The UK Government describes how “Social impact bonds (SIBs) are designed to help reform public service delivery. SIBs improve the social outcomes of publicly funded services by making funding conditional on achieving results. Investors pay for the project at the start, and then receive payments based on the results achieved by the project. Rather than focusing on inputs (eg number of doctors) or outputs (eg number of operations), SIBs are based on achieving social ‘outcomes’ (eg improved health). The outcomes are predefined and measurable.”

Advocates of SIBs have made a series of enthusiastic claims for their potential over recent years. But there are several, arguably under-reported reasons why the potential for growth of SIBs may be limited. They can be difficult and complex and there are other risks to their future popularity.

If SIBs are to succeed, then they need to learn from the story of the Private Finance Initiative (PFI). It is too early to say whether SIBs will succeed so both critics and advocates alike should be cautious. But irrational exuberance has already led the UK government and others around the world to direct hundreds of millions of pounds toward the development of SIBs while barely any independent critical evaluation of the model has taken place. The UK government is triumphantly peddling an unproven model around the world and should instead should take time for a period of reflection. There is no little irony in piling so much money into a model built around the very premise of paying only for success before we even know it works.

A short paper on the innovation, outcomes and challenges of Social Impact Bonds can be found [here].