Would buying back PFI hospitals save public funds?

Taken from Big Issue in the North magazine of last week. 

There is a need to calculate the costs of returning hospitals built under the private finance initiative (PFI) to public control, according to a local MP.

Linda Riordan’s call comes after Northumbria Healthcare NHS Foundation Trust recently bought out Hexham General Hospital. The hospital was built by private contractors and the new deal is estimated to lead to savings of about £3.5 million annually over the next 19 years.

The Labour MP’s view is not though backed by the shadow health secretary or the government and has received a mixed response from a prominent health campaign. Conversely, one of Britain’s best- known health finance specialists has offered her backing.

Initiated by John Major’s government in 1992, PFI uses private money for major public sector capital projects. Private companies build and own the facility, which is leased back to the state for a regular fee. PFI was massively expanded under Labour and remains popular with the current government, because the money owed is not calculated as part of the national debt.

Hundreds of new hospitals have been built under PFI. But it remains controversial because it costs more for the private sector to borrow money than the government. The result is that the new facilities cost taxpayers much more when the additional borrowing costs are included in the leasing fee.

Repayments

Treasury data released in 2012 revealed that the 118 NHS PFI projects had a capital value of £11.6 billion. The total sum of repayments to private contractors was to be £79.1 million. This figure is now greater because at the time a further 39 PFI projects were being procured at a capital value of £5.36 billion.

Hexham Hospital was opened ten years ago by then pime minister Tony Blair. A consortium including Bank of Scotland and Bovis Lend Lease called Catalyst would run the hospital for 32 years after building it for £54 million.

Two years ago the then Lib Dem leaders of Northumberland County Council proposed lending the local NHS trust the money to buy out the PFI. Councils have access to loans for capital projects through the Public Works Board.

When Labour became the largest party on the council last year it continued negotiations and in June reached an unpublished agreement reported to save the trust over £67 million in the next 19 years.

Trust chief executive Jim Mackey said: “We are delighted that we are able to progress this agreement, which delivers real value for money for taxpayers and saves millions of pounds, which will be directly reinvested in patient care.”

The move has been generally welcomed – although a number of health campaigners have also called for an investigation into how much consortium members have profited from their investments.

Riordan is MP for Halifax. Calderdale Royal Hospital in her constituency was one of the country’s first PFI hospitals and opened in 2001. It was built by Catalyst. Calderdale and Huddersfield NHS Foundation Trust oversees its clinical services.

Vigorous campaign

Earlier this year the trust said it wanted to axe the accident and emergency (A&E) department at the hospital. Since then there has been a vigorous local campaign to get the decision overturned, backed by Riordan. Constituents have voiced concerns that the department’s closure would leave patients facing a seven-mile trip to Huddersfield Royal Infirmary for treatment.

Riordan said: “The number one priority is ensuring the A&E is saved but 13 years after it opened it would make sense to look again at the money that is tied up in Calderdale Royal.

I would not want to buy out the PFI scheme at the expense of much needed investment in health services but we should look at the long-term options.”

It is a view echoed by Allyson Pollock, professor of public health research and policy
at Queen Mary, University of London, who said: “There needs to be much more research undertaken into the impact of PFI hospital projects, including how much might be saved by buying out projects.”

If elected at the general election next May, Labour has promised to repeal the Health and Social Care Act 2012, under which the NHS has been extensively reorganised. such that access for private service providers has multiplied.

But according to Labour’s shadow health spokesperson, Andy Burnham, the party is not looking to calculate whether buying out PFI projects would reduce the public purse, as “the priority would be to spend money on patient care”.

Parliamentary question

The Socialist Health Association, which was founded in 1930 to campaign within the Labour Party for a NHS, is also cautious about whether buying out PFI contracts will save money. One of its central council members, Dr Richard Bourne, said of the moves in Northumberland that he “suspected all figures bandied around about PFI”.

He added: The £3.5 million claim will rest on a whole raft of assumptions that may or may not be valid... there may be some cases where the buyout is worth it but I suspect not many. The big gain is getting control back over a significant expenditure stream.”

A Department of Health spokesperson said it had not calculated whether the NHS might benefit financially if PFI projects were bought out. The department introduced changes to the PFI processin 2012 because of concern over whether earlier deals represented good value.

“This speeds up decision- making, makes the process more transparent, whilst also adding greater scrutiny around proposals taken on by each trust,” said the spokesperson.

According to Riordan’s office the MP is intent on asking a parliamentary question on what potential savings there may be to the taxpayer of buying out NHS PFI projects.