Back to Front - Building profits
WORKERS, OCT 2007 ISSUE
From the newspapers you might assume that the finance problems of the NHS were a result of incompetent managers or overgenerous pay awards. But closer examination reveals how the Private Finance Initiative is literally draining away public funds.
It has long been known that when new hospitals are built using Private Finance that the costs are higher than the historical capital costs for that hospital. As a result PFI hospitals are usually linked to selling off land, and all PFI hospitals have been smaller than the hospitals that they replaced. And yet it is increasingly clear that those measures cannot bridge what is called the "affordability gap", and clinical services are now being cut to keep hospitals afloat.
Under payment by results, the new system of resource allocation in the NHS, trusts receive most of their income through a standard tariff for treatments. This includes an element for capital charges (the cost of building and equipment) based on 5.8 per cent of trust income – the average across the NHS. But the capital costs of trusts with PFI schemes are higher than average, with the result that they are underfunded. Trusts with major PFI schemes had average capital costs of over 10 per cent in 05/06.
If this was a rational system you would expect the non-PFI hospitals to flourish and the PFI schemes to suffer. But PFI is essentially like a mortgage, and we the public must keep paying that mortgage for decades – failure to do so would lead to massive penalties.
As a result, configuration of health services is being driven by PFI costs. In London for example the Bromley Hospital and the Queen Elizabeth Hospital have major PFIs and big deficits. Other hospitals in the area – Guy's, St Thomas's, King's College and Queen Mary's – have been conventionally built and do have costs covered. In a recent strategic health authority paper it was noted "It will be necessary to reconfigure services in ways that increase the utilisation of capacity at sites where there is little scope to reduce the fixed occupation costs and reduce activity at sites where it is easier to sell off or lease buildings." In short, sell off NHS assets to cover PFI payments.
Government minister and surgeon Ara Darzi is now reviewing London's health services. Teams of clinicians have put forward plans for development but Darzi's report makes no references to the constraints of PFI. Darzi has gone on record to say that PFI will not present a "barrier" to this process. How can this be?
It has been said that the PFI plans for the NHS are slowing down. There is no evidence of this. There are now more than 80 signed PFI contracts in England's NHS, with a combined construction cost of £8.5 billion. Under plans published in April, 41 more schemes are planned, bringing the total building cost to £15.5 billion. The debt and service payments accruing to these schemes will grow accordingly. The sums involved are so huge it is hard to comprehend the scale. But the consequences are there for all to see.
All health unions oppose PFI, but this is still more a principled position than an active fight. There needs to be greater understanding of the impact and a more vigorous opposition. In Scotland the PFI plans are being scaled down, why not in England?
• For more detail, see Private Finance, Public Deficits by Allyson Pollock and Mark Hellowell of the University of Edinburgh, available at health.ed.ac.uk/ciphp