Social investment organisation Social Finance and Justice Secretary Jack Straw have launched the first Social Impact Bond (SiB), which aims to raise £5m for the social care sector.

The first bond will be used to finance support for resettlement in the community of 3,000 short-term prisoners at Peterborough Prison with investment returns linked to a decrease in re-offending.

The scheme will run for six years and will involve groups such as the St Giles Trust, a charity that aims to break the cycle of offending and disadvantage.

If re-offending rates fall by 7.5% or more, the Justice Ministry will reward investors. The payouts are based on long-term government savings that re-offending reductions will generate.

There are currently 40,200 adults serving short sentences and re-offending rates run at around 60%. Any reduction in this can potentially create enormous savings for the taxpayer plus other social benefits.

Toby Eccles, development director at Social Finance said, “These bonds can bring large amounts of new finance into the social sector, but first we need to build a track record of success.

“This first bond is likely to attract investors who are already experienced in this sector and we’ve been careful to choose groups with solid experience to deliver the services to prisoners.

“I’m confident that this first bond will be a success, offering excellent returns on investment. That will give other investors the confidence to invest in future bonds. SiBs could finance activities like enhanced support for foster carers, home care services for older people and nursing in the home for the chronically sick.”

Rob Owen, St Giles Trust chief executive, said, “By unlocking future savings and capturing their value, the SiB allows access to capital from a wide range of new investors. This means that charities, such as St Giles Trust, can deliver their life changing services over a larger scale, with greater impact.”

Jack Straw said, “Reducing reoffending is one of the Government's highest priorities. Between 2000 and 2008, the frequency of adult reoffending fell by 15.9 per cent. But we are always looking at new ways of further reducing reoffending that provide value to the taxpayer.”