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Conventional wisdom says the snow has been bad for Britain, with lost economic output of between £230 million and £600 million a day. These are substantial sums; not welcome news for British businesses also weathering a recession. But does this figure capture the most important aspects of the turmoil brought by the weather? We are all affected in different ways and surely to look at the financial loss to one part of society is too narrow a view. Valuing What Matters is all about looking beyond the easy-to-measure outcomes, and capturing those more intangible costs and benefits. Our valuing methodology – Social Return on Investment – brings a much wider range of outcomes onto the balance sheet.
So, what kinds of things are missed out in simply valuing absenteeism from work? Well first there are other arguably more important costs. Most people care greatly whether elderly relatives and neighbours will cope and get the support they need. In addition, it is estimated that there are close to 1,000 people sleeping rough every night in the UK. A focus on economic productivity has the effect of reducing the value of the costs and benefits to these citizens who are not in formal employment and are not big spenders.
And what about the positive impacts of the snow? Most of us have seen the snow create a quantity of happiness as people spend extra time with friends and family, say hello to and help neighbours, build snowmen together and benefit from the simple visual pleasure of a world covered in clean snow. Staying at home for work and school has led to impromptu family time, which has undoubtedly been both positive and negative!
2010 – a year of cuts
The year 2010 will be filled with political debate about public spending. When and to what extent should the state budget be cut? What areas should government continue to invest in?
Thinking about the value of snow is a useful way into explaining the challenge of calculating costs and benefits of public spending. People rely on traditional financial measurement not least because it is straightforward. This is part of the reason why discussions have taken the level of cuts as a starting point, rather than the outcomes we need most as a society, and how we share out the pie to try and achieve them. From a valuation perspective, there is a serious risk of false economies being created on a grand-scale as cuts sow the seeds of greater social deprivation and for heightened social problems in the future.
Our work in 2010 will continue to demonstrate the validity of this argument. A report examining spending in the field of youth justice will be published in the end February. Punishing costs will look at the consequences of high level of incarceration of children in England and Wales. It will show how the resources used in these mostly damaging interventions could be channelled into rehabilitation and prevention of crime. Such positive spending is not bloating the state budget; it is actively reducing the need for reactive expenditure elsewhere.
The second is our independent re-evaluation of the case for Runway 3 at Heathrow airport. This project takes SROI methodology into the realm of infrastructure decisions for the first time. We intend to add a fresh perspective to the highly-charged debate around Heathrow, and to demonstrate how a more holistic analysis can help achieve better, more accountable decision-making for infrastructure projects which can impact generations to come.
Looking Further Forward
The real value of work: In the same way that snow is not a purely economic issue, we will continue our research on the social, economic and environmental impacts of work. Later in the year, we will be building on the work behind A Bit Rich: Calculating the real value to society of different professions, published just before Christmas. The report generated huge media and public interest in Britain and abroad as it tapped into an instinctive feeling that the salary structure in our system is not following priorities for a healthy society.
Inequality: A new branch of the VWM work will look at, arguably, the biggest source of negative externalities in society: economic inequality. Economic inequality is not only unjust and corrosive for society it also results in lower health and wellbeing outcomes for everyone – even the rich. As we continue to see bankers receive obscene bonuses and tax havens for the already super rich it is more important than ever to be building a strong case for the political elite to make lowering economic inequality, rather than simply poverty, a policy priority. In particular, we will be unravelling the structural causes of inequality; highlighting the ways in which it has resulted in a number of social and economic misdemeanours in society including youth unemployment; and advocating policy solutions. Work is already underway – look out for our report written for the Joseph Rowntree Foundation which will be published later in the year.
The real price of a shopping basket: The production of all goods has social and environmental impacts. As a rule, few of these impacts are reflected in the prices, but what if they were? Would a locally grown, organic apple be cheaper or more expensive than an imported one? Would a train ticket cost less than a flight? Our report will provide some concrete examples of the real prices of items, as well as new insights into the debate on corrective taxes.
Privatization and outsourcing: Another area where an analysis of social value can provide surprising conclusions is the privatization and outsourcing of public services. Shifting the provision of services to the private sector is justified in terms of cost savings. But when the result is large cuts in payroll or the flooding of public space with advertising, these savings may be exceeded with indirect costs elsewhere. Our report on the topic will study the benefits and disadvantages of this trend.
There is much debate about whether snow will become a feature of the British winter and if the billions necessary to invest in snow-proofing our transport systems are worth it. Perhaps by the time it snows next year we will have faced up to the level of investment needed to tackle climate change, which unlike snowfall has little upside.
Some commentators believe that the worst of the current recession is behind us. Whether this is true or not, we can be sure that its full social consequences have not yet been felt. People are still losing their work, and unemployment may well rise to 3 million next year. Drastic cuts in spending may make this harmful trend worse.
As previous nef research expected, the recession increases the gap between wealthy and poor areas. Recent research by the Joseph Rowntree Foundation the communities that already had highest unemployment have suffered the largest losses of jobs. These areas don’t suffer only from a lack of employment. The downturn has also forced over half of local authorities to reduce their staff and cuts services. The poorest neighbourhoods suffer from both job losses and a cut in the services that support them.
In the form of benefit payments, billions of pounds are spent on these areas. These resources succeed in keeping their recipients out of the gutter. At the same time, benefit payments constrain claimants’ possibilities to improve their lives. Our social security functions more like a trap than a ladder, and is fuelling the deprivation of poor communities.
Welfare reform has for long focused on making work pay. nef’s new report, Benefits That Work, shows that purely financial calculations don’t capture what matters to the unemployed. Benefit claimants are above all concerned that accepting work will make their life more insecure. Benefits systems are function like an on-off switch; either you are on it or not. This makes it insensitive to the fickle and uncertain nature of today’s labour market. Taking up a job with irregular hours and no employment protection risks leaving people penniless.
The benefits spend could be channelled so that it allows people to improve their own communities while helping them to move towards employment. Benefits That Work presents an Social Return on Investment (SROI) analysis of an innovative scheme to make the happen. With the Community Allowance, community organizations would be able to hire unemployed people to work with them for the good of their area. The participants would have their benefits secured for a year, and would be able to earn a small, capped income on top of them. Protecting the current level of benefits would allow the claimants, with the support from the community organization, to focus their efforts on moving towards the labour market.
What makes the Community Allowance effective is that it plays up the strengths of the claimants. Many employment schemes offer subsidized work placements for the unemployed. They often leave the participants feeling stigmatized, as if they would not be good enough for the work without government footing the bill. In contrast, Community Allowance engages the unemployed in work that they are best placed to perform, due to their close connections with the neighbourhood or their capacity to act as positive role models.
Our SROI analysis of the Community Allowance shows that for each £1 invested into it, £10 of social value is created. This extra value is received by the participants, their communities and families. The state is likely to recuperate more than the resources necessary to run the scheme. Channelling the benefits spend so that it works for the good of deprived will take the edge off the ruin of the downturn.
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.
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.
Hardly 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.