Posts Tagged ‘PFI’

Seven NHS trusts to get access to a bailout fund

BBC Health - 5th February 2012 3:37 pm

Seven English NHS hospital trusts with debts caused, in part, by private finance initiative repayments are to have access to a £1.5bn government bailout fund, it has been announced.

The subsidy will be available over the course of 25-year long contracts.

Trusts will have to show they have improved efficiency and provide good care in order to access the money.

The seven trusts are: Barking, Havering and Redbridge, St Helens and Knowsley, South London, Peterborough and Stamford, North Cumbria, Dartford and Gravesham and Maidstone and Tunbridge Wells.

Read more at BBC Health.

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Reveal the risks of implementing the Health Bill

By Bob Bury - 17th November 2011 11:18 am

Well, here we go again. As Circle come riding to the rescue of the struggling Hinchingbrooke Hospital, we learn that their risk exposure is to be limited to £7m, which equates to approximately 0.7% of the NHS funds it will be responsible for over the term of the contract. Any surpluses they make will be split between Circle and the NHS.

Sound familiar? It should, because it was the estimate of ‘risk’ that was used to make the now discredited PFI initiative of the previous government look so attractive. By artificially inflating the level of risk to which the companies tendering for contracts would be exposed, the politicians made the business cases for PFI stack up. Of course, it turned out that these contracts were not actually very risky at all, which is why companies were able to make profits from building the new hospitals and then make another load of dosh by milking the NHS for the next 30 years as they maintain the buildings.

In fact, the risk was actually so low that a secondary market in PFI contracts sprang up, with quite a few firms taking the profit from putting the buildings up, then selling the contracts on for another fat profit to other providers who still felt able to get a good return on their investment from managing the PFI estate.

I suppose we should be grateful that this time the politicians are at least being up front about the way they are skewing the rules to the advantage of the private sector, but it does indicate that in their rush to involve new providers, the playing field will be far from level.

Still, no-one could accuse Andrew Lansley of being ‘up front’ in his attempts to get his pernicious Health and Social Care Bill through the Lords. Despite being ordered by the Information Commissioner to reveal the contents of the strategic risk register relating to the Bill, he is still stonewalling, on the grounds that publication of the report would ‘jeopardise the success of the policy’.

Well, quite. In other words, Lansley knows that the report, which details the risks for the NHS of implementing his changes, will confirm that the fears many of us have are well-founded, and might just lead the Peers to vote it down, or insist on root and branch amendments. Actually, now I think about it I’m wrong. He is not just being up front, he is being frankly shameless by effectively admitting that he can only get the Bill through if he stifles any debate on its likely adverse effects.

I hope readers will join me and many others in emailing their MP and asking them to tell Lansley to comply with the commissioners demands to release the report. It’s easy - just click here.

And to think it was only 18 months ago that we were hugging ourselves in relief that we’d got shot of New Labour. They really are all the same, aren’t they?

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Lansley says 60 PFI hospitals are “on the brink”

Channel 4 News - 22nd September 2011 10:07 am

More than 60 Private Finance Initiative hospitals are being left on the brink of financial collapse according to health secretary Andrew Lansley.

The Department of Health says it has been contacted by 22 NHS trusts which say the spiralling cost of PFI contracts is running into billions of pounds.

PFI schemes use private companies to build, and sometimes maintain, new hospitals and in turn the NHS pays back an annual fee including interest.

Some trusts say they are now unable to pay for their schemes - believed to be worth more than £5.4bn in total - because the payments of their ‘NHS mortgages’ have inflated during the recession.

The initiative was introduced by John Major’s Conservative government in 1992 and expanded under the last Labour government.

Read more at Channel 4 News.

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MPs say PFI is expensive and needs significant reform

By Mike Broad - 24th August 2011 10:23 am

PFI is no longer providing value for money and requires significant reform, an influential committee of MPs has said.

The all-party Commons Treasury committee said the long-term costs of PFI deals were now significantly higher than conventional government borrowing and it urged ministers to use them “as sparingly as possible” until new rules are in place.

The committee said that while PFI was attractive to departments on restricted budgets as the initial costs were lower, the impact was much longer lasting with the build up of big commitments against future budgets before they were even allocated.

Chairman of the Treasury select committee, Andrew Tyrie MP, said: “PFI means getting something now and paying later. Any Whitehall department could be excused for becoming addicted to that.

