DN2 Children’s Services Social Impact Bond

Children in need of care face wide-ranging adverse outcomes throughout their lives, including in education, employment, health, and crime. In England, safeguarding these vulnerable children and young people is a statutory responsibility of local authorities under the Children Act 1989. However, reductions in central government grants, coupled with local authorities’ limited revenue-generating options, have resulted in significant budgetary constraints to provide these vital services over the years. In particular, local authorities deploy substantial resources to support a small cohort of children and young people with the most complex needs.

Reflecting the limited supply of internal placements, an increase in use of high-cost external services including residential homes has further added to existing budgetary pressures in services targeted at children and young people.

In response to rising demand and budget pressures, Derby City, Nottingham City and Nottinghamshire County Councils (DN2) partnered to rethink commissioning approaches and transform children’s social care.

The DN2 Children’s Services Social Impact Bond is an evidence-led, outcomes-based programme designed to provide children and young people with stable, nurturing environments that improve well-being and educational outcomes. Over two years, the programme links payments to outcomes across four targeted interventions:

• prevent children being taken into care; or to
• support reunification back with birth parents / carers.

Or, if the young person is in long-term care:

• to support children to remain living with a foster family (and thus prevent escalation into residential care); or
• to support in enabling a child to step down from residential care into foster care.

The programme is based on evidence that young people achieve better outcomes in appropriate family environments. Outcome payments are funded through the Life Chances Fund and local council budgets.

Despite delays to its launch, which resulted in the programme commencing during the pandemic, DN2 supported 56 children and young people in its first year, exceeding the contractual minimum of 55 agreed with the provider. By September 2024, the programme had engaged with 70 children and young people. The STARS programme is still ongoing. The referral period ran from September 2020 – March 2025, with ongoing cases supported until March 2027.

The distribution of referrals across the four cohorts differed from initial expectations, with a significantly higher proportion focused on supporting children and young people in care to remain with their foster families. This shift reflects the impact of the Covid-19 pandemic on foster care capacity and placement stability. The provider and investor demonstrated flexibility in responding to these changing needs, while maintaining the overall referral target for the programme.

York Consulting conducted an independent evaluation of the programme between October 2023 and February 2025. The evaluation report is available at the bottom of this case study.

The programme supports four distinct cohorts, with outcome payments linked to the number of full weeks children and young people spend outside specific types of care:

• Cohort A: Children transitioning from residential care to foster placements.
• Cohort B: Children whose foster placements are at risk of breaking down, potentially leading to residential care.
• Cohort C: Children being reunified with their birth families or primary carers.
• Cohort D: Children on the edge of care who are supported to remain with their families and avoid entering local authority care.

According to York Consulting’s independent evaluation, 41 children and young people had successfully graduated from the STARS programme by the end of November 2024, achieving the following outcomes:

• Cohort A: 4 successful transitions from residential care to foster placements.
• Cohort B: 19 foster placements stabilised, preventing escalation to residential care.
• Cohort C: 8 successful reunifications with birth families.
• Cohort D: 10 children and young people supported to remain with their families.

In addition, 16 children and young people whose STARS support ended early experienced positive outcomes, including improved placement stability and successful transitions. A further 38 children and young people continued to receive support from STARS after spending at least one year on the programme (York Consulting, 2025).

As of September 2024, the programme received outcome payments for £4,102,993.