Human Resources Committee on April 28th, 2015

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Thank you very much, Madam Chair.

I want to thank Mr. Boyle for being with us this afternoon. It's been fascinating.

I'm going to focus first on the supply side. I have a couple of questions there and then I'm going to move back to what Mr. Cuzner was on with the youth unemployment and your comments there. You talked in your presentation about three aspects of the supply side. The first one you focused on was the Big Society Capital. I've done a little reading on this and I think it's been fairly successful. I don't know if you would agree with that, but from what I've read about it has.

Can you describe what that is, how the funds were put into that particular fund, and how those funds are accessed by you? Could you just really quickly go through that for us?

[Kieron Boyle]

It's independent to government. It was capitalized with £600 million, and £400 million of that came from dormant bank accounts, so unused bank accounts where there was legislation that allowed those to be used for the purpose of supporting a social investment wholesaler. Another £200 million came from our largest high street banks. It's been set up to be independent to government and to be self-sufficient, by which we mean that, when it invests, it invests with the intent of getting its money back and covering its costs.

The way it predominantly works is by being a cornerstone investor in social investment funds and those social investment funds themselves specialize in certain areas, with different types of lending to different organizations.

It was set up in 2012 and it's been running for a couple of years. It's now supported over a hundred front-line organizations. When it was set up there were about eight funds in the U.K. and there are now over 30 of those funds.

I think perhaps crucially what it's done is it's unlocked about two times the amount of money that it itself has invested through private markets.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

So that fund's been able to basically seed the ability for these organizations to use that money to leverage other funds coming from other sources, both private and public, I'm assuming.

[Kieron Boyle]

It's predominantly private actually. There hasn't been much public investment alongside Big Society Capital.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

I want to step over to the £30-million fund you were discussing with Mr. Cuzner on youth unemployment, because you were kind of cut off there.

It's focused on 14- to 17-year-olds. It's focused on probably basic work skills and getting into the school, building some entrepreneurial skills, and some apprenticeships. Can you just focus on some of the details of how that fund is used?

[Kieron Boyle]

Yes. Essentially it's being used in a variety of different ways, none of which we as government are specifying. We have specified the outcomes that we would like to see—and I can send this if it interests the committee. It's things like school attendance, behaviour at school, grades.

Essentially we have done a lot of data matching to say, if you achieve those sorts of things, what is the likelihood that somebody becomes employed or unemployed at age 18? That's around our knowing how much we save when somebody's employed at 18 versus unemployed at age 18. We've been able to put a price on those outcomes occurring for ages 14 to 17. We then put that out to the market, and predominately social enterprises and social sector organizations have said they can achieve that. The way in which they're achieving it is even in the sorts of ways that you're saying.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Just to be clear, do you actually follow the particular students and track them once they do become 17? I know it hasn't been around that long so it's probably a small dataset. But are you actually going to track the students who are going through these programs to see if this actually has the impact of improving their employment?

[Kieron Boyle]

Yes, particularly with these first social impact bonds that have been set up. They're heavily evaluated so they will be spotting the longer term outcomes for these youths.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Is the government doing that, or is that the responsibility of some of these organizations?

[Kieron Boyle]

In the first instance, the government is funding most of that because we want to know whether this approach works.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

In the model that you put out there for the youth unemployment, the organization develops the curriculum or the program, the government provides the funds through the £30-million fund, and at the end, the government is responsible for the evaluation and the integrity of the program. Is that accurate?

[Kieron Boyle]

Yes.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

I want to go back to the supply side. You talked about some of the tax relief that you were using to inspire some private sector investment. Can you talk about some of the changes you made to the program so that organizations are more likely to invest in these approaches?

[Kieron Boyle]

Yes. Essentially, in a similar way as I said to your colleague Madam Sims, we replicated for organizations that aren't allowed to release equity, the ability to get similar tax relief as those that are. Beyond that, and beyond some promotion of that tax relief, we didn't do anything more, the idea being that there was a gap. There was not a level playing field for social sector organizations in accessing the same sort of business tax reliefs that commercial organizations were.

