What would payment by results mean for children’s services?

How would payment by results work in children's services? Gordon Carson finds mixed views about what is being seen as the solution to funding early intervention services

How would payment by results work in children’s services? Gordon Carson finds mixed views about what is being seen as the solution to funding early intervention services

What is Payment by Results (PbR)?

Payment by results essentially means that a proportion of the payment, from central or local government to providers, is dependent on achieving specified results – for example, a reduction in reconvictions among young offenders.

Social impact bonds (SIB), are one vehicle through which PbR could be implemented. They encourage upfront investment from non-government sources, such as charitable foundations and private individuals. These investors receive their returns from the government according to the outcomes achieved by the service and savings made to the public purse.

An SIB developed by Social Finance, a social investment enterprise, is the first of its kind in the UK. It is already being piloted in the criminal justice system, at Peterborough Prison. The £5m bond will fund a range of third sector providers, such as the St Giles Trust, to deliver services to 3,000 short-term prisoners to prepare them for release. Investors will receive a return if reoffending drops by more than 7.5% within the six years. Social Finance is also in talks with Essex Council about developing an SIB for children’s services.

Nat Sloane, who sits on Social Finance’s advisory board and is also vice-chair of Impetus Trust, a “venture philanthropy” company, says a series of successful SIB pilots would encourage more private sector investment.

“It’s not so much on the basis of people looking for super-charged returns,” he says, “but of finding a way to inject money into areas of social need where there’s an opportunity to recycle money to gain a small return.”

Who would deliver children’s services under PbR?

It is envisaged that voluntary and private sector providers could deliver many non-statutory children’s services through this system. However, Ryan Shorthouse, a researcher at the Social Market Foundation, a social policy think-tank, warns that accountability becomes a major issue with greater private sector involvement.

Maggie Jones, chief executive of Children England, the umbrella body for voluntary sector providers, also points out the system will require a “commissioning revolution”, as a focus on outcomes rather than inputs will mean providers will need greater flexibility in both length of contracts and how they design and change services to achieve the desired results.

How would it work?

Anne Longfield, chief executive of the charity 4Children, says voluntary sector providers and charities will be unable to provide upfront funding for services if they only receive payment for long-term results.

One solution is for providers to receive a specified portion of their total funding at the beginning of their contracts, or at regular intervals (for example, every quarter), and the remainder when they deliver results.

Toby Eccles, Social Finance’s development director, says the SIB approach addresses concerns about the working capital required by service providers because they are funded upfront through external investment, and risk is transferred to “socially motivated investors”.

What are the dangers?

Jones says that, because achieving positive outcomes is “often an incredibly complex process determined by a wide variety of inputs”, the success of one service provider can be “critically dependent on the success of others”. This means there may be “inbuilt dangers” if one part of the system is funded through PbR and others are not.

She says that voluntary services have “no influence over the way statutory services are delivered or commissioned but upon which the success of their intervention and payment may depend”.

“We are concerned that PbR mechanisms could even perversely incentivise organisations not to collaborate with other services so as to preserve clear links between their intervention and outcomes,” she adds.

Another major concern is that providers will focus on those service users with the least serious problems, making it easier to achieve good outcomes but ignoring those who are hardest to reach. Gilyead wants to see built-in incentives to ensure providers are working with the right people.

Which children’s services would it apply to?

Maggie Jones is not convinced by the government’s desire to test PbR in early intervention services. Instead, she says it may be more suited to work with young offenders or children in the care system, where results could be based on more specific outcomes such as placement stability, academic achievement, or holding down a job, and could be achieved in a relatively short space of time.

Debbie Jones, chair of the Association of Directors of Children’s Services resources and sustainability committee, feels youth justice is currently the most suitable area for PbR, as the evidence base is “strong and convincing”.

Eccles says SIBs can support “positive family interventions”, such as services that keep young people out of the care system.

When should results be measured and payments made?

The Peterborough pilot has set a time frame of six years to see results but time frames in early intervention services are likely to be more mixed with perhaps outcomes at key transition stages such as starting and leaving school used to measure the scale of outcomes.

Social impact bonds. Carola Bennion, a consultant in outcomes-based commissioning and early intervention, explains how social impact bonds work:

Social impact bonds (SIBs) offer a real chance to invest in early intervention services upfront. SIBs are designed to attract investors to fund programmes, marking a move away from commissioners and investors necessarily being the same bodies.

With an SIB, commissioners pay investors, not providers, only as and when specified outcomes improve. To work in investment terms, these outcomes need to reduce the demand for higher cost interventions, such as children needing foster care, for example. To attract investors, there needs to be robust evidence that interventions will achieve savings through the specified outcomes. In the UK there are currently only a small number of early intervention programmes that have had such rigorous evaluations.

Along with an evidence base, programme fidelity is also critical for investors. A lack of fidelity, such as using less skilled practitioners or shortened programmes, typically results in a loss in potential economic and well being benefits. Since we know that fidelity can be lost through insufficient resources, there may have to be an onus on delivering it or some providers could be licensed to deliver an evidence-based model at a certain price. The commissioning balance will become the efficient delivery of fidelity.

Investors will also have a critical interest in the effect of pre-existing services and the method of determining which services actually achieve an outcome. There will also need to be some specification in the bond relating to how populations are assessed and targeted by councils for an intervention, as this too can have a massive impact on the success of intervention.

Since a bond is a contract designed around the achievement of specified outcomes, such as making ‘children ready for school’, it will cut across different commissioners. This has presented a real challenge in local areas because the potential future savings often accrue to several agencies, not necessarily those making the original investment.

The new community budgets will allow agencies to pool budgets aimed at the same people or same problems which should ensure that the agencies making savings down the line also contribute to the upfront costs.

Carola Bennion is a consultant with expertise in outcomes-based commissioning and early intervention approaches.

More information at http://carolabennion.com


Social Finance

Graham Allen’s review of early intervention, interim report:

Peterborough Social Impact Bond

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