Today, Welsh Minister, Mark Drakeford, announced a new partnership with Nesta and Cardiff University to accelerate innovation in public services in Wales, through the Innovate to Save Fund.

This partnership with the Welsh Government is ambitious - seeking to tackle some of the most complex issues currently facing our public services - and, at the same time, generate cashable savings. The 'Innovate to Save' model is new, blending different kinds of finance and intensive support to achieve this goal.

Motivation for governments to rethink and re-shape the way that they engage citizens or deliver services is currently riding high, with examples of governments from across the world choosing finance as a mechanism to support public sector innovation.  The United Arab Emirates government has made innovation a priority, announcing that one per cent of the federal budget will be dedicated to innovation in government.

Using finance to support transformation and innovation in public services is not new. As the recent report from Public Policy Institute for Wales acknowledged, finance can unlock innovation, it can provide incentives to join forces and bring in new resources. And there have been very large scale ‘transformation funds’ spearheaded by governments in the past; with varying degrees of success.

Financial investment of different kinds continues to be necessary to incentivise the public sector to re-think the ways in which services are delivered to an increasingly ageing society, beset with complex challenges and in the backdrop of heightened public funding constraints.

The challenge comes, as ever, from realising the value of that investment. And, in many countries and regions, realising the value means generating real, cashable savings; doing things better, probably differently, and more cheaply. No small task.

So what is Innovate to Save?

Since 2009, the Welsh Government has been running an ‘Invest to Save’ fund. The Invest to Save fund offers loans to public sector agencies and local authorities to invest in initiatives to release cashable savings.

The Innovate to Save Fund has been set up to run in parallel, and will offer intensive support combined with a mix of grant and loan funding to support more complex, higher risk or innovative projects.

It is based on the assumption that access to finance alone is necessary, but not sufficient to support public and social innovation.

Put simply, the Innovate to Save fund has been designed to:

Incentivise partnerships - There is a long standing challenge of how to justify investment in one area of public services delivery, if the benefits and value of that investment are realised in another area, and perhaps then, only some years later.

Innovate to Save will be keen to support partnerships interested in tackling this challenge. Loan finance will be patient, offering flexible pay back periods that are appropriate to the project.

Test out ideas - There are many ways of thinking about how to make savings; here are just twelve.  The challenge is knowing whether the idea that you have is the right one. Innovate to Save will provide bespoke support to organisations and partnerships to prototype, test and iterate a novel, risky and ambitious idea before taking it any further.

We fully expect many ideas to change over the course of this period of support; some will drop away entirely.  The process has been designed to strengthen ideas, capabilities and evidence of what will work.

Shoulder the risk - Applying for a loan to support an ambitious idea that may or may not work is not an attractive proposition for most organisations. Nor is it often possible for local authorities and other agencies to take money out of day to day operations to finance experimentation in different ways of doing things.

Innovate to Save makes provision for a layer of non-repayable grant funding, alongside other forms of support, to shoulder some of this risk. Early stage prototyping and modelling will generate evidence [or not] that the idea is viable, and likely to generate, savings. If so, a loan facility will be made available.

Taking on a loan at this point lowers the risk and demonstrates commitment on all sides to make the project work.

We will be delivering the Innovate to Save Fund through Y Lab (Nesta’s partnership with Cardiff University), and over the next two years it will, I hope, provide the evidence to justify its replication in many other geographies.