20 ways to make Britain Better – 6. Getting communities to invest in achieving better social outcomes

Yesterday the IPPR produced their much anticipated Condition of Britain report. There is plenty of meat in it but one issue it parks for another day is local government’s ability to raise its own finance. Yet, as the report states, ‘in the long term it is clear that to break the grip of centralisation – and the paternalistic and dependent relationships that it sustains – local areas must raise revenues as well as spend them’.

Of course, announcing new tax raising or charging powers for local government in the run up to an election would be ‘brave’. But there is another way.

Social impact bond is not a term that rolls off the tongue easily and I expect there are a few readers not abreast of the finer details of how they work. But to cut a long story short they reward investors based on the achievement of certain pre-agreed social goals. They are normally complex beasts but a community based version need not be.

In last week’s column I set out the case for giving some cities or local authorities fixed budgets to cover various benefit payments such as unemployment benefits, along with responsibility for employment and other social outcomes. If a local authority got someone into work they would then get to keep the unemployment benefits that would otherwise have been paid out by the state, for at least a few years.

If  local authorities were also given the power to raise funds from their own community so they could invest in achieving better social outcomes they would be encouraged to be far more innovative in the way they tackle social problems.

A local authority might, for example, set out a five year target to do 20% better at getting people back into work than the national average. Investors in a local employment social impact bond would then be automatically given a low basic annual return for investing but also a financial upside the nearer to the jobs target the authority got.

There are many different social problems a community could tackle if it had the power to raise funds in this way, such as troubled families, affordable social housing, child poverty or homelessness, as long as they could keep enough of the returns that accrue from lower state handouts. The decision on which social problems to prioritise and what targets to set would be theirs, and in time a local authority might have several social investment bonds for local people to choose from. They could even experiment with bonds for more local neighbourhood areas that people would more readily identify with.

Central government could  underwrite these bonds, provided the local authority set out robust audited plans and set up solid governance structures, involving business and voluntary organisations in the area as well as residents. To address the fact that Surrey has fewer challenges than Liverpool but a more prosperous pool of potential investors central government could potentially offer some matched funding, varied according to income levels in a given area.

This approach to financing better social outcomes would give local authorities a new source of income, help connect communities to the challenges they face and get them engaged in providing solutions, spur new ways of working, and begin to break the grip of centralisation. It would also avoid the pitfall of letting local authorities raise new taxes or introduce new charges at a time when it would neither be politically palatable nor economically wise to do so.