Why the social impact bond at Peterborough prison is being halted

The decision not to continue the pilot scheme for reducing reoffending has put SIBs under fresh scrutiny. Edward Lander and Stephen Cook report

The country's first SIB, which is based at HMP Peterborough, will not be continued
The country's first SIB, which is based at HMP Peterborough, will not be continued

Two recent announcements by the government have reopened debate about social impact bonds, which are pioneering new ways to finance projects that tackle social problems: non-government investors are asked to fund the projects, usually run by charities or social enterprises, and are reimbursed and rewarded with a dividend if the project is successful.

The first announcement was that the country's first SIB, which finances a project by charities to reduce reoffending by short-sentence prisoners released from HM Prison Peterborough, will not continue into a third year, despite the fact that preliminary figures indicate the project was having some success.

The second announcement, which came in the same week from the Deputy Prime Minister, Nick Clegg, was that the government would set aside £31m for SIBs for two new projects designed to help young people improve their skills and get into work, the Youth Engagement Fund and the Fair Chance Fund.

The Ministry of Justice made the announcement about the Peterborough project in the context of Transforming Rehabilitation, a new outsourced programme that will, for the first time, bring everyone released after short sentences into schemes designed to stop them offending again. One contract area for the programme includes Peterborough.

Transforming Rehabilitation will work on a payment-by-results model, as do SIBs, but will be funded conventionally by the government and commissioned from external providers. The MoJ decided that the contractor appointed to deliver the service in that area should decide how to take things forward.

Despite the logic of this decision, the two announcements have had the effect of seeming to send mixed messages. Are all government ministers really behind SIBs, or just some? And why pull the plug on a pioneer programme that appears to be working, in favour of a conventionally financed outsourced contract?

Whitehall officials say Peterborough should be considered separately from other SIBs, such as the two new ones announced by Nick Clegg, 15 said to be running already and a total of about 50 in the pipeline. Five SIBs are already said to be operating in the US.

SIBs are also being talked up by the Big Lottery Fund - the BLF last year launched a £40m Commissioning Better Outcomes fund, which can be used to finance them. Matt Roche, head of funding at the BLF, who has responsibility for its SIB portfolio, says it will evaluate SIBs over the coming years to gauge whether they are an efficient way to deliver public services and enable voluntary services to take part in new contracts.

"Once we've supported the development of the next tranche of SIBs, we will have a good cohort of them to see how it's working," he says. "This is a long-term investment for us and I don't think you're going to get a sense of whether SIBs are working for another five to 10 years."

A spokeswoman for Social Finance, the social investment consultancy that developed the HMP Peterborough SIB and is working on new ones to tackle problems involving children in care, social isolation, the elderly and drug rehabilitation, says it had made provisions for the possibility that the government will make changes to the funding of the Peterborough prison scheme.

"SIBs have the potential to shine a light on social issues that have been overlooked previously, and there's a value in a flexible funding model that allows you to deliver tailored proactive responsive interventions," she says.

But the Peterborough prison decision has reinforced the views of some sceptics. Alex Whinnom, chief executive of the Greater Manchester Centre for Voluntary Organisations, says that although his organisation is very interested in the SIB concept, the outcomes under the model are difficult to measure.

He says that because the success of projects is measured in terms of the cash they are able to generate for an investor, the life is crushed out of the personal kind of service the voluntary sector tries to achieve. Many local voluntary organisations would find it hard to enter into SIBs because of the proportionately high cost of monitoring and reporting compared with a normal contract or a grant. "I don't think this is a very good method of getting the best out of the third sector," he says.

Richard Caulfield, chief executive of Voluntary Sector North West, says that payment by results is too outcomes-focused on charities and SIBs are "over-hyped", with the case not proven, and highly irrelevant to the vast majority of the voluntary and community sector. "The chances are that you can only do these things at scale," he says. "It's likely that the vast majority of the voluntary sector isn't really on that page and never will be."

- Read Nick Temple's column on SIBs and the Peterborough pilot

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