Content uploaded by Michael J Roy
Author content
All content in this area was uploaded by Michael J Roy on Nov 17, 2016
Content may be subject to copyright.
Content uploaded by Neil McHugh
Author content
All content in this area was uploaded by Neil McHugh on Jun 11, 2014
Content may be subject to copyright.
1
Social Impact Bonds: shifting the boundaries of citizenship
Social Policy Review 26
Editors, Kevin Farnsworth, Zoë Irving and Menno Fenger
Stephen Sinclair, Neil McHugh, Leslie Huckfield, Michael Roy, and Cam Donaldson
Yunus Centre for Social Business and Health, Glasgow Caledonian University
Contact
e-mail: stephen.sinclair@gcu.ac.uk
Yunus Centre for Social Business and Health
Glasgow Caledonian University
W502a, Hamish Wood Building
Cowcaddens Road, Glasgow, G4 OBA
Tel: 0141 331 3666
2
Introduction
One result of the reforms pursued by governments across the world to reduce public expenditure
deficits since the 2008 crisis has been a growing interest in outsourcing the funding and delivery of
welfare services. In the UK context, austerity measures and the demand for greater policy innovation
have been strongly associated with the application of market incentives and business principles to
social welfare provision. For example, the UK Cabinet Office’s Green Paper, Modernising
Commissioning (2010), reaffirmed the government’s commitment to extending payment by results
(PbR) mechanisms across public services. The UK government has declared that ‘new forms of
commissioning and contracting … improve both the outcomes derived from delivery of public services
and the value for money achieved by public expenditure’ (Cabinet Office, 2013a).
Social Impact Bonds (SIBs) are the most recent example of this policy trend. According to their
supporters ‘SIBs offer an answer to a question all policy makers are facing in these difficult fiscal times:
How do we keep innovating and investing in promising new solutions when we can’t even afford to
pay for everything we are currently doing?’ (Azemati, et al. 2013, p 24). SIBs harness private
investment to finance innovative welfare services, and the strength of the UK government’s interest in
them is testified to in its creation of a Centre for Social Impact Bonds within the Cabinet Office, and the
establishment of a £20 million Social Outcomes Fund designed to support the development of PbR
methods and SIBs (Cabinet Office, 2013b). However, interest in SIBs is international - they are currently
being considered or developed in the USA, Canada, New Zealand, Australia, Columbia, India, Ireland
and Israel in relation to a wide range of policy areas, including reducing offending and recidivism,
tackling homelessness, employability and active labour market measures, and provision of early years
education (Robinson, 2012). The possibility of extending the SIBs model to create Development Impact
Bonds to fund social and medical programmes in the developing world has also been proposed
(Rosenberg, 2013).
SIBs are certainly an interesting idea, but they are also a significant innovation in how social welfare
services are funded and provided. They constitute a boundary shift in the nature of social welfare and
raise fundamental questions about what makes a service ‘public’ and what, if anything, is changed in
the nature of a welfare service when it is incentivised by profit (Spicker, 2009). Answers to these
questions have important implications for our understanding of the role and accountability of social
services and for users’ rights. This chapter explores these issues by firstly discussing how it is proposed
that SIBs operate, and outlining what their advocates have claimed are their benefits for financing and
delivering welfare services. This discussion principally draws upon the UK experience, where SIBs were
first introduced. Secondly, the potential limitations which SIBs share with more familiar PbR funding
mechanisms (such as the Flexible New Deal, the Work Programme and Troubled Families programme
in the UK) are examined. The third section of the paper analyses how SIBs relate to more conventional
forms of welfare service funding and delivery and explains why they represent a significant departure
from previous practice. The chapter concludes by considering what SIBs imply for the principles which
guide social welfare provision.
