Justice Secretary Ken Clarke has embraced the scheme A “payment-by-results” project to cut re-offending is being officially launched.
Investors have put £5m in social impact bonds to fund rehabilitation work with 3,000 Peterborough Prison inmates.
They could earn a potential return of £3m from the government if their cash helps to rehabilitate criminals.
The project, which may also cut court and jail costs, was given the go-ahead by Labour and has been embraced by new Justice Secretary Ken Clarke.
Mr Clarke has indicated the scheme may be introduced in other prisons in England and Wales if it is successful.
The social impact bond scheme is jointly run by the Ministry of Justice and Social Finance, an ethical investment bank run by a former top City banker.
The money raised by Social Finance from charitable trusts and social investment groups will fund organisations including the St Giles Trust, a specialist charity with a proven record in rehabilitating offenders.
If the money cuts reoffending, the scheme could return £8m to investors, comparable to an annual return of 7.5% in a conventional bond-market investment.
Reoffending among the target group must fall by at least 7.5% to trigger the dividend payments in each of the six years of the bond’s operation.
The return on social impact bonds is seen as a share of the financial benefit gained by society made when a criminal goes straight.
But as with other finance bonds, there is no guarantee of a return and investors could lose all of their money if reoffending does not fall.
Kevin Bigg is 26 years old and was jailed for 14 weeks for shoplifting. He entered prison with a £300-a-week drug habit. He will leave prison later this month and receive intensive support.
“I’ve been in and out of prison since I was 19. I hung around with the wrong type of people, taking drugs, unfortunately. I think this scheme is a good thing.
“If they can help me to keep out of prison, if they can help me to find work, and that’s my problem, that will stop me reoffending.”
The scheme was originally launched by Labour ministers before the general election, but has had cross-party support since.
The prisoners sentenced to less than a year at Peterborough Prison will take part in the scheme.
Specialists in cutting rehabilitation will give each inmate intensive help to reform throughout their sentence and continue the high-levels of support once they walk through the prison gates.
Mr Clarke said that reoffending was the “weakest bit of the criminal justice system” and that the radical bonds would help tackle it without using taxpayers’ money.
“It pays by results,” said Mr Clarke. “We’re going to pay what works and what works should therefore grow and what doesn’t work will vanish.
“I like the innovative funding, the payment by results, the collaborative groups, and if it succeeds if will grow and if it doesn’t, by that time we will be trying something else.
“But sooner or later, something has got to be done about reoffending.”
Social Finance said there would be indications of whether project was succeeding within a year but the full return would not be known until the end of the six-year investment term.
Social Finance director Emily Bolton said: “Investors benefit and the government gets some cost savings. The better the reductions in re-offending, the higher the investors’ return
“It’s not taking money out of the system, in fact it’s enabling us to transfer the money to more socially valuable things.”
But Paddy Scriven general secretary of the Prison Governors Association, said the scheme must not exclude the most persistent offenders.
He said: “If we’re looking at tackling reoffending, then this is a very positive step, providing it works.
“The thing that has to be guarded against is that if this sort of scheme spreads and it is payment by results, that the not-for-profit sector people and charities that are administering it don’t cherry-pick the most likely successes and leave the very hardline cases to the Prison Service, or more importantly the Probation Service. Then the success is measured unevenly.”
Jon Collins of the Criminal Justice Alliance, a reform campaign group, said: “This exciting pilot project has the potential to successfully rehabilitate thousands of prisoners by providing them with the support that they need to turn their lives around.
“Bringing money in from new investors to fund this work will also ensure that it is able to continue at a time when the Ministry of Justice’s budget is facing severe cuts.”
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