UK launches £40m social impact bonds to support deprived families – aims for pension products

Trial based on bond for lowering prison reoffending rates in Peterborough.

The UK government is to launch a series of Social Impact Bonds, which it hopes could raise up to £40m for investment in social projects and in time create a market for social ISAs (retail savings funds) and dedicated pension funds. The four bond pilots will be launched in the London boroughs of Hammersmith & Fulham and Westminster, and in Birmingham and Leicestershire. The bonds pay investors returns from the government based on the success of designated projects. The latest bonds will aim to fund help for families affected by anti-social behaviour, crime, addiction and poor education. The UK was hit by a series of riots this summer, mainly in inner city parts of London. Announcing the trial, Nick Hurd, UK Minister for Civil Society, said estimates of the public service bill for the 46,000 most deprived families in the UK was over £4bn a year, almost £100,000 per family. He said investors and philanthropists could invest in thebonds with the capital being used to fund intensive interventions to take families out of deprivation and long-term dependence on the state. The government, he said, would repay the investments with a decent return, although coupon rates have yet to be announced. Hurd said he expected the Social Impact Bond pilots to be funding projects from spring 2012. The project is based on an initial six-year scheme launched last year at Peterborough Prison, which aims to resettle 3,000 ex-offenders and reduce reoffending. The £5m bond, backed by the Ministry of Justice pays out on a sliding scale and if crimes committed by the former offenders fall by 7.5%, bond holders could see an £8m payout. The UK Government is backing the growth of a social investment market, which it says could build up about £600m in assets to invest in social finance products like Social Impact Bonds and attract more private investment into the market.