The Latest from ATQ
- Neil Stanworth
- October 1, 2013
- Commissioning and procurement, Social Impact Bonds
Last week I went to the Local Government Association’s headquarters in Smith Square for the launch of the Commissioning Better Outcomes Fund. This is a new £40 million fund from the BIG Lottery, and aims to encourage and support commissioners (and especially local authorities) who want to explore the use of Social Impact Bonds (SIBs) to achieve better social outcomes and ultimately reduce costs.
The new fund is intended to be complementary to the Cabinet Office’s existing £20m Social Outcomes Fund, which means there will be around £60 million available to support new SIBs (less a bit that the Cabinet Office has already committed to existing projects). The two Funds have a slightly different focus, but essentially aim to provide some part funding for SIBs in order to improve their financial viability – especially if the commissioner does not think they can cash enough savings from the SIB to make it self-funding.
What is exciting about the new fund is that part of it (between £3m and £4m) has been earmarked for development grants through which commissioners can buy in the specialist advice they might need to get a SIB of the ground – for example, to carry out feasibility work. There will be a common expression of interest process for the two funds, and if an EoI is accepted a commissioner can then apply for a grant to do the more detailed work needed to submit a full application to one of the Funds – and hopefully get a significant contribution to the funding of the project as a whole.
Having been involved in the development of SIBs and similar social investment backed initiatives for around three years now, we think this is a potentially game-changing development. Many commissioners would like to explore the use of SIBs, but in the current financial climate, the cost of initial feasibility work and specialist advice and support is a significant barrier.
The only snag is that, as a first step, commissioners will need to have done some prefeasibility work and got to the point where they have a proposition that will get through the expression of interest process. The good news is that many local authorities and other commissioners already have ideas for improving outcomes in such areas as looked after children, family intervention, adult social care and the new challenge of preventative health interventions. The initial work to turn such ideas into credible propositions should not be too onerous, in our experience, and advisors such as us are available to help. With the opportunity to access development grants downstream, the time is right to turn concepts into reality.
If you would like to know more about how ATQ could help you make an expression of interest to the new funds, potentially at no cost to you, please contact us via our website here.
- Edward Hickman
- August 8, 2013
- Commissioning and procurement
I know most people are on holiday but I am not and in the slow time of August, I have had a chance to reflect on the sometimes vexed question of who is best placed to deliver public services.
In our consultancy work with commissioners, providers and investors operating on the boundary of public and private sectors, we are often struck by the confluence of influences on procurement decisions which determine who is selected to deliver a public service.
In a short paper here, we explore these influences as we find them today.
- Neil Stanworth
- August 6, 2013
- Commissioning and procurement, Social Impact Bonds
Some advocates and supporters of social impact bonds appear to have shifted their position on the importance of cashable savings. My colleague (Eileen Robinson) attended a seminar a few weeks ago where a spokesperson from Social Finance argue strongly that SIBs did not need to be underpinned by cashable savings. Now an interesting piece by Adrian Brown has argued that a strong focus on cashable savings is holding back the development of SIBs and the social investment market generally. He argues that SIBs should be mainly about innovation, not about financial returns.
Simply put, the case for identifying cashable savings is that they enable SIBs to be self funding – effectively an extension of the invest to save principle. This was always one of the main attractions of the SIB approach, especially for a government looking for solutions to unprecedented financial pressure on public services. The case against – eloquently put by Adrian Brown – is that an over-emphasis on the cashability of savings may restrict both the outcomes that might be funded through a SIB, and the total funding made available. In essence, commissioners may look for projects simply because they enable savings to be cashed, rather than because they achieve the most important outcomes, or enable them to test new ways of doing things.
I have no problem with the argument that we should not obsess about cashable savings, or that we should focus mainly on the value of the outcomes to be achieved. However, I am concerned that we risk throwing the baby out with the bathwater if we start to argue that cashable savings are not important. Here are three reasons why I think they should remain at the centre of thinking.
