‘Failed model’: union warns Treasurer off social impact bonds


Social impact bonds are a “failed” funding model aimed at achieving privatisation of public services, says the main public sector union, which has revealed it has lobbied the Victorian government against introducing the outcomes-based approach.

“The motivation of governments who promote these is as plain as the nose of your face and that is short term cost and risk shifting like all forms of privatisation,” argues Karen Batt, Victorian branch secretary of the Community and Public Sector Union.

The model is unproven and encourages a race to the bottom on wages, she says, adding “I’ve had this same conversation with our Victorian Treasurer and many of his colleagues.”

Social impact bonds are a form of outcomes-based contracting for social services seen by many as a promising way of incentivising a more rigorous focus on outcomes in some of our most intractible social problems. The key feature is a commitment by government to paying a third party provider a fee if it is able to meet social outcome targets at the end of a multi-year period.

New South Wales is running the first two SIBs in Australia, both related to troubled families and children in out-of-home care. Victoria is considering whether to trial the model.

In a letter to The Mandarin, Batt contends the money invested in social impact bonds — which are expensive, but aim to solve expensive problems — would be better spent on traditional models of public service delivery.

As the union boss points out, there is little definitive evidence thus far that social impact bonds work. This is in part because they’re relatively new, and the data is often of insufficient quality. It can also be difficult to isolate the impact of the financial setup itself, as they’re used to tackle varied problems across a whole range of policy areas. As with so many contested policy interventions, the devil is in the detail.

One recurrent positive theme in studies of social impact investing is that the need to determine whether a provider is hitting its targets pushes organisations to invest in proper monitoring and evaluation, something staff find valuable. The question, however, is whether you really need an SIB to do this — perhaps it’s just as possible in traditional, less expensive services.

Social Ventures Australia, a not-for-profit that promotes overcoming disadvantage through cooperation between government, the private sector and the third sector, responds that the $7 million Newpin bond, one of the two pilot programs in NSW, has done well in the first two of its seven years.

“The Newpin bond has delivered strong social outcomes and returns to investors in its first two years, returning 66 children to their families and supporting another 35 at-risk families in preventing their children from entering out-of-home care,” an SVA spokesperson told The Mandarin.

“The SIB provided funding for a service that would have otherwise had to close its doors and will provide a strong case to government for increased ongoing funding if outcomes continue to be strong.”

Social impact bonds, says SVA, “are not a replacement for government funding of services, they are a tool for attracting new funding for innovation, and for helping government funding be best directed.”

Impact Investing Australia CEO Daniel Madhavan argues that SIBs “provide government with an additional tool for tackling complex social issues that have persisted despite repeated interventions.”

They’ve shown promise in the few years since they first began, Madhavan told The Mandarin:

Since the first social impact bond was launched in 2010, over 60 projects have commenced in 15 countries, with over 21 of these already reporting positive social outcomes and 4 projects that have fully repaid investor capital.

Failed funding model?

Plenty of academics are sceptical of the real impact of social impact bonds, citing a lack of evidence to show that they work, with some urging caution and a “time will tell” approach.

But Batt is more certain. She says at a time when governments are cutting funding to traditional public services “it’s irresponsible to waste taxpayer money by experimenting with failed funding models”.

The money “would be better used by the state to design and deliver excellent social services that work,” she believes.

The result is that “resourcing responsibility is just shifted to speculators and privateers who want state underwritten monetary returns relying on difficult to define outcome measures and weak evaluation.”

According to Batt, evidence shows that “these medieval financing arrangements” end up creating “budgeting inflexibility”, divert money from other projects and put off spending commitments into the future.

As a form of privatisation, social impact investment undermines the pay and conditions of public servants, encouraging “a race to the bottom with low wages and casualisation of the workforce”.

The full text of Batt’s letter to The Mandarin, in response to our story last week about the collapse of negotiations to create an SIB in New Zealand, is below:

Your assertion ‘despite successful examples in New South Wales, South Australia and the United Kingdom’ is incorrect in your recent article ‘Bureaucracy killed social Bond’ about negotiations to implement the New Zealand government’s first social impact bond pilot collapsing.

It overlooks the reality that no social bond contract has yet been paid out anywhere.

An evaluation of social impact bonds in the UK even found that there is limited empirical evidence that social impact bonds improve outcomes or generate cashable savings in health and social care.

More than $1.5 million NZ dollars was spent on their social bonds project so far, and there’s nothing to show for it.

When essential services like NZ Lifeline are struggling for funds and have to close, it’s irresponsible to waste taxpayer money by experimenting with failed funding models.

The funding would be better used by the state to design and deliver excellent social services that work.

Overseas, social bonds are rightly being criticised as the resources directed at achieving particular outcomes is not increased.

Resourcing responsibility is just shifted to speculators and privateers who want state underwritten monetary returns relying on difficult to define outcome measures and weak evaluation.

Evidence is showing that these medieval financing arrangements just create budgeting inflexibility and divert money from other projects as spending commitments are pushed years in advance.

The motivation of governments who promote these is a plain as the nose of your face and that is short term cost and risk shifting like all forms of privatisation.

The model just encourages a race to the bottom with low wages and casualisation of the workforce who is entrusted with the responsibility for looking after our most vulnerable citizens.

Hardly something any caring and mature country would wish to aspire too.

I’ve had this same conversation with our Victorian Treasurer and many of his colleagues.

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