“The subsidies that privatization schemes like social impact bonds require are eating up funds that could be spent on front-line services Manitobans need.” — Larry Brown, NUPGE President
Ottawa (10 July 2017) — Manitobans should be suspicious of claims by cabinet ministers that social impact bonds “will give Manitobans better value for their money." A recent report shows how social impact bonds projects rely on large government subsidies.
British social enterprise, Social Spider, reported that between 2010 and 2016, the British government spent £44.7 (about $74.6 million) subsidizing social impact bonds, which only attracted £38.9 million ($64.5 million) in private investment. In other words, for every dollar private investors put in, the British government was providing a $1.15 subsidy.
“The subsidies privatization schemes like social impact bonds require are eating up funds that could be spent on frontline services Manitobans need,” said Larry Brown, President of the National Union of Public and General Employees (NUPGE).
Governments pay a high price when investors take risks
But subsidies are only one way that the public is paying for social impact bonds. Social Spider also found that, even though private investors only put in £38.9 million (64.5 million), governments could be paying out as much as £153.5 million ($254.7 million). This is in addition to the £44.7 ($74.6 million) in subsidies.
The potential high costs are because with social impact bonds, if a project fails to meet its targets, investors don’t get their original investment back. Politicians promoting social impact bonds boast about how they’ll only have to pay if a project meets it targets. They prefer to gloss over the premium they pay because social impact bonds are seen as a higher risk investment. And those politicians are even less interested in discussing how the issues with the way the success of social impact bonds are measured means that investors may not be taking that much of a risk.
Only 40 per cent of Canadian government's first social impact bond spent on frontline services
With the Canadian government’s first social impact bond, only 40 per cent of the money the federal government is spending will go towards frontline services. The project is meant to provide skills training. While the federal government is providing up to $2.75 million, the most colleges delivering the training will receive is $1.1 million. If the federal government ends up paying out less than the maximum, the amount colleges receive will also be reduced.
There are better ways to strengthen public services
In many cases, the social impact bonds are an attempt to replace much-needed services that were eliminated due to government austerity measures. The problem lies in the use of expensive privatization schemes like social impact bonds to fund them.
“The privatization industry and the politicians who support it try to portray social impact bonds and P3s as free money,” said Brown. “If the privatization industry was up front about the real costs of social impact bonds, no government would go near them.”
The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 370,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. ~ NUPGE