PFI and the NHS: Finding the way outDealing with the growing burden of the Private Finance Initiative on the NHS

Executive Summary

A growing burden

Our analysis found that seven out of the ten NHS trusts with the biggest predicted deficits for the 13/14 financial year have large PFI obligations. For all of the PFI schemes the annual cost to the NHS trust increases year on year. In five years time they will be paying nearly 15% more than now, and in ten years nearly 30% more. The pressure exacted on these indebted trusts from PFI is shown by the fact that most pay between 6% and 18% of their operating income. However for some PFI trusts operating income has not risen as fast as their PFI payments. Between 2010 and 2013 PFI costs for the ten most indebited trusts rose by 65% but in the same period their income only increased by 11.1%. PFI payments rose by 42% across all schemes. So clearly PFI is a growing burden and trusts will need to keep increasing their income or, as some are already experiencing, they will face further cuts in the amount they have to spend on patients and staff.

Investment funds take control

A secondary investment market in PFI has developed as a result of the original private sector partners selling their equity. After the hospitals have been built the high returns from PFI come at very low risk and have proved very attractive to international investors. 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 off-shore tax havens. The emergence of a thriving investment market in PFI shows that large profits continue to be made and these returns come directly from the budgets of local NHS hospitals.

Inadequate action

Although the re-launch of PFI (PF2) addressed some of the concerns about future schemes, it has done little to rectify the poor value inherent in the 120 NHS PFI schemes that have already been completed. The National Audit Office reported that Department of Health initiatives had only found £61 million in savings on PFI in the NHS. This is just 0.09% of the total charge (unitary) left to pay across all of the schemes – a drop in the ocean. There are workable options to address the burden from current PFI schemes, but none have been used to any great extent. The public have been poorly served by the lack of transparency and narrow policy options offered by the political parties in response to the consensus on the problems with PFI.

The way forward

There are a number of options in achieving better value and a qualified taskforce should be commissioned to look at what is appropriate on a case by case basis. However, consultation with the public must take place. A great deal of public money is at stake and the public should beware and involved in the choices ahead. Lack of political commitment will hamper this process and a clear steer from the public will also help to bring the private companies to the negotiating table.

Where possible the government should seek to renegotiate the existing contracts to a point where they provide fair value. So far attempts at renegotiation have aimed low and produced poor results within health, which contrasts with the success of the department of transport in renegotiating, which in some cases brought deals back in house. There is an urgent need to address these shortcomings in achieving better value for the public.

There is a fundamental link between the continued use of PFI and the attempts to fragment the NHS and introduce the market. We cannot address the financial flaws in the current system without removing the market structure and incentives. Currently a winners and losers system, based on financial rewards drives a high number of hospitals towards financial failure. PFI is a part of this picture.

An omission lies at the heart of the national finances as PFI debts are not usually included in the national account and can be seen only in the accounts of NHS trusts. Yet clearly the government does act as guarantor. Rectifying this situation would help to offer the public a much more accurate picture of the true cost of PFI.

Scrutiny on behalf of the public has been poor. For example the treasury does not track the way PFI debt is being sold on, often many times over. Profits from this secondary market are large and far outweigh the financial risk taken by investors. The public are also largely in the dark about the additional loss to the public purse from companies that invest in PFI avoiding tax by being domicile in tax havens.

There is a wealth of evidence showing that these contracts are a very poor deal, offering huge profits for investors that far outweigh the risks. Therefore the economic and moral case for taking action is very strong. In fact the current financial pressures on the NHS mean we cannot afford not to take action on PFI. By addressing the problems with PFI and removing the market we could channel more funding towards patients and help to secure the future of our NHS.

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