The name is Bond, Social Impact Bond – SIBs and social housing

Housing iStock 000010695703Small 146x219Jon Coane explains the background to advising registered provider St Mungo’s on a groundbreaking payment-by-results contract that included a social impact bond.

A new social impact bond, designed to alleviate homelessness in London, is the result of a new partnership between corporate investors, St Mungo’s and the Greater London Authority. The ‘Street Impact’ programme will be delivered by St Mungo’s with the aim of helping 400 people sleeping rough to rebuild their lives away from the streets.

The three-year funding to St Mungo’s is through a Mayor of London commissioned payment-by-results contract, successfully secured through Triodos Corporate Finance and social investment fund CAF Venturesome.

What it involves

The Mayor of London has agreed a three year payment-by-results contract with St Mungo’s, which will enable the charity to earn up to £2.4m. It is designed to remunerate them for achieving prescribed targets with a group of around 400 named rough sleepers in central, north and west London. The targets include achieving reduction in visits to A&E hospital departments, sustained accommodation, supporting people into volunteering or work, or reconnections overseas.

The delivery of the programme has been funded by social investors CAF Venturesome, several socially minded investors and Triodos Corporate Finance raised £650,000 upfront working capital needed by St Mungo’s by way of a social impact bond.

What is a social impact bond?

Social impact bonds (SIBs) are a form of outcomes-based contract in which public sector commissioners commit to pay for significant improvement in social outcomes (such as a reduction in offending rates, or as mentioned above, sustained accommodation for the homeless) for a defined population.

They were first used in September 2010 in relation to reducing reoffending among male prisoners leaving HMP Peterborough who have served sentences of one year or less. This scheme will involve social sector organisations providing support for 3,000 prisoners over six years. The organisation that originated the idea of SIBs is Social Finance, a financial company that helps structure such arrangements.

On the Peterborough pilot Social Finance state that: “If this initiative reduces re-offending by 7.5%, or more, investors will receive from Government a share of the long term savings. If the SIB delivers a drop in re-offending beyond the threshold, investors will receive an increasing return the greater the success at achieving the social outcome, up to a maximum of 13%.”

Do SIBs work?

As far as we know it is too early to say as we are still waiting for the results to date of the Peterborough SIB pilot to be released. The key issues that will increase the chances that the payment by results contract will be successful include the following:

  • The parties involved in delivering the contract are experts in their field with a proven track record and are investment-ready.
  • The intervention, outcomes, metrics, valuation method and payment mechanism are drafted in such contracts in a clear and straightforward way.
  • The data available before and during the contract and SIB is complete and accurate.

The more complicated the intervention the less likely it will be achievable.

Conclusion

Social impact bonds are very likely to become higher profile and cannot be ignored by innovative local housing authorities that are looking to continue with their services in an era of cost saving and less Government financial support. The Ministry of Justice’s consultation on transforming the rehabilitation of offenders could be a huge opportunity for local authorities who have an interest in this area.

SIBs are a way of attracting investment around outcomes-based contracts that benefit individuals and communities. Through a SIB, private investment is used to pay for prevention and early intervention services, which are delivered by service providers, such as St Mungo’s, with a proven track record. Financial returns to investors are made by the public sector commissioner on the basis of improved social outcomes. If the outcomes do not improve then the public sector do not pay the investor.

Why are SIBs relevant for local housing authorities?

As well as the payment by results contract that St Mungo’s entered into there are very likely to be other payment by results contracts that could include social housing as an integral part of the solution. The Ministry of Justice has published in January 2013 a consultation paper on “Transforming Rehabilitation – A revolution in the way we manage offenders”. The focus of the paper is the rehabilitation of adult offenders managed in the community, including support and services provided to prisoners in preparation for their release.

According to the paper for adult offenders convicted or released from custody in the year to December 2010, the percentage that reoffended within just 12 months was 57.6% for prisoners sentenced to under 12 months, with 17,560 re-offenders committing 83,107 further offences.

These are shocking figures and it will come as no surprise that a key part of the solution to this massive issue is housing. If the offenders don’t have a safe and stable housing solution then the risk of reoffending must increase.

Even though it is up for consultation, it is likely that an element of the contracts issued to the private and third sector under any future schemes connected to this initiative will involve payment by results and, just as it is being used in the Peterborough pilot, a SIB will probably be a way of raising finance to fund this work.

Jon Coane is a partner in the Commercial & Infrastructure team at Bevan Brittan. He can be contacted on 0870 194 5021 or by This email address is being protected from spambots. You need JavaScript enabled to view it..