“We can’t carry on as we are, expecting the next generation of taxpayers to pick up the tab. PFI should only be used where we can show clear benefits for the taxpayer. We must first acknowledge we’ve got a problem. This will be tough in the short term but it should benefit the economy and public finances in the longer term.”

Tyrie called on the Treasury to remove the “perverse incentives” which encouraged government departments to use PFI rather than more efficient means of financing.

He called for PFI liabilities - which are currently treated as ‘off balance sheet’ - should be recorded in the national accounts, even though this would add an estimated £35bn to the deficit.

“PFI should be brought on balance sheet,” he said. “The Treasury should remove any perverse incentives unrelated to value for money by ensuring that PFI is not used to circumvent departmental budget limits. It should also ask the Office for Budget Responsibility to include PFI liabilities in future assessments of the fiscal rules.

“We must also impose much more robust criteria on projects that can be eligible for PFI by ensuring that as much as possible of the risk associated with PFI projects is transferred to the private sector and is seen to have been transferred.”

Since 1997, most large-scale public capital investment in the UK has been through PFI purchasing schemes where investment banks and building companies raise the finance for public infrastructure projects.

In England, 101 of the 135 new NHS hospitals built between 1997 and 2009 were paid for under PFI (90% of the £12.2 billion committed under successive building programmes).

Early this year, a leading public health academic called for PFI deals to be re-opened and renegotiated.

Professor Allyson Pollock, director of the Centre for International Public Health Policy at the University of Edinburgh, said: “NHS PFI contracts are not good value and are endangering patient care.”

In a briefing paper last year, the BMA pointed out that between 2011 and 2014 - during a period when the NHS is being expected to make significant savings - repayments for NHS PFI projects will reach £4.18 billion, an increase of almost £1 billion from current levels.

The Treasury committee concludes that higher borrowing costs since the credit crisis mean that PFI is now an “extremely inefficient” method of financing projects. Poor investment decisions are being made by government departments “without due consideration for their long-term budgetary obligations”.

The committee has not seen any convincing evidence that savings and efficiencies during the lifetime of PFI projects offset the significantly higher cost of finance. Indeed, the report raises concerns that the current Value for Money appraisal system is biased to favour PFIs. It identifies a number of problems with the way costs and benefits for such projects are currently calculated.

Investment could be increased in the long run, the MPs point out, if government capital investment were used instead of PFI. The average cost of capital for a low risk PFI project is over 8%, double that of government gilts.

Analysis commissioned by the committee suggests that paying off a PFI debt of £1bn may cost taxpayers the same as paying off a direct government debt of £1.7bn.

The committee recommends that:

- the Treasury should consider scoring most PFIs in departmental budgets in the same way as direct capital expenditure, adjusting departmental budgets accordingly;

- the Treasury should discuss with the OBR the treatment of PFI to ensure that PFI cannot be used to ‘game’ the fiscal rules;

- the Value for Money assessment process should be subjected to scrutiny by the National Audit Office;

- the Treasury should review the way in which risk transfer is identified.

Read the full report.

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Call for “poor value” PFIs to be renegotiated

By Mike Broad - 10th February 2011 9:05 am

Private Finance Initiatives should be re-opened and renegotiated, a leading public health academic warns.

Since 1997, most large-scale public capital investment in the UK has been through PFI purchasing schemes where investment banks and building companies raise the finance for public infrastructure projects.

In England, 101 of the 135 new NHS hospitals built between 1997 and 2009 were paid for under PFI (90% of the £12.2 billion committed under successive building programmes).

Professor Allyson Pollock, director of the Centre for International Public Health Policy at the University of Edinburgh, says: “NHS PFI contracts are not good value and are endangering patient care”.

Writing on bmj.com, Pollock explains that debt repayments amounting to £42.79bn are due under the contracts and that the annual repayments will increase just when public spending is being cut back.

Evidence of high cost of PFI investment relative to public financing is well established, she says, and the high interest charges set by banks together with returns demanded by equity investors are not justified by the risks involved.

In a number of schemes, annual debt repayments to the PFI consortia were between 1.49 and 2.4 times higher than the amount that would have been charged to the UK government if they had borrowed the money themselves.

The authors call it a ‘one hospital for the price of two’ policy. They add: “PFI interest rates have risen since the banking crisis and are exacerbating the serious financial difficulties of PFI hospitals and the NHS as a whole.”

Last year, a National Audit Office report criticised the contract monitoring of PFI projects and said that some trusts are paying more for PFI services than needed. This lack of control over PFI costs has serious implications for the quality and levels of NHS care, conclude the authors.

