Case Study: Action for Children - Essex County, United Kingdom
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The Essex County Council in the UK commissioned a Social Impact Bond in 2012 improve outcomes for adolescents aged 11-16 at risk of going into care. Action for Children, a leading children’s charity that supports the needs of the most vulnerable children and families in the UK, was selected as the sole service provider to deliver Multi-Systemic Therapy intervention to the target population.
The selected intervention, Multi-Systemic Therapy (MST), is an evidence-based program with 30 years track record in North American and more recently in Northern Europe, Australia and New Zealand, with emerging evidence of its effectiveness in the UK. MST works with patients and vulnerable young people to break negative cycles of behavior, which often cause family breakdown and can lead to entry into care or custody with associated long-term poor social outcomes. The Social Impact Bond will fund two MST teams to provide a county-wide service in Essex, which will work with around 380 young people and their families over the life of the program. The target is to divert around 100 of these from entering care.
Action for Children has been selected as the MST service provider for the Essex SIB. Prior to their involvement in a Social Impact Bond, Action for Children has been proactive in evaluating and demonstrating the impact of their programs. In 2009, Action for Children and think-and-do-tank New Economics Foundation undertook a project that demonstrated early intervention could save £486 billion over 20 years. This work looked at three Action for Children projects, and showed that for every £1 spent on them, society gets between £4 and £9 back – mostly by saving money in areas such as sorting out crime or helping people who aren’t working. This study demonstrated the need for a comprehensive investment program in early intervention services that would both save spending on dealing with the impact of problems later, and deliver wider benefits to society. In addition, Action for Children also completed a report summarizing their evidence base on the impact of their services on the life changes of children and young people in March 2010.
The Essex Social Impact Bond has been funded by a collective of cornerstone investors, first-time Social Impact Bond investors, and established Social Impact Bond investors. These investors include Bridges Social Entrepreneurs Fund LP, Big Society Capital Limited, the Charities Aid Foundation and high-net-worth individual David Burnett, the Social Venture Fund, Esmée Fairbarin Foundation, among others.
Essex County Council will pay an agreed amount for every care placement day saved, meaning that investors are rewarded for reduced time in care as well as prevention from entering care.
Social Impact Investment
The SIB evaluator will assess the intervention’s success using a set of metrics, including:
- the number of days spent in residential care;
- school performance;
- offending rate; and,
- emotional well-being.
The key metric on which outcome payments are made is the saving in aggregate care placement days for each MST cohort, benchmarked against a historical comparison group. This outcome will be measured by tracking care days saved over 30 month period for each individual referred, starting at commencement of the MST service. Additional outcomes, such as educational engagement, offending and emotional wellbeing, will be monitored to capture the broader impact of the investments.
Key Development Milestones
Discussion began between Essex County Council and Social Finance UK. Methodology widely discussed by the council within Senior Management Team and with Elected Members.
Feasibility work began under contract between Essex County Council and Social Finance UK.
Feasibility work concluded that a SIB would be an appropriate approach towards addressing the prominent demand issues in Essex. Multi-systemic therapy was the recommended intervention.
Model development and internal governance (June 2011 to April 2012)
Procurement for service provider (April to November 2012)
Contract signed between Essex County Council and Children’s Support Services Ltd, a special purpose vehicle set up to manage the SIB contract.
Contracts with cornerstone investors signed.
Mobilization: recruitment of MST teams and SIB Director, and development of data and performance management system.
|2013||Service delivery expected to commence in 2013.|
Financial Figures and Timelines
The provision of state care is expensive, costing between £150,000 and £180,000 per annum for a child in residential care, and between £20,000 and £47,000 per annum for a child in foster care.
The investors jointly contributed £3.1 million to fund the therapy program. If the interventions deliver successful outcomes, the investors might expect returns in the range of 8 to 12% per annum. The investment is entirely at risk; should the intervention not deliver the pre-agreed outcomes, the local authority does not pay.
Outcome payments will begin three months after the first group of adolescents (approximately 20) have completed the MST course. The program has a 5-year operational period but payments extend across 8 years.
UK-based charitable social investment organization Allia developed an innovative structure that combines a low risk loan to a social housing provider with the high risk investment in a Social Impact Bond. This structure was used to offer to the public a product that would return investors’ principal on maturity plus a variable return, according to the SIB’s success.
The Essex Social Impact Bond was chosen as the first initiative test this structure. The SIB had already secured its full capital requirement from institutional investors, but one of its investors had kindly offered to scale back its commitment if alternative finance from retail investors could be made available.
While Allia’s offer to retail investors found some clear interest from a number of individual investors, the pilot revealed some challenges in structuring and distributing complex products for retail investors. The level of capital subscribed by the closing date was insufficient to enable Allia to meet the costs of issuing and managing the bonds over the eight year term.
Nevertheless, this experiment has demonstrated the potential structures that are possible to open up Social Impact Bonds to a more mainstream investment market, and some of the strategies that can be employed to adjust for the high-risk related to a traditional Social Impact Bond structure.
For Further Reading
Social Finance UK, Vulnerable Children.
Kate Mulley, Action for Children. Children in Care
First local authority Social Impact Bond awarded to improve outcomes for vulnerable young people on the edge of care. Press release. November 2012
Analysis of the Social Impact Bond in Essex, UK. Instiglio. February 2013
Allia, Future for Children Bond.
Special thanks to Social Finance UK for their assistance in developing these case studies.