I had an interesting conversation with a journalist this morning about the launch of a new Social Impact Bond.
This pilot investment scheme has been launched by social investment organisation Social Finance in partnership with the Ministry of Justice. It aims to reduce repeat offending by prisoners on their release.
Investors in the scheme are rewarded financially if the pilot manages to reduce reoffending rates by 7.5% or more over the five year term of the scheme. If this is successful, the public sector will experience significant cost savings and part of these can be paid to investors.
It is a win-win situation.
My conversation with the press this morning included a discussion about whether these Social Impact Bonds represented a wise investment. I argued that they did not.
When investing, I would always urge clients to keep social aims separate from their financial objectives. Whilst it is possible to link the two, the primary goal of these Social Impact Bonds should be to cut reoffending. Investment returns are a secondary, yet beneficial, potential result of the scheme.
Whilst researching this particular scheme it was shocking to learn that an estimated 60% of the 40,200 adults on short term sentences will go on to reoffend within one year of release. The cost to society from this unpalatable statistic is clearly significant.
The money invested in Social Impact Bonds can probably have a big impact on reoffending rates. By funding specialist charities who work with a specific group of ex-offenders, the likelihood of reoffending is reduced. This saves the taxpayer money in the long-run. Just imagine the savings possible if one new prison does not need to be built in the UK.
Where the investment argument for this scheme is weakened is the lack of measurable impact the work can have on repeat offending. The money invested in Social Impact Bonds is likely to help steer ex-offenders in the right direction but cannot dictate what an individual is going to do on their release from prison.
Investors would be better advised to keep their investment activity separate from this sort of social philanthropy.
In a similar way to charity credit cards typically resulting in worse outcomes than using a specific cash back credit card and gifting money directly to a charity, investors should focus on the right investment strategy and make gifts directly to charities or social projects.
We wish the Social Impact Bond pilot every success and, if it is successful, we expect to see more of this type of initiative in due course.
In fact, after tax increases and public spending cuts, the government might already be considering more fund raising like this to keep the flow of money going into social projects without placing undue pressure on the electorate.
