Social Outcomes Fund
This case was submitted as part of the Call for Innovations, an annual partnership initiative between OPSI and the UAE Mohammed Bin Rashid Center for Government Innovation (MBRCGI)
The Social Outcomes Fund (SOF), launched in 2012, was the world’s first Social Impact Bond (SIB) linked to government outcomes. This £20m fund catalysed the use of SIBs to address complex social issues in the UK by helping to align local and central government budgets. Today, the UK has had over 50 SIBs helping to improve people’s lives across the UK, and a substantial proportion of this growth has been stimulated by SOF.
The traditional delivery of public services has not succeeded at tackling entrenched social problems, such as homelessness or youth unemployment. In general, it does not incentivise innovation nor the delivery of better outcomes for the most vulnerable people in society.
Against this backdrop, the UK government has identified SIBs as a mechanism to tackle complex social issues and improve outcomes for vulnerable individuals. SIBs involve social investors that supply the upfront funding to providers to deliver a service. The key advantages of SIBs include:
- Driving innovation: SIBs transfer the risk of service failure to social investors, so if an intervention fails to achieve outcomes, government commissioners do not have to pay. This allows government to experiment with novel and innovative services that tackle complex social issues.
- Enabling early intervention. In contrast to reactive services that respond to crises, SIBs can channel investment into early interventions that prevent future problems and generate savings.
- Delivering results for vulnerable individuals: SIBs can help get better results from existing services, by driving the delivery of better outcomes through payments. SIBs typically target vulnerable service users that have so far not been helped by existing services.
- Building partnerships: SIBs bring a range of stakeholders from the public and private sector together and break down traditional fragmented and ‘siloed’ services, solving complex issues through a multi-agency approach.
- Scalability and system-wide impact: SIBs are improving and transforming the delivery of public services in partnership with social investment. They can have an impact at scale on some of society’s most pressing challenges.
The UK Government recognised that SIBs have the potential to transform the delivery of public services, and therefore looked for ways to catalyse their development and overcome the barriers to adopting them across the public sector, which included:
- Cultural inertia: there is a lack of awareness of SIBs and their benefits among commissioners, which are often risk-averse and hesitant to try new ways of doing things. This results in a lack of drive and funding to develop SIBs within central and local government.
- Structural impediments: Fragmented and ‘siloed’ public services result in a) difficulties to aggregate savings of SIB projects that accrue across multiple public sector spending silos b) reluctance among local commissioners to pay for outcomes in SIBs that generate savings to the wider public purse and to central government. After reviewing a number of possible solutions to overcome these barriers and drive the development of SIBs, the £20m Social Outcomes Fund (SOF) was created in 2012
- the first central government outcomes fund in the world.
SOF has played a key role in helping to grow the use of this innovative funding model in the UK. The objectives of SOF were to:
-catalyse the development of SIBs;
-overcome barriers to adopting SIBs;
-improve the cooperation between local and central government; and
-improve public service delivery and tackle complex social issues.
SOF provides top-up funding for outcomes payments in locally developed SIBs and thereby directly benefits local commissioners and service providers, enabling them to develop SIB projects in order to address the most complex social issues in their local areas. It empowers them to define the outcomes they want to pay for and gives them the flexibility to design the service and procure the service provider they think is best placed to deliver these outcomes.
In addition, SOF fosters partnership working and aligned budgets across government to tackle specific social issues. It contributes funding to central government departments to develop centrally-led outcomes funds for Social Impact Bonds:
-The £16m Youth Engagement Fund
- a partnership between the Centre for Social Impact Bonds, the Department for Work and Pensions and the Ministry of Justice pays for outcomes in four SIBs supporting young people not in employment, education or training.
-The £15m Fair Chance Fund, created by the Centre for Social Impact Bonds and the Department for Communities and Local Government, pays for outcomes in seven SIBs delivering significant educational, employment and accommodation outcomes for homeless young people.
Ultimately, these SIBs support the most vulnerable individuals with complex social issues, which include older people struggling with loneliness, young people without employment or training, children in care or people with long-term health conditions. SOF was a major milestone for the UK Government, primarily because it led to the growth of the Social Impact Bond market in the UK, but also because it enabled cooperation between a range of local commissioners, central government departments, social investors and voluntary sector organisations.
What Makes Your Project Innovative?
Typically, government has contracted service providers on a ‘fee for service’ basis, i.e. commissioners pay for a service that is intended to lead to desired outcomes. However, this approach has not succeeded at solving entrenched social issues. The Social Outcomes Fund improved the delivery of public services to address complex social issues in several ways:
- Putting outcomes at the heart of commissioning public services: SOF was the world’s first central government outcomes fund that drives the development of outcomes based contracts or “Social Impact Bonds”. Paying for outcomes gives providers the flexibility and the incentive to iterate constantly in pursuit of better performance. This, in turn, stimulates more entrepreneurial solutions to some of our most intractable social problems.
- Aligning local and central government funding and empowering local stakeholders: We identified the need for SIBs to be constructed around local ownership, so the project’s impact reflected local service users’ needs.
