Impact Policy Tracker Policy

Innovation Fund



The UK Innovation Fund, was the UK’s first outcomes fund and an early example of social impact bond financing, aiming to support disadvantaged young people, especially those at risk of becoming nor in employment, education nor training, by helping them participate in education and training to improve their employability and reduce long-term dependency on public benefits. At the same time, the project also sought to produce legacy knowledge through testing whether commissioning through outcomes could generate benefit savings, fiscal value, and measurable social returns on investment. 

The Fund operated as a three-year £30m (~USD 47m) pilot from April 2012 to November 2015 and ran a competitive bidding process through two rounds, inviting proposals from social investor and service provider partnerships. A total of 10 projects were funded under the initiative, all focused on personalised, results-driven approaches to addressing youth unemployment. These projects collectively reached over 17,000 young people.

The Innovation Fund laid the foundation for later outcomes-based funds like the Life Chances Fund, and helped build evidence supporting outcomes-based commissioning in the social sector.

Highlights

  • Proof of Work: Results showed that outcomes-based commissioning worked well, especially for early interventions with students still in school. Providers believed they achieved better results than under traditional methods. While results were harder to achieve with young people already NEET, the Fund showed that paying for outcomes can improve service quality and help reduce public costs over time.

  • Essential Learning in the Impact Investment Field: Apart from pioneering in the use of these models, the Fund provided valuable learning for future outcomes funds, as it carried out several rounds of self-assessment. It showed that offering high payments alone is not enough to attract investment if the risks are too high. Ongoing evaluations helped build essential knowledge on pricing, risk management, and designing viable outcomes contracts.

  • Prescriptive Outcomes Fund: The Fund followed a prescriptive model focused on a specific target group (young people at risk of becoming NEET) and a clear policy objective: improving employability. It was designed to improve outcomes while also strengthening the market for investor-backed, outcomes-based contracts, allowing this model to encourage performance and innovation within a well-defined framework.

  • Pioneering in the use of “Rate Cards”: The Innovation Fund introduced a new approach by publishing a rate card that listed priority outcomes and the maximum payment available for each. These outcomes included qualifications, better school attendance, and improved behaviour. By linking payments to measurable progress, the rate card helped align incentives, standardise performance expectations, and shift commissioning away from inputs towards results that improve youth employability.

Government’s Role:
Market Participant


Country:
United Kingdom

Policy Type:
Outcomes partnerships

Year: 2011

Responsible Institution:
Department for Work and Pensions (DWP)

Outcomes partnerships

What are outcomes partnerships?

Outcomes partnerships are innovative funding mechanisms that link payments to the achievement of measurable social or environmental outcomes, rather than to the delivery of predefined services. They typically involve three core parties: a government or public entity acting as the outcome payer, a service provider delivering the intervention, and a third-party investor supplying upfront repayable finance. The investor is repaid, partially or fully, only if the agreed outcomes are achieved. This structure shifts financial risk away from the public sector, encourages performance-based service delivery, and enables more flexible, adaptive approaches to addressing complex social challenges. It underpins instruments such as Social Impact Bonds (SIBs), Development Impact Bonds (DIBs), Career Impact Bonds, and outcome funds.

Outcomes partnerships have emerged from pioneering efforts in the UK and were developed in response to the limits of traditional, one-size-fits-all service delivery, especially in sectors like health, education, and employment. They have helped improve public sector effectiveness (delivering up to 9x of public value for every $1 invested), mobilise private investment for the public good, and strengthen performance management through learning and adaptation. Outcomes partnerships rest on three key principles: 1) collaborative design, where stakeholders co-create shared goals; 2) flexible delivery, allowing for real-time learning and local adaptation; and 3) clear accountability, with transparent reporting on tangible, person-centred outcomes.

For more information, visit GSG Impact’s reports, Shifting Gears - Challenges in scaling outcomes partnerships in government and strategies for success and Tying funding to results, and Oxford University’s Government Outcomes Lab website and its latest report “The evolution of social outcomes partnerships in the UK”.