The government’s efforts to interest venture capitalists in funding public services have got off to a good start. The Ministry of Justice and the Department of Work and Pensions are trying to channel speculators’ capital to charities and social enterprises that can solve entrenched problems – improving people’s lives, and reducing service costs in the years to come. Splitting the future savings with investors, the coalition hopes to foster a thirst for socially-beneficial investments among City financiers.
This approach could produce a genuine win-win, in which private cash fosters new approaches to delivery that departmental accounting officers would deem too experimental for public funding, while supporting the voluntary sector, reducing future demand for services, and making profits for those investors who get it right. But there are three obvious challenges.
The first is the need to ensure that public cash invested in ‘pump-priming’ really does lead to a self-sustaining flow of capital. As the Cabinet Office’s voluntary sector minister, Ed Miliband invested heavily in schemes designed to pull private finance into the broader social enterprise sector. But when he stopped pumping, the flow died to a trickle: without public support, social enterprises remained a risky, narrow-margin investment. So Miliband showed only that subsidies can make social investment viable; the MoJ and DWP must make their model work without public cash.
Recognising and quantifying future savings, and splitting them with investors, is a perfectly good way of achieving this. In the long term, though, this approach requires a solution to the hoary old problem of measuring benefits and recognising value across departmental lines. If these pilots are successful, the advantages – reduced future demand for services, and improved outcomes – will be felt across Whitehall; but such averted costs are notoriously hard to assess and attribute. Unless this issue is tackled, the pioneers will soon become tired of paying out to realise future benefits which accumulate to their freeloading peers.
Finally, politicians must explain clearly that, when successful, this model involves private investors (probably including – horrors! – some bankers) making a profit out of public services. Here, the agenda is in the right hands: both the DWP’s Iain Duncan Smith and the MoJ’s Ken Clarke are far more interested in workable, effective policymaking than in appeasing our aggressive, ever-outraged media. Even for them, this is a hard sell at a time of justifiable anger with our finance industry. But to break the classic Whitehall pattern of creating endless pilots – each abandoned as ministers move on and agendas change – and turn this exciting, innovative idea into a sustainable new delivery model that improves people’s lives and relieves the future pressures on public services, ministers will have to step up and make the arguments. If they do so, they might just achieve something quite remarkable.