Pollock says: “The taxpayer and NHS patient is paying several times over: the multi-billion pound government bail out of the banks coupled with the debts incurred on PFI schemes underpin the current reductions in public expenditure and public services. Cuts in NHS funding and the high cost of PFI debt charges translate into staff redundancies, service closures and reductions in access to and quality of care for patients.”

They question the affordability of PFI in the current financial climate and argue that it is time to reopen and evaluate the contracts.

Read the full report.

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Time to shine some light on shadowy PFI contracts

By Oliver Huitson - 29th November 2010 11:50 am

The billions of pounds worth of commitments tied up in Britain’s ‘public-private’ state must be opened up to transparency and scrutiny, argues an Our Kingdom report.

The spending review promised £81 billion worth of cuts over the next four years. Whilst services face the deepest cutbacks in generations, billions of pounds a year will still need to be found to finance our PFI commitments. Amidst all the talk from government ministers of ‘efficiency’ savings, there has been almost no mention of PFI and its legacy on the public purse.

There have already been warnings about the ability of the NHS to maintain service levels under the increasing burden of PFI repayments. Welfare and benefits are also due to be slashed, leading to a substantial fall in living standards for people across the country. Against this backdrop the public will continue to pay billions of pounds a year for schemes they are unable to scrutinise. The position is no longer tenable. For the coalition’s principles to rise above mere rhetoric, the PFI contracts must be released.

The Our Kingdom report sets out the urgent need for an extension to the present Freedom of Information Act to encompass all contracts within the public-private sector, including PFI. The public-private sector is estimated to be worth £80bn a year in Britain. Despite the enormous sums involved and the regular stream of controversy that PFI has provoked, the contracts under which the public will pay these vast amounts remain private.

The coalition government has put great emphasis on transparency and accountability, the right of the public to know exactly how their money is being spent. There is no such thing as a transparent state under which £260bn of public commitments remain shielded from scrutiny. At a time of serious economic austerity, the case becomes unanswerable.

PFI is a model of public procurement under which the private sector raises the finance and funds the construction of public buildings such as hospitals and schools. This is then repaid by the public who lease the buildings from the private contractors, typically on 30-year contracts. To attract private interest, significant profit margins are required. From the Treasury’s own figures, we are already committed to paying £260bn for buildings valued at only £60bn.

The contracts under which the schemes operate are exempt from Freedom of Information requests for reasons of “commercial confidentiality”.

As the report shows, from its inception, PFI has proved extremely controversial and in serious need of public scrutiny to ensure taxpayer value. The Skye Bridge, Britain’s first PFI venture, cost the public an estimated £93m pounds, all considered, for a bridge that should have cost £15m. As part of the agreement, the ferry crossing was closed on the day the bridge opened, removing any other means of making the crossing. The consortium then charged what were believed to be the highest per mile tolls in the world: £5.70 for a 1 mile crossing.

And so PFI has continued, from charging over £300 to replace lightbulbs, to making police officers phone a hotline to get toilet roll replaced to a scheme that made a 662% return for its investors.

The history of PFI has been a one of frequent failure, unaccountability and extraordinary levels of state largesse. To make matters worse, a number of former ministers and civil servants have gone on to work for the very firms rewarded under the PFI give away.

PFI should not be considered a party-political issue. It was a Conservative creation initially, but the majority of PFI schemes were signed off under the last Labour government. In opposition, both Vince Cable, business secretary, and George Osborne, now chancellor, voiced strong criticisms of PFI. In 2009, Vince Cable labelled PFI: “a dishonest system of accounting, designed to hide taxpayers’ liabilities”. That same year George Osborne told us: “The first step is transparent accounting, to remove the perverse incentives that result in PFI simply being used to keep liabilities off the balance sheet… Labour’s PFI model is flawed and must be replaced”.

In government, however, business has continued much as usual; Osborne has already signed off his first PFI project. With all three major parties implicated, there is unlikely to be any call for action from within Westminster. The last time the collective secrecy of the political class was challenged the results were dramatic: the expenses scandal.

David Cameron has said that: “Greater transparency is at the heart of our shared commitment to enable the public to hold politicians and public bodies to account.” With deep and rapid cuts across the public sector, the case for extending transparency to Britain’s substantial PFI commitments could not be stronger.

Read the full report.

The BMA’s view on PFI.

This article first appeared on the Open Democracy website.

