By Ian Marr
IN a post-pandemic world we have the opportunity, and the responsibility, to do things differently. The recently-formed Council for Economic Transformation provides a unique platform to grasp this opportunity and embrace this responsibility. In particular, we need to form new partnerships which provide funds to deliver services with traditional public funding under so much strain.
Social impact investment accesses capital through a new partnership between the public, private and charity sectors, drawing on the strengths and skills of everyone involved.
Charities have been addressing complex social issues like homelessness over many years, decades in some cases – we know a great deal about how to improve the lives of those most disadvantaged in our communities. The issue here isn’t a lack of knowledge; the issue is a lack of concerted action.
That lack of action is often caused by an absence of the tools we need to move money around the system quickly and to greatest effect – we need to increase the velocity of the money in reaching the points of greatest impact.
Social impact investment allows a charity to design a service with clear, positive outcomes for the individual supported.
Investors provide the capital to cover the cost of delivering this service in the first instance until the agreed outcomes are achieved, for example to enable 100 homeless young people to have safe, secure accommodation and appropriate employment. The investors know that their money is at risk – if the outcomes are not achieved they could lose their money.
The government agrees the outcomes at the outset and the government only pays for each outcome which is actually achieved.
The government outcome payments are then used to repay the investors with interest over an agreed time scale. This moves the financial risk of failing to achieve the outcomes from government to the investors. It also ensures that the government only pays for outcomes which have definitely been achieved. Government has a 100% guaranteed impact of public spending – if it doesn’t work, the government doesn’t pay.
In a service financed using social impact investment in Perthshire most of the investors lived locally, noting that “we decided to invest in the service primarily because the funds were to be used in supporting young folk in Perthshire –what greater incentive to invest our funds?”.
Investors are willing to invest in these services, organisations are willing to engage and deliver much-needed programmes – all that’s needed now is a commitment from the Scottish Government to pay for outcomes in pilot services. Scotland needs to grasp the unique opportunity to use Social Impact Investment going forward to "Build Back Better" in a post-pandemic world. To do this effectively everyone involved has to be willing to think and act a little differently than they normally would. The experience of the last 18 months has demonstrated not only the value but also the capacity to do just that in the best interests of our communities and citizens.
Ian Marr is Chief Executive of The Growth Partnership
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