I'm here today to talk about social change, not a new therapy or a new intervention or a new way of working with kids or something like that, but a new business model for social change, a new way of tackling the problem.
In Britain, 63 percent of all men who come out of short sentences from prison re-offend again within a year. Now how many previous offenses do you think they have on average managed to commit? Forty-three. And how many previous times do you think they've been in prison? Seven.
So we went to talk to the Ministry of Justice, and we said to the Ministry of Justice, what's it worth to you if fewer of these guys re-offend? It's got to be worth something, right? I mean, there's prison costs, there's police costs, there's court costs, all these things that you're spending money on to deal with these guys. What's it worth?
Now, of course, we care about the social value. Social Finance, the organization I helped set up, cares about social stuff. But we wanted to make the economic case, because if we could make the economic case, then the value of doing this would be completely compelling. And if we can agree on both a value and a way of measuring whether we've been successful at reducing that re-offending, then we can do something we think rather interesting.
The idea is called the social impact bond. Now, the social impact bond is simply saying, if we can get the government to agree, that we can create a contract where they only pay if it worked. So that means that they can try out new stuff without the embarrassment of having to pay if it didn't work, which for still quite a lot of bits of government, that's a serious issue.
Now, many of you may have noticed there's a problem at this point, and that is that it takes a long time to measure whether those outcomes have happened. So we have to raise some money. We use the contract to raise money from socially motivated investors. Socially motivated investors: there's an interesting idea, right? But actually, there's a lot of people who, if they're given the chance, would love to invest in something that does social good. And here's the opportunity. Do you want to also help government find whether there's a better economic model, not just leaving these guys to come out of prison and waiting till they re-offend and putting them back in again, but actually working with them to move to a different path to end up with fewer crimes and fewer victims?
So we find some investors, and they pay for a set of services, and if those services are successful, then they improve outcomes, and with those measured reductions in re-offending, government saves money, and with those savings, they can pay outcomes. And the investors do not just get their money back, but they make a return.
So in March 2010, we signed the first social impact bond with the Ministry of Justice around Peterborough Prison. It was to work with 3,000 offenders split into three cohorts of 1,000 each. Now, each of those cohorts would get measured over the two years that they were coming out of prison. They've got to have a year to commit their crimes, six months to get through the court system, and then they would be compared to a group taken from the police national computer, as similar as possible, and we would get paid providing we achieved a hurdle rate of 10-percent reduction, for every conviction event that didn't happen. So we get paid for crimes saved. Now if we achieved that 10-percent reduction across all three cohorts, then the investors get a seven and a half percent annualized return on their investment, and if we do better than that, they can get up to 13 percent annualized return on their investment, which is okay.
So everyone wins here, right? The Ministry of Justice can try out a new program and they only pay if it works. Investors get two opportunities: for the first time, they can invest in social change. Also, they make a reasonable return, and they also know that first investors in these kinds of things, they're going to have to believers. They're going to have to care in the social program, but if this builds a track record over five or 10 years, then you can widen that investor community as more people have confidence in the product. The service providers, well, for the first time, they've got an opportunity to provide services and grow the evidence for what they're doing in a really constructive way and learn and demonstrate the value of what they're doing over five or six years, not just one or two as often happens at the moment. Society wins: fewer crimes, fewer victims. Now, the offenders, they also benefit. Instead of just coming out of the prison with 46 pounds in their pocket, half of them not knowing where they're spending their first night out of jail, actually, someone meets them in prison, learns about their issues, meets them at the gate, takes them through to somewhere to stay, connects them to benefits, connects them to employment, drug rehabilitation, mental health, whatever's needed.
So let's think of another example: working with children in care. Social impact bonds work great for any area where there is at the moment very expensive provision that produces poor outcomes for people. So children in the state care tend to do very badly. Only 13 percent achieve a reasonable level of five GCSEs at 16, against 58 percent of the wider population. More troublingly, 27 percent of offenders in prison have spent some time in care. And even more worryingly, and this is a Home Office statistic, 70 percent of prostitutes have spent some time in care. The state is not a great parent. But there are great programs for adolescents who are on the edge of care, and 30 percent of kids going into care are adolescents.
So we set up a program with Essex County Council to test out intensive family therapeutic support for those families with adolescents on the edge of the care system. Essex only pays in the event that it's saving them care costs. Investors have put in 3.1 million pounds. That program started last month. Others, around homelessness in London, around youth and employment and education elsewhere in the country. There are now 13 social impact bonds in Britain, and amazing levels of interest in this idea all over the world. So David Cameron's put 20 million pounds into a social outcomes fund to support this idea. Obama has suggested 300 million dollars in the U.S. budget for these kinds of ideas and structures to move it forward, and a lot of other countries are demonstrating considerable interest.
So what's caused this excitement? Why is this so different for people? Well, the first piece, which we've talked about, is innovation. It enables testing of new ideas in a way that's less difficult for everybody.
The second piece it brings is rigor. By working to outcomes, people really have to test and bring data into the situation that one's dealing with. So taking Peterborough as an example, we add case management across all of the different organizations that we're working with so they know what actually has been done with different prisoners, and at the same time they learn from the Ministry of Justice, and we learn, because we pushed for the data, what actually happens, whether they get re-arrested or not. And we learn and adapt the program accordingly.
And this leads to the third element, which is new, and that's flexibility. Because normal contracting for things, when you're spending government money, you're spending our money, tax money, and the people who are in charge of that are very aware of it so the temptation is to control exactly how you spend it. Now any entrepreneur in the room knows that version 1.0, the business plan, is not the one that generally works. So when you're trying to do something like this, you need the flexibility to adapt the program. And again, in Peterborough, we started off with a program, but we also collected data, and over the period of time, we nuanced and changed that program to add a range of other elements, so that the service adapts and we meet the needs of the long term as well as the short term: greater engagement from the prisoners, longer-term engagement as well.
The last element is partnership. There is, at the moment, a stale debate going on very often: state's better, public sector's better, private sector's better, social sector's better, for a lot of these programs. Actually, for creating social change, we need to bring in the expertise from all of those parties in order to make this work. And this creates a structure through which they can combine.
So where does this leave us? This leaves us with a way that people can invest in social change. We've met thousands, possibly millions of people, who want the opportunity to invest in social change. We've met champions all over the public sector keen to make these kinds of differences. With this kind of model, we can help bring them together.