Social bonds could cost taxpayers more – English

The government’s plan to get private investors paying for some social services could cost taxpayers more than current services, Finance Minister Bill English told TV One’s Q+A programme today.

"We don’t mind it being more expensive if we get results," Mr English said.

"The most expensive programmes we have are those where we churn out millions of dollars every year, thinking we’re having an impact when either we don’t or we don’t know."

The government has put aside $28 million for the first social bond, which will help fund programmes to get around 50 000 people with a psychological or psychiatric condition into work.

Mr English told the programme investors could expect returns in a range of 5-17%.

"We often spend money on a service where about 100% of it doesn’t work. So if we can get a return of 5% or something that is working, then we’re well ahead," he said.

RAW DATA: Q+A transcript: Finance Minister Bill English, Interviewed by Heather Du Plessis-Allan

Watch the interview here

HEATHER Minister, before we crack on into social bonds, I just want to ask you about something that’s been in the news this week. It’s the High Court battle Lecretia Seales had to win the right to die, which, of course, she lost. Do you think people like Lecretia Seales who are sick should be able to ask their doctors to help them die?

BILL Well, the law says that if the doctor helps them die, that would be breaking the law, and that’s what the judgement said pretty clearly.

HEATHER The judgement said that Parliament might want to reconsider that law. Do you think Parliament should?

BILL Well, no, I don’t think they should. It’s my own personal view that the law is where it should be - that is if you take someone else’s life, that is subject to a test of why that happened and how it happened and whether you’re guilty of a crime.

HEATHER So, if that law was to come up, if a legislation was to come up before Parliament, you would vote against it?

BILL Yes, I would.

HEATHER All right. We’ll move on into social bonds. Now, if you are an investor, you can put your money into the housing market, perhaps here in Auckland, and earn a huge reward. Why would you put your money into social bonds, which are potentially very risky?

BILL Well, look that’s one aspect of quite a big opportunity here. The social bond we have launched initially is relevant to around 50,000 people on benefit who have a psychological or psychiatric condition. 70% of them want to work. Hardly any of them are working. We think we can do better, and in the last couple of years in discussions with various people out in the market, there’s quite a lot of interest.

HEATHER Who’s expressing interest?

BILL Well, there’s a range of NGOs, financial institutions. There’s been a two year process that’s been quite transparent to anyone who is interested, and we’re now in a phase of detailed negotiations about the first social bond. So there’s parties to that that are turning up to discussions every day, and it is getting quite detailed over the next few months, and then there will be others to follow.

HEATHER So, can you name any parties who have said that they would be interested in putting money into this?

BILL I don’t intend to name any today, no, but you can be sure that if they aren’t interested, then it won’t happen.

HEATHER Is there a chance it may not happen?

BILL Oh, it’s possible. If negotiations detailed level don’t get settled, then there won’t be a social bond.

HEATHER How do you rate the chances of it actually getting off the ground?

BILL Oh, very high. And I think the fundamental motivation here is that those who look at the kind of issues where we want to apply social bonds or where they want to apply them are highly motivated about getting better results. So this is a small part of an overall programme where the government is focused less on just spending more money, because that’s often an indication of failure, indicates that the previous service didn’t have much impact, and more on getting results for real people. In this case, 50,000 people, 80% of whom in the last survey said they wanted to work. And we can do more for them than just put money in their bank account each week.

HEATHER Are the investors likely to be institutional investors or philanthropists?

BILL Well, probably a mixture. And that’s one of the interesting aspects here is that we’re getting a wide range of people with a wide range of skills focusing in on what are reasonably complex problems. The challenge of getting someone with episodic mental illness into work and sustaining them in work isn’t easy, because if it was easy, it would have already been done.

HEATHER How many investors have told you they’d be interested? Can you give us a number?

BILL Look, I’ve shown up to seminars and workshops about it where there’s 10, 15 different groups represented just on the investment side. And then there’s the providers, the actual NGOs who currently provide the services. There’s been quite a thorough process over the last couple of years to discuss the issue with a range of interested groups, for everyone to work out what their role is, look at the international comparisons, and that’s got us to this point. If there wasn’t enough interest, we wouldn’t be negotiating over the next few months.

HEATHER Would you consider crowd funding where Kiwis are able to go on to websites like Kickstarter perhaps and put money in themselves, invest like that?

