Cabinet Office
Social Impact Bonds - overview
There are a range of entrenched social problems which, due to their intersecting nature, have been consistently challenging to address through conventional approaches to public service commissioning. Social Impact Bonds (SIBs) create partnerships between the public, private and voluntary sectors to help solve these challenges through a clear focus upon delivering the outcomes and real world impact we want to see.
SIBs are outcome-based contracts that use private funding from social investors to cover the upfront capital required for a provider to set up and deliver a service. The service is set out to achieve measurable outcomes established by the commissioning authority (the outcome payer) and the investor is repaid only if these outcomes are achieved. For example, payments would be made if a young person has entered a job or if a homeless person has been supported into sustainable accommodation. SIBs differ from traditional fee-for-service contracts due to a focus on outcomes rather than inputs or activities.
In the UK, SIBs are also widely referred to as Social Outcomes Contracts. Outside the UK, several different terms are used. For example, they are called Social Impact Partnerships or Social Impact Contracts in Europe, Pay For Success schemes in the US, and Social Benefit Bonds in Australia. Regardless of the term used, all of these programmes are fundamentally partnerships that focus on achieving better outcomes and on measuring the real world impact on people in the most vulnerable situations.
The first SIB was implemented in Peterborough in 2010 with the goal of reducing reoffending rates. The number of SIBs has grown rapidly in the UK over the last decade and are working across a range of sectors, including supporting children on the edge of the social care system, helping homeless people find sustainable housing and supporting children and young people into education, employment or training. There have now been over 80 SIBs launched across the UK.
The key partners in a Social Impact Bond
SIB contracts are founded on partnerships between outcome payers, service providers and social investors.
The outcomes payer is most often a statutory commissioner or group of commissioners, though private organisations have also opted to pay for outcomes in some SIBs. They identify social issues and specify measurable outcomes that must be achieved to address them. The commissioner pays for these outcomes when they are achieved.
The social investor is typically a social investment fund seeking social as well as financial returns. It provides upfront funding to finance a service designed to achieve the commissioners outcomes. The investment is repaid by the commissioner on the achievement of specified outcomes.
The service provider is often a social enterprise or charity organisation. It works with the target group to deliver the outcomes defined by the outcome payer. It receives payments from investors based on the achievement of specified outcomes.
Several other organisations may also be involved in a SIB partnership, including intermediaries, consultants, performance managers or evaluators.
The potential benefits of Social Impact Bonds
SIBs can bring several benefits to public service delivery, including:
- fostering broad stakeholder partnerships and collaboration that bring together a range of knowledge and expertise
- enabling new interventions or programmes to be tried and greater flexibility in the delivery of interventions
- enabling a focus on prevention and early intervention which improves individual outcomes
- providing upfront capital enables local providers with a clear understanding of social issues and target populations
The potential challenges of using Social Impact Bonds
Despite the benefits, commissioners should be aware that SIBs can also be complicated to establish, and require commitment and capacity to set up. They are unsuited to cases where contracts are small and setup costs cannot be justified, or when outcomes cannot be clearly measured.
Further information on the challenges and benefits of commissioning SIBs can be found in the Social Impact Bond Commissioning and Replication report, undertaken by Ecorys and ATQ Consultants on behalf of DCMS.
How to decide whether a Social Impact Bond is appropriate
Before embarking on the development of a SIB it is important to carefully consider the feasibility and business case for such an approach, and how it compares to alternative ways to fund the programme or intervention. Outcome payers will need to consider both the technical processes involved, and the relationships that need to be built with other partners (such as the social investors and the service providers).
In order to consider whether a SIB is feasible, an organisation should also consider:
- whether the desired outcome is clear and measurable (for example reducing re-offending)
- whether the quality of outcomes can improve (and improvements wouldnt have happened anyway)
- whether there is a clearly defined set of service users
- whether the time and budget to develop a SIB are available (and that the contract is large enough to justify the set-up costs)
The evidence base on Social Impact Bonds
In July 2018 the Government Outcomes (GO) Lab produced a report collating all of the evidence gathered in the UK on the impact of SIBs. The report found that impact bonds have the potential to overcome perennial challenges in government including the fragmentation of public services, a short term political and financial focus, and difficulty creating change. The report found that impact bonds may help to reform the public sector through facilitating collaboration, prevention and innovation.
Since the publication of the report, further data and evidence has emerged from the practice in the UK and internationally. For further information on the evidence of SIBs from the UK and internationally, visit the GO Lab website.
Further information
Public Sector Commissioning Team (DCMS)
The Public Sector Commissioning Team (previously the Centre for Social Impact Bonds) is responsible for delivering the Life Chances Fund (LCF). The LCF was launched as an 80m outcomes fund in 2016 and followed the 20m Social Outcomes Fund, launched in 2012. The team aims to share learning and insight from the delivery and evaluation of these funds with partners across national and local government. We work in partnership with a range of stakeholders, including local commissioners, service providers, academics, social investors, intermediaries and departments across government.
For more information please contact the Public Sector Commissioning Team via public-sector-commissioning-team@dcms.gov.uk.
The Government Outcomes Lab
The Government Outcomes Lab (GO Lab) is a centre of academic research and practice based at the Blavatnik School of Government, University of Oxford. It was created in 2016 as a partnership between the School and the UK government (Centre for Social Impact Bonds), and is now funded by a range of organisations. GO Labs role is to investigate how governments can develop fruitful cross-sector partnerships to deliver greater social impact and value. GO Labs research explores how governments, businesses and civil society can forge effective partnerships, how such partnerships emerge, and how they can be sustained. Alongside its research, GO Lab hosts a global knowledge hub for all those interested in deepening their understanding of outcomes-based partnerships, and runs a comprehensive programme of engagement and capacity building for government policymakers and their partners in other sectors.
Key GO Lab resources for policymakers and practitioners include:
The GO Lab team can assist commissioners in local authorities and other public sector organisations across the UK, who seek guidance on key issues relating to the development and implementation of outcome-based contracts. You can get in to