The government will launch a pilot of social impact bonds in 2010 to draw new investment into third sector service provision.

The pledge to pilot social impact bonds was made by prime minister Gordon Brown at the launch of the Putting the Frontline First white paper. The report says the bond has the potential to ‘radically’ change how government funds the third sector, by “rewarding social investors for work which reduces future social costs”.

Brown made the announcement this week as part of a speech on creating a 'smarter' government. He said, “We will pilot a new way of funding the third sector to provide such services. What we call social impact bonds - money paid out now to deal at root with the causes, not the symptoms of a problem - will reward social investors for work which reduces future social costs, for example, in seeking to lower the reoffending rate of those coming out of prison.”

Social investment organisation Social Finance Ltd has pioneered the social investment bond (SIB). The organisation published an introduction to its work in developing the SIB in September 2009.

Toby Eccles, Social Finance development director, said, “We are delighted to have achieved broad consensus on the value of Social Impact Bonds as a way to fund preventative measures, improving society and cutting costs. We look forward to continuing our work developing the details of the model with government and other partners.”

Putting the Frontline First is available on the Cabinet Office website.