Essex adopts payment-by-results funding

Essex County Council has raised £3.1m for the initial stage of its Social Impact Bond and is now looking at five other areas to be funded in the same way.

The council commissioned Social Finance to find social investors to put money into the bond and has raised the initial amount from nine investors in the last four weeks.

Investors will see an 8.3% return from the payment-by-results scheme if the outcome objectives of the bond are achieved. The objectives are to keep a total of 110 children aged 11-16 out of care for a set period. The initial amount raised sees teams set up to use Multi Systemic Therapy, working with those on the edge of care and their families to avoid adolescents actually being taken into care. Once the first cohort of children has been through the therapy, payment will come through Essex County Council, and the Departments of Health, Education and Work and Pensions and new investment will be sought for the next round.

Margaret Lee, executive director for finance at Essex told Room 151: “As a result of keeping those children out of care we anticipate that we will avoid £17.3m worth of cost. We would have £10.5m of that figure. Investors are putting in money, paying for the project, and they will get their money back which is about £6.7m and they will also get a return on their investment which is about 8.3% in a medium case scenario.”

Lee said that the council has been so encouraged by this bond that it is considering a pipeline of other opportunities for social investment including drug recovery services, social isolation and alcohol counseling in custody suites.

Brian Bailey is an ex-local authority finance chief who now sits on the board of Social Finance. He thinks that the market should expand, given the new willingness of local authorities to try different ways of financing.

“Local authorities tend to be cautious by nature to new ways of working,” he said “but the pressures are so great on them now that they have got to look at everything that comes along. I think that once there are one or two trailblazers who prove the concept then the idea will get around. The good thing about the public sector is that success does get shared round. They’re not commercially sensitive in the same way as you would get in the private sector so I think that when people see the results of this Essex bond interest will climb.”

“There has to be a willingness to adapt to this performance led approach,” he added. “And that fits in the economic environment we are in now with a shortage of funds.

The Greater London Authority has also just awarded Social Impact Bond contracts to two providers who will work to get rough sleepers off the streets. The bond will target a group to include 831 individuals who have been recorded rough sleeping or stayed at a London rough sleeping hostel in the last six months and who have been recorded rough sleeping at least six times over the last two years. The upfront costs of the programme have been raised and DCLG will transfer funding to the GLA for outcomes payments worth up to £5m.

The UK’s first social impact bond was launched in Peterborough two years ago to reduce re-offending rates among ex-prisoners.