Social Impact Bonds and Payment-by-Results Systems
The UK coalition government’s Open Public Services White Paper (July 2011) was explicit about the
intention to expand and extend the use of payment by results in financing and delivering public
3
services and welfare policies (HM Government, 2011). PbR was introduced in UK welfare provision by
the previous Labour government as part of the Flexible New Deal (FND) employment activation
programme in 2009. The system was based on the recommendation of the Freud Report (2007),
which proposed that - following practice in Australia, some Scandinavian countries and states in the
USA - employment training and placement support should be provided by private and third sector
organisations. It was argued that these could provide more personalised and innovative support
through competition and by rewarding providers for the outcomes they achieved rather than focusing
on inputs (Hayman, 2008). As the subsequent report from the Department for Work and Pensions
(DWP 2008) Raising Expectations and Increasing Support: Reforming Welfare for the Future argued,
‘we believe there is value in having different providers competing for contracts. This contestability will
raise standards. The contracts will be based on payment by results, so as to give incentives to providers
to focus on getting people in to work … our approach is based on a “black box” method, where we
specify what is wanted, not how it should be done’ (2008, p 11). The FND would also introduce what
the government called an ‘Invest to Save’ approach, which allowed the DWP to switch the financing of
employment activation programmes from annual to departmental budgets and to ‘invest’ the savings
from future benefit payments in current employment support programmes - anticipating that these
measures would reduce unemployment and therefore expenditure in the longer-term. There is of
course a potential gamble in this approach in that the anticipated reductions in unemployment might
not be achieved (particularly since the supply of jobs fell in the subsequent prolonged recession);
however, there was cross-party support for PbR, which was further extended in the UK Coalition
Government’s Work Programme which replaced the FND from June 2011. The Work Programme is
designed to incentivise service providers by paying them in three stages: firstly, an ‘Attachment fee’
paid when the service provider engages with the user; this is followed by a ‘Job Outcome payment’
when the client secures employment; finally a ‘Sustainment fee’ is paid to the service provider if the
client retains employment for a time specified in the DWP contract. Each of the three payments also
varies depending on the extent of support required by different clients (DWP, nd).
The Audit Commission (2012, p 4) has stated that the experience of the FND and Work Programme
have demonstrated that PbR has ‘significant benefits’, including delivering savings and generating new
resources. This assumed success underpins the current enthusiasm to extend the principle using Social
Impact Bonds. There are various forms which SIBs can take, however, the most developed and
analysed model is that implemented in the UK, where over a dozen now operate; for the purposes of
clarity this is the model discussed here. A SIB is a method of funding public services though a multi-
stakeholder arrangement between government and a service provider, with finance provided by
private investors, brokered by a third sector intermediary. The arrangement enables private investors
to pay for innovative public services and recoup their capital investment, along with an additional
financial return paid by the government, if this service achieves outcomes superior to those delivered
by conventional providers (Bolton and Savell, 2010). Any additional dividends are financed from
savings made in future welfare and other public expenditure, which could be attributed to the impact
of the innovative provision financed by the SIB; e.g. a reduction in recidivism among offenders leading
to reduced welfare and criminal justice service costs (Azemati et al, 2013). The rate of return paid to
investors varies in relation to the outcomes attained, with an agreed base level below which investors
forsake their investment. As SIBs only repay investments when specified outcomes are met, the
investor faces an element of risk, so that, strictly speaking, SIBs are not ‘bonds’ but resemble an equity
product (Greenhalgh, 2011)
1
. For example, in the world’s first SIB, introduced in Peterborough in
September 2011 to finance measures to reduce reoffending among short-term prisoners, the investor
will receive a return of 2.5% on their investment if there is a 7.5% reduction in re-offending in relation
4
to a comparator group; higher reductions in re-offending will generate greater financial returns up to a
ceiling of 13%. The rationale of SIBs is therefore that they provide private investors with a financial
return while delivering innovative public welfare services (Kingston and Bolton, 2004).
Although implemented under a Conservative Minister of Justice, the Peterborough SIB was initially
announced by the Labour Government in March 2010. The level of cross-party support for SIBs in
Britain suggests that they appear as an unideological and technical response to the problem, of
recidivism, and their advocates have claimed that they, and related PbR measures, promote greater
efficiency and innovation and will achieve greater impact. Other advantages claimed for SIBs in
particular include that they -
focus agencies’ efforts on outcomes rather than inputs
transfer costs from the public to the private sector
generate new resources by increasing incentives for private investment in social welfare services
inspire innovation by incentivising service providers to improve performance
In short, advocates of SIBs portray them as a ‘win-win’ option for all involved. A particularly attractive
feature of SIBs is that they enable public services to be delivered while the risk of providing the capital
required to finance services is borne by private investors rather than service providers, as in other PbR
arrangements (Scott, 2012). Therefore SIBs allow governments ‘to privatize the up-front costs of social
innovations and the associated risks, thus reducing taxpayer expenditure in the short-term and
eliminating the risk of government money being spent on interventions which do not deliver the
desired outcomes’ (Fox and Albertson, 2012, p 356). In the Peterborough SIB, funding was provided by
various foundations and charities and brokered by Social Finance, a quasi-public wholesale funder
(Disley et al, 2011). The first SIB in the USA (funding a recidivism programme in New York) is funded
by loans from Goldman Sachs underwritten by Bloomberg Philanthropies (Azemati et al. 2013).
