Goldman Sachs gets into social impact bonds - but what are they?

Ryan Shorthouse of the Social Market Foundation explains the reasoning behind social impact bonds.

Fiscal retrenchment is catalysing radical thinking among policymakers about how to get better public services for less money. Social impact bonds (SIBs) are currently fashionable in policy debates as a possible means of financing interventions. With SIBs, social investors fund a particular service, and only get a return if the intervention improves outcomes which will lead to reduced government expenditure in the long-term. In the current environment, Government wants to pay investors only out of identifiable savings. And an idea that started here in the UK has now gone global. Just last week Goldman Sachs announced that it was spending $9.6 million on a 4-year programme aimed at reducing recidivism of offenders at Rikers Island prison in New York.

SIBs are potentially an ingenious way of getting more bang for taxpayer bucks at a time when public money is short. They are a vehicle for encouraging innovation in public service delivery because they devolve the financial risk to investors and organisations who can affect outcomes on the ground. At a recent SMF conference, Iain Duncan Smith MP said:

It could mean a change to the whole way that Government and private sector work together to solve social problems.

The first ever SIB launched in 2010 and funds work to reduce re-offending among offenders released from Peterborough Prison. Philanthropic investors will receive a return on their investment if the interventions funded achieve at least a 10 per cent reduction in reoffending each year, or at least 7.5 per cent across all three years. Other schemes are now emerging: in Manchester, for example, the Council is sourcing funds from social investors to provide intensive support for eight young people with challenging circumstances to live in foster care rather than in residential care.

SIBs are an important part of the funding jigsaw. But they are not the magic bullet for all public services. Social investment – where investors invest in the work of charities and expect a return – is still small: in 2010, £190m was sourced for social investment compared to £3.6bn in philanthropic grant funding and £55.3bn in wider bank lending. And SIBs only constitute a small part of all social investment. The small scale is mainly down to a lack of decent investable propositions. There are at least three big reasons for this.

First, because SIBs are embryonic market information about the likely risk and reward in different service areas is poor. Investors are jumping into the unknown. Little is known about how effective new interventions could be at, say, cutting re-offending levels, so investors don’t have much to go on in assessing the investment proposition. This uncertainty is exacerbated by the length of time it may take for outcomes to be observed, especially for early intervention programmes. The Government has helped set up Big Society Capital which it hopes will co-invest with private investors to send a signal to them and mitigate their risks by accepting lower interest rates or taking on the junior part of a debt. It is also hoped that Big Society Capital will fund new products that support impact measurement.

Second, there is a risk that investors are not paid appropriately. In most public services it is difficult for government to identify whether outcomes have improved, let alone to attribute those improvements to the work of the provider. If re-conviction rates fall after an intervention how can government distinguish between its being the result of the intervention or perhaps a change in the local policing strategy? An up-tick in re-offending could be the consequence of high local unemployment, or a statistical blip, rather than ineffective interventions. Correctly attributing outcomes to their cause is notoriously difficult. But without resolving that challenge both government and investors will remain reluctant to embark on large scale SIBs.

Third, even where outcomes are measurable, quantifying the financial benefits for taxpayers is tough. Improved employment outcomes for unemployed people or better GCSE results for children in care may be good in themselves, but quantifying the public savings is no simple task. All the more so if those savings are spread across a number of government departments, making coordination difficult.

The potential for SIBs and other payment by results schemes to revolutionise public service delivery lies in the incentives they create for providers to innovate. But there are many hurdles for government to overcome if this approach is to enter the mainstream. Improving measurement and data collection, working across departmental silos, and simply taking a punt on financially risky ventures to find out what works may all be necessary steps. In time SIBs could save government money. But the first steps on the road will be costly. And right now that’s not something that government wants to hear.

A guard at the entrance of Rikers Island in 1955. Photograph: Getty Images

Ryan Shorthouse is the Director of Bright Blue, a think tank for liberal conservativism 

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Keep the Burkini, ban the beach

Beaches are dreadful places. Maybe it would just be easier to ban them.

To hell with political correctness, I'm just going to say it. I think women who wear burkinis to the beach are silly. I also, for that matter, think women who wear bikinis to the beach are silly. Not because of what they're wearing – women, quite obviously, should be able to wear whatever the hell they want without interference from eyebrow-furrowing douchecanoes and neighborhood bigots whose opinions are neither relevant nor requested. No, my problem is with the beach. 

Beaches are dreadful places. I question the judgement of anyone who chooses to go, of their own free will, to a strip of boiling sand that gets in all your squishy bits, just to lie down. I associate beaches with skin cancer and sunstroke and stickiness and sharks. As a neurotic, anxious goth who struggles with the entire concept of organised fun, even the idea of the beach distresses me. I won't go and you can't make me. Especially given that if I did go, whatever I chose to wear, some fragile man somewhere whose entire identity depends on controlling how the women around him behave would probably get outraged and frightened and try to ban me.

Men love to have opinions on what women should wear on their holidays. Nipples are not to be tolerated, and burkinis are now an invitation to Islamophobia, so I can only imagine how my grumpy summer goth robes would go down. The annual summer storm over women's beach attire has a xenophobic twist this year after burkinis – the swimsuit alternative for women who want to conform to a “modest” Islamic dress code – were banned on many beaches in France (although one specific one, in the town of Villeneuve-Loubet, has been overturned by a test ruling in the country’s highest court).

Not to be outdone, Nicholas Sarkozy has promised to institute nationwide legislation against the “provocative” garment if he's re-elected as president, jumping gleefully on the bandwagon brought to global attention by race riots in Corsica. Photos have emerged of Nice police officers apparently forcing a sunbathing Muslim woman to strip down and issuing her with a penalty slip. I can only imagine what that poor woman must have felt as the state swooped down on her swimsuit, but hey, Sarkozy says that public humiliation of Muslim women is a vital part of French values, and women's symbolic experience is always more important than our actual, lived experience. There are many words for this sort of bullying, but Liberty does not come into it, and nor does Equality. Fraternity, of course, is doing just fine.

Whatever women wear, it's always provocative to someone, and it's always our fault – particularly if we're also seen to be shamelessly enjoying ourselves without prior permission from the patriarchy and the state. If we wear too little, that's a provocation, and we deserve to be raped or assaulted. If we wear too much, that's a provocation, and we deserve racist abuse and police harassment. If we walk too tall, speak to loud or venture down the wrong street at night, whatever we're wearing, that's a provocation and we deserve whatever we get. The point of all this is control – the policing of women's bodies in public, sometimes figuratively, and sometimes literally. It's never about women's choices – it's about how women's choices make men feel, and men's feelings are routinely placed before women's freedom, even the simple freedom to wear things that make us feel comfortable as we queue up for overpriced ice cream. It's not about banning the Burkinis, or banning the bikini. It's about stopping women from occupying public space, curtailing our freedom of expression, and letting us know that whoever we are, we are always watched, and we can never win.

If you ask me, the simplest thing would just be to ban the beach. I consider people on the beach a personal provocation. Yes, I grew up in a seaside town, but some of the beach people come from far away, and they aren't like me, and therefore I fear them. The very sight of them, laying around all damp and happy, is an active identity threat to me as an angry goth, and that means it must be personal. As far as I'm concerned the beach is for smoking joints in the dark in winter, snogging under the pier and swigging cheap cider from the two-litre bottle you've hidden up your jumper. That's all the beach is good for. Ban it, I say. 

I do, however, accept – albeit grudgingly – that other people have different experiences. Some people actually like the seaside. And given that I am neither a screaming overgrown toddler with affectless political ambitions nor a brittle, bellowing xenophobe convinced that anything that makes me uncomfortable ought to be illegal, I have learned to tolerate beach people. I may never understand them. That's ok. The beach isn't for me. Not everything has to be for me. That's what it means to live in a community with other human beings. As performative Islamophobia and popular misogyny bake on the blasted sand-flats of public discourse, more and and more conservatives are failing to get that memo. I'd suggest they calm down with an ice lolly and a go on the Ferris wheel – but maybe it'd be easier just to ban them. 

Laurie Penny is a contributing editor to the New Statesman. She is the author of five books, most recently Unspeakable Things.