1. © Social Finance, 2011PRIVATE & CONFIDENTIAL 1 Drug Rehabilitation and Payment by Results: The role of social investment 27 April 2011 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 Emily Bolton – emily.bolton@socialfinance.org.uk, 0207 667 6377emily.bolton@socialfinance.org.uk

2. Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011 2 Our work Social Finance designs financial structures that enable private sector capital to reach the social sector Social Finance Investors Trusts & Foundations High Net Worth Individuals Private Banks Mass Affluent Institutional Investors Social Service Providers Children in Care Financial Inclusion Criminal Justice Health Care Affordable Housing Government Central Government Local Government Commissioners Ministries Policy makers Key social issues Research & Development Financial Structuring Capital Raising Social Investor Market Growth Voluntary Sector Development Long-term Social Change

3. Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011 3 Our work Developing an online financial solution for families with disabled children Seven month study to develop commercially viable budgeting bank accounts for low income consumers Social Impact Bond to reduce re-offending amongst short sentence offenders from HMP Peterborough £640,000 Loan Note at 3.50%, as cornerstone of more than 30,000 affordable loans S

4. Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011 4 What is a Social Impact Bond? A Social Impact Bond is a contract with the public sector in which it commits to pay for improved social outcomes On the back of this contract, investment is raised from socially-motivated investors This investment is used to pay for a range of interventions to improve the social outcomes The financial returns investors receive are dependent on the degree to which outcomes improve

5. Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011 The Social Impact Bond and reoffending 5 Social need Commissioner Target population Target outcome Measurement Interventions Evidence base Peterborough Pilot Investors Ministry of Justice Social Impact Bond St Giles Trust Ormiston C&F Trust YMCA Other Interventions 3,000 male short sentence prisoners % of cost savings from reduced re- offending £5 million Ongoing operating funds Collaborative service provision Reduction in reconviction events

6. Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011 6 Social investment and PbR pilots 6 Social investment funds activities that generate positive social outcomes We believe that such investment can facilitate systemic change in the drug treatment system and help to improve outcomes for those suffering from dependency The PbR pilots are an opportunity to pilot a new approach to drug treatment that has increased funding from rehabilitation and an ambition to foster innovation

7. Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011 How could increased funding improve recovery rates? 7 Increased funding for wraparound services Of the local partnership funding allocated to English DAATs in 2008/09, less than 10% was spent on wraparound services, including user/carer involvement and harm reduction strategies (1) Social investment could fund increased services for families, peer mentorship and transitional employment Sources: 1) United Kingdom Focal Point Report 2010, October 2010; 2) Growing Pains, Lynn Olsen, Education Week November 1994; Fund local best practice to scale Nearly every problem has been solved by someone, somewhere. The frustration is that we cant seem to replicate [those solutions] anywhere else – Bill Clinton (2) Numerous innovative local models funded on a small scale and often, the barrier to delivering these good services to more service users is a lack of upfront capital to invest in increased staffing and infrastructure. Support for an evidence base to assess needs and effectiveness Today there is limited data on the long-term success of service users and the effectiveness of some interventions Social investment can fund large-scale measurement of the progress of service users that informs future service delivery and the development of new services (both in and post- treatment) These measurement systems are necessary for investor reporting Enable small organisations to participate in PBR Many VCS organisations do not have the working capital to fund service delivery until outcomes can be measured and payments made. Also, these organisations may be unable to bear the outcomes risk. Social investment could provide risk capital to enable small organisations to participate in the PbR pilots

8. Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011 8 How can Social Finance help? 8 The following elements are necessary for a SIB contract based on outcomes: Outcomes that a commissioner is willing to pay for We have commissioned a research report to understand a range of possible outcome metrics that can be used to measure the success of drug treatment in the community This report is intended for publication and should be available in the summer An operating model to deliver these outcomes We have met with a range of service providers, commissioners and experts in to learn about successful interventions in more detail This represents initial research which can be developed according to the needs of a specific target population Savings generated for government and a return for investors We have carried out initial financial modelling to estimate potential savings that could accrue to government as a result of improved treatment outcomes To further develop the financial case for a SIB intervention, it would be necessary to tailor this analysis to a specific area using local data We would welcome the opportunity to collaborate at a local level to develop this funding model in more detail