Earlier this week, Prime Minister Gordon Brown gave a speech about "smarter government" and, in it, referenced a new project to pilot the use of social impact bonds. He says:

"What we call social impact bonds – money paid out now to deal at root with the causes not the symptoms of a problem – will reward social investors for work which reduces future social costs, for example, in seeking to lower the reoffending rate of those coming out of prison.

"Effective government action helping, for example millions of carers, does not crowd out social responsibility. it helps to enrich and strengthen it especially in the most hard-pressed communities."

An accompanying report, "Putting the Frontline First: smarter government", outlines how these bonds would work:

"Historically, charitable trusts and foundations have sought to prevent acute social problems in the UK, using grant funding to improve social outcomes. But without reliable large-scale funding, trusts and foundations can only be effective on a relatively small scale. Social Impact Bonds attract non-government investment into their activities, with returns generated from a proportion of the related reduction in government spending on acute services. Social Impact Bonds have the potential to unlock an unprecedented flow of social finance. By focusing reward on outcomes, organisations are incentivised to develop innovative interventions to tackle social problems. They will enable foundations, social sector organisations and government to work together in new partnerships to define social problems and transform the way many social outcomes are achieved."

It goes on:

"We will pilot Social Impact Bonds as a new way of funding the third sector to provide services. the Department for Communities and local government (Clg) is actively developing a pilot to use social impact Bonds to draw in new investment into third sector service provision. this has the potential to radically change how government funds the third sector, by rewarding social investors for work which reduces future social costs.

"We will finalise the model for a Social Investment Wholesale Bank,
providing capital to organisations delivering social impact and ensuring the long-term sustainability of social enterprises. the process of engaging with potential providers of the Bank will commence by Budget 2010. We plan to provide the necessary launch investment for the Bank from the Dormant Accounts scheme, subject to resources, as well as funding for youth facilities to ensure that in every community there are places to go for young people, and funding for financialcapability. We will also strengthen our support for community asset transfer and ownership by promoting wider use of community shares from early 2010 and reviewing scope to relax existing clawback conditions on publicly funded community assets.

"We will develop criteria on social assets by Budget 2010, to determine whether alternative delivery structures such as cooperatives or third sector entities would offer the greatest value for public assets. this will include looking at how civic organisations could be given new rights to access unused spaces.

"We will financially support innovative programmes to bring services together with civic society.This includes the Young Foundation pilot programme to bring entrepreneurs into primary care trusts to stimulate innovation and strengthen relationships between the local community and frontline public service professionals. this also includes supporting the ‘innovation exchange’ in the next financial year to bring together third sector organisations with the most innovative ideas on tackling social problems with local public service commissioners and investors. Also, building on recent young Foundation41 work on civic society, we will explore further options to strengthen interaction between neighbourhood services and citizens."

The blogosphere has been abuzz. Read commentary here and here.