Private investors will be encouraged to fund intensive help programmes for troubled families under a trial launched by the government on Friday, writes Randeep Ramesh in the Guardian.
Ministers want philanthropists, charities and other organisations to plough cash into projects for 120,000 families to reduce the number of days their children spend in care, lower the rate of teen pregnancy and cut the number of visits to hospital accident and emergency wards.
Investors who put cash into a "social impact bond" will be paid a dividend for any successful project. Nick Hurd, the minister for the big society, says £40m could be raised by four bonds to be launched in pilot schemes in the London boroughs of Hammersmith & Fulham and Westminster and in Birmingham and Leicestershire.
These areas contain more than 6,000 "troubled families", leading such chaotic lives that taxpayers fork out more than £100,000 a year per family. But this cost can be shrunk by a dedicated team working intensively with the families to keep children in school, end domestic violence, force adults to kick drugs and drink and deal with mental health issues. Last week, in a response to the riots, David Cameron said all such troubled families would be helped within four years.
Although such "family intervention projects" were introduced by Labour more than five years ago in the four boroughs now targeted by the government, ministers said fewer than 150 families had been aided. The first of the new schemes will be running by April 2012. Investors will take a share of savings made by the government in a four-year period.
These profits could be substantial, with a pilot scheme in Westminster showing that £20,000 "invested" in a problem family could save £40,000 that would have been spent deploying social workers, police and child protection staff.
"We want this to take off pretty quickly," said Hurd. "I have had meetings with all the banks representing high net worth individuals who all wanted to talk about social impact bonds. Eventually we want a new asset class, social ISAs, where even me with my paltry savings could invest and get financial and social returns."
Hurd said the new bonds were a step change for the idea of social finance, with only one other bond proposed by the government. That first £5m bond, backed by the Ministry of Justice, aims to resettle 3,000 ex-offenders in Peterborough and reduce reoffending. If crimes committed by the former offenders fall by 7.5%, the funders could see an £8m payout.
Natasha Bishop, head of family recovery at Westminster council, told the Guardian that its scheme had been successful enough to bring more than a dozen families into work. "The biggest issue for us in Westminster was controlling the domestic violence issue. "We worked hard with police on getting information from families on how many times people had been hit or throttled."
She said the bonds would help councils recoup their own investments. "However, in the evaluation for our cutting-edge pilot with 50 families, the council helped to save 42% of the costs but received zero return on our investment. That will change."
