Health Ministry still keen on social bonds despite failed pilot

Wednesday 6th July 2016

The Ministry of Health is still pursuing the government's social bonds pilots, claiming to have learnt a number lessons after the Wise Group withdrew from what would have been the first programme funded with such an instrument.

Hamilton-based Wise Group, a charitable organisation seeking to enhance the wellbeing of people and communities, withdrew from negotiations with the ministry over a potential social bond to fund a pilot delivering employment services to people with mental illnesses. The ministry kicked off talks with Wise and its financial arranger, ANZ Bank New Zealand, last year after the 2015 budget set aside $28.8 million for social bond programmes, "but at this late stage, they have advised they are not able to proceed with the contract," ministry chief strategy and policy officer Hamiora Bowkett said in an emailed statement.

"That is not unexpected in a process like this and the work to progress the social bond continues," Bowkett said. "One of the goals of the pilot was to develop and grow knowledge in the market on outcome-based contracting and establish a toolkit of templates and lessons learnt, which are being applied to subsequent bond pilots. This has been achieved."

A social bond allows the introduction of new, private money into social programmes without increasing public debt and without the need to decrease existing spending, with investors paid based on the level of social value achieved. But they bring "significant public policy and economic difficulties", such as evaluating the success of the contract and potential for a low rate of return with high risk, according to a 2011 report by Ross Philipson Consulting for the Department of Internal Affairs.

Institutional investors have indicated an interest in social bonds in theory, though have been more cautious about backing them given their relative infancy as a tool to offer investors incentives to achieve better social outcomes.

Bowkett said the ministry is still committed to social bonds to offer employment support for people with mental health problems and is "looking at a range of options". The ministry is also pursuing other pilots. Its website says work on a second social bond topic began earlier this year, but it won't disclose details.

Labour Party health spokeswoman Annette King today called the social bonds programme a failure, while the Nurses Organisation's mental health arm said those services need to be "funded properly by the government".

King said $1.6 million has been spent on social bonds to date and a further $360,000 has been set aside for the coming year without much to show for it.

However, a similar format has been adopted without government involvement by the Eat My Lunch service, using PledgeMe's peer-to-peer lending platform to sell 'Lunch Bonds'. Eat My Lunch is a for-profit business where a customer buys one lunch, and another is delivered to a child in need. The company wants to raise $500,000 through the peer-to-peer lunch bonds, where an investor can receive 6 percent annual return for five years. Nine days are left to run on the campaign, and $250,000 has been raised so far.

Wise communications manager Elizabeth Woods confirmed the charity had withdrawn from social bonds, but said it couldn't comment further and was redirecting all media enquiries to the ministry at its request.

The Wise Trust received $71 million from government grants and contracts in the year ended June 30, 2015, making up the bulk of its $74.9 million of annual revenue. It generated a surplus of $791,000 in the year, financial statements filed with the Charities Commission show. The charity spent $22,000 on advisory services for advice on integrated social service provision in 2015.

BusinessDesk.co.nz

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