Research for the Joseph Rowntree Foundation on whether financial incentives could encourage cities and city regions to connect economic growth with poverty reduction.
As devolution has handed more powers to cities, financial incentives have become an increasingly popular policy tool, letting government specify outcomes while giving local leaders flexibility to design their own solutions. The Joseph Rowntree Foundation commissioned this research to explore their potential to support poverty reduction in cities and city regions.
We reviewed the evaluation evidence for four schemes: the New Homes Bonus, the pupil premium, business rate retention and the Work Programme. Incentives broadly fall into three types: premiums, payment by results, and gain-share or earn-back deals.
We found signs of success, including clear links between outcomes and fiscal benefits and greater local flexibility, but also challenges, such as balancing simplicity with refinement, the scale needed to change behaviour, and the risk of unintended consequences.
Consultations revealed wide interest, and we set out four policy proposals, including earn-back deals to share the fiscal benefits of reduced welfare and housing benefit spending, a new wave of social impact bonds, and a national gain-share scheme for social value. Incentives are not a panacea, so we recommended learning from cities already pioneering these models.
Financial incentives and their potential to drive inclusive growth
Joseph Rowntree Foundation, 2016
Heather Carey, Work Advance
Cathy Garner and Damian Walne, Work Foundation
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