Environmental, social, governance (ESG) Investment

How is local government using social investment?

Geetha Rabindrakumar, Head of Social Sector Engagement, Big Society Capital talks about how local authorities are using innovative new social investment methods to tackle long term problems in the midst of a challenging financial climate.

With continued cuts to local government funding, and pressure on services, social investment offers both local authorities and charity providers one tool which could help to catalyse some of the changes needed to public services delivery – for example to shift towards outcomes based commissioning, to help scale community based & preventative services, or to allow communities to own and run assets.

Social investment bonds as a tool to help shift to outcomes based commissioning

Social investment in a commissioning context is most commonly associated with Social Impact Bonds (“SIBs”), a mechanism where investors provide upfront investment to fund services commissioned through payments by results contracts. The services are usually preventative, often new or which the commissioner would not have funded otherwise, and deliver longer term savings for the public sector as well as improved outcomes for vulnerable people. The model assumes the investors take the financial risk of outcomes not being achieved, with charity providers being given the funding and freedom to deliver outcomes through interventions that can be adapted over the course of the programme. There are now 32 SIBs in the UK, with around 50 currently in development. Some of the key areas where we are seeing SIBs being developed with local government as the commissioner include:

  • Supporting children in or on edge of care – including across a number of London boroughs
  • To improve outcomes for women and families at risk of or experiencing domestic violence
  • Services to improve health outcomes and reduce demand for care (eg to reduce isolation or prevent diabetes/eating disorders) – often with a lead CCG commissioner in health, but which may be co-commissioned with local authorities.

There has been plenty of debate around the merits and drawbacks of SIBs and as yet unproven evidence around their effectiveness to deliver services transformation. Some of the first SIBs commissioned locally too a long time to get off the ground but as the learning is being disseminated and more standard models developed, they are becoming quicker to develop. However, with £80m set aside by the Treasury in the Spending Review to top up outcomes payments for local commissioned SIBs, we expect to see an increase in services delivered through this route, and hope to see these schemes targeted to services for people with more complex and high needs, and structured in a way that allows greater innovation to solve so-called “wicked issues” through co-development with charity providers.

Using local authority funds to invest in the sector

We have seen examples of local authorities using their funds to make social investments. At the larger end, the National Homelessness Property Fund was recently launched – this has been set up with £15m investment from Big Society Capital and an initial £15m investment from 3 local authorities (Bristol, Oxford and Milton Keynes). The fund will invest in housing in these locations, which will be let to families and individuals at risk of being or who have been homeless, with support and property management being provided by the charity St Mungos Broadway, scaling up a similar social investment model operating in London (“Real Lettings”). The aim is to further scale up this model into other locations, working with other homelessness charity providers in future. On a local level, some local authorities are supporting community led organisations (which may be charities or social enterprises) through use of asset transfers, but in some cases also through loans. For example, Leeds City Council have provided Canopy Housing with a loan at 0% interest using section 106 funds to help fund the development of derelict houses to create decent homes for the homeless. And to help to support the local sector’s resilience through developing diverse revenue streams and better chances of delivering council services, we’ve seen both Kent County Council and Nottingham City Council set up £1m investment funds to provide loans/small investment to social enterprises benefiting the local community.

Enabling growth of community based services

Social investment is also being used to provide upfront funds to help develop local schemes commissioned by local authorities such as Shared Lives in Manchester and CLARE in Belfast which are both delivering community based, personalised forms of care, with better outcomes and lower costs than residential alternatives. Often these types services may be interventions with evidence of impact, but which have struggled to scale, and where use of investment can help to align motivations of all parties – for example in the CLARE model, savings achieved will be shared between the public sector and the community. We’re also seeing local authority interest in social investment as a tool to help enable communities to take over local assets and re-energise local services, and a way to engage local residents as investors in their communities. Hastings Pier became the first registered charity to become a community benefit society with exempt charity status – it was  then able to raise £590,000 in community shares in 6 months, to use alongside grant funds to help restore the pier, a project driven by the local community.

What’s ahead?

Devolution offers an opportunity for local authorities to rethink aspects of public services delivery – for example Greater Manchester are considering setting up a Public Services Reform Investment Fund which is seeking to invest into more effective ways to deliver services, particularly where there are multiple programmes for groups with more complex needs – if an outcomes based approach is adopted, social investment through SIBs and other tools may be relevant. As ever, the sector is taking the initiative and developing its own solutions to a challenging contracting environment. One example is the Health and Wellbeing LLP, a partnership between charities and social enterprises in the North West with a combined income of £33m – this new structure is intended to open up opportunities for third sector providers that might normally be excluded by lead bidder models. Social investment could be used by the vehicle to fund different initiatives across the partnership. Finally, we’ve seen local authorities exploring other ways to sustain some local charities, given constraints on grant funding. One opportunity is the Access Foundation’s Growth Fund, a fund that allows small loans and capacity building funds to be made available for the sector – there’s scope here for dedicated funds to be set up at a regional or local authority level. Whilst this area is still relatively new for local authorities, there is an opportunity now for the charity sector and social investor partners to develop relevant solutions to some of the challenges they face. Geetha Rabindrakumar, Head of Social Sector Engagement at Big Society Capital

This post was last reviewed on 16 August 2018 at 14:45
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