Below is the text of the speech made by Iain Duncan Smith, the Secretary of State for Work and Pensions, on 19 March 2015 at the Cabinet Office in London.
It is a pleasure to be here.
Represented in this room are all of Whitehall’s largest departments, alongside local government, businesses, charities and many others.
Indeed today’s conference is all about bringing together individuals with the influence and expertise to tackle Britain’s most damaging social problems. Asking how we can do better and do more, when it comes to bringing life change to those most in need.
Yet even to start with this question gets us straight to the point of social investment – for how often have we heard the refrain: “Government ought to do something”.
Too often in the past, this has been the classic and irresistible invitation to politicians to take action.
Money is found, a programme is invented and – well, that’s the point. Doing something has seldom been the same as solving something.
Despite good intentions, it cannot be enough to pour money into social programmes, but with too little care for results the other end.
No – what matters most is the impact our actions have in transforming people’s prospects, restoring security, hope and independence so that all in our society have a chance to prosper.
As you delve into the detail today, I would ask that you hold this thought: that social investment holds the promise of another way. Not spending money and hoping for the best, but instead securing a return on investment whereby every pound we spend goes on meaningful change, making a measurable difference to people’s lives.
Return on investment
This is the latent potential of social investment which, to my mind, stands to make perhaps the single most significant difference to how we fund and deliver social services in years to come. Transforming what has historically been government’s role: to pick up the pieces of social breakdown – through our welfare, health, justice systems, and so on.
All of us here shoulder that responsibility, and all of us know that it comes at a cost.
Take for example supporting a child in care – estimated to cost £60,000 a year.
The cost of keeping a first-time young offender in jail – over £20,000.
The cost of someone sitting on jobseeking benefits for a year – £10,000.
£90,000 – for just one life that goes off course.
So we have always known the price of failure. The question is, can we value change?
Imagine if we were to realise that positive change comes with a real value as well – as individuals become productive members of society, moving from dependence on the state to independence.
Whether it is helping someone into work, off the streets, through rehabilitation, into adoption, any one of these outcomes, and countless others, comes with a clear social return. But also a financial one, as we pay out less in costly remedial interventions.
Herein lies the key to social investment, in turn transforming the whole culture of public spending.
Harnessing social investment, any of us – from central government and councils, to social enterprises and charities – can stop paying for process of tackling social problems and start focussing instead on the results that we achieve.
Over the last 5 years, the UK has become a world leader in putting these principles into practice.
Having established the G8 Social Investment Taskforce, now others from across the globe – America, Germany, Canada, France and more – are looking to us for leadership and innovation.
One game-changer has been Big Society Capital, the world’s first financial institution dedicated to impact investment. Together with the first Social Stock Exchange established in London.
We have also introduced the world’s first tax relief on social investment – which could generate up to nearly £500 million over the next 5 years.
All of this has put the UK in the lead in terms of infrastructure: on the one hand, leveraging private money to support burgeoning social enterprises and social entrepreneurs and on the other, helping new start-ups and ventures to build their capacity and become investment-ready.
As a result, the UK’s social investment market is now one of the fastest-growing in the world.
Social impact bonds
But perhaps the one area where the UK has made most progress of all is in the government’s development of social impact bonds.
This works on the basis of government monetising the value of a given positive outcome, and underwriting the return – creating a bond into which others invest.
If the programme delivers the outcomes, investors see a return, whilst government pays not for the process of tackling the problem, but for success at the other end.
Having pooled £70 million across government to fund these outcomes, the Coalition has now established more social impact bonds than the rest of the world put together – moving from one operational bond to 31.
Take for example, the 10 projects financed by my Department’s £30 million Innovation Fund, which I set up 4 years ago.
This has proved the concept with cutting-edge programmes such as knife crime prevention and remedial education, to improve the prospects of our most disadvantaged young people.
Already, we are seeing these bonds develop a meaningful track record, could be replicated on a national or even international basis.
The Innovation Fund has generated 16,000 positive educational and employment outcomes for young people.
So too, the rough sleeping bond in London which has reduced rough sleeping by 30%.
And in the original Peterborough prison bond, for the first thousand short sentence prisoners, reoffending was reduced by 8.4%.
Youth Engagement Fund
It is off the back of this success that we have established a new £16 million Youth Engagement Fund, helping a further 8,000 young people by preventing the scarring and entrenched problems that come with falling out of school or work altogether.
Today, I am very pleased to announce the 4 successful bidders, who will be taking forward new social impact bonds:
- Unlocking Potential in Greater Merseyside
- Prevista in London
- Futureshapers in Sheffield
- Teens and Toddlers Youth Engagement in Greater Manchester
These projects are the first centrally-funded bonds that have also sought a local contribution to outcomes – in this case, from councils and schools – a starting point for the collaboration and co-commissioning that local government has been leading through community budgets.
Together with projects catalysed through the government’s £20 million Social Outcomes Fund, today this brings us to a total of 7 new social impact bonds, reaching over 18,000 disadvantaged people.