We set this up. It went live late last year. A number of deals have happened already. Some have happened around social impact bonds as well, because social impact bonds were made eligible for this tax relief.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Thank you for that.

When you're talking about tax relief, just how significant was that tax relief? Can you give us some examples?

[Kieron Boyle]

Yes. It's generous. It's a 30% tax relief on people's income tax to the same kind of qualifying amount. There are also a number of other benefits to it, for example, capital gains and similar other capital losses can be deferred through this tax relief. It is amongst the most generous tax reliefs that we have in the U.K.

[The Vice-Chair (Ms. Jinny Jogindera Sims), NDP, Jinny Sims]

Thank you very much.

I just have a follow-up question; it may be a clarification I'm seeking.

Having taught in England and knowing how the educational system works there, I have a question about this £30 million you've allocated to social impact bonds and to study important elements so 14-year-olds and 17-year-olds can be engaged. Is that investment actually into the public school system? Or is this money sitting outside for hiring some additional people, let's say, parole officers or truancy officers, to get the kids back into school?

[Kieron Boyle]

It has been sitting outside of that system, so there has been more than £30 million that has gone into social impact bonds within the U.K. It's closer to over £100 million pounds—

[The Vice-Chair (Ms. Jinny Jogindera Sims), NDP, Jinny Sims]

But the other—

[Kieron Boyle]

Specifically on this, it is outside the school system.

Now, interestingly, a number of schools have paid into this outcomes pot as well; i.e., they have paid in themselves because they would like to see these outcomes being realized in students who pass through their schools.

[The Vice-Chair (Ms. Jinny Jogindera Sims), NDP, Jinny Sims]

All of us would.

Thank you.

Now, we go to Madam Groguhé.

[Sadia Groguhé, NDP, Saint-Lambert, QC]

Thank you, Madam Chair.

Good afternoon, Mr. Boyle.

You mentioned some of the risks of social finance. Could you give us some examples? Starting from that point, how can we avoid those risks?

[Kieron Boyle]

Thank you for the question.

Perhaps I can pull out two specific risks that we sometimes see in our work, one that exists for the individual investor, and one that exists for government contracting in an imprecise way.

For the individual investors, there is and remains the consistent risk that an investment will be put in front of them that they feel is offering both social returns and financial returns, but in some sense it is masquerading on one or the other of those. I don't think that is a distinct or unique risk for investors, but it is something within the U.K. that many in the field are concerned about, making sure that there is integrity to the social investment opportunities out there.

For government, beyond some of the conversations that we've had today around the political dynamics being complicated, around whether this is making the state more effective or replacing the state, there are specific issues that we have seen around payment-by-results contracts separate from social impact bonds.

One of the risks we have seen in payment-by-results contracts or payment-by-outcomes contracts is that this government is very accurate with pricing, and often some of the most vulnerable people can be left behind, essentially because providers will take an economic decision that they are not being paid enough money to help those people out.

Part of our focus in the U.K. on social impact bonds has been seen as a response to that by saying that if you can have a broader range of providers, including mission-locked providers—charities, for example—they are much less likely not to help the hardest to help, but much more likely to help them. In some sense there is more of a partnership going on than just a straight...almost like a football match where one team wins, either the government or the providers they are with.

Those are two of the particular risks that we hear spoken about.

[Sadia Groguhé, NDP, Saint-Lambert, QC]

Clearly, social finance brings with it a lot of challenges. Some have been mentioned, including measurement and evaluation, which present huge challenges.

I would like to hear your views on the place of accountability and transparency in social finance.

[Kieron Boyle]

There are two perspectives.

The first perspective is to say that, just on the outcomes piece, this is a challenge. I would say that social investment within the U.K. is much wider than outcomes-based partnerships. They are potentially less than 10% of the social investment market within the U.K. People in government, like me, talk about it quite a lot because it is the bit that touches us.

In terms of your broader question, though, what are the distinct risks? I think that a lot of the challenges and complexities that social finance faces are actually no different than the sorts of challenges there are in any way that people are trying to translate their intent to have social impact into impacts occurring. It is one of the areas that we will discuss quite a lot within the U.K.: what are the distinct challenges of social investment beyond, for example, government contracting or people trying to see a social impact?