First, while some commissioners may want to use SIBs solely to test innovation, most cannot afford to do this. Their main motivation is to find ways to fund outcomes that would otherwise not be funded – and usually to fund preventative or early intervention which reduces the need for (more expensive) crisis intervention. Not all the savings achieved will be cashable, but some will be, and often enough will be cashable to make the whole project viable.
Second, there are some outcomes which are socially worthwhile and do achieve early, cashable payback. This is particularly the case when dealing with an existing issue which imposes high costs, such as children in residential care, and vulnerable adults with high care needs. If interventions can be commissioned which enable such groups to live in the community, there are likely to be improved outcomes for them as individuals AND cashable savings to pay for the services. In these cases, what’s not to like?
The final argument is about the rigour that a SIB or PbR process imposes on commissioners. Adrian Brown suggests that instead of trying to match outcomes to savings, commissioners should “regularly look across the portfolio of services they buy and ask themselves which are the least effective. Decommissioning these services frees up current spending that can be used to fund SIBs in policy areas where innovation is most urgently needed”.
But we see little evidence that commissioners have either the data available, or review processes in place, to enable them to do this rationally. In our experience of working with commissioners over the last three years, a key benefit of the SIB development process is that it allows the commissioner to consider in detail what it costs to provide a service, what is the impact of that service – in both financial and non-financial terms – and whether an alternative service will achieve better returns – both social and financial. And if their financial analysis shows that they can improve outcomes to the point where they can decommission a service to achieve cashable savings, that is surely better than making less well informed and perhaps arbitrary decisions about what services should no longer be funded.
So if commissioners want to see SIBs as a way to test innovation and have the funding to use them in that way, fine by me,. If they want to use them to save money and introduce much greater rigour into their commissioning processes, why not?
- Edward Hickman
- June 12, 2013
- Commissioning and procurement, Payment by results, Public sector reform
I attended an interesting breakfast seminar organised by my business school, IESE, yesterday entitled “The Challenge of Sustainable Social Investment” with panelists Prof. Heinrich Liechtenstein, Deirdre Davies of Deutsche Asset Management Group, Oliver Karius of LGT Venture Philanthropy, and Nick O’Donohue of Big Society Capital.
Interestingly, the Dormant Accounts Act defines quite carefully what social impact means for Big Society Capital by laying down what organisations its co-funded intermediary investment managers can put money to work with. These are defined as third sector organisations that are delivering a “social gain”. As a result, BSC has identified Community Development Finance Institutions (CDFIs), charities, social enterprises and organisations addressing financial inclusion as fitting this criteria.
For others, social impact is defined by the outcome sought and it matters not whether the organisation delivering the outcome is for profit, a social enterprise or a charity. A good example backed by LGT is a for profit private education business filling a gap in the market in Kenya based on a business model that charges $4 per child per month. Another example given was of a branded leather goods company that was bought out by private equity backers who then invested heavily in both ensuring that its supply chain eliminated any use of child labour and that its tanning processes were clean. It did this to create value for itself on exit by creating a sound organisation that could, therefore, be bought by others.
Clearly, an investor can decide what social impact it wants to support and also how it will measure the outcome to its satisfaction. Similarly, an organisation can decide how to include and measure social impact in its own mission statement and values no matter what its financing structure i.e. for profit or not for profit.
One other point emerged clearly for all those attending, which is that whatever the social impact arguments and story, social investors are just that – investors and they will always be looking for a return on their capital. Any organisation seeking social investment will need to understand this fully. Many social enterprises are expressly established as not-for-profit which is a decision that can be taken and is fine in and of itself. What it means though, is that only a more narrow and smaller set of potential funding is available and without “equity” risk capital, the ability to grow and deliver greater social impact will be constrained.
In my view, if social impact ends up being defined as only being delivered by not-for-profit organisations, then this will slow the growth in the social impact investment market and improved social outcomes. I, for one, believe that any investor and organisation can define for itself what social impact means and then go about delivering it.