From assisting those with mental illness into work, supporting people with long-term health conditions, and helping children in care – 3 of the newest projects are focussed on some of Britain’s most vulnerable individuals of all.
Proving the effectiveness of social impact bonds in tackling the most pressing and complex social problems that we face.
Now, the challenge remains for government to scale up social investment – harnessing it in the design, commissioning, and delivery of many more of our social services.
In doing so, the first step is to build an evidence base – creating certainty around the return for investors.
That is why the government has developed a whole network of centres, such as the Early Intervention Foundation, which now assess, accredit and advise on what works.
And it is why I am pleased that we are doing more to measure the impact of different interventions – building on the pioneering work of New Philanthropy Capital in developing in a DataLab with the Ministry of Justice – now testing the same concept with the Department for Work and Pensions, for an employment DataLab too.
By opening up much more of the government’s data to providers, charities and social ventures, all of us can better understand the outcomes of what we do on the frontline – proving its effectiveness.
Yet, if we are serious about exponential growth in social investment, then I believe what is really needed is a multi-million or even billion pound government commitment – creating a far greater social impact fund to pay for proven outcomes.
It is this that would take social impact bonds to an industrial scale.
With it, that money brings rigour, discipline and innovation – historically the preserve of the private sector – brought to bear on our most complex social challenges.
Yet even more than that, the social investment model also bring what I call the ‘fidelity guarantee’: an assurance that what you pay for ‘does exactly what it says on the tin’.
This value of this guarantee cannot be underestimated.
For it stops what has so often been the downfall of social programmes in the past – that in implementing a programme that is proven to work, it ends up being modified – tinkered with, to the extent that the programme you started with, isn’t actually delivered.
With social impact bond, on the other hand, if the project ends up being changed, no results mean no pay-out.
By design, then, social investment stands to save money historically wasted on underperforming projects, by ensuring that what works is delivered properly.
But what’s more, social investment shores up government finances because the whole premise is of a return, linked to a given outcome.
Every pound for life change – that is the opportunity of a lifetime.
The first trillion
Without doubt, there is still much more to do if we are to realise the full benefit of what remains a nascent market.
Our ambition must be pitched higher, aiming to catalyse the next wave of social investment.
Not just a more effective use of taxpayers’ money, but actually growing the money available for social programmes beyond government or philanthropy alone.
This is about unleashing investment from businesses, trust funds, entrepreneurs and more – groups who might never before have seen themselves as part of the solution for social change.
Take the fact that UK asset managers look after around £3 trillion.
Of this and other private funds, the G8 Social Investment Taskforce has already identified the ‘first trillion’ of potential investment money.
£1 trillion – that’s what it cost to deliver our health and education systems for the last 5 years.
It’s 135 times the estimated rise in costs for local public services over the next 5 years.
So far from thinking that budget pressures and rising costs are insurmountable, just think what that money could mean on the ground – how many people it could help, how many lives it could transform.
As I look around and see so many faces from local government, I say this is true particularly for councils.
As we look to the future, social investment could mean the end of going cap in hand to central government, reliant on uncertain short-term grants.
Thus it is vital that we bring social investment into the mainstream – making it the norm for corporate social responsibility in the private sector, for asset managers, investment banks, and many more, getting sustainable funding flowing to where it will have the most impact.
If we can get this right, I believe the effect social investment could have is dramatic – not just in fiscal terms, but in terms of our society as well.
For too long, a disparity has prevailed between the top and bottom of our society.
We have a group of wealth creators at the top who have little or no connection to those at the bottom.
Yet through social investment we have an opportunity to lock not just wealth back into our most disadvantaged areas – but something else as well.
Just imagine a social enterprise working in a particular deprived neighbourhood – be it in London or Birmingham, Glasgow or Leeds.
Investors buy into it and as with any investment, will want to see it flourish.
Because they are risking their money – money that could otherwise be reaping a return elsewhere – those investors will want to see that social programme succeed, taking an interest in that community where they would otherwise be totally detached, brought back into contact with our most disadvantaged individuals and families, for mutual benefit.
For too often what is lacking in these areas is not just money, but hope and aspiration – the belief that the cycle of poverty can be broken.
Thus these wealth creators could have a powerful influence on the communities themselves, a human interface between 2 polarised worlds, and 2 groups often separated by only a different start in life.
Bringing success to the doorstep of failure and 2 ends of our society closer together – reuniting the City, and the inner city.
Now is the time to seize this opportunity.
Above all, it lies in the hands of all of you here today.
For this is not an agenda about politics or politicians.
Rather, the complete opposite is true.
Politics aside, the future of social investment lies with local authorities, commissioners and policy-makers. With a real chance for you to drive innovation, encourage entrepreneurship and invest intelligently.
For in straightened times, and faced with tight budgets, all of us need to find new ways of tackling social problems, answering a call to action in the years to come.
Social investment offers a way forward, ensuring that each and every pound we spend has a demonstrable purpose – transforming the lives of people now and the chances of future generations.
Restoring our finances, as we are compelled to do – but most of all, restoring cohesion to our society, and restoring hope and aspiration to those on the margins – at the same time, restoring lives.