Schemes that take a long-term, joined up approach to meeting public needs are deeply vulnerable to public spending cuts. When looking for ways to reduce costs, it is tempting for organisations to focus on activity that provides direct, short gains on their agendas, and leave complex problems to someone else.

The advantages of ‘prevention rather than cure' can be painfully apparent in those who have to cope with the long-term effects of smoking or obesity. But the adage applies to many other agendas than health - for example, youth work successfully turning young people away from crime is far better than more police, courts, prison and probation activity later.
Social Impact Bonds (SIBs) are a new financial mechanism designed to incentivise prevention. They do so by encouraging investors to fund preventative interventions to tackle social problems. This in turn reduces public expenditure, providing the resources to pay back the original investment plus a rate of return.

A pioneer on the development of SIBs, the Young Foundation recently advised Australia's first Social Impact Bond, working as a partner to the Centre for Social Impact (CSI) in its recent report New South Wales Government - Social Impact Bond pilot . The approach to delivering and financing better social outcomes has two essential themes.

The first is a determination to scale up the most effective interventions. This propensity to build on success happens far less readily than it should. The study tackled this problem head-on, assessing promising not-for-profit ventures against their ability to build on success - the capacity to scale up operations, their reputation for high quality service delivery, their involvement with social investors and track record of social innovation.

The second theme is a process of deploying SIBs where they can tackle cross-organisation problems most effectively. That meant assessing various possibilities and then honing in on priority agendas - such as parenting skills for families facing difficult situations - where there have been difficulties in building up a partnership approach to funding joint action, and sharing jointly earned savings.

CSI concluded that the SIB concept is feasible in the NSW context, and that NSW has the necessary market conditions for this new approach to funding to be piloted, subject to further work.

The development of SIBs is far from straight-forward. But the prize is a major one: a stepping stone towards a culture of public service delivery that fully recognises and rewards prevention, harnessing the power of evidence and innovation to deliver results. For more details on our approach to SIBs, see the Young Foundation paper, ‘Social Impact Investment: The opportunity and challenge of Social Impact Bonds' which outlines the potential for Social Impact Bonds, the challenges they face, and investigates the most promising areas for development in the future.

Find out more about the Young Foundation's work on Social Impact Bonds.