Scheme to reduce reoffending rates
Private investors will be given a cash return of up to £8 million if they help cut reoffending rates among prisoners with short-term sentences, the Ministry of Justice has said.
The radical pilot scheme at HMP Peterborough is believed to be the first in the world to use funding from investors outside Government to help get offenders away from the "revolving door of crime and prison".
The Social Impact Bonds (SIB) will see investors put £5 million into projects designed to cut reoffending in a bid to get a return of up to £8 million if they are a success - or lose their investment.
Justice Secretary Kenneth Clarke, speaking on a visit to the prison, said reoffending was the "weakest bit of the criminal justice system" and the scheme would help tackle problems without using taxpayers' cash.
He said: "It pays by results. We're going to pay what works and what works should therefore grow and what doesn't work will vanish. I like the innovative funding, the payment by results, the collaborative groups, and if it succeeds if will grow and if it doesn't, by that time we will be trying something else. But sooner or later, something has got to be done about re-offending. It's absurd that 60% of prisoners are re-offending within a year of leaving prison."
Mr Clarke continued: "The conundrum is how you develop a worthwhile policy in this area where you can't simply get the treasury to borrow a large sum of money to give you funding for it.
"There's a potential investment out there, it's an extension of ethical investment. There are people prepared to put money into things they see as providing a return to them and providing a worthwhile help."
He added: "Frankly, I couldn't care less whether it's a public or private sector initiative."
The scheme, run by social investment bank Social Finance, will involve 3,000 short-term prisoners who will be given intensive help throughout their sentence and when they leave prison.
If reoffending is not reduced by at least 7.5% by the end of the pilot, expected to be in around six years' time, investors will get no recompense.