Essex County Council was one of three authorities to undertake a six-month feasibility study using social finance and payment-by-results to reduce the number of children in care, between April and September this year.
But, despite the Cabinet Office identifying a number of social investors ready to provide the required £3m in funding, the authority is considering taking out a loan for the amount instead, to avoid paying out a premium if the scheme is a success or risk being left out of pocket if savings fail to materialise.
Dave Hill, director of children’s services at Essex County Council, said social impact bonds remain an option, but finance chiefs at the authority appear to be in favour of a model that sees the authority keep all the savings generated.
"The question is whether it is good value for money," Hill said. "If payment-by-results fails miserably, the council has lost nothing. The cost of payment-by-results is more expensive than the cost of borrowing from the market. We have to weigh up the cost of the transfer of risk versus the cost of the thing if it is successful."
Essex County Council is proposing to keep 100 children out of care by investing £3m in multi-systemic therapy over a two-year period.
It is estimated the authority could save as much as £4.5m in care placements and associated costs if it is successful.
However, Hill said the self-financing approach would not be suitable for all authorities, as Essex is a large council that, despite making sizeable cutbacks recently, is still in a position to potentially borrow large sums of cash.
But smaller councils, or those that are struggling to a greater degree financially, may have no alternative but to offer the prospect of a social impact bond and an associated premium in return for funding.
Graham Allen, who led the government’s review on early intervention, said local authorities that are considering funding projects themselves could benefit further from engaging with other agencies in the process.
This could involve health partners or other local agencies, or even central government agreeing to pay towards the cost of a project based on projected savings in their own specific budget areas.
However, Allen said this approach is far more likely to take seed in earlier intervention scenarios rather than multi-systemic therapy, which is seen as an intervention that takes place closer to a "crisis point".
"I favour pre-emptive treatment, dealing with mothers and babies before they are critical," Allen told CYP Now.
"We should be looking for partners in the private sector, existing local government partners and central government as well."
But he added: "If people don’t want to buy in, they don’t buy in."
The notion of local authorities taking on the risk and trying to forge relationships with government is already gaining traction among local authority leaders.
At a roundtable debate hosted by 4Children and CYP Now last month, Robert McCulloch-Graham, director of children’s services at the London Borough of Barnet, said he had been considering the idea of a "family bond".
This, he said, would involve going to the government with a local offer of investment through freeing up assets or other measures and asking the Treasury to match that amount.
Manchester and Liverpool councils were also involved in the six-month feasibility study in conjunction with Social Finance Ltd. However, Liverpool City Council told CYP Now it is yet to make a decision on whether to pursue the idea, with a report on the matter due to go before the council’s cabinet in the next few months.
Manchester City Council was also unable to give any details on whether it will continue with the scheme, with a spokeswoman saying that the authority is still considering the outcomes of the feasibility study.
FUNDING MODELS
Self-financing
- The self-financing model involves a council taking on the risk, potentially through a loan or from reserve funds
- If it makes future savings as a result of a project it will keep all the savings
- But should the savings not match the initial outlay on the prevention project, it could face making a loss
- The authority will also have to factor in interest payments on a loan or lost interest on savings if it takes the money from council reserves
Social finance
- This can take a various forms including commissioning the work to a third sector or private organisation that will be paid according to the results they achieve
- Projects can also be run in-house by the authority if upfront funding from social investors can be obtained
- The better the results, the higher the potential saving through reduced service demand in future years
- But better results will also mean higher premiums paid to the investors
