Insight: Social Bonds - Funding innovation or risky experiment?

Social bonds are coming to New Zealand. The experimental new funding model is expected to first finance a programme to get people with mental health issues back into work. But are social bonds more hype than substance?

The walls and ceilings of Vincents Art Workshop are covered in an eclectic display of original creations.

The studio, in Wellington's Willis Street, was set up in 1985, as psychiatric institutions were being closed down, to give people with poor mental health or intellectual disabilities a place to receive art and craft tuition and support from the community.

Leo McIntyre shows me around the workshop, where he works as a peer advocate.

In the 1990s he worked as a videographer for the Police National Video Unit, where he encountered forensic video material he found disturbing. He received no psychological support.

"I ended up leaving that job with post-traumatic stress disorder from the level of exposure that I'd had to that material."

It took Mr McIntyre some time to recover and he has battled a number of relapses.

The turning point came on the day he had to attend an interview for a job working in mental health. His life seemed to be falling apart - he had been asked to leave his flat, as his then-flatmates did not think he was well enough to be living with other people.

Mr McIntyre recounted his story to the interviewer who went on to offer him the job helping people with mental health struggles back in to work.

"I was so stunned by that response - it really felt amazing to me that someone could hear this story of mental illness and, putting that aside, recognise the skills that I had and still be interested in employing me."

It is this sort of outcome - getting people off the benefit, into work and improving their lives - that the government hopes to achieve with its first social bond, known internationally as a social impact bond.

Nearly $29 million was put aside in last year's budget to launch four social bond programmes, the first of which aims to get out-of-work people with mental health issues into jobs.

The plan for the first bond is to put employment consultants in GP practices, so that when unemployed mentally ill people are ready to head back to work the service is right there for them.

What is a social bond?

A social bond uses private investors' money, instead of public money, to pay a provider to deliver a service.

A set of outcomes are agreed between the government, provider and the investor, and if those outcomes are achieved the government pays the investor a return.

There is also an intermediary involved which facilitates the financial side of the deal. An independent assesor determines whether the results have been achieved.

Social bonds only work in certain areas, where tangible outcomes, such as reducing re-offending, improving the outcomes for children in care or reducing homelessness, can be measured. Typically, not-for-profit providers who already contract to governments are the providers.

The funding model has gained traction since the first social bond launched in Britain in 2010, with the United States, Australia, South America, Holland and Belgium, among others, now all using them.

Toby Eccles is one of the architects of social bonds.

He is the founder of Social Finance, the organisation which has been instrumental in developing and promoting the bonds.

From London, Mr Eccles tells Insight it is tricky for a government to try out new services because it is concerned about value for money and whether the services will work, which can make governments risk averse. A lot of service provider contracts also lack flexibility, he says.

The social bond, he says, was created to address these issues, "essentially by creating a contract where people only pay for the outcomes that are delivered and that essentially gets over the government's problem because it means that they're only paying for something when it works."

Indeed, finance minister Bill English says one of the biggest risks the government faces is flying blind, spending hundreds of millions on the country's most vulnerable without knowing who gets the service, or whether it is doing any good.

"The biggest risk we're taking is keeping doing what we do now that misleads people because we spend a lot of resource and we're increasingly knowing it doesn't work. We don't target, we don't measure, we don't know what we're trying to achieve, so the risk is not changing."

As social bonds are intended to deliver results, they can be a vehicle for working out how public money should be spent, he says.

Marion Blake is the chief executive of Platform Trust, a national network of community groups that helps people who are suffering from addictions and mental illness into housing and employment.

She says there has been a lot of discussion in the community sector about social bonds, with some organisations seeing them as little more than a different financial system, while others worry the bonds are focused on the investors rather than the people using the social services.

But for Ms Blake it's about getting money out of the system.

"The client doesn't care less on the whole where they get their service from... the client's motivation is exactly the same as it always has been, the people that they will interface with are exactly the same people with the same motivation, it's just that the income stream is coming from a different place."

Ms Blake believes the social bonds should be given a chance.

But back at Vincents Arts Workshop Mr McIntyre is worried about the risks of dismantling the current services, which are already working well, in favour of an untested model.

Will the system be gamed to ensure the private investors get a return, he wonders.

"I think there's a big risk with this type of model that inappropriate types of employment for a particular person will be more likely to occur because the pressure will be greater on those providers, or the staff of those providers to get people over the line and into work."

Will it happen?

The New Zealand Initiative is a business-aligned think tank. Its senior fellow Bryce Wilkinson was one of the authors of a report released last year on social bonds.

Dr Wilkinson says it is too early to draw any strong conclusions on the success or failure of social bonds. There is, he says, a lot of interest and excitement about the model and possibly too much hype.

"The difficulties are very real, as we've seen by how long it's taking in New Zealand just to get the pilot programme underway, but we're looking at the initial outcomes so far in Peterborough and New South Wales, at this point and they are encouraging, but it's early and the difficulties shouldn't be underestimated."

Last June, the government announced it was in negotiations with Wise Group and ANZ Bank - which would be the financial arranger, not an investor - to be the partners in the country's first social bond.

The Ministry of Health's website still says it expects the employment consultants in GP practices bond to be implemented in early 2016.

However, the contract still seems to be under negotiation.

Mr English says it is a complex process so whether or not the deal is closed, the government will have learnt a lot and it will be valuable to the system.

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