The UK Minister for Civil Society, Nick Hurd, described SIBs as ‘opening up serious resources to tackle
social problems in new and innovative ways’ (quoted in Wintour, 2012). Stimulating innovation is a
virtue frequently claimed for SIBs and other forms of PbR. Proponents argue that public service
providers tend to be risk-averse and have incentives to stick to established practices even when these
have limited effectiveness. In contrast, it is argued that PbR and SIBs can ‘encourage new ideas, new
forms of service delivery and new entrants to service provision’ (Audit Commission, 2013, p 4). In
particular, the Centre for Social Impact Bonds argues that, as ‘payment is based on results rather than
process, there is more room for innovation and greater freedom to demonstrate solutions that work’
as the costs of under-performance or failure are not borne by accountable public officials (Cabinet
Office, 2013b). It has also been claimed that both PbR and SIBs facilitate early intervention and
preventive social policies, as the risks of investing in long-term preventive measures to address
complex social problems are shifted from the public sector to private investors or providers (Mulgan et
al. 2011). This enables experimentation and the benefits of improvement over time to be realised, as
those providing services can adapt to change and emerging lessons without this being perceived as
failure. As a result, policy-makers may feel less compelled to intervene and micro-manage delivery.
Nevertheless, for all their attested benefits, there are a number of familiar risks posed by PbR, as well
as some potential drawbacks which are distinctive to SIBs which must also be considered.
The Risks of Social Impact Bonds
5
The Open Public Services White Paper stated that PbR will ‘provide a constant and tough financial
incentive for providers to deliver good services’ (HM Government, 2011, p 33). However, the evidence
for this belief is at best incomplete: the Audit Commission noted that ‘schemes that make a large part
of the payment dependent on performance are still largely untested and their overall effectiveness is
not yet proven’ (2012, p 3). Fox and Albertson (2012) identify three methodological and practical
challenges to PbR: unintended consequences due to perverse incentives and gaming; the difficulty of
measuring outcomes and attributing these to particular policies; and identifying savings from
interventions. Other potential drawbacks of PbR and SIBs are the risk that they will narrow the supply
of potential service providers due to the investment costs and cash-flow challenges which they pose
for smaller organisations, and that they might lead to speculation as derivatives. Each of these hazards
will be discussed in turn.
Both PbR and SIBs require the ability to determine that outcomes have been achieved and that results
are attributable to the actions of service providers. This poses multiple challenges, not least in
specifying appropriate outcomes, which can be both complex and controversial. Even the ostensibly
straightforward outcome of reduced reoffending requires selecting between alternative indicators,
and the UK Ministry of Justice alone has identified six different ways to measure re-offending (Fox and
Albertson, 2012). Establishing systems to collect the robust evidence required to assess performance
can be a resource intensive and time-consuming task. SIBs and payment in relation to outcomes are in
part a reaction to the perceived heavy-handed monitoring and control associated with New Public
Management approaches to enforcing accountability and measuring performance. However there is
no reason to believe that SIBs will reduce performance monitoring and reporting requirements, quite
the contrary; as the Audit Commission noted ‘Developing the data, and the payment model linked to
it, can involve considerable analytical resource’ (2012, p 25).
Even assuming that it is possible to specify outcomes and the means of measuring performance in
relation to these, there are still considerable problems in attributing the accomplishment of outcomes
to policy inputs and rewarding organisations appropriately for their respective performances. It is
questionable in some cases how far particular organisations can actually deliver outcomes, as results
may depend upon conditions and the responses of users to the services and opportunities offered to
them. For example, can a school alone ensure that pupils achieve particular grades, find employment
or proceed to further education or training? Perhaps what should be expected in such cases is that
agencies help create conditions which enable individuals to achieve particular outcomes rather than
assume that policies can produce results which are mediated by numerous factors. Many complex
public health interventions have this indirect impact (Craig et al, 2008). Conversely, some outcomes
may occur irrespective of the actions of those providing services; for example, due to wider economic
or other changes. These challenges are well known in the policy evaluation literature but there is no
evidence that SIBs resolve them (Pawson, 2006).
A further problem of attribution is how to match any savings to the respective contributions of
different service providers. Attaching payment to outcomes creates an incentive for providers to claim
credit for results which might be attributable to the actions of others. Similarly, the consequences of
outcomes might not be shared equally: it is not necessarily the case that positive outcomes for one
agency benefit others; in fact, successfully reducing demand for one service might increase demand
and costs elsewhere (Audit Commission, 2012, p 8). Even if positive outcomes are achieved without
generating additional demand elsewhere, there is no guarantee that these will produce longer term
6
savings; e.g. by how much would reoffending have to fall to justify reducing probation services, let
alone closing a prison? It seems unlikely that, even if it achieves its contracted outcomes, the
Peterborough SIB will deliver significant savings in other service areas (Fox and Albertson, 2012).
Establishing the relationship between actions and outcomes is most straightforward for interventions
where there is already robust evidence of impact and an understanding of causality, but it is not clear
how such familiarity and experience will encourage innovation.
