UK Social Impact Bond Program Suffers Setback

Since the inception of Social Impact Bonds (SIBs) in the United Kingdom in 2011, Spotlight has been following the conversation around their potential benefits for the U.S.  Now comes word from the UK that the country’s earliest attempt to use SIBs — a financing tool that raises funds from private investors to foster social service programs — has failed to meet an early benchmark.

First-phase findings and results released last week from an SIB program at Peterborough Prison show the program fell short of meeting its initial target to reduce recidivism by 10 percent for the first group of participants, with an actual outcome of an 8.4 percent reduction among released prisoners. The Ministry of Justice launched the seven-year program to curb recidivism through targeted support services for ex-offenders, by attracting private investors with incentives to fund the program and payouts when the program produces certain outcomes.

While the program did end up keeping released prisoners out of jail with supports like housing, medical services, family support, and employment and training, meeting that 10 percent goal would have ensured an early payout for investors who will instead walk away empty-handed this time around. However, the target for the first and second cohort combined is 7.5 percent, indicating investors will be able to make a return on their investment come 2016.

These latest findings aside, the future of Peterborough Prison۪s SIB program has already been determined. The government announced last spring it will discontinue the SIB model after the second round of participants (three cohorts were initially planned for the program) in favor of a new national policy initiative with a similar funding model. Like the SIB, the new program, called Transforming Rehabilitation, will operate a payment-by-results model and provide support to a group of offenders who have not received it in the past. But instead of bringing in social investors, the program will directly contract out to those in the public and private sectors.

Following the global buzz around this funding innovation, which is viewed as a possible solution for cash-strapped government agencies, the U.S. brought SIBs stateside in 2012 with a program to reduce recidivism among youth offenders at Rikers Island in New York City. The program, which is funded by Bloomberg Philanthropies and the Urban Investment Group of Goldman Sachs Bank USA, is still in its early stages of evaluation (conducted by MDRC) and only time will tell whether it will succeed for both investors and the youth involved.

A past Spotlight commentary by Jennifer Rubin and Emma Disley of RAND Europe foreshadowed challenges that should be considered for a successful rollout of SIBs, based on their experience evaluating the Peterborough Prison program. The authors offered cautionary tales including how several programs with the greatest return on investment would take years to show measurable benefits — a reality that would likely deter investors.

Despite these setbacks abroad, SIBs are still considered a promising approach to funding programs that improve social outcomes at no cost to tax payers. Spotlight will continue to highlight new developments around SIBs as the field grows and new findings are released from programs in the U.S. and around the world.

Posted by Tamanna
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