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NHS hospitals facing £65bn PFI bill collectively

BBC Health - 16th August 2010 1:25 pm

The NHS in England faces a total bill of £65bn for new hospitals built under the private finance initiative (PFI), figures obtained by the BBC indicate.

The so-called “NHS mortgage” means that for some trusts annual repayments take up more than 10% of their turnover.

Economists said the fees, which rise each year, would make it harder to achieve savings while doctors said they would mean less money for patient care.

But the government said the 103 schemes were providing value for money.

Read more at BBC Health.

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PFI bill will lead to cuts, claim Lib Dems

By Mike Broad - 9th February 2010 1:05 pm

The NHS is facing a £63bn bill for PFI hospitals which are only worth £11bn, an analysis of Treasury figures reveals.

The Liberal Democrats claim that the NHS will have to pay back £7.3bn in PFI payments over the next Parliament alone.

Norman Lamb, Lib Dem shadow health secretary, said: “Labour’s scandalous mismanagement of the NHS has left many hospitals facing PFI bills they simply cannot afford.

“Despite the enormous amounts of money we for these hospitals, many of them will never end up in public ownership. Hospitals all over the country are mortgaged to the hilt and there are serious concerns that these repayments will lead to cuts in vital services.”

Under PFI, the public sector enters into a long term contractual arrangement with private sector companies to finance, design, build and operate an asset such as a hospital. The NHS does not make an upfront capital payment but is contractually obligated to pay an annual leasing and maintenance payment to the private sector for the use of the facilities.

The figures reveal that the most expensive PFI contract is for Wythenshawe Hospital, where the NHS will pay back 16 times the original capital value.

Lamb said: “We need a new approach to public services in this country. By setting up an infrastructure bank the Liberal Democrats will ensure that key projects get access to the funding they need to revitalise our economy.”

A DoH spokesman said: “The cost to the public sector of undertaking long term capital investment has always been spread over a number of years - PFI is no different. All PFI schemes must demonstrate that they are good value for money and affordable when compared with the public funding alternative.

“Thanks to PFI, we have been able to undertake the biggest hospital building programme in the history of the NHS, opening the 100th scheme in October 2008 - two years before our NHS Plan deadline of 2010. The long-term benefits for patients of PFI are also clear: Norfolk and Norwich Trust has estimated it is treating 23,000 more patients each year as a result of moving to new PFI premises.”

Read more on PFI.

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At-a-glance: BMA’s select committee submission on PFI

By Mike Broad - 3rd November 2009 10:47 am

The select committee on economic affairs is currently running an inquiry into private finance projects and off-balance sheet debt.

Last month, the BMA submitted a response on PFI projects in healthcare and the following is a summary of its views.

Under PFI, the public sector enters into a long term contractual arrangement with private sector companies to finance, design, build and operate an asset like a hospital. At the end of the contractual period the buildings then pass to the public sector. The NHS does not make an upfront capital payment but is contractually obligated to pay an annual leasing and maintenance payment to the private sector for the use of the facilities.

The BMA opposes the use of PFI. The main objections include high costs, lack of flexibility and the transfer of public funds into private sector profits. It has significant concerns about their long-term affordability, and their impact on local health economies and service delivery.

Long-term affordability

The BMA believes that PFI is “ill-conceived and will prove to be a millstone around the NHS for the next generation”.

There are significant concerns as to the affordability of PFI projects in the long term as PFI contracts legally bind trusts into making significant payments over 25 to 30 years in an increasingly difficult financial period. This will threaten local health economies, and result in reduced services for patients.

One challenge concerns the income trusts receive from Payment by Results. Normally 5.8% is provided out of PBR for capital costs, but the capital costs of trusts with PFI schemes average 8.3% with some rising to 10.2%, thus creating significant shortfalls.

In addition, while capital charges are paid back to the Treasury and can be reinvested into the economy, the availability charge is paid to the private consortium and lost to the system. This was conservatively estimated in 2004 to be costing the government £125 million a year in lost revenue and will rise with more schemes.

Lack of flexibility

The inflexibility of PFI also limits the ability of NHS trusts to strategically plan for the future as they are contractually bound to pay for a building and a pattern of service provision which could later prove inappropriate and unfit for purpose. It is interesting that this is occurring at the same time that the Government is encouraging service redesign and is attempting to move more health care services from secondary care into the community and primary care sector. The relationship between these changes and hospitals that have been built or are planned under PFI is unclear.