- Edward Hickman
- May 9, 2013
- Commissioning and procurement, Payment by results, Public sector reform
Today, 9th May 2013, sees the Ministry of Justice (MoJ) publish its rehabilitation revolution consultation response in “Transforming Rehabilitation – A Strategy for Reform”. See press release and links to MoJ publications here https://www.gov.uk/government/news/12-months-supervision-for-all-prisoners-on-release
ATQ submitted a response confined to the consultation’s Payment by Results (PbR) questions, as this is the main area where we are well qualified to comment.
While clearly attractive in terms of political presentation, we felt strongly that the proposed binary measure where outcome related payments were triggered only for total desistance would not work well. If a provider is paid only for offenders that desist totally for 12 months, then as soon as a person has re-offended there would be no further incentive to work with them. If the most prolific offenders are the ones more likely to re-offend, then such a binary measure could be almost counter-productive.
We suggested that PbR payments be linked to reductions in a total measure of offending across a cohort. In this way, providers would be incentivised to work consistently with all offenders in their cohort and especially those most likely to re-offend. This suggestion, no doubt also put forward by others, has been accepted as a component of the payment mechanism in a blended approach that retains the politically important success payments for total desistance.
“We have refined our ‘payment by results’ approach in response. Our payment mechanism will incentivise providers to focus resources on all offenders, including the most prolific and the hardest to help, and will ensure that they are not able to ‘game’ the system. Providers will be rewarded with success payments primarily when they achieve an offender’s complete desistance from crime for a 12 month period. However, our payment mechanism will also take into account the total number of re-offences committed by the cohort of offenders providers are responsible for rehabilitating, so that providers are incentivised not to neglect the most difficult offenders and those who have already reoffended. Every victim of crime matters and we need to ensure this is reflected in providers’ payments.”
- Edward Hickman
- March 23, 2013
- General, Public sector reform
In this week’s budget statement, the Chancellor announced no change of direction for his deficit reduction strategy.
Analysis by respected commentators such as the Institute for Fiscal Studies (IFS) has pointed out the implications of further reductions in spending, particularly by those Departments of State which have not been ring-fenced to 2015 i.e. all those except health, education and international development.
According to the FT article covering this story: “On current plans, departmental spending is set to drop by 2018 to the lowest level since 2002-03 in real terms and to the lowest as a proportion of national income since at least 1998, resulting in a radical reshaping of the state.”
How radical is this reshaping going to be?
It can be argued that, to date, reforms of public services designed to drive out savings have been in the ‘salami slice’ category. In other words, the easiest areas of non-statutory expenditures have been cut back, staff numbers have been allowed to fall through natural wastage without replacements and such like.
Widespread reshaping of service delivery models and more radical reforms have not been evident. However, the ability of public service delivery organisations to muddle along with more salami slicing, in the hope that the public funding taps will be turned on again soon, must be diminishing.
With such a long period of austerity ahead, some more imaginative responses will have to emerge. There are some pointers as to the direction of travel.
Another article following the budget, this time in the Guardian, discusses plans to de-duplicate public service activities – extending the findings of the Total Place initiatives piloted under the previous Government and Whole Place Community Budgets trialled by this Government. The service areas highlighted are: families with complex needs; health and social care for adults; economic growth, work and skills; reducing re-offending and domestic abuse; and early years.
In another part of the Guardian was a different article discussing how mutual models could be more widely applied in the delivery of local government services, providing an alternative model to either in-house or outsourced to private sector providers.
Finally, if the Government’s acceptance of almost all of Lord Heseltine’s ‘No Stone Unturned’ recommendations leads to any genuine devolution of budgets and decision making authority away from Whitehall’s control, then there will undoubtedly be scope for very different thinking to emerge.
Perhaps it is only when faced with the kind of long term austerity picture which we now have that public service reforms gain genuine traction rather than lip service.