Social impact bonds launched by government to help poor

Social impact bonds launched by government to help poor
BBC
26.08.11

Private investors are being asked to fund a new government drive to help families blighted by crime and poverty.

Ministers want philanthropists, charities and other groups to put cash into "social impact bonds".

It is hoped a trial of the scheme in Hammersmith and Fulham and Westminster in London, as well as Birmingham and Leicestershire, could raise up to £40m.

It aims to help break the cycle of deprivation, without costing the taxpayer any more money.

The government has put the annual bill for assisting the UK’s 46,000 most deprived families at more than £4bn a year, representing an average of nearly £100,000 per family.

They are often affected by multiple issues, such as poor education and drug or alcohol addiction, and ministers are concerned the current focus on treating the problems of individuals creates a costly cycle of deprivation, which they find almost impossible to break.

It is hoped the use of social impact bonds, where investors get paid a return for successful projects, can intensively tackle several problems in a family setting.

Announcing the trial, expected to be up and running next year, Civil Society Minister Nick Hurd, said: "We must not be afraid to do things differently to end the pointless cycle of crime and deprivation which wrecks communities and drains state services.

"Social impact bonds could open serious resources to tackle social problems in new and innovative ways."

Mr Hurd went on: "We want to restore a stronger sense of responsibility across our society and to give people working on the front line the power and resource they need to do their jobs properly.

"Social impact bonds could be one of many Big Society innovations that will build the new partnerships between the state, communities, businesses and charities and focus resources where they are needed."

Sir Ronald Cohen, co-founder of Social Finance, a company which helped develop the bonds, said the scheme could "revolutionise" the way UK charities deal with social issues.

Citing the example of Peterborough Prison, he said not-for-profit organisations with expertise in the justice system would be funded through investments rather than grants.

"If they achieve a reduction of more than 7.5% in the rate of reoffending by these prisoners for a period of six to eight years, then the government pays the capital back," he said.

"Below that, the capital is lost, and above that the capital gets a yield of 2.5% to 13%."

But Guardian columnist Polly Toynbee said the system was "incredibly complicated", involving difficult targets calculated in various ways.

"It’s taking money from charities in one way to spend in another way that drains off a lot of money to financiers and accountants on the way," she told the BBC.

The announcement of the scheme came after Prime Minister David Cameron set a target to "turn around" every troubled family in the country by the end of the current parliament.

Social impact bonds, based on the theory that early intervention can help stop more serious problems later on, are already being used to tackle reoffending in Peterborough Prison.

Children’s Minister Sarah Teather, said: "Family intervention demonstrates that the lives of children and young people can be turned around.

"At the same time this is a more efficient way for local authorities to work, as fewer children are excluded from school or taken into care, and this means money can be reinvested in helping more families."