In the face of the UK’s ongoing healthcare crisis, the public sector is under immense pressure.
An ageing population, the aftershocks of the pandemic and the prevalence of long-term health issues have pushed the NHS to its limits. Despite the unwavering dedication of NHS staff, our current crisis management approach is unsustainable, both financially and practically.
At the same time, the recent cost of living pressures have made traditional revenue-generating models, such as taxation, politically untenable. Civil servants are squeezed between soaring demand for public services and their limited ability to fund them.
Enter social outcomes contracts (SOCs) – an innovative and urgently needed solution, especially in healthcare.
What are SOCs?
SOCs are outcomes-based funding models – in other words, they aren't paid for unless the desired outcomes are achieved.
Under these agreements, public sector bodies commit to funding specific outcomes for target groups, with investors (who are looking to achieve social impact, alongside sustainable returns) fronting the necessary funds. Crucially, these impact-driven investors are only repaid if the desired outcomes are achieved.
In healthcare, SOCs typically focus on preventative measures – from promoting healthy lifestyles to managing long-term conditions. These initiatives help keep people healthier for longer, which is a more comfortable outcome for them and their families while also alleviating pressure on the NHS.
One notable example is the community-led service Thrive, which worked with 1,500 people in Northeast Lincolnshire, via a social prescribing model, which focuses on addressing social and environmental factors to support individuals’ health and well-being. Thrive reduced hospital attendance for this group by 35% and GP usage by 11%, freeing up time for the NHS while also significantly improving the quality of life of the individuals involved.
Crunching the numbers
SOCs transfer the financial risk of social projects to socially motivated investors, ensuring public funds are used effectively. Importantly, these contracts are tried-and-tested, with proven results in the UK. Investors, include impact investors (like BSC), as well as pension funds and high-net worth individuals; and whilst ultimately, they are looking to create social impact, they’re also still aiming for sustainable investment returns. As investors aren’t paid unless their SOC succeeds, there is a greater onus to select programmes with a high likelihood of success.
Recent research by ATQ Consultants highlighted SOCs efficacy. The 86 SOCs featured within the report have saved taxpayers £507 million, generating public benefits nearly nine times their contract value. In healthcare alone, SOCs saved the NHS £128.6 million at a cost of just £26.6 million to the commissioner.
While SOCs are not the only approach for harnessing private investment to deliver solutions for complex social issues, they can be an innovative way to fund crucial areas – healthcare chief among them.
The power of measurable results
Not only do SOCs deliver impressive value, they’re also a highly measurable funding model – they have to be, since payment is contingent on delivered results.
Unlike traditional funding approaches where success is gauged by inputs and activities, SOCs demand that every pound invested is tracked against its social return.
The robust data generated through this process provides valuable insights to support continuous improvement and evidence-based policymaking. Additionally, as investors come under pressure from their stakeholders to deliver measurable social good, SOCs are likely to be an area of growth.
The nature of outcomes-based funding also offers a flexible funding approach that appeals to policymakers and their constituents alike.
Instead of being bound by rigid program structures, providers within an SOC framework are empowered to adapt and improve their approaches to secure the desired outcomes – a key factor behind their success.
The average taxpayer also isn’t concerned by how exactly a social outcome is achieved; they just want to know their money is well-spent and that their community is cared for in times of need. The flexibility of SOCs allows governments to meet those demands with solutions that grow with communities and respond in real-time to feedback and changing circumstances.
Looking ahead: How to spend a tight federal budget
With nearly £3,000 billion in government debt,[1] the status quo in UK public service delivery is simply unsustainable. We want to partner with the new Labour government on this priority and encourage more commitments to new and better-value models that provide public good.
While the SOC funding model may initially appear more complex, these contracts have already been implemented across the UK to great success. The evidence is compelling: SOCs deliver significant social value and fiscal savings, all while supporting those residents who need it most.
As we look to the future, it is imperative that governments and policymakers think differently about public service funding. By clearly defining their desired outcomes and committing to paying only for success, civil servants can ensure that public funds are used efficiently and effectively, paving the way for a more sustainable approach to the UK’s ever-tightening purse strings.
[1]https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicspending/bulletins/ukgovernmentdebtanddeficitforeurostatmaast/december2023#:~:text=1.,equivalent%20to%206.0%25%20of%20GDP