£11m lottery funding for Social Impact Bond

The Big Lottery Fund is allocating £11.25m to develop Social Impact Bonds.

The funding goes to social investment organisation Social Finance, which launched the bond back in March at Peterborough prison. 

£6.25m of the lottery grant will support this pilot, which is being run in conjunction with the Ministry of Justice and which already has a number of foundations as investors.

The remaining £5m will be used by Social Finance to develop a further package of pilots to tackle social problems, raise awareness of Social Impact Bonds among policy makers and statutory agencies, and attract the interest of potential investors.

As well as a social return, a Social Impact Bond gives an economic return on investments. It aims to reduce the reliance on the public purse to fund innovation in areas such as reducing re-offending, health services and supporting children in care. Investors can expect their return to be higher than their investment if the scheme is a success.

In Peterborough, investors can expect up to a 13 per cent return, paid to them by the Treasury, if re-offending reduces by 7.5 per cent or more. Organisations that will benefit from the bond include the St Giles Trust, which works to reduce reoffending.

Toby Eccles, development director at Social Finance, said full development of the bond would take ‘years’ but could save millions in the long run.

‘We are delighted that the Big Lottery Fund has agreed to support our efforts to develop a market for the Social Impact Bond. The bond aligns the interests of government, charities, social enterprises and socially motivated investors around a common goal,’ he said.

‘Our work is driven by a desire to transform society’s ability to invest in addressing its most intractable problems. Developing the Social Impact Bond market will take years, but we believe that with care it can enable future investment of hundreds of millions of pounds a year in these crucial areas.’

The lottery hopes its funding will create ‘a tool for preventing social problems across the UK’.

Big Lottery Fund CEO Peter Wanless said: ‘The Big Lottery Fund’s aim is to be an intelligent and innovative funder and it is our aspiration to seek out new ways to bring improvements to communities.

'At a time of tight public finances, Social Impact Bonds represent a new and innovative way of attracting investment from outside the public sector and by funding Social Finance’s work we are hoping to pave the way for many more similar projects across the UK – this is a very exciting project for Big.

‘Prevention is better and cheaper than cure and there is a growing body of evidence that if preventative interventions are effective, we can all spend less money on services such as prisons, acute medical care and drug rehabilitation.’

Other investors in the Peterborough pilot include the Barrow Cadbury Charitable Trust, Friends Provident Foundation, The Henry Smith Charity, Johansson Family Foundation, LankellyChase Foundation, The Monument Trust, Panahpur Charitable Trust, Paul Hamlyn Foundation and the Tudor Trust.