PFI and the NHS in London: dealing with the growing pressure of the private finance initiative on our hospitals in London

Executive Summary

Together the hospital PFI schemes in London cost £2.7bn to build. These twenty schemes will require payments totalling £20.2bn from the fifteen NHS trusts that are involved in these contracts.

The annual cost of PFI to London’s NHS trusts was £477m in (14/15) but will rise to £542m by (2019/20). The way that the contracts are set up means that PFI payments will increase year on year throughout their term. This escalation is one reason why PFI schemes offer poor value to the public and yet have generated large profits for the PFI consortia and their shareholders.

Some trusts are allocating a significant proportion of their operating revenue to PFI. In 2013/14 – the last year that all accounts are available – nine of London’s acute trusts ended the year in deficit, six of these have PFI debts. The two most indebted, are spending over 10% of their income on PFI.

In line with previous research, our analysis identifies that NHS trusts across London are overpaying for the capital that they are borrowing. On average the schemes in London could have borrowed 1.5 times more capital if they had been financed through public lending (discounting at 4%), such as a municipal bond. This equates to a waste of around £2.7bn across the lifetime of these projects. For an individual scheme like Barts this could amount to an over payment of between £600-900m compared with public borrowing.

in this analysis, based on the Treasury figures Newham University Hospital project (now part of Barts Health) appears to have one of the poorest deals on finance in London, paying back over four times more than the public option (discounted @4%) – overall £735m on a project that cost £35m to build. Barnet and Chase Farm (now part of the Royal Free London Trust) are paying back over 3.5 times more than the public option (@4%) – £775m on a project that cost £54m to build.


The position of each scheme will be different, but action to rectify the problems with PFI is achievable. In the NHS and other sectors renegotiation, buyouts and refinancing have all been used to successfully reduce the burden of PFI. With such a tight financial situation and cuts prevalent, it is imperative that a coordinated strategy is put in place.

Contract terms, ownership and compensation all vary between schemes. An expert public commission needs to look at the detail of each scheme to help devise a strategy. Public support and strong political leadership will be essential to remove the inertia around this issue.

Renegotiation of PFI costs down to a fair value remains the most cost effective approach, but requires the co-operation of PFI investors.

Despite widespread recognition of the problems with PFI very little action to reduce existing debts has followed. Meanwhile developments at a local level have produced examples of how PFI debts in the NHS can be reduced. Alternatives to private finance, such as bonds issued by local authorities, could help some NHS trusts to buy their way out of PFI deals and substantially reduce the costs of their debts.

Around 100 NHS hospitals have been built under the Private Finance Initiative. Through our research we have found that the ownership of these hospitals has undergone a dramatic shift over the last decade. Nine out of ten of these assets are now effectively owned by international investment funds. The sale of equity in PFI companies has generated big profits for investors. Six international investment funds now control the majority of this equity and all of them have dealings with offshore tax havens.

The table below lists the PFI projects set up for the NHS in London. It shows the Trust currently responsible for the repayment of the project, the cost of construction, and the Net Present Value of their total PFI payments at discount rates of 3% and 4%. Trusts responsible for more than one project are colour-coded and Foundation Trusts are marked with an asterisk.

The figure below illustrates the scale of the total PFI payments for each scheme relative to their original building cost (%). The size of the original capital costs are included and are also represented by the size of the circles.

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