There are numerous familiar perverse incentives produced by PbR systems, and these are shared with
- and in some cases exacerbated by - SIBs. For example, performance measurement systems
encourage providers to focus their activity on meeting whichever indicators are measured at the
potential expense of other, perhaps equally important issues, which are not included among metrics.
Attaching payment to results reinforces this tendency. Often what is neglected are ‘soft’ outcomes
which are more difficult to measure - what has been described as ‘that horrible touchy-feely thing that
you don’t want to go near’, such as enhancing service users’ confidence, self-esteem or more general
well-being (Davies, 2009, p 86). Assessing performance in relation to outcomes rather than narrower
indicators does not resolve this problem nor address the incentive to games playing - focusing on
meeting formal performance targets rather than substantive issues - and shaping services to meet the
terms of a contract rather than the needs of clients (Hudson et al., 2010; Batmanghelidjh, 2012). SIBs
could encourage investors to focus on policy areas which have more readily measurable results, but
not necessarily address the underlying causes of the most serious cases, and encourage a focus on the
‘low hanging fruit’ (Davison, 2013). This can lead to ‘mission-drift’ (or shift), as investors pressurize
service providers to prioritise outcomes which are more readily measured and away from the most
needy (Starr, 2012).
SIBs also run the risk of excluding smaller organisations from funding and delivering services as the
investment required may only be affordable for larger organisations with ready capital. Social Finance
was required to raise £5 million to fund the Peterborough SIB (Local Government Association, 2013),
and it has been estimated that a SIB contract would need to be worth at least £12 million to cover
such overheads as legal fees, evaluation expenses, and investor’s due diligence costs (Azemati et al.
2013, p 27). Such sums are beyond the majority of British Third Sector organisations. The principle
contractors in welfare services funded by PbR, such as the Work Programme, have been large private
sector corporations (such as Atos, A4E and Serco) which possess sufficient capital to enable them to
wait until payments are triggered (Social Enterprise UK, 2012). Neither do SIBs address the ‘principal-
agent problem’ which is a standard neo-liberal criticism of conventional public services and state-
owned enterprises; i.e. the challenge of ensuring that those who deliver policies serve the public
interest rather than their own (Chang, 2007: 105). In the case of the Peterborough SIB, for example, it
is investors rather than the service providers who are paid in relation to results; the latter are paid up
front, which raises the question of what incentive they have to improve performance? The current
reliance upon quasi-public and philanthropic funders to finance SIBs indicates their questionable
attractiveness to private investors. Investors motivated by profit may be discouraged by the long lead
times before SIBs demonstrate evidence of impact, and also be reluctant to fund untried and more
innovative interventions if this involves them facing ‘equity-like risk with bond-like returns’ (Liebman,
2011, p 5). i.e. uncertain investments which produce low rates of return.
SIBs reflect the assumption that non-state providers are more effective and efficient in delivering
services. However in some areas (such as employment training and support) there is little evidence
that the sector from which the service provider comes has much independent effect on its impact or
7
benefit to users, and there is certainly no evidence that the private sector is superior in terms of
improving employment outcomes (Damm, 2012). In relation to this, ‘What does appear to be
important is the quality, enthusiasm, motivation and commitment of the staff providing the service’
(Hasluck and Green, 2007, p 22). There is no reason to believe that SIBs will enhance any of these
qualities. If anything, the quality of service is more likely to be promoted by measures which support
the professional commitment and public service ethos of service providers (Bartley, nd).
A final risk posed by SIBs is that a secondary market could emerge in which investors could divest
themselves of their initial investment by selling on to speculators (Disley et al. 2011). The recent
experience of derivatives markets and their central role in the continuing financial crisis might be a
basis for being wary of the re-packaging of and re-sale of social investments as assets, not least
because this would attenuate the relationship between those who legally own the SIB and those
responsible for delivery, thereby reducing transparency and accountability (Acharya et al. 2009). The
technical challenges posed by SIBs are therefore significant, but they also have implications for
citizenship rights which are not considered by their advocates.
Social Impact Bonds: A Boundary Shift
Social welfare is big business: it has been estimated that the ‘public service industry’ in the UK (i.e. the
value of public services provided by private contractors) amounts to more than £100 billion annually
(Gosling, 2011). However, Social Impact Bonds raise the question of what qualifies as a ‘public’ or
‘private’ welfare service, and indeed whether this distinction is anything other than a technicality.
Reflecting on the implications of SIBs for service users suggests that this distinction is both important
and significant. Burchardt and Hills’ (1999) classification of public and private welfare services is an
appropriate starting point for considering this issue. This proposes that welfare activity should be
analysed using three dimensions:
(i) Provision - whether the provider is a public or private sector body;
(ii) Finance - whether the public sector pays for the service either directly or indirectly;
(iii) Decision - whether service users personally choose the provider or amount of service
This approach defines a service by considering who pays for and delivers it and how it operates.
