A government fixation with payment-by-results (PbR) schemes is discriminating against social sector providers and making it harder to reach the most vulnerable in society, a report issued today has claimed.

A joint study by the influential Institute for Government think-tank, with policy experts Collaborate, finds the Government's approach to getting more small firms and voluntary sector providers involved in delivering public services is not suited to the current outsourcing environment – which favours bigger operators.

Entitled 'Beyond big contracts: commissioning public services for better outcomes', the research finds specialist social sector providers in complex areas such as drug and alcohol rehabilitation often struggle to manage the increased financial risk and commercial skills PbR has demanded.

Based on interviews and workshops with commissioners, policy experts and providers, the findings indicated more than 80% of providers were worried about PbR – with contractual cost recovery (80%) and securing up-front working capital (78%) some of the main concerns.

Report co-author, Henry Kippin, director at Collaborate, told The MJ the study showed that at a local level commissioners have broadly accepted the need to work with outcomes and implement PbR systems.

‘There were issues around the way outcomes are defined and measured and the ability to design payment mechanisms that reflect the complexity of the outcomes we want to achieve,' Mr Kippin said.

He added that both commissioners and providers felt more should be done to incorporate the views of local residents in shaping services.

Today also sees the launch in Liverpool of the country's first Local Impact Fund – an initial £2m scheme piloting business support and loans worth up to £250,000 to help charities and social enterprises upscale their activities.

Voluntary sector leaders hope around 15 to 20 Local Enterprise Partnerships will establish their own versions by making use of EU structural funds – with sizes ranging from £5 to £10m – helping channel around £100m to social enterprises nationally.

Nick Hurd, minister for civil society, said: ‘Local Impact Funds are an exciting opportunity to support organisations that can bring both economic and social benefit to an area.'