Launch of first Social Impact Bond signals 'funding revolution'

The much-anticipated Social Impact Bond (SIB) has been launched with a pilot set for Peterborough Prison.

Pioneered by social investment advocates Social Finance, and a world first, the bond will aim to raise £5m that will be used to give third sector organisations six-years worth of funding. The organisations will work with 3,000 Peterborough inmates who have been sentenced for less than a year - both within the prison and after their release.

The funding for the bond will come from investors who will expect a return on their money - up to a maximum of 13 per cent - paid to them by the Treasury, if re-offending at Peterborough Prison reduces by 7.5 per cent or more.

Rob Owen, CEO of the St Giles Trust, which is one of the organisations that will benefit from the bond money, called it a 'funding revolution'.

'The Social Impact Bond represents the start of a funding revolution for organisations that specialise in preventative work. By unlocking future savings, and capturing their value, it allows access to capital from a wide range of new investors,' said Owen.

The bond pilot comes a week after the National Audit Office revealed that 60 per cent of short term prisoners are reconvicted within a year, costing the nation up to £10bn annually. It recommended that Ministry of Justice prison budgets gave greater weight to reducing re-offending.

Owen said that St Giles Trust services had been shown to reduce re-offending by 40 per cent, creating a 'win, win, win' situation.

'Society wins as there are fewer victims of crime, the taxpayer wins as less money is spent on prisons and our clients win as they will be given a chance to turn their lives around.'

Social Finance CEO David Hutchison said that investors in the bond pilot would be organisations that believed in the ability of third sector organisations to stop people committing crimes.

'If these organisations don't achieve a re-offending reduction of 7.5 per cent then the investors risk losing all their money, so it's people who have a strong conviction of their effectiveness and certainly a number of trusts and foundations who have supported the work of these organisations in the past and found them effective.

'The trouble is these organisations have never had sustained funding to allow them to operate at scale over a long period of time - the exciting thing is with this project they have six years funding.'

Hutchison said if the bond was successful investors would receive payments after four, six and eight years - with the final social impact measurement being complete two years after the bond finance finished.

If successful they would look at re-issuing the bond or another scenario might see government funding what by then would be proven, preventative programmes directly.

'This is all about a journey to understand the effectiveness of these interventions and the returns that can be generated,' said Hutchison.

Commenting on the launch of the bond, justice secretary Jack Straw said: 'We are always looking at new ways for further reducing re-offending that provides value to the taxpayer.'

Other areas of public spending where the Social Impact Bond might work were featured in the 2009 Social Investment Almanack.

David Hutchison was a key speaker at the Good Deals 2009 conference.