However a further service dimension which should be considered is what is it run for; i.e. what
purposes it fulfils, what are the defining values which it promotes? Whether a service is motivated to
achieve public benefits or private profit is not incidental to its character, but influences how it is
delivered, its quality as an entitlement and the experience of those receiving it. This is not to suggest
that a service which has the ostensible purpose of addressing social needs or promoting wellbeing, and
which is directly provided by public servants is necessarily of higher quality, by any measure (as the
experience of many UK social security claimants will testify; see Walker et al. 2012). Nevertheless, the
market relationship between a customer and a seller is qualitatively different (which is not to say
necessarily ‘worse’) from that between a public service user and provider even if the service provider is
incentivised, wholly or in part, by targets, league tables, sanctions and other performance measures.
There is evidence that a public service ethos exists among many officials employed to provide welfare
support to claimants, and this distinguishes their orientation in some measure from those whose
principal motivation is profit (Taylor-Gooby, 2008). Therefore a further dimension can be used to
classify services as more or less public or private: whether the essential motivation for the provision of
8
the service is recognised social need or profit. Social Impact Bonds alter the character of services in this
respect.
SIBs can be regarded as a boundary shift, i.e. a reform which alters the character of a service in a
qualitative manner beyond mere quantitative or incremental adjustment (Bolderson, 1982, p 290-
291). The nature of such a shift can be illustrated by comparing SIBs to the PbR funding of the Flexible
New Deal and Work Programme, both of which maintained direct public funding of provision and
control over services even though these were delivered by private or third sector agents. In contrast,
SIBs entail private finance, provision and control over delivery (perhaps with a third sector partner). A
conventional probation and offender rehabilitation service would be classified as purely public using
Burchardt and Hills’ criteria, i.e. publicly provided and financed, and allocated and delivered by public
officials. In contrast the corresponding service funded by the SIB in Peterborough is privately financed,
privately provided, allocated and delivered by public agencies but profit oriented. Figure 1 illustrates
the several degrees of difference between these services.
Figure 1: Illustration of Public and Private Services
Service format
Finance source
Service Provider
Decision-making
Motivation
Public
Private
Public
Private
or Third
Public
Private
Need
Profit
Conventional
probation and
rehabilitation
service
HMP Peterborough
Social Impact Bond
A boundary shift, as opposed to an incremental development, could be defined as a change in at least
two dimensions of the public-private classification, and represents a fundamental adjustment of the
responsibility for a service from one sector to another. While a move in one cell could be regarded as
what Hall (1993) describes as a routine ‘first order’ reform, a shift in two dimensions corresponds to a
‘second order’ policy change, i.e. a reform which goes beyond routine incremental adjustment and
develops new policy instruments. Such shifts could either diminish or enhance the quality of welfare
(in terms of claimants’ entitlements and/or capabilities), and this is an empirical question. However
social policies are (or ought to be) concerned with more than instrumental ends - why and how they
are provided are important for the experience of service users, and are also statements about ideals of
citizenship, fraternity and solidarity, which mark the social fabric of a society (Spicker, 2006). Such
features as the enforceability of service users’ entitlements, their right to appeal decisions and to
receive redress for poor service, and other qualities which distinguish social rights from mere
benefactions must be considered when analysing and comparing welfare services (Veit-Wilson, 2012).
In outsourcing funding, service delivery and the responsibility for selecting a provider, SIBs erode direct
public and democratic accountability for welfare entitlements. The Centre for Social Impact Bonds has
proposed that in the case of SIBs, ‘where payments are wholly dependent on outcomes … it is
appropriate that the specification does little more than identify the target outcomes and any statutory
and regulatory requirements that must be met in engaging with the target user groups’ (Cabinet
Office, 2013a). Therefore, funding, selection of service providers and responsibility for delivery will all
be shifted to private or third sector agencies, and ‘the government … has no direct relationship with
9
the service provider’ (Audit Commission, 2012: 14). The UK government have declared that any private
or third sector organisation can become an investor in a SIB, and that the ‘contract should contain
limited rights only for the [public] authority to intervene in how it is being performed, given that the
contractor will be taking on the risk that outcomes may not be achieved and that, as a result,
payments may not be made’ (Cabinet Office, 2013b). The UK government considers it entirely
reasonable that investors or intermediaries ‘may want some influence over the way the project is
delivered, given that they’re taking much of the risk’, and suggests that taking seats on a project board
or asserting the right to assume control over ‘or terminate the project in the event of sustained under-
performance’ are unproblematic (ibid). This is another way in which SIBS do not resemble a
conventional bond, as such loans do not grant lenders the right to assume control of the borrower’s
operations. It also reinforces the point that SIBs mark a shift in the boundary of public policy. It is
assumed that a welfare service should be accountable to those who pay for it rather than those who
use it, let alone the wider community, or their elected representatives, who might be thought to be
the ultimate stakeholders. Cabinet Office guidance on designing contracts for SIBs suggests that ‘There
may be significant value in the commissioner engaging with current or past users of the service and/or
service providers, to understand better what is likely to be effective’ (2013a). Such user engagement
(e.g. consulting with released offenders) is motivated by technical considerations and the desire to
ensure that appropriate outcomes and measurements are in place, not through any impulse to
empowerment nor citizen democracy. The lack of serious consideration of what SIBs imply about
citizens’ rights raises more basic questions about the role of markets in public welfare provision.
