The Ministry of Justice and Social Finance has launched the world’s first social impact bond for investment in improved social incomes.
The first bond pilot has been officially launched today and will fund social organisations working to reduce re-offending rates of short sentence male prisoners leaving Peterborough Prison. The Ministry of Justice has agreed to make payments to investors in the event that re-offending is reduced below an agreed threshold.
The bond, which is funded by trusts and foundations, commercial investors and high net worth individuals, has raised £5m and will pay out a return depending on the reduction in re-offending rates amongst 3,000 young men on the scheme.
If this initiative reduces re-offending by 7.5 per cent or more, investors will receive from Government a share of the long-term savings. If the bond 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 per cent.
Social Finance chief executive David Hutchinson says: “The social impact bond has the potential to unlock an unprecedented flow of finance for social sector organisations. By focusing returns on outcomes, these organisations will be incentivised to develop innovative interventions to tackle ingrained social problems that weigh heavily on our society and our national purse.”
Justice secretary Ken Clarke told the BBC: “It pays by results. We’re going to pay what works and what works should therefore grow and what doesn’t work will vanish.
“I like the innovative funding, the payment by results, the collaborative groups, and if it succeeds it will grow and if it doesn’t, by that time we will be trying something else. But sooner or later, something has got to be done about re-offending.”
According to a report by Pro Bono Economics into young offender charity St Giles Trust’s re-offender investment scheme, for every pound invested, the Government saved £10.