I Think We May Have Lost Polly

There was an interesting discussion on the Today Programme this morning between Sir Ronald Cohen and Polly Toynbee. As requested by this blog on July 5th, Polly Toynbee did indeed ‘come back’, though possibly not in the desired manner.

Her fundamental point is that Social Impact Bonds are inefficient. Government has access to cheap finance, and all that his happening here is more expensive private investment is being used to fund stuff that would otherwise be funded by the investors in Social Impact Bonds, and it is getting skimmed on the way through by lawyers and accountants who structure these ‘investment products’ … so a lose/lose.

There are a number of inaccuracies in this point which Sir Ronald Cohen made to her:

  1.  Government does not have access to cheap finance. It should not be necessary to point out that governments have lost their creditworthiness. The borrowing that has underpinned the relentless growth of the social sector in our welfare societies over the last 50 years is no longer possible because national debts have reached unsustainable levels. Rather than borrowing more money, governments must now start to consider how to retrench the state in order to start paying this burden back
  2. Private investment is being raised to fund stuff that would not otherwise be funded. The charities and social sector organisations funded by the Peterborough Social Impact Bond would not otherwise be getting any funding from Panahpur, nor many of the other investors in the bond. If Toynbee doesn’t believe this, she should ask Rob Owen, CEO of the multi-award winning St Giles Trust. This is a new way for charities to access finance – investment capital from our endowment rather giving from our investment income. Pension Funds and Private Investors (including the Child Trust Funds that Toynbee mentioned) have an interest in a functioning society with fewer social problems, so social investment product is potentially a uniquely aligned investment for them. Along with charitable treasuries, this represents trillions of pounds worth of potential new investment for achieving positive social outcomes. This is still a way away, but it is a logical progression if track record is established.
  3. The state is paying nothing up front. It only pays when agreed outcomes are achieved. It pays from the savings it makes by not having to clear up the consequences of social breakdown. As the Allen Review on Early Intervention (http://www.dwp.gov.uk/docs/early-intervention-next-steps.pdf) so eloquently put it, it is far cheaper to avoid social problems than to clear up the mess from those who go through life creating them. It was not clear whether Toynbee was questioning Cohen’s assertion that the investor gets 1/3rd of the saving whilst the taxpayer keeps 2/3rds. If she is not, it is hard to credit her objection on financial efficiency grounds.
  4. The objection to professionals fees appears to be based on the assumption that professionals have no value to add to these questions. For example, intermediaries undertaking research, consulting with experts, devising strategies, sourcing delivery partners, contracting with them for the wrap-around services they may provide to really help individuals to turn their lives around – and putting it all into contracts to align interests and clarify roles. Currently costs that are borne by the taxpayer. None of us likes paying money to lawyers to produce reams of impenetrable paperwork. But Toynbee cannot pretend that this is not required by law, and cannot pretend that government doesn’t spend more than its fair share on meeting these obligations in its normal course of business.

Yet of considerably greater significance than all of these inaccuracies is Toynbees underlying assumption that the state is offering an alternative. If it were, then she would be right that this would be no more than a mathematical calculation of the cost-of-finance. But by building her argument on this assumption, she is ignoring the emerging political consensus that the state has now conclusively proven its inability to engage holistically with individuals to assist the process of human transformation necessary to achieve the necessary social outcomes. This is why both the Coalition and the Opposition welcomed today’s announcement of £40m more of Social Impact Bonds through Local Authorities. Toynbees underlying assumption is bogus.

As for Toynbee’s argument that this is just PFI in a new suit, this does not take account of the fundamental differences.

PFI was primarily concerned with financing public service infrastructure, where arguably it is simply a more expensive form of finance and the value-add of private sector methodology is more marginal/debateable, and where interests were not deeply aligned. It is not unreasonable to suggest that PFI was ill-conceived and many of us said so at the time.

By contrast, Payment-by-Results is concerned with financing human and community transformation. This is where the value-add of investment methodology and accountability is potentially significant … especially when the state has shown that it cannot deliver reliably on this level.  If it works (and we all agree the jury is still out), it would deliver savings to the taxpayer and improved social conditions for us all. Why would Polly Toynbee object to this?

The fourth estate has a duty to represent the interests of its audience, and not to operate as a mouthpiece for propaganda. By ignoring the facts, Toynbee needs to be careful that she doesn’t stray into the same territory as Fox News.

  1. 26th Aug 2011

    I think your comments are an excellent response. I suspect that Polly T’s gripe emanates from the track record of Sir Ronald. He made his dough on Venture Capital, or Private Equity, and is more than associated with the kind of crony capitalism that is bringing the world’s economy to a grinding halt. That isn’t to say he’s to blame, but one can see why some might be suspicious of Social Impact Bonds and the question of “whats in it for him and his cronies”?

    You get the gist.

    Now that he and his brigade are in charge of Big Society Bank, he has a chance to set the record straight by transparently revealing how and why money is allocated to certain projects, and not to others. Revealing the decision making process makes it easier for entrepreneurs or others tempted to pitch for the monies to decide on their chances of success if the criteria for success and failure is more widely published.

    The worry that Tonybee has coming from the left (as many social entrepreneurs do) is that Cohen and his chalk-striped brigade of reformed financiers are just a bunch of wolves in sheeps clothing.

    Sir Ronald and SF need – in my opinion at least – to do more to prove that they are to be trusted with our ideas and energies.


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