If you think Social Impact Bonds are the biggest thing to hit public policy EVER, then you were probably horrified at the cancellation of the final cohort of the flagship Peterborough SIB. How is it possible? What does it mean?

Since the news was broken in April this year (2014), I’ve had questions from as far afield as Japan and Israel trying to discover the UK Government’s TRUE agenda. More recently, at the SOCAP Conference in San Francisco in August, it was raised again. Eileen Neely from Living Cities, which has provided $1.5 million in loan financing for the Massachusetts Social Impact Bond was discussing “shut down risk: what happens if one of the parties decide they don’t want to play.”

She said, “In the Peterborough deal in the UK, the government decided that they weren’t going to play any more… so there’s some who say ‘Oh it’s because it wasn’t going well’ and others are saying ‘It was cos it was going too well’ so whichever it is, they decided that they weren’t going to do it, that they weren’t going to go into the next cohort, so what does that mean to the investors?” Eileen made it quite clear “I haven’t talked to any of the participants there, I’m just outside, reading the articles and the blogs …”

I thought it was about time we summarised the evidence for those who continue to ask these questions.

Transforming Rehabilitation is the huge policy reform that has caused the third cohort of the Peterborough SIB to be cancelled. Transforming Rehabilitation will deliver support to over 50 times as many people as the Peterborough SIB and it will involve an annual budget over 30 times bigger than the maximum payable on the third cohort of the Peterborough SIB (≈£1.7 million). It would be quite disproportionate to hold this reform off for another two years so that the Peterborough SIB could deliver services to its third cohort. On 9 January 2013, the Ministry of Justice issued a press release Transforming Rehabilitation – less crime, fewer victims, safer communities. It said, “For the first time all offenders, including those serving less than 12 months, will be subject to mandatory supervision and tailored rehabilitation on release from prison.”

So why did that Transforming Rehabilitation announcement mean that the Peterborough SIB had to stop?

• The Peterborough SIB was designed to deliver support into a service gap. Prisoners who serve a sentence of less than 12 months receive no support upon release. Under Transforming Rehabilitation they will. The service gap will no longer exist.
• The outcomes of Peterborough SIB are measured against a national cohort of similar ex-offenders who receive no government-funded support. The target effect size has been set based on this assumption. If ex-offenders across the nation are receiving new services, then the payment metric is no longer valid.
• While the results of the Peterborough SIB are measured on the entire cohort released from prison, services are only delivered to those who voluntarily engage with them. This is a key feature of the service delivery model. Under Transforming Rehabilitation, engagement with a probation service and the support it offers will be mandatory. If the SIB had continued as it was, it would be breaching the new law.
• Like most SIB contracts, the Peterborough SIB included clauses that allowed for termination. As with all long-term contracts, it is foreseen that sometimes changes in the policy environment will render the SIB inoperable. This situation is precisely why those clauses were included from the outset.

It was desired that Peterborough SIB continued to deliver services for as long as possible, during the development and implementation of the new policy. So while the January 2013 announcement meant that an axe hung over the program, it was not until April 2014 that the decision was announced about when services should cease.

There’s no conspiracy. SIBs just aren’t a big enough agenda to hold the entire machinery of government to ransom. The Peterborough SIB was collateral damage of a massive policy reform. Far from being a move to secretly sneak the Peterborough SIB out the back door, this is a public, contentious, and very difficult reform process that rendered many existing contracts redundant, the Peterborough SIB being just one of them.

Background

The Peterborough SIB

(Social Finance)

The Peterborough SIB has been providing services to males released from Her Majesty’s Prison Peterborough since August 2010. While the results of the program are based on all prisoners released, their participation in services is voluntary.

• Cohort: Male prisoners at least 18 years of age at the time of sentencing; sentenced for a consecutive period of less than 365 days; and discharged from HMP Peterborough after serving the sentence referred to above (or any part thereof) at HMP Peterborough.
• Size: Three cohorts of approximately 1,000 men. Each cohort closes after two years, or when 1,000 offenders have been discharged – whichever happens first
• Measure: Number of reconviction events in 12 months following release
• Comparison: A similar group of short-sentenced male prisoners across the UK drawn from the Police National Computer – the SIB cohort will be matched with up to 10 comparators for every one cohort member
• Evaluator: University of Leicester with QinetiQ will verify the results (report on proposed methodology) and RAND Europe will evaluate wider effects
• Payment by Government: The outcome payments will be made by the MoJ and the Big Lottery Fund (RAND Europe, 2011). Payments are capped at £8 million (Strickland, 2010)

Policy changes are a foreseen reality of long-term contracts and SIB contracts include clauses for this eventuality. The Peterborough SIB contract includes the following termination clauses

“36. TERMINATION FOR CONVENIENCE

The [HM Secretary of State for Justice] shall have the right at any time during the Contract Period to terminate the Contract by giving 3 Months’ written notice to the [Social Impact Partnership LP (the special purpose vehicle owned by the investors)], provided the date upon which such termination shall take place is expressly stated in such notice (“TC Date“).

“37. MUTUAL TERMINATION

Either Party may terminate the Contract at any time during the Contract Period by obtaining the written consent of the other Party to such termination.”

