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Bookmark and ShareEilís Lawlor is the acting head of the Valuing What Matters team at nef.

SROI

Yesterday saw the launch of the new Social Return on Investment guide, co-authored by nef staff and backed by the Cabinet Office. This is good news for organisations and institutions that wish to account for their performance across the triple bottom line. It is also timely in the current economic environment when the pressure is on to cut costs and make immediate savings. Taking an SROI approach involves thinking about value in a different way – beyond costs and financial savings and over the longer-term. This is in sharp contrast with the recent budget proposals to claw back funds through efficiency savings; these are essentially cuts which will ultimately jeopardise frontline services. Where these services are delivering value, cutting back will lead to poorer outcomes and greater long-term costs.

A guide to Social Return on Investment

SROI promotes the idea of ‘social value’, a concept that is gaining increasing currency across the political spectrum. In some ways its legitimacy is indisputable; few people would argue that things that are bought and sold and have an ‘economic value’ are the things that matter most, yet in our daily lives we generally unwittingly accept that to be the case. What people have resisted is the notion that this type of value is measurable and quantifiable. While concerns about this are understandable they are misguided and ultimately unhelpful. Somehow we have convinced ourselves that what we pay for goods and services equates with some intrinsic value. Instead, what the market does – in fact what is effectively for – is to bring together people whose valuations happen to coincide. This ‘coincidence’ is called ‘price discovery’ but it is not uncovering any ‘true’ or ‘fundamental’ value, rather it is matching people who agree on what something is worth. Calculating social value is the same as this in virtually every way. The difference is that goods are not traded in the market and so there is no process of ‘price discovery’. This does not mean, however, that these social goods do not have a value to people.

Why does this matter? It matters because it is about more than the logic of an abstract philosophical debate. By ignoring value that is created and destroyed outside the market we have given far greater significance to things that are bought and sold than they perhaps merit. This has grave, practical implications that have helped to lead us down the shaky and unsustainable path we are now on.

The debate that has raged about the efficiency of the Post Office network encapsulates this well – people feel that there was a value to it beyond what can be measured financially, and yet decisions about its future are made largely on a financial basis. Measuring and quantifying social value will never be an exact science; the subjectivity of value makes that impossible. This did not prevent us creating markets and developing accounting practices to enable us to carry on the business of everyday life. Neither should it prevent us seeking to reduce inequalities and improve the health of the planet by bringing onto the balance sheet the real and costs and benefits of the decisions and trades that we make. SROI is the most developed and robust methodology available for doing this. It is now being mainstreamed in the third sector, which has led the way on innovative measurement but its potential is much greater than that. We need to get to a stage where our actions and behaviours are judged and rewarded by the extent to which we create or destroy value in its broadest sense, if we are to find an equitable and sustainable way through the many problems we currently face.

Bookmark and ShareJosh Ryan-Collins is a researcher in the Connected Economies team at nef.

Demanding efficiency savings from our public services now is like asking us to burn our lifeboats in the middle of a storm. The unintended consequence of efficiency savings is that they erode local public services. Ultimately this impacts most on the poorest in the UK who are least responsible for causing the crisis, exacerbating already untenable levels of inequality and storing up more problems for later.

Measures to rebalance the tax burden are welcome, but don’t go far enough. With the worst impacts of the recession still to play out in full, the Government should be using this opportunity to take a progressive approach to taxation so that the companies and individuals who have benefitted most pay their fair share, ensuring that we can invest in the public safety nets we need to protect us from the worst impacts of the recession, and against future shocks. In addition, measures to help local businesses win public procurement contracts would both help to shore up front line services when they are needed most, and keep more money circulating in our local economies for longer.

For more on the real costs of efficiency measures, see nef’s report A Better Return.

Bookmark and ShareEilís Lawlor is the acting head of the Valuing What Matters team at nef.

sroi-guide-coverHardly a week passes without news of looming cuts and fresh evidence of the implications of the recession for public services.

In a recession the temptation to cut back is strong. We have already had some worrying signals from Treasury – the hole in the government’s budget is to be clawed back in part through another £5bn in ‘efficiency savings’. So far these have amounted to stealthy cuts in frontline services under the guise of a leaner state. There is no reason to believe future rounds will be any different.

Yet government’s thin interpretation of efficiency is a false economy. Failing to invest now, when unemployment, crime and poverty are set to rise and an impending environmental crisis requires urgent investment, will only lead to costs of greater magnitude later.

Now more than ever we need to think about public spending less as a ‘carve up’ between competing ends and more as an investment in a better future. This cannot be achieved by penny pinching in the short term but by using the State’s resources to maximise the creation of public value – long-term social, economic and environmental outcomes.

A new approach to investment is needed that puts measuring and valuing what matters most to individuals, communities and societies at the heart of public sector decision-making. Such an approach, targeting positive social, economic and environmental outcomes, will lead to more informed policymaking, help build effective public services and have significant positive implications for the public purse.

nef research across three very different policy areas – economic development, children in care and criminal justice – shows the benefits of this approach. Valuing the improved well-being of children in care – rather than focusing on the unit cost of delivering that care – could help ensure that more appropriate placement decisions are made, improving the life chances of those children and offering a long term social return of £6 for every £1 invested. Savings over 20 years could pay for the entire annual care bill each year.

Women offenders are likely to fare better in life if custodial sentences are eschewed in favour of community penalties that enable mothers to maintain contact with their children. In the short-term money is saved on services for these children. Longer-term there is reduced risk of children becoming offenders and a better chance of the kind of educational attainment and social adjustment that will translate into lower societal costs through the welfare and criminal justice systems. Using Social Return on Investment we found that for every £1 spent on alternatives to prison that reduce reoffending, an additional £14 worth of social value is generated.

Measurement matters because it both reflects and reproduces the priorities of government and institutionalises behaviours. We are about to publish a set of principles for policymakers, that are a distillation of our research findings and can guide policy-makers who want to create better services. The first of these is about measuring outcomes: the positive and negative change in people’s lives, communities or the environment as a result of policy.

Despite rhetoric emphasising the importance of outcomes government still does not adequately measure the effects of its policies on long-term social, economic and environment well-being. Focusing solely on what is timely, tangible and easily quantifiable has not served us well: investment in public services has increased since the foundation of the welfare state, yet the place and circumstances of our birth predict our future health, educational and economic prospects now more than they did then.

Public services face the twin challenge of rising needs and increasingly constrained resources. Experience suggests that direct financial considerations on their own are not very helpful to meeting these challenges. As we lurch from one weak economic indicator to the next, it is easy to miss the opportunities this presents the State. There is too much at stake to get this wrong, not just in terms of social outcomes but also in financial implications for the public purse: ineffective public services cost us all more in the long run. To paraphrase Alistair Darling on banks, the response to the question, can we afford to invest in public services must be can we afford not to?

A version of this article was published in Public Servant Magazine.

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nef employees blog in their personal capacity. The opinions expressed here do not necessarily reflect those of the new economics foundation.