Markets, Morality and Motivation
It has been pointed out that, from the point of view of private investors, the most attractive SIBs will be
those which appear most likely to provide secure and substantial returns rather than risky innovative
projects (Davison and Heap, 2013). However if it is possible for private investors to distinguish between
such options, the question arises as to why governments simply do not finance the most attractive
projects themselves? (Fox and Albertson, 2012, p 367). The question suggests that a compelling
motivation for SIBs, in the UK case at least, is not to improve policy outcomes per se but to increase
private involvement in financing and delivering public services. An initiative which might achieve better
outcomes for service users but which would not produce dividends for investors would not be funded
through SIBs, which therefore limit what counts as a valuable outcome to only those which generate
savings. In this respect SIBs are a further expression of what Kynaston described as ‘City cultural
supremacy’ in the UK: the incorporation of the values of financial markets throughout institutions and
areas of life which were previously governed by other principles (2002, p 879).
SIBs represent a further extension of the belief that self-interest activated by means of the profit
motive can be harnessed to achieve collective benefit (Ruane, 2013). SIBs shift the motivation for and
therefore the morality of welfare provision: services and support are no longer provided through a
desire to help those in need as a valuable end in itself; rather changing the circumstances of service
users are valued as a metric to trigger payments to investors. This changes the status of the service
user from a citizen entitled to support into a commodity processed for profit. SIBs take the pseudo-
technical principle that ‘what matters is what works’ to a new level, by dismissing the purposes and
intentions of policy as irrelevant to achieving narrowly conceived outcomes. However such dry
instrumentality fails to reflect upon what counts as a service ‘working’ and how the pursuit of
outcomes is shaped by the motivation that prompts them. Receiving a service which is provided by the
10
desire to turn a profit, and where the service user is not even a consumer in their own right but a
product accountable to an investor is a different experience from receiving one provided out of
solidarity. The fact that conventional public services have not always met the standards of quality and
respect that they ought to, does not alter the purposes and intentions that distinguish them from
those provided in order to generate profit.
SIBs are part of a process which de-moralizes social policies. Markets are motivated in accordance with
considerations of exchange, incentives, profit and reward; their function is to distribute resources.
Public welfare policy is about delivering a vision of the Good Society and how to achieve this in an
acceptable way (Galbraith, 1997). The process of how this end is accomplished is more than a merely
technical matter. Social policies are (or are supposed to be) propelled by beliefs about right and wrong;
such principles as entitlement, desert, need, dignity and fairness should inform delivery, not merely a
focus on the accomplishment of technical (let alone financial) outcomes. SIBs imply that, for example,
the rehabilitation of offenders is no longer prompted by moral motivations but incentivised by the
prospect of profit and this changes its normative nature. For example, would it be acceptable for a SIB
to meet a recidivism target by paying ex-offenders not to reoffend? If expense-saving outcomes are all
that matters, is it important how they are accomplished? Arguably there should remain a sphere of
social policy and services that are beyond the reach of markets, and debate around the pros and cons
of SIBs should be informed by such considerations (Sandel, 2011).
Conclusion
In the face of recession and changing demand for public welfare services there is a need in many
societies to consider new operating models and potential funding sources. The persistence of
deprivation, exclusion and inequality demonstrate that public services are far from perfect and there
are undoubtedly lessons to be learned from the private and third sectors. Social Impact Bonds are an
imaginative response to these challenges and demands; however they face significant practical
challenges themselves. SIBs do not resolve the difficulty of attributing outcomes to inputs; they narrow
what is counted as a ‘successful’ policy; and they risk encouraging service providers to manipulate how
their performance is measured and reported. There is also no evidence that SIBs will encourage
innovative delivery nor widen the pool of service providers. These technical challenges are more
significant than those who advocate SIBs often acknowledge.