BILL Look, I think that may be an evolution in the future. You certainly have to have someone who is taking responsibility and accountability for getting better results. Now, where they source the funding from is up to them, and crowd funding may be a way of tapping into what I think is a big pool of goodwill and motivation in the community to do a better job for people who need quite a bit more support than they get right now to live a reasonable life. So if you’ve got a psychological condition and you’re on a benefit, on average, of those 50,000 people, they’ll be on benefit for 20 years. And I think there’s a lot of people in New Zealand who think there’s probably a better life than that.

HEATHER Okay, what kind of returns are we talking about? Are you considering returns along the lines of perhaps term deposits 4% to 5%, or are you thinking Auckland housing market 17%?

BILL Well, I’d probably think less than 17%, but that’s a matter for negotiation and-

HEATHER You haven’t come to a figure yet?

BILL Well, it’s a matter for negotiation, but it will be somewhere in that kind of range-

HEATHER What kind of range are you talking about?

BILL Well, it’ll be somewhere in that kind of range that you’ve just mentioned-

HEATHER 5% to 17%. That’s a massive range.

BILL Yeah, the key to it, though- Well, it feels like a massive range, but often we’re spending- We often spend money on a service where about 100% of it doesn’t work. So if we can get a return of 5% or something that is working, then we’re well ahead.

HEATHER So you’re considering potentially quite massive returns to make this work?

BILL Well, it’s a matter of what you think is going to get the result. In the end, this is not so much about who the participants are in the social bond. This is whether someone who’s been on a benefit already for seven or eight years, is likely to be on it for another 14 or 15 years, because that’s typical of the group that the first social bond is aiming that. Been on a benefit eight years, could be on it another 14 years, who have said they want to work, and up to now, hardly any of this group is working, so that’s what we’re focused on.

HEATHER How high would you be prepared to go in terms of the return?

BILL Well, look, you’ve mentioned a range. It might be somewhere in that range. But in theory I can tell you how far we would go, and that is that when someone is going to be on a benefit for 20 years, that is a very substantial cost to the taxpayer, and that cost indicates a number of years on a very low income for people whose mental health is not good, and no work and little social contact is even worse for that mental health. So there’s a whole lot of health services. So we’re willing to spend a reasonable amount of money upfront to try and change that life.

HEATHER Minister, do you admit the New Zealand Initiative in its report- I mean, they are fan boys and fan girls. They love the idea. But they say this potentially is going to cost taxpayers way more than it costs already, because we are going to be paying not only for the service but the interest payments on top of it. Do you admit that’s the case?

BILL What all it does, really, is bring to the surface and make transparent the cost of providing the service-

HEATHER Could it not make it more expensive for taxpayers, though?

BILL We don’t mind it being more expensive if we get results. The most expensive programmes we have are those where we churn out millions of dollars every year, thinking we’re having an impact when either we don’t or we don’t know. If we can get a handful of people – 5% of people – off the track they are on to 20 years on a very low income, socially isolated, their mental condition getting worse, if we can change that, then we are willing for it to be a bit expensive, because we save an awful lot in the long run.

HEATHER Okay, so what I’m hearing is that it could be more expensive than it is at the moment. I want to talk to you very quickly, also, about warrants of fitness for rentals. At the moment, it’s a topic that’s come up again because of the death of the little girl in the damp house. Would you reconsider warrants of fitnesses, minimum standards for rentals?

BILL We’ve been looking at this for a number of months – in fact, over a couple of years – because there was a big focus on the Housing New Zealand houses, getting them up to a basic standard, and then there’s a lot of challenging issues with applying it more broadly than state houses, because we’ve got to be careful we don’t create more problems than we solve by taking a chunk of houses out of the markets when there is a real shortage in some places or driving up costs and rents for people who are already struggling to afford housing. So we are trying to find that balance.

HEATHER So you are not ruling it out? You are reconsidering it?

BILL No, we’re not ruling it out. We’re just- We’re trying to find the solution that helps lift the standard of housing without making the problem worse by forcing stock- housing stock out of the market or people out of houses they can no longer afford.

HEATHER Labour is planning to resubmit a bill for minimum standards for housing as a result of this death. Would you adopt it?

BILL Probably not. Some of the propositions for warrant of fitness involves mass inspection of every house in the country and standards, which could take a large number of houses out of the market. So we are not going to adopt extreme measures, but we want to get something practical, affordable that will start lifting the standard.

HEATHER All right. Thank you very much for joining us. That’s Finance Minister Bill English.

BILL Thank you.