PFI albatross opens NHS up to private sector

The resource-draining Private Finance Initiative (PFI) foisted on public sector projects by New Labour is helping to create the conditions for the break-up and privatisation of the National Health Service.

The evidence is to be found in two reports over the last 48 hours – from a special administrator appointed following the financial failure of South London Healthcare Trust and today’s report from the Commons’ public accounts committee.

Yesterday, a special administrator recommended that South London Healthcare Trust should be broken up in the wake of its financial failure. The Department of Health should write off £207 million worth of debts built up by the trust driven to the brink of bankruptcy by PFI deals, the administrator said.

It should also provide up to £25 million extra per year to help continue pay for PFI deals. Two of the trust’s three hospitals were built under Labour using PFI funding. The trust plans to slash its workforce over the next five years, from 5,838 whole time equivalents in March 2012 to 4,755 in March 2016.

Administrator Matthew Kershaw said the money spent on PFIs accounted for around a third  of the trust's £65 million overspend in the last financial year. Nine bids had been made to take over the trust’s work. The private sector is ready to pounce, with bids from Virgin Care, Circle, Care UK, Capita and Serco already made.

The PFI albatross is dragging trust after trust into deep financial crisis, at a time when they are supposed to find £20 billion in “efficiency savings” (demanded by the previous government) and when the NHS is being reorganised by the ConDems to create market opportunities for the private sector.

Margaret Hodge, a member of the previous government and now chair of the PAC, presumably saw no irony in agreeing the committee’s report, which says:

“A number of trusts in financial difficulty have PFI contracts with fixed annual charges that are so high the trusts cannot break even. Paying these charges is one of the first calls on the NHS budget and the Department [of Health] is liable for supporting all PFI payments because it underwrites the Deed of Safeguard given to contractors. It already expects to have to find £1.5 billion