The Private Finance Initiative is in the news again as Barts with a huge PFI hits financial trouble.

The total cost of all PFI schemes in the NHS is £2bn.  Around £1bn of that is payments for facilities management services.  The total expenditure of the NHS is £110bn.

If all PFIs were somehow “nationalised” there would still be facilities management costs, repairs and renewals but perhaps they could be provided in house less expensively.  So perhaps £1.3bn could be “saved”.

The possibility of simply nationalising all the PFIs is remote (to say the least) – it would require all kinds of legislative change and possibly even exit from the EU.  Anyway it is not politically doable any time soon. So the recourse is to renegotiate, something that has been done with PFIs outside the NHS with some success.

There is some vague idea of “fair value” which is the amount that would have to be paid if the PFI schemes had not been used and the normal public sector approach adopted.  This approach has been used in the NHS in order to calculate a subsidy which is being paid to some Trusts which have significant problems (the balance is met out of central funds so still a charge on the NHS as a whole).

But if all PFIs could be renegotiated back down to “fair value” and the facilities management aspects also bargained down to a better deal then savings of the order of hundreds of millions could potentially be made.

That is say £500m out of £110bn or about 0.5%.  Worthwhile but actually small even in relation to the current immediate funding gap in the care system of perhaps £3bn – £5bn and growing.

Even to achieve these savings would require the kind of negotiating skills that are notably absent in the NHS.  But the policy of first centralising the PFI debts and managing the renegotiations centrally then levying a fair charge on the Trusts is logical.

For a small number of Trusts, like the appalling scheme at Peterborough and Stamford,  PFI is a major issue.  But it is easy to distort the impact of PFI on the NHS as a whole and to exaggerate the potential for savings.  There are many more pressing and more significant issues to resolve.

In fact little of any value has been said about PFI since 2001 with Jon Sussex’s paper for the Office of Health Economics “ – The Economics of the PFI Initiative in the NHS”, although John Lister’s work for Unison also provides many valuable insights and facts.

 

 

 

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16 Comments

  1. John Locke says:

    Never forget PFI was used in excess in order for Gordon Brown to keep borrowing off the balance sheet…short term gain long term pain.

  2. Martin Rathfelder says:

    Just as this government has done with student loans

  3. Ron singer says:

    I don’t agree with Irwins conclusion that there are many more important issue than pfi. The 4 East London campaigns which I chair say that Barts pfi is unsustainable which is why Bart has lost its ceo chief nurse finance officer and now board chair. Crisis does not cover it.

    So any incoming government will have to address Barts and other local health economies wrecked by pfi as a priority like it or not.

    Ron Singer

    1. Irwin says:

      There are also challenged health economies where PFI is not a factor and Barts would be challenged, as was S. London, with or without PFI – the issues are deeper and more complex.
      S London had a subsidy to compensate for PFI costs but still ran into major trouble. Barts could have its own subsidy and it would still be unsustainable as are almost all Trusts under the current funding arrangements.
      PFI is a factor in some places but it is not the most important and by focusing on PFI we are in danger of missing the bigger picture.
      As I set out the incoming government is most likely to centralise the PFIs in some way, levy Trusts a “fair” charge (or possibly no charge at all) and renegotiate as hard as it can – what else is there? But subsidies of this kind are merely another distortion of the allocation method – which is part of the much bigger problem.

  4. Dear Mr Brown
    Thank you very much for explaining about 2billion pounds that is owed in PFI repayments.
    It seems to me that PFI by itself is one for the financiers. However it is also political. And it is the way that PFI is used in order to prop up arguments to close NHS Trusts that worries me most. Why does not central government just underwrite the Trusts’ PFI agreements itself?
    South London Healthcare NHS Trust was placed into special administration in 2012. There was a major PFI element in that. Ultimately it was disbanded. Now, King’s College Hospital NHS Foundation Trust is being investigated by Monitor despite it taking on the Princess Royal University Hospital which was a PFI nightmare for the predecessor Trust.
    That is the real problem as it seems to me that there is a “domino effect”. Had the Secretary of State stepped in and paid off the indebtedness, then that Trust would have survived I believe.
    This to me is necessary to explore further.
    Rosemary Cantwell

    1. Irwin says:

      £2bn is not the debt its the annual payments that are made.
      In S London the PFIs accounted for one third of the financial problem and it was already being subsidised. Barts is the same there are many issues and the PFI is just one.
      I agree PFIs should be centralised.
      If all the hospitals had been built without PFI using the traditional method then the problems would still have occurred, new hospitals cost a lot and all the claims about efficiencies and extra activity made to justify buidling them turn out to be dross..

  5. Tony Jewell says:

    I think a national approach on handling the PFI debt should be pursued by Treasury as it is a serious distortion and the NHS had to go for PFIs as the only show in town for NHS capital (e.g. N&N hospital and Peterborough). Mention should be made of Allyson Pollock’s excellent analysis of the risks of PFI and the link to the Privatisation of the NHS process.

    1. Irwin says:

      There has been lots of analysis and lots of reporting. None of it has added to what we knew in 2001 from actual evidence anlysed by someone who actually understands PFI finance; as opposed to much written by those who have never been involved in a PFI and who perhaps do not understand how it actually works..
      And yes some schemes in the NHS are bonkers and should never have been agreed and some are less bonkers but still causing financial issues in Trusts.
      The Bill is £2bn a year growing only slowly and the potential savings are valuable but realtively modest. What the “debt” may be is actually menaingless for PFI.

  6. John Locke says:

    I have no agenda Mervyn…I will let the Guardian explain.. http://www.theguardian.com/politics/2012/jul/05/pfi-cost-300bn

  7. Tony Beddow says:

    As many of the banks who financed these deals have already been bailed out by the taxpayer,, why dont we knock the outstanding PFI loans off what they owe?

    1. could you be the next Chancellor of the Exchequer?

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