Social Impact Bonds are, by some distance, the most hyped innovation in a sector – social enterprise finance – that is currently rivaled in the spin versus substance stakes only by reality TV. Based on expectations raised in recent years, anyone who attends both social enterprise conferences and football matches would probably be unsurprised to see their team’s physio running on to the pitch and massaging their star striker’s injured calf with a social impact bond in place of the famous magic sponge.
With that in mind, it was probably high time that Social Impact Bonds were on the receiving end of Polly Toynbee’s moral outrage. It’s a shame that Toynbee’s critique is topped and tailed with a jibe at Bond advocate Sir Ronald Cohen over his attitude to tax. While this provides a neat hook for the article, there’s no reason in principle why Sir Ronald shouldn’t be entitled to campaign for or against rich people paying higher taxes (or, as seems to be the case, not be publicly committed either way) and also to seek to use his expertise to tackle social problems. These are separate activities which should be judged on their own merits.
Where Toynbee is on target is with her questions about the workings of Bonds themselves. These include the issue of whether it’s actually possible to measure the impact of particular social interventions in a way that can be accurately monetized. This point has already been raised by sceptical voices within the sector, such as Senscot’s Laurence DeMarco. Many of us who believe that effective measurement may be possible in specific cases, such as the current pilot project to tackle re-offending at Peterborough Prison, will sympathise with Toynbee’s reflection on possible wider application: “This small scheme with a simple target – prisoners reoffending less – raised those dilemmas. Imagine the headache of drawing up watertight contracts that take a “problem family”, evaluate their addictions, mental health, education, crime, truancy or unemployment, then put a price on their heads, returning to measure the cash value of any improvements a few years later.”
Equally important, though, is the question of whether, even Social Impact Bonds did succeed on their own terms, they would be the best way of raising money to deliver positive social change. Toynbee’s verdict is an damning, unequivocal ‘no’. The Bonds will not be good value for public money: “Here is an extraordinarily cumbersome way of creating a PFI, worse than those recently castigated by the Treasury select committee. All this springs from a belief that the private sector is always more efficient, whatever its mind-boggling extra costs. After all, the government can always borrow at 1% less than the private sector.”
And, if impacts aren’t delivered, the state is still bound to pick up the tab: “Sir Ronald and the government say these are suitable investments for pension funds, ISAs and even junior ISAs where families save for their children. In other words, they are rock-solid safe. That means, as with previous employment schemes and the current work programme, if targets are missed you can bet the state will pay out anyway. So the risk will not be transferred from taxpayer to investor, but the state is borrowing expensive money to pay back later come what may. The public accounts committee will need a beady eye on money wasted on a fancy financial vehicle. If it looks too good to be true, it probably is.”
For Toynbee, “It’s a novel solution to extreme inequality, inviting the rich to make money out of the poor.” While many in the social enterprise movement will understand where she’s coming from, even if her assertion were true, it would be a mistake to reject Social Impact Bonds solely on that basis. It’s pointless and counter-productive to object to practical solutions to social problems, that could transform the lives of some poorer people, on the basis that some richer people (and possibly some pension funds holding the pensions of many moderately off people) will get a financial return.
Where Toynbee is right, though, is in challenging the myth that money raised through Social Impact Bonds is new money coming into the social sector. The reality is that Bonds, as currently proposed, are an advance on government money to be paid at a later date. As yet, it’s been a challenge to get anyone other grantmaking trusts to put money into (relatively safe) pilot Bonds. For Bonds to even have a measurable claim to be increasing the available resources for social change we would need to reach the point where individuals and financial organisations from outside the social sector were prepared to put money into Bonds with the genuine risk that they wouldn’t get a return. At the point, it would be time to start the discussion about whether Bonds are better vehicle for financing social change than government borrowing.