lab, 58 SIBs have now been launched in the UK, with £52.8m of capital raised from social investors. None have been launched this year.

This week’s report predicts that a further 10-20 SIBs will be launched in the next 6-12 months.

Cost and time involved

Writing on Twitter, Nick Davies, programme director at the Institute for Government and a former public services manager at NCVO, said: “We…should question whether it's worth using SIBs compared to standard contracts or grants given how much the cost and time it takes to set them up.

“Do the benefits of SIBs outweigh the transaction costs? This is the crucial question but not one the review answers.”

He added: “For me, the high cost and time taken to set SIBs up is the main reason why, at best, they are only likely to be worth using occasionally.”

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