PFI commitments will also continue in an increasingly difficult financial climate. The NHS has its funding guaranteed until 2011, but after that the budget is expected to stagnate or be cut in real terms as public spending is tightened. However at the same time (during the next spending review period from 2011 to 2014) repayments for NHS PFI projects will reach £4.18 billion, an increase of almost £1 billion from current levels.

On a regional level, the inflexibility of PFI contracts means that strategic health authorities are more likely to make economies at hospitals without PFI commitments.

Risk transfer to the private sector

Since governments are unlikely to default on their repayments and become bankrupt they are able to borrow money at more attractive rates than private companies. Consequently, as PFI deals involve the private sector borrowing at higher rates the cost of financing a new hospital is greater.

PFI supporters argue that projects are value for money because risk and associated costs are transferred to the private sector. But, the BMA is not convinced that there is significant risk transfer.

Arguments as to the importance of risk transfer are further undercut by research which found that hospital trusts were paying a ’risk premium’ of 30% of the total construction costs to ensure projects are running to time and budget. So while it is true that the private sector absorbs the cost of overruns etc, additional charges are written into the contracts to account for this.

Furthermore, if a project runs into serious trouble, the government will take action to secure its viability because the political consequences of letting PFI contracts go to the wall would be too great.

Contracts are difficult to manage

Over the course of 30 years, changes will continually need to be made to services and assets. However, contracts have been difficult to manage and change post procurement, with operational changes costing the taxpayer around £180 million in 2006 alone.

The National Audit Office found that processing and making changes is “often costly and can take longer than expected”. There are also large variations in the cost of making similar minor changes across PFI projects, and the inability to use a different supplier can present challenges to making large changes.

Level of public sector investment

Since Labour was elected 1997, PFI has been the favoured procurement mechanism for investment in the buildings and infrastructure of the NHS. It argues that PFI has allowed a level of investment in public sector infrastructure that would not have been possible otherwise.

In reality, there has been no choice between public or private investment for hospitals in need of capital works - PFI has been the only funding available.

While PFI alters the timing of payments to creditors by having private companies meet the upfront capital cost of the infrastructure it does not reduce or eliminate payments. The government still has to make repayments over the life of the PFI contract.

PFI lending has dried up with the financial crisis. The Treasury has recently set up a special unit to lend PFI projects money. It has been reported that this miniature infrastructure bank within the Treasury will provide up to £2 billion in public finance. As a result, public finances are bailing out PFI projects.

Way forward

The BMA is committed to supporting an NHS that is publicly funded through central taxes, publicly provided and publicly accountable. It should seek value for money but put the care of patients before financial targets and significantly reduce commercial involvement.

The smart use of public procurement of public services would be one step in ensuring that public money was being used to provide quality healthcare to the benefit of patients and the public, and not profits for shareholders.

Read the full submission.

 

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Doctors must take leading role in quality debate

By Mike Broad - 30th June 2009 2:37 pm

The medial profession and the NHS face their most serious challenges ever, claimed the chairman of BMA council at the annual representatives meeting.

Dr Hamish Meldrum told delegates in Liverpool that both the financial and political crises affecting the country would have repercussions for doctors.

But Dr Meldrum reassured members that the BMA would protect the profession. He said: “There is no doubt that there are going to be those who want to put pressure on our incomes, the medical workforce and our pensions.

“Whilst we should be realistic and not expect inflation-busting pay rises and an infinite expansion in medical manpower, I can assure you that we are not going to allow doctors to be scapegoats for the failures of politicians or bankers.”

He re-iterated the BMA’s opposition to marketisation, the continued use of management consultants and additional PFI projects in the NHS. And he called on the profession to support the BMA’s new campaign Look After Our NHS, launched earlier this month. 

Dr Meldrum did call on doctors to do their bit to improve quality and thus efficiency in the NHS. He said doctors could “vastly” improve the outcomes data for their services and “look seriously” at the issue of service redesign.

“I know some of you will think we are dancing to the government’s tune. No way! I’m talking about difficult decisions but ones that are made for evidence-based, clinical reasons not purely for political or financial expediency.”

He also called for more emphasis on lifestyle services and a healthy ageing strategy to reduce dependency in older age.

He finished his speech by urging doctors to show leadership, and get involved, with medico-political issues. He said: “We have a choice. We can be cynical, pessimistic, worry about being tainted by association and criticise from the sidelines….alternatively, we can keep talking, keep involved, keep engaged and take a leading role, not with some sort of blind acceptance but with our eyes wide open.”

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