What is the current status of your innovation?
Today, SOF has completed its final year of providing top-up funding. The SIBs it supported have all successfully delivered outcomes, and many of them are continuing beyond the end of the initial support from SOF. SOF has created a market for SIBs, which provided evidence and case studies to support the replication of Outcomes Funds and SIBs to other services. We used the following methods to extend this innovation to other services: evaluating the performance of SOF SIBs helped us to identify the models and respective policy areas that work well for SIBs and are easy to replicate (e.g. children in care, social prescribing, young people not in employment, homelessness). When setting up the Life Chances Fund to replicate SOF, we divided the fund into six policy areas that reflected the successful SIBs developed under SOF.
Collaborations & Partnerships
SOF demonstrates how successful collaborations between different stakeholders from the public and private sectors can transform people’s lives. SOF became a success, as organisations collectively focused on commissioning the intervention that will deliver the best outcomes, rather than focusing upon their individual interests.
Users, Stakeholders & Beneficiaries
SOF asked applicants to engage local services users in the service design of the SIB to ensure that projects meet their needs. As a result, multiple stakeholders, ranging from voluntary sector organisations to individual service users and social investors were involved in service design of the SIBs. We were also early adopters of user-led design to test and refine the application form for SOF. An even greater emphasis was placed upon this in the development of the Life Chances Fund.
Results, Outcomes & Impacts
SOF has supported the development of 17 SIBs across the UK and has delivered against its original objective. We now have SIBs tackling a range of issues from youth unemployment to loneliness amongst older people. SOF has proven that commissioners and providers will actively seek to use this approach on a local and national level, and private investors have a real appetite to invest in social impact.
This growth in demand for outcomes based commissioning is a crucial outcome of SOF and has led us to develop further outcomes funds and SIBs across central and local government. SOF completed in 2018, having supported up to 28,000 people, many of whom are the most vulnerable in society (e.g. children in care).
SOF has helped to generate over £28m in additional funding from local commissioners to pay for outcomes and tackle a range of intractable social problems. SOF also catalysed over £16.6m in funding from social investors to set up projects that deliver outcomes
Challenges and Failures
Slow Market Growth: When SOF was first launched, very few SIB proposals were initially submitted.
Lack of focus: It took commissioners significant time to progress the development of SIBs. While it is naturally time consuming to understand a new funding model, there was a lack of focus among commissioners to get SIBs launched.
High failure rate: The delays in SIB developments sometimes lead to the failure of SIBs.
SIBs and outcomes funds are new and there is inevitably a barrier to entry. We have ensured that applicants to the Life Chances Fund (the successor of SOF) receive clear, structured guidance and development funding for technical support to reduce these barriers. SOF initially gave the applicants the opportunity to submit proposals on a rolling basis. We learned that there is a need to compress the development timescales by creating clear deadlines that provide applicants with a structure and incentives to progress the SIB.
Conditions for Success
Top up funding: SOF was used to top up outcomes payments in locally developed SIBs, putting local commissioners in the lead to develop innovative solutions to entrenched problems.
Clear structure and guidance for applicants: Initial low applications and high failure rates of SOF SIBs showed that it is important to give applicants more guidance around clear policy areas, deadlines and scale of SIBs.
Development Grants: We set aside additional funding to help with the development of the SIB proposal for the Life Chances Fund.
A dedicated team that supports the use of outcomes funds/SIBs across government: The Centre for Social Impact Bonds promotes the development of more SIBs at scale across government departments.
Partnerships with external organisations (incl. intermediaries) that can provide bespoke support to develop SIBs: For example, we created the Government Outcomes Lab at Oxford University to provide commissioners with bespoke support with the SIB development.
Across the world, government organisations struggle to address complex social issues, such as homelessness or youth unemployment. We have already seen evidence that SOF can easily be replicated to address a range of these complex challenges. Learning and evidence from SOF provided a foundation on which the Life Chances Fund and the New Rough Sleeping Fund were developed. Based on an analysis of SOF and other existing SIBs, the Life Chances Fund was set up to develop SIBs that are easy to replicate by focusing on specific policy areas: children's services, early years, young people, drug and alcohol dependency, healthy lives and older people's services. In a nutshell, Outcomes Funds and SIBs can easily be replicated for specific social issues with clearly defined cohorts and outcomes that can be improved by an intervention.
Aligning central and local money can be a powerful way to solve entrenched social issues that existing services failed to address. Cooperation between a range of stakeholders on a local and national level has been vital in solving complex problems.
Better performance monitoring: As SIBs require continuous performance evaluation and data collected to evidence the delivery of outcomes, service providers will know sooner if an initiative does not work. Using the right language to get stakeholders on board: The ‘SIB’ brand is well known but it can cause confusion and misconceptions. By using language familiar to commissioners, they began to understand that SIBs have the potential to transform the delivery of public services. The need for evidence SOF demonstrated the necessity to have case studies and evidence that show that SIBs are a successful policy tool. So as part of the Life Chances Fund we are rigorously evaluating the impact of the SIB model in terms of better value for money.