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A major trial of an innovative new way to fund intensive help for families blighted by anti-social behaviour, crime, addiction and poor education was announced by Nick Hurd, Minister for Civil Society today.

Social Impact Bonds lets people invest in social projects to address these issues and be paid a return if the projects are successful. Up to £40million could be raised by four Social Impact Bond pilots launched in Hammersmith & Fulham, Westminster, Birmingham and Leicestershire.

These would be the first Social Impact Bonds to tackle multiple problems in a family setting. Investors and philanthropists can invest in the bonds which then fund intensive interventions. If they are successful and families are taken out of deprivation and long term dependence on the state the taxpayer will repay the investments with a decent return. If not, then the taxpayer won’t pay.

It is estimated that the public service bill for the 46,000 most deprived families is over £4billion a year, almost £100,000 per family. One example, uncovered by the Local Strategic Partnership ‘Be Birmingham’, revealed that just two crime families cost the taxpayer £37million over four decades. Often these families suffer from multiple problems such as lack of education, addiction and abuse. Services tend to focus on a single problem of a single person. Treating problems in isolation increases the risk of relapse and creates a costly cycle of managed deprivation. Breaking this cycle will mean fewer wasted lives, less damage to communities and better value for taxpayers.

Nick Hurd, Minister for Civil Society, said:

"We must not be afraid to do things differently to end the pointless cycle of crime and deprivation which wrecks communities and drains state services. Social Impact Bonds could open serious resources to tackle social problems in new and innovative ways.

"We want a stronger sense of responsibility across our society and to give people working on the frontline the power and resource they need to do their jobs properly. Social Impact Bonds could be one of many Big Society innovations that will build the new partnerships between the state, communities, businesses and charities and focus resources where they are needed. The four local authorities that will pioneer this work are taking a bold and exciting step."

Children’s Minister, Tim Loughton, said:

"We want the most vulnerable children and young people to get a better start in life and have more opportunities to do well at school and beyond.  Family intervention demonstrates that the lives of children and young people can be turned around when their families, who often have many complex problems, are targeted intensively.  This is also a more efficient way for local authorities to work, as evidence shows that fewer children are taken into care or excluded from school. Using Social Impact Bonds will raise additional money to be directed at helping more families."

The Government has committed to support the growth of the Social Investment Market. Already, Big Society Capital (formerly Big Society Bank) has been launched and will have around £600million invest in social finance products like Social Impact Bonds and attract more private investment into the market. In time it’s hoped that products like social ISAs and pension funds will be available to everyday savers.

Today’s announcement supports the Prime Minister’s ambition, set out in December 2010, to try and turn around every troubled family in the country by the end of the parliament. To support the national campaign, in April 2011 Community Budgets became operational in 28 local authorities. Community Budgets aim to strip away the financial and legal barriers which stand in the way of different local services working together with very troubled families.

The new trial will build on a Social Impact Bond pilot to tackle reoffending in Peterborough Prison launched by the Ministry of Justice last September. Liverpool and Essex are also looking to trial a related Social Impact Bond initiative to support vulnerable adolescents and their families with the objective of preventing care entry.

The Social Impact Bond model was advocated by Graham Allen MP in a report commissioned by the Prime Minister to look into early years intervention. It found that investing in early intervention can generate massive savings to reduce crime, underachievement, teenage pregnancy and alcohol and drug misuse, he recommended the use of Social Impact Bonds to finance and deliver interventions, alongside other solutions. In this pilot the underlying investment contract will be designed to encourage early intervention by measuring reductions in social problems from a baseline.

We expect the Social Impact Bond pilots to be funding intensive interventions from spring 2012.

Source: Cabinet Office