Pioneering social bonds pilot set to launch within months

A pilot of social bonds could take place 'this side of the general election', according to Social Finance development director Toby Eccles.

Social bonds have been developed by social investment advocates Social Finance to act as a guarantee by the government to invest in programmes that could help lower the tax cost of social problems. The innovation risk is underwritten by private social investors who will only receive a return on their investment if the interventions work.

'We've had a lot of interest from foundations who believe in this model,' said Eccles.

'And we're talking to various government departments. We've been talking to people for a long time and we are hoping to be able to finalise a pilot this side of the general election.

'I think we'll get there but I also think we've got a hard-working three or four months ahead of us.'

One example where social bonds could work is in the justice system. Investing in the wider roll-out of programmes that have been proven to reduce reoffending could deliver cost savings to the taxpayer of £900m over five years.

Social Finance has just published a report on the bonds which, among other arguments, outlines the advantages of bonds when compared with outcomes-based commissioning, that is when contracts are set up so that organisations are only paid when they have reached defined targets of success.

The report states outcomes-based commissioning restricts the ability of third sector organisations to deliver services because they often lack the working capital required to carry the risk of an outcomes-based payment contract. Whereas with social bonds the service provider's costs are covered by investors up front.

The report is available at www.socialfinance.org.uk