Complex investment schemes have had a lot to answer for in the past few turbulent years. But that is no reason to look askance at efforts to develop financial products to make private money work for socially desirable ends.
The idea of social impact bonds is not wholly new. Enterprising financiers have long held that they could fund public programmes, such as cutting reoffending rates or dealing with drug addiction, more efficiently than the state.
The difficulty is that designing a social impact bond is almost as complicated as the intractable social problem it might be used to address. The first question is how much a given issue – recidivism, say – costs the state. Trickier still is how definitively to measure the success of a programme to tackle it. Then comes the calculation of a suitable return on an investment in the scheme, to be paid out by the Government from the money it has been saved.
Complicated it may be. But the idea has real potential. That the Government is putting real weight behind it – with the launch of a £40m scheme focused on support for chaotic families – is to be applauded.
With Britain's 46,000 most deprived families costing the state more than £4bn a year, this is certainly an area ripe for investment. But the Government must be wary of banking its savings too soon. Even leaving aside the question of whether extra intervention can help families – and the evidence is mixed – social impact bonds as a funding mechanism are almost entirely untested.
There will be teething problems, but they must not be allowed to rule out the whole idea of private funding for a public good. Supporters of the concept conjure up visions of a whole new asset class revolutionising the management of society's most complex problems. Given all the trouble caused by clever-clever bankers, social impact bonds might even represent some kind of payback.Reuse content