The Evidence

There are two main policy agendas that are relevant. One is the Transforming Rehabilitation policy and one is policy related to Social Impact Bonds and social investment. A list of relevant announcements for each is given below. It suggests:

1. The support to short-sentenced prisoners is a large and lengthy policy agenda of which the Peterborough SIB was only part.
2. The UK Government continues to support and champion the idea of social impact bonds.

Transforming Rehabilitation Policy Timeline

(www.russellwebster.com)

• March 2009 Social Finance began discussing application of the social impact bond concept with the Ministry of Justice (MoJ)
• 17 March 2010 contracts signed
• 18 March 2010 Justice Secretary announcement + press releases from Social Finance Social Finance launches first Social Impact Bond and MoJ Scheme to Reduce Reoffending in Short Term Prisoners Launched. News release 18 March 2010.
• 10 September 2010 services officially launched – joint press release from Social Finance and MoJ ). Minister Launches Social Impact Bond Pilot
• 9 January 2013 Ministry of Justice press release Transforming Rehabilitation – less crime, fewer victims, safer communities for consultation paper Transforming Rehabilitation: A revolution in the way we manage offenders.

“In the December 2010 ‘Breaking the Cycle’ Green Paper, we stated our intention to extend the principles of payment by results to all providers of services for offenders by 2015 and improve the rehabilitation of offenders. This document sets out how we intend to extend payment by results across rehabilitative services in the community.

In the March 2012 ‘Punishment and Reform: Effective Probation Services’ consultation, we proposed changes to the way probation services are commissioned and delivered. In this document, we respond to that consultation and set out how our proposals have developed further.

“Transforming rehabilitation is my top priority. We will reform the way in which offenders are managed in the community in order to achieve a steady year on year reduction in reoffending. We will increase our focus on rehabilitation and deal with offenders’ broader life management issues. And for the first time in recent history we will also extend rehabilitation to prisoners released after short sentences.” Chris Grayling, Lord Chancellor and Secretary of State for Justice”

• May 2013 Ministry of Justice Transforming Rehabilitation: A Strategy for Reform. Response to Consultation CP(R)16/2013. May 2013 “Our proposals will be affordable within the context of the MoJ commitment to deliver annual savings of over £2 billion by 2014/15 and forward into the next SR.” 45
• 13 March 2014 (from MoJ website), the Offender Rehabilitation Bill received Royal Assent. “Offender Rehabilitation Act 2014…The new Act means that for the first time virtually all offenders will receive at least 12 months supervision in the community on release from custody.”
• 24 April 2014 Social Finance press release. Social Finance Statement (on the removal of outcome payments for the third cohort of the Peterborough SIB).
• 7 August 2014 Social Finance press release. Peterborough Social Impact Bond reduces reoffending by 8.4%, investors on course for payment in 2016. First results announced. No payment triggered by announcement.
• 3 September 2014 More than 80 bids for new rehabilitation contracts Ministry of Justice press release. “They will provide an unprecedented level of support to prisoners released from short sentences that currently get no statutory supervision and return to crime at an alarming rate on release.”

Social Impact Bonds Policy

• March 2009 Social Finance began discussing application of the social impact bond concept with the Ministry of Justice (MoJ)
• 17 March 2010 contracts signed
• 18 March 2010 Justice Secretary announcement + press releases from Social Finance Social Finance launches first Social Impact Bond and MoJ Scheme to Reduce Reoffending in Short Term Prisoners Launched. News release 18 March 2010.
• 10 September 2010 services officially launched – joint press release from Social Finance and MoJ ). Minister Launches Social Impact Bond Pilot
• 10 July 2012 Growing the Social Investment Market: Progress update “We are using insights from these and other SIBs to establish a Social Impact Bond Centre of Excellence to support the development of more SIBs across the public sector.”
• 6 June 2013 Cabinet Office G8 Social Impact Investment Forum (and establishment of year-long Social Impact Investment Taskforce)
• 6 April 2014 Cabinet Office. Social investment tax relief. 6 April 2014. “Individuals making an eligible investment at any time from 6 April 2014 can deduct 30% of the cost of their investment from their income tax liability for 2014/15 (or the relevant later year in which the investment is made). The minimum period of investment is 3 years… Investments in social impact bond companies, which enable social enterprises to deliver services to achieve certain contracted social outcomes, will also be eligible for the tax relief.”
• 24 April 2014 Social Finance press release. Social Finance Statement (on the removal of outcome payments for the third cohort of the Peterborough SIB).
• 19 June 2014 Cabinet Office press release. Government unveils major boost to social investment sector. “15 SIBs already exist here, making the UK the world leader in this type of fund, and the government recently announced over £30 million funding for social impact bonds supporting disadvantaged young people. Today 2 new SIBs have been announced in Worcestershire and Birmingham.”
• 7 August 2014 Social Finance press release. Peterborough Social Impact Bond reduces reoffending by 8.4%, investors on course for payment in 2016. First results announced. No payment triggered by announcement.
• 15 September 2014 Social Impact Investment Taskforce report (seeded and supported by the UK Government) released with recommendation “governments should consider streamlining pay-for-success arrangements such as social impact bonds and adapting national ecosystems to support impact investment.”

For further opinion on the apparent success or failure (in response to the announcement not to proceed with the third Peterborough cohort) see Toby Eccles blog, Julian Corner’s article Transforming Rehabilitation is being dressed in sheep’s clothing or David Floyd’s (Social Spider) Beanbags and Bullsh1t blog.