A more fundamental feature of SIBs is that they alter the moral character of the services which they
provide and change the nature of citizenship rights; features which do not seem to have occurred to
let alone trouble their supporters. Nevertheless, it is important not to lose sight of the ultimate
purpose of welfare services when pursuing additional resources and improved ways of delivering
services. The distinction between the principles which propel markets and those which ought to guide
the provision of support to citizens in need is significant and should be maintained. Rather than
pursuing the current vogue for ‘innovation’ it might be more effective to build upon effective practice
and defend existing welfare rights, such as they are. This is perhaps less glamorous, but more likely to
produce substantial outcomes.
11
References
Acharya, V., Philippon, T, Richardson, M. and N. Roubini (2009) ‘The financial crisis of 2007-2009:
Causes and remedies’, Financial Markets, Institutions & Instruments, vol 18, no 2. pp. 89 – 137.
Audit Commission (2012) Local payment by results. Briefing - payment by results for local services.
http://archive.audit-
commission.gov.uk/auditcommission/sitecollectiondocuments/Downloads/20120405localPbR.
pdf (accessed 10th June 2013).
Azemati, H. et al, (2013) ‘Social Impact Bonds: lessons learned so far’, Community Development
Investment Review, vol 9, no 1, pp. 22-32.
Bartley, M. (ed) (nd) Capability and resilience: Beating the odds, London: UCL Department of
Epidemiology and Public Health / ESRC
http://www.ucl.ac.uk/capabilityandresilience/beatingtheoddsbook.pdf (accessed 15th
December 2013).
Batmanghelidjh, C. (2012) ‘Address to NCVO trustee conference’, London.
http://www.civilsociety.co.uk/finance/news/content/13788/batmanghelidjh_social_impact_bo
nds_wont_work_for_everyone (accessed 10th June 2013).
Bolderson, H, (1982) ‘Ambiguity and obscurity in policy-making for social security’, Policy & Politics, vol
10, no 3, pp. 289 - 301.
Bolton, E. and Savell, L. (2010) ‘Towards a new social economy: blended value creation through Social
Impact Bonds’, Social Finance. http://www.socialfinance.org.uk/resources/social-
finance/towards-new-social-economy-blended-value-creation-through-social-impact-bonds
(accessed 10th June 2013).
Burchardt, T. and Hills, J. (1999) Private welfare and public policy, York: Joseph Rowntree Foundation.
Cabinet Office (2010. Modernising commissioning: increasing the role of charities, social enterprises,
mutuals and cooperatives in public service delivery, London: Cabinet Office.
Cabinet Office (2013a) Guidance on the template contract for Social Impact Bonds and payment by
results. https://www.gov.uk/government/publications/guidance-on-the-template-contract-for-
social-impact-bonds (accessed 10th June 2013).
Cabinet Office. (2013b) Social Impact Bonds. https://www.gov.uk/social-impact-bonds (accessed 10th
June 2013).
Chang, H-J. (2007) Bad Samaritans: rich nations, poor people and the threat to the developing world,
London: Random House.
Craig, P et al. (2008) Developing and evaluating complex interventions: new guidance, Medical
Research Council. http://www.mrc.ac.uk/Utilities/Documentrecord/index.htm?d=MRC00487
(accessed 15th December 2013).
Damm, C. (2012) The third sector delivering employment services: an evidence review, Third Sector
Research Centre, Working Paper 70.
Davies, J. S. (2009) ‘The limits of joined-up government: towards a political analysis’, Public Administration, vol
87, no 1, pp. 80 - 96.
Davison, R. (2013) Does Social finance understand social need? Liverpool: Can Cook.
http://www.cancook.co.uk/wp-content/uploads/2013/01/Does-Social-Enterprise-Understand-
Social-Need.pdf (accessed 10th June 2013).
Davison, R. and Heap, H. (2013) Can Social Finance Meet Social Need? Liverpool: Can Cook.
http://www.tomorrows-people.org.uk/files/blog/can-social-finance-meet-social-need-heap-
and-davison-june-20131.pdf (accessed 25th July 2013).
12
Disley, E., Rubin, J., Scraggs, E., Burrowes, N. and Culley, D. (2011) Lessons learned from the planning
and early implementation of the social Impact Bond at HMP Peterborough, London: RAND
Europe, Research Series 5/11, Ministry of Justice.
DWP (2008) Raising expectations and increasing support: reforming welfare for the future, London:
DWP. (Cm 7506).
DWP (nd) The Work Programme: invitation to tender specification and supporting information, version
5.0. http://www.dwp.gov.uk/docs/work-prog-itt.pdf (accessed 10th June 2013).
Fox, C. and Albertson, K. (2012) ‘Is payment by results the most effective way to address the challenges
faced by the criminal justice sector?’ Probation Journal, vol 59, no 4, pp. 355-373.
Freud, D. (2007) Reducing dependency, increasing opportunity: options for the future of welfare to
work: an independent report to the Department for Work and Pensions, London: DWP.
Galbraith, J. K. (1997) The good society: the humane agenda, London: Sinclair-Stevenson.
Gosling, P. (2011) The rise of the ‘public services industry’ updated, London: UNISON.
Greenhalgh, R. (2011) ‘ “New” models of social finance’, Centre for Local Economic Strategies, Bulletin
86. http://www.cles.org.uk/wp-content/uploads/2011/10/No-86-New-models-of-social-
finance.pdf (accessed 10th June 2013).
Hall, P. (1993) ‘Policy paradigms, social learning and the state: The case of economic policymaking in
Britain’, Comparative Politics, vol 23, no 4, pp.275-296.
Hasluck, C. and Green, A.E. (2007) What works for whom? a review of evidence and meta-analysis for
the Department for Work and Pensions, London: DWP, Research Report No. 407.
Hayman, A. (2008) ‘Three million jobless: could we cope?’ Regeneration & Renewal, 14th November.
HM Government (2011) Open public services White Paper, London: Cabinet Office.
Hudson, M., Phillips, J., Ray, K., Vegeris, S. and R. Davidson (2010) The influence of outcome-based
contracting on provider-led pathways to work, London: Department for Work and Pensions,
Research Report No. 638.
Kingston, J. and Bolton, M. (2004) ‘New approaches to funding not-for-profit organisations’,
International Journal of Nonprofit and Voluntary Sector Marketing, vol 9, no 2, pp. 112 - 121.
Kynaston, J. (2002) The city of London - Volume 4: a club no more, 1945-2000, London: Pimlico.
Liebman, J.B. (2011) Social Impact Bonds: a promising new financing model to accelerate social
innovation and improve government performance, Center for American Progress.
http://www.americanprogress.org/issues/open-government/report/2011/02/09/9050/social-
impact-bonds/ (accessed 25th July 2013).
Local Government Association (2013) An Introduction to social investment, London: Local Government
Association / Social Finance.
Mulgan, G., Reeder, N., Aylott, M. and L. Bo’sher (2011) Social Impact investment: the challenge and
opportunity of Social Impact Bonds, London: The Young Foundation.
Pawson, R. (2006) Evidence-based policy: a realist perspective, London: Sage.
Robinson, J. (2012) Better public services through social impact bonds: lessons from the US, Canada,
New Zealand and Australia, Winston Churchill Fellowship.
http://www.wcmt.org.uk/reports/1074_1.pdf (accessed 9th November 2012).
Rosenberg, T. (2013) ‘An investment strategy in the human interest’. New York Times Opinionator. 19th
June - http://opinionator.blogs.nytimes.com/2013/06/19/an-investment-strategy-in-the-
human-interest/?_r=0 (accessed 25th July 2013).
Ruane, S. (2013) ‘ “Bringing corporate welfare in” - and pushing further at the boundaries of Social
Policy: a reply to Farnsworth’, Journal of Social Policy. vol 42, no 1, pp. 23-29.
Sandel, M. J. (2011) What money can’t buy: the moral limits of markets, London: Allen Lane.
13
Scott, L. (2012) ‘Social Impact Bonds: what’s that coming over the hill?’ acquiringbusiness4good, 16th
May. http://www.senscot.net/view_art.php?viewid=12318 (accessed 10th June 2013).
Social Enterprise UK (2012) The Shadow state: a report about outsourcing of public services, London:
Social Enterprise UK.
Spicker, P. (2006) Liberty, equality, fraternity, Bristol: Policy Press.
Spicker, P. (2009) ‘The nature of a public service’, International Journal of Public Administration. vol 32
no 11, pp. 970-991
Starr, K. (2012) ‘The trouble with impact investing: P1’, Stanford Social Innovation Review, 24th January.
http://www.ssireview.org/blog/entry/the_trouble_with_impact_investing_part_1 (accessed
10th June 2013).
Taylor-Gooby, P. (2008) ‘Assumptive worlds and images of agency: academic Social Policy in the
twenty-first century?’ Social Policy and Society, vol 7, no 3, pp. 269-280.
Veit-Wilson, J. (2012) ‘Heading back to the Poor Law?’ Poverty and Social Exclusion Survey.
http://www.poverty.ac.uk/articles-attitudes-benefits-welfare-editors-pick/heading-back-poor-
law (accessed 10th June 2013).
Walker R, Chase, E. and Lødemel, I. ( 2012) ‘The indignity of the Welfare Reform Act’, Poverty. 143
(Autumn), pp. 9 - 12.
Wintour, P. (2012) ‘Social Impact Bond launched to help teenagers in case and the homeless’, The
Guardian, 23rd November.
14
Notes
1
A bond is a form of security in which debtors borrow from creditors and pay a predetermined rate of interest until the bond
is redeemed when it matures. In principle bonds guarantee repayment, unlike equity products where the investor can lose
their investment.
