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Social impact bonds - an untried model masked by political rhetoric

Updated: Oct 2, 2019

Social Impact Bonds represent “peak New Public Management”. Social Impact Bonds have nearly a ten year history, starting from the Prime Minister’s Council of Social Action in December 2007. A more precise formulation was proposed by the Young Foundation in 2008 and promoted by New Labour in December 2009. The heavily promoted Peterborough SIB was launched in April 2010. Despite all this, there has still not been a House of Commons or House of Lords Committee inquiry into social investment, especially social impact bonds.

This contribution also analyses legislative initiatives in Canada, Australia and the USA for Social Impact, Pay for Success and Social Benefit Bonds. Despite a powerful Congressional Committee system, the US Senate Budget Committee has held only one hearing on Pay for Success Bonds in April 2014. Sen Angus King concluded “This just strikes me as … it’s a fancy way of contracting out”. Among a barrage of critical testimony from those instructed to investigate PFS possibilities by behalf of state legislatures, the only favourable input was from Harvard Kennedy School of Government, which receives US Federal Government funding.

The 2012 Rikers Island Bond, funded by Goldman Sachs and underwritten by Bloomberg, became a catalyst for action in many other jurisdictions. Legislatures responded to a concept for using private money from investors for preventative social programs. But in June 2015, Goldman pulled out.

Similarly, having globally publicised the “too big to fail” Peterborough SIB from April 2010 onwards, in August 2014 this was cancelled without explanation. In the Chancellor’s December 2015 Autumn Statement a further £80mn was committed to SIB development. In an interview in January 2016, the Minister for Civil Society projected a “£1bn Social Impact Bond market by the end of this Parliament in 2020”.

Meanwhile in the US House of Representatives, the Young Delaney “bipartisan” Social Impact Partnerships Bill in May 2016 passed its Ways and Means Committee stage. Following a series of initiatives by State Legislatures, this is the first US Federal Bill, offering a platform for extensive funding.   

All this means that currently in the UK and US there are serious proposals for a significant expansion of an untried concept to expand funding and provision for Social Impact Bonds, though there has never been serious detailed analysis or evaluation of their effects in Parliament or Congress. Similarly, there has never been a serious debate in Parliament about New Labour’s Dormant Bank Accounts Act 2008, and setting up Big Society Capital in April 2012, the Conservative Government’s Social Investment wholesale bank, which forms a platform for SIB development.

Against considerable theoretical unpinning claimed for these models, this contribution seeks to rectify a serious omission of public policy, analytical and theoretical literature as a starting point for the relocation and reclamation of more traditional roles and territories for social enterprise and third sector organisations as projected SIB delivery mechanisms.

This serious shift to Social Impact, Pay for Success and Social Benefit Bond models imposes serious management and evaluation skills beyond the reach of all but the largest private and third sector agencies. Because of this, the SIB approach may offer an entry point for corporations to privatise lucrative social services such as health care, childcare, prisons, and education. A significant precedent is already demonstrated by significant private equity for profit holdings in UK foster care and children’s home provision, which are publicly funded.

Since few social enterprises and nonprofits will benefit from these proposals, they have not been welcomed by most of these organisations. There is also growing opposition from trade unions, which fear a dilution of services, pay and conditions. This contribution will demonstrate the deterioration in pay and conditions which has already taken place using these models.

Above all, this shows that the SIB model may thus represent the next phase of marketisation and privatisation of social policy with social enterprise and nonprofits being used for its legitimation. The commodification of social outcomes can undermine and erode reciprocal trust-based relationships and a public service ethos, with dangers from overly contractual or transactional models like SIBs.

Les Huckfield

Dr Les Huckfield


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