Good for the Poor, Good for Goldman Sachs

Laura Jones

Graham Allen, the Labour MP for Nottingham North, was commissioned by the coalition government last year to review the benefits of ‘early intervention’. In his first report, published in January, he found that many damaging and costly social problems can be averted or reduced by giving families the right support during a child’s first three years. It’s a persuasive argument, which has also been made in other recent reviews commissioned by the government from Frank Field, Clare Tickell and Eileen Munro.

The big question though is how to fund early intervention services when the government is committed to spending cuts.
Field thinks the answer is to give people parenting courses instead of benefits. Allen's second report, published earlier this month, sets out a way to pay for early intervention programmes by attracting extra funding from non-government sources. Private investors would be given tax breaks, to be paid for by the money saved as a result of early intervention: from children not being in care; from young people not being in the criminal justice system or on benefits.

The approach depends on being able to attach a price to an outcome, and on being able to link an early intervention programme to the achievement of that outcome many years later. Most of the time, the outcome will be negative – not being a teenage parent, a drug addict or a violent offender – which makes it hard to measure. Allen’s plan also depends on there being no additional demand on resources, so that 'late intervention' services can be decommissioned to generate the savings needed to pay back investors:

If social services no longer have to deal with family X, they would need to be able to pull that resource away rather than redeploy that resource to another family lower down the priority list.

Allen's review team have spoken to a number of potential investors, both corporate and individual. One of them said: 'Tax relief or tax incentives would encourage me to make an investment.' It all seems oddly convoluted, and makes you wonder if it wouldn’t be simpler – as well as more reliable, and more just – to make them pay for early intervention programmes through taxation. Though such a naive proposal would surely never get the endorsement of someone like the chairman of Goldman Sachs Asset Management, who says in Allen’s review that he has been ‘delighted to help support the thinking around these concepts’. Good to know that when a Labour MP is asked to come up with a plan for improving the lives of the neediest he takes the time to make sure it will help the rich get richer too.


  • 2 August 2011 at 10:45pm
    Dartington says:
    Never mind the bollocks

    Laura Jones is right to ask questions about private investment in public services as advocated by Graham Allen MP. What can these consistently irresponsible, untrustworthy business people who have neglected social responsibility do to improve the lot of impoverished children?

    When I was helping Graham Allen with his first report, I overheard one minister describe one of the proposed financial instruments as ‘a social investment bond without the bollocks.’

    We shouldn’t get too excited. Nobody, in the near future at least, is going to make money out of children’s services. Allen's two reports will result in the initiation of several experiments.

    What Allen and advocates of social finance like Sir Ronald Cohen are presaging is an increase in philanthropy -- charitable trusts and socially-minded individuals have been the main market for social impact bonds so far, though of course that could change.

    The catalysts for change are metrics that package risks faced by impoverished children in forms that the business community can understand, by attaching a cost to them. But more importantly, these methods parcel risks and outcomes in a way that all investors in children's services -- taxpayers, parliament, local authorities, central government, the NHS -- can understand and use to make better decisions.

    Some private investors are excited by this potential. But I would be surprised if as much as £500 million is realised annually. £200 million is a more realistic estimate. This is less than half of one per cent of the £55 billion that the public sector currently spends on children each year.

    The primary backers of children’s services work in the public sector, in local authorities, GP surgeries and schools. They are -- and have been -- as easily maligned as the business community. Some will welcome extra support from philanthropic or private investment. And some are going to implement Allen not only without the bollocks of social finance instruments but without the private sector altogether.

    In practice it is not the politics of making money out of poor kids that stands in the way of the reforms Allen advocates. The big obstacle is complexity. Predicting the economic benefits from any investment, public or private, has become relatively straightforward. Realising those benefits is really tricky.

    What drives Allen is helping children in his constituency and elsewhere in the UK to break out of a cycle of disadvantage that traps them into a life of poverty. More time spent stopping problems before they happen will help achieve that goal. Just one per cent of the £55 billion public purse allocated to policies and programmes that are proven to alleviate childhood disadvantage will go a long way to getting the job done.

    Closing the gap between rich and poor kids is the goal. Greater philanthropic investment is just one small way of achieving it.