There remains a buzz about Social Impact Bonds (SIBs), especially in political circles, but almost 2 years on from the pilot project (Peterborough prison) they remain outside the mainstream. Despite this, public sector transformation continues apace and SIBs could yet have an important role to play.

The model SIB is a contract between an Operator and a public sector Commissioner in which there is a commitment to pay for improved social outcomes (or impact). Metrics must be available to demonstrate that the outcomes result in costs savings to the public sector. The Operator is paid on a 'payment by results' basis, so there is limited/no risk to the Commissioner. The risk instead is borne, either wholly or in part, by Investors. As this is akin to an equity investment, the Investors are likely to receive the largest margin if the contract is a success.  This model does allow Operators and their supply chain greater certainty on cashflow and sustainability. This could include Third Sector organisations or mutuals.

In the Health Sector, a variety of services could employ a SIB model. For example, SIBs could allow Operators to embark on more holistic preventative health services in relation to Alzheimer's disease or disease related to obesity.

There are undoubtedly issues to overcome and until SIBs become accepted by the market, Investors are most likely to be large charitable trusts and quasi-public sector funds whose objects are aligned with the social outcomes sought. However, SIBs are illustrative of the current wave of thinking that is gaining traction through the wider public sector and fits well with the desire for more ethical funding.