Scotland’s independent think tank
Scotland’s independent think tank

Social impact bonds for health: free money, mirage or somewhere in-between – Neil McHugh, Olga Biosca & Cam Donaldson

Governments across the globe harbour genuine concern with the optics of asking the public to pay more taxes after (and during) a cost-of-living crisis. This situation of fiscal tightness has persisted longer; effectively since the advent of the 2008 financial crisis, with previous governments stating “I’m afraid there is no money” to their successors. But, with many of our public services in disarray, how do we square the circle of giving the public what they need (and want) from such services without allowing those willing and able to pay to opt for the excesses of the free market whilst some remain stuck in what would eventually become sub-standard publicly-funded care? The latter will only lead to greater inequity and unrest and also inefficiencies associated with subsequent multi-tiers of service provision that would emerge. Note the expensive, and no more effective, US health care system.

Thus, with politicians looking for innovative ways to fund our public services, we undertook a thorough review of the conceptual basis and evidence of two possible sources of ‘social finance’ – in our case, in the context of health – that have become popular since the 2008 crisis1. The two sources are social impact bonds and microfinance, the latter of which will be the subject of a separate blog.  So, what is a social impact bond and does this offer our communities the solutions they want in terms of fair financing of an efficient National Health Service?

Social impact bonds: the rhetoric

The financial crisis of 2008 led to widespread conversation about “the need to do things differently”. Questions arose to whether some dormant banking funds could be put towards more social uses whilst, at the same time, injecting more of a business culture into funding and performance of public services – surely a win-win? More public-private partnerships would be created to drive forward innovation in addressing social challenges more efficiently as contracts established would be outcomes-focused and performance-based.

Essentially all this is achieved via the creation of a social impact bond whereby a service provider, seeking to expand current services or create something new, strikes a deal with a funder that involves:

  • Money being paid upfront by a third-party investor;
  • Funds flowing, via an intermediary, to providers of the specified service;
  • Provision of such funds being tied to goals related, in the health sphere, to health outcomes achieved or improved access for, say, harder-to-reach groups;
  • In the event of goals being reached, payments being triggered from the public funder back to the investor, via the intermediary.

As well as already-stated advantages of being outcomes-focused, social impact bonds, at least in theory, attract money into service developments quicker and transfer the burden of risk to the investor. If the investment fails, the investor loses their money.

What’s not to like? Only very recently, former UK Prime Minister, Gordon Brown, has proposed a social impact bond for expansion of children’s services, especially for those in the most austere circumstances – a revitalisation of the earlier approach.2 His case is built partly on what he claims as the “worldwide success” of social impact bonds.

Social impact bonds: the reality

In reality, there are several challenges associated with such bonds. First, despite the argument for getting money into service developments quicker, social impact bonds are administratively burdensome to negotiate and set up. Furthermore, even if the cash does arrive quicker it is not ‘free money’. If the specified goals are achieved, the money has to be paid back by the public funder who, as ever, will be operating under constraints of whatever government finances have been allocated to them. This has similar alarm bells to the Private Finance Initiative (PFI), brought in to finance capital developments in the NHS (and elsewhere) whilst keeping the public debt down, but which often tied service providers into quite draconian payback terms which would have been more efficient to fund through public borrowing.3 At least with social impact bonds, failure to meet objectives means that the investor takes the risk of losing their money. This seems slightly better than PFI.

This brings us on neatly to the specification of outcomes. In health research, the term ‘outcome’ is a statistical concept in the sense that much research tells us what works on average; but with variation around it. ‘Outcomes’ are not deterministic. It is difficult to establish contracts on such bases. Furthermore, there may be incentives to go for safe bets in terms of what can be achieved when it is the more-difficult problems in health care that we wish to crack, e.g. how to reduce health inequalities by tailoring services to hard-to-reach groups. Going for safe bets will distort priorities.

Finally, there is the question of what happens ‘beyond the bond’. In the event of success, what happens once the loan is paid back? In the event of failure, will future such investments be disincentivised? Is this a long-term, sustainable funding mechanism for our health care systems?

To the left, to the right. Ideologically-neutral or commodifying health?

One of the claimed advantages of social impact bonds is that they appeal across the political spectrum. To the left, services remain publicly-funded; the timings and risk-bearing associated with such financial flows are just different. To the right, an element of market discipline is instilled into service development within our publicly-funded systems.

The counters to this are, however, that it is ironic that after talk of “the need to do things differently” the very market ‘discipline’ that led to the 2008 financial crisis should be promoted as the basis of social impact bonds. Going further, such bonds might also be seen as commodifying (and making money from) social vulnerability.

What does the evidence say?

In our book, we have outlined how we identified 58 ‘health impact bonds’ across the world, which we characterise by country, different health and non-health domains (physical health and housing, respectively, being the most popular in each domain, followed by mental and reproductive health and then very few in other areas such as criminal justice or infectious diseases), with more details provided on the nature of specific interventions funded and the outcome measures used.1

The key findings are that, with only 58 bonds identified, this is not something that is proving to be as transformational as had been hoped, so far, which somewhat dampens claims to “worldwide success”. More seriously, just under a half of the bonds are targeted on health outcomes, either alone or in combination with some other indicator such as risk- factor reductions or service coverage. This is likely due to the difficulties alluded to above with pinning down precisely what the outcome(s) should be in any particular context.

These challenges have been taken on by one of the first health impact bonds in the UK – the ‘Ways to Wellness’ initiative in Newcastle upon Tyne. The first six years of experience of Ways to Wellness have been reported4, and refers to a detailed evaluation, led by researchers at Newcastle and Durham Universities and funded by the National Institute of Health Research, but yet to be reported upon. The case, too, has been made for similar initiatives in Scotland.5

Where now for health impact bonds?

Safe to say that health impact bonds have not been as transformational as might have been hoped for since social finance came into greater vogue post-2008. Also, they are not the gift horse that they may initially seem. In the event of success, the money has to be paid back and what happens beyond-the-bond is not entirely clear.

Most crucially, failure to tie most bonds to health outcomes does, to an extent, call their legitimacy into question. Our (perhaps academic) conclusion, and following the Newcastle model partnering initiatives and research, is that more of such research is required on how to better make this tie, so evaluating social impact bonds on basis of the outcomes they seek to promote.

Neil McHugh PhD is from the Yunus Centre for Social Business & Health at Glasgow Caledonian University. Professor Olga Biosca PhD is from the Yunus Centre for Social Business & Health at Glasgow Caledonian University. Cam Donaldson PhD FRSE is the Yunus Chair & Distinguished Professor of Health Economics at Glasgow Caledonian University and Professor of Health Economics at the National Centre for Epidemiology & Public Health at Australian National University.


  1. McHugh N, Biosca O, Donaldson C (2024) Social Finance and Health. Routledge, Abingdon, Oxon.
  2. Brown G (2024) Millions of British children born since 2010 have only known poverty. My £3b plan would give them hope. Guardian, 15th April.
  3. Pollock AM (2006) NHS PLC: the Privatisation of Our Health Care. Verso Books, London.
  4. Case T, Drinkwater C, Moffatt S, Bromhead S (2021) Ways to Wellness, the First Six Years:  Approach, Findings and Learning. WTW-Publication-Digital-with+links.pdf (
  5. Marr I (2024) Preventative health care social impact investing. Reform Scotland, 9th January.

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