Why is the charity and social enterprise sector wary of social impact bonds?

There was a sense of palpable irritation last year when Chancellor of the Exchequer George Osborne announced the UK government would commit an extra £80m (€113.2m) over four years to create more social impact bonds, taking its total spending on SIBs to £105m across government over the course of this parliament.

The extra £80m will come from the Office for Civil Society (OCS), a government department focused on the charity and social enterprise sector. The OCS is one of many UK government departments that has been under pressure to cut annual spending by as much as 40% by 2020, as the Conservative-led government seeks fiscal austerity, while protecting the budgets of a handful of departments like health.

So some people are unhappy that tens of millions will come from the OCS budget to fund SIBs, while other forms of funding for the charity and social enterprise sector such as grants and contracts decline.

Traditionally, charities in the UK have relied on grants and donors for its income. In the 1990s, under the Tony Blair and Gordon Brown governments, charities also benefited from an increase in government funding to deliver public services through contracts.

But these forms of funding are under pressure and in recent times, social investment – models that deliver a social and financial return – has emerged as a nascent funding stream for charities that is very popular with the current government.

Social impact bonds are especially popular, a model where private investment is used to tackle societal challenges. Investors get a return, usually from a government department, if measurable outcomes, such as reducing teen pregnancy, are achieved. The idea is investors take a share in accrued savings to the public purse.

Late last year, the UK government announced that the OCS would “widen the availability of social impact bonds.”

But, while £80m will go to SIBs, the OCS must save £60m from efficiencies elsewhere. The other major spend by OCS is on youth volunteering, with £400m of its £600m budget till 2020, going on the so-called National Citizen Service – a pet project of Prime Minister David Cameron.Many in the UK charity sector are not happy with the government’s focus on SIBs. Andrew O’Brien, head of policy and public affairs at CFG, an umbrella body for charity finance directors in the UK, tweeted: “Very disappointed that £80m is being spent on social impact bonds when there are so many other more pressing issues in the sector.”

He expanded on his concerns with UK charity focused e-zine Civil Society Media:
“It’s frankly not what the sector wanted at all. I don’t think anyone was seriously asking for that; I know the social investment community was, but it’s incredibly niche.

“This isn’t going to help the vast majority of charities. Actually what we need is more focus on the bread and butter of the sector, which is building up financial capability and building up governance.”

Charities and social enterprises are increasingly starting to engage with social impact bonds and other social investment products. But on the main, most organisations do not have the capacity, capability or inclination to become involved.

There were other dissenting voices on Twitter. Nick Davies, public services manager at NCVO, the country’s largest membership and lobby body for charities, wryly observed: “£20m of new support for social impact bonds. The voluntary sector cheers (very quietly and possibly because of a kitten pic on twitter).

Dan Gregory, a leading independent consultant on social enterprise, bluntly said: “My word. £105m into social impact bonds. Enough already. If that comes from OCS’s budget…”

Even a self-proclaimed fan of social impact bonds is worried. Phil Caroe, director of Social Finance at Allia, a body that develops social investment products like retail charity bonds listed on the London Stock Exchange, had this to say: “Supporting SIBs is a good thing. But I’m not convinced it’s the best use of £105m right now.

“The problem with SIBs is that govt (sic) has staked its claim of world leadership on them, so it can’t now allow the model not to succeed.”

The UK government has already had a big embarrassment with SIBs. The world’s first SIB, that tackled recidivism in the UK town of Peterborough, was abruptly cut short during its six-year, proof-of-concept trial, after a change in the government minister overseeing the project.

Since then, there have been no major hiccups with UK SIBs. Stakeholders say they are delivering positive outcomes and returns to investors. In October, London-based youth charity ThinkForward, announced that its programme to support 1,000 disengaged young people financed by a SIB, had met all its outcomes successfully and delivered a return to investors, including Big Society Capital. It was dubbed to be the one of the world’s first successfully completed SIB. Two social impact bonds backed by Bridges Ventures, an impact and sustainable investment manager, have also delivered returns -– the SIBs delivered by Career Connect and Teens & Toddlers support vulnerable young people.

The bug is catching on worldwide. There are just under 50 SIBs and 31 in the pipeline around the world from Mexico to South Korea, according to NGO Instiglio.

Last month the first Nordic SIB was announced
from Finland. It will aim to improve occupational wellness in the public sector and is seeking to raise €250,000. It has two commitments already.

In Ontario, Canada, the government is on the road to piloting its first SIB after shortlisting four projects as viable for development.

And in America, the U.S. Government Accountability Office (GAO), the “congressional watchdog” which investigates how federal government spends taxpayers’ dollars, has released a detailed report on SIBs that says federal agencies should collaborate in the area.Bridges Ventures, an impact and sustainable investment manager that runs a pooled £25m social impact bond fund, has welcomed the UK’s government’s further commitment to the space. Andrew Levitt, investment director at Bridges, told charity magazine Third Sector: “Outcomes-based contracts enable government to pay directly for the successful delivery of better social outcomes for some of the most disadvantaged people in our society.

“So this commitment of an extra £80m will make a massive difference to the lives of at-risk children, the homeless, the chronically ill and others who are already benefitting from this programmes.”

But, there is a growing resentment within the UK charity sector that the product is being foisted upon them. This comes at a time that the UK media, government and public are being increasingly hostile to the charity sector on issues such as aggressive fundraising and high staff salaries.

The most recent scandal concerns a London-based youth charity Kids Company, which received £46m in government grant funding over 13 years and was feted by Cameron, but which has now collapsed amid financial and governance mismanagement.

In light of this, maybe the government should look closer at the concerns around its growing support for SIBs so similar mistakes are not repeated.