david rees and hazel blears | public sector executive | 31 may 2016
This article was first published on Public Sector Executive
While this year's funding settlement figures have given local government increased certainty, the scale of the challenge it faces remains the same. With a real decrease in spending power up to 2019-20 and increasing demand for services, there is a need to be innovative in both how services are provided and how they are funded.
One such innovation could be to extend some of the early work on introducing social investment into the system. Using Social Impact Bonds (SIB) or similar funding options, investors provide funds to support the expansion of interventions which can deliver improved outcomes for service users and savings to the system as a whole. That may sound miraculous but what makes this approach more likely to succeed is that when financial return is connected to the delivery of specific service outcomes, investors have a direct interest in the success of the project. This helps to focus and align the work of all those involved – commissioners, providers, often in social enterprises and voluntary organisations, and users themselves. Payments, based on an agreed contract that is rigorously measured through agreed metrics, are triggered when the outcomes are delivered and, in some circumstances, enhanced performance may bring further payments.
This kind of social investment can also give local authorities substantially more freedom to radically re-think how a service operates as there is an increased focus on outcomes rather than outputs – and there is a difference. It can also provide breathing space to enable transition from acute to preventative services by supporting a degree of ‘double running’ during the change. This makes it a useful way to fund innovative ways of working. It can bring particular benefits for high-cost services; in areas where early intervention can have the greatest impact in reducing demand further down the line; and for services where outcomes are easily and robustly measured and where there is an evidence base of effectiveness.
Growing in popularity
While SIBs have been discussed for some time, there are only a limited number in operation but they are growing in popularity. Essex County Council has launched the first local government SIB, a £3.1m five-year family-intervention programme for vulnerable children on the edge of being taken into care.
Another example is the Bristol and Bath Regional Capital Community Interest Company that has recently been established in Bristol and Bath to provide civic-led, commercially focused and innovative investment solutions to encourage regional change and social development. Their aim is to address the shortfall in funding for major infrastructure projects and social enterprises in the west of England. In its first years, it is prioritising building homes, creating employment and reducing carbon emissions with a 10-year target to secure £87m of investment from local investors as well as national funds.
SIBs are not without their challenges. Determining and measuring the savings and returns is a complex area, often involving detailed calculations. Any investor will also require objective and auditable data to underpin performance and payments. There are then complexities in getting the right legal contracts and payment mechanisms in place for public service delivery. This is critical, but it is important to avoid set up and monitoring costs consuming a disproportionate amount of resources.
Enabling successful social investment
There are three key actions that need to be taken to address these challenges and enable successful social investment. Firstly focus on the outcomes that you want to achieve. SIBs may often be the best vehicle to achieve that but it is important to recognise that SIBs are not the answer to all financing requirements. In practice, it may be necessary to combine public funds and social investment to deliver the outcomes you want.
For example, in Greater Manchester work is going on to support care at home by helping people living with dementia navigate the system properly, expanding activities such as music, gardening, and exercise and befriending and introducing new technology. This will be paid for from savings achieved from reducing the number of excess bed days in acute hospital and residential care settings. This is a complex proposal and will require a blend of investment from commissioners, the Greater Manchester Devolution Programme and social investment. It will also require the development of an evidence base and of risks and metrics that can be rigorously measured and ways to share learning.
Secondly, there is a need for the right governance. Though a partnership ethos is important, there also needs to be a recognition that this is a commercial relationship. Management rigour is needed as is a transparent measurement of benefits. Charities and social enterprises who want to deliver services may need additional support to put these in place. This can be available from programmes such as Big Lottery Fund’s Big Potential fund which provides grants to social sector organisations to help them gain investment or challenge for contracts.
Thirdly, dialogue should not be limited to investors at nationally recognised funds. GWRC is balancing these sources with local and private sector investments. Similarly, there could be an opportunity for funding from pension schemes.
Getting these right will help mitigate some of the risks facing councils and could deliver real improvements for those who need services most, as well as improving outcomes and achieving savings. Social investment is not a miracle but does offer a practical option for straitened times.
David Rees is head of local government services at PA Consulting Group, and Hazel Blears is chair of the Social Investment Business and former Salford and Eccles MP