The government is replacing the payment-by-results element for the third tranche of its social impact bond pilot project at Peterborough prison with an "alternative funding arrangement".
Social impact bonds are financing mechanisms that seek non-government investment for social interventions. If the interventions are successful, the government commits to repaying and rewarding the investors.
The first pilot project, at HM Prison Peterborough, is provided by five charities including the St Giles Trust, and is designed to reduce repeat offending among people leaving the prison after short-term sentences.
The first two tranches of the pilot have been operated under the social impact bond model.
But a statement from the Ministry of Justice last Thursday said that keeping the payment-by-results element of the Peterborough scheme was not possible for the third tranche of its pilot because "the majority of prisoners within that group will already be receiving 12 months' supervision and rehabilitation as a result of the wider reforms to probation".
It said: "Despite this, we want to ensure the new provider of probation services in the Peterborough area has the opportunity to build the scheme into their plans.
"We have therefore proposed an alternative funding arrangement for the third pilot cohort, which will allow the scheme to continue operating until the new providers are in a position to implement their new approach to rehabilitation."
An MoJ spokesman said the department was in discussions with Social Finance, the social investment consultancy that developed the social impact bond to reduce reoffending in 2010, about how the new arrangement might work, but no details were yet available.
Figures on the Peterborough project released last year showed a decline of six percentage points in the frequency of reconvictions per 100 released Peterborough prisoners, from 87 in the period 2008 to 2010 to 81 in the period 2010 to 2012.
This compared with a 10 percentage point increase nationally over the same periods, from 69 in 2008 to 2010 to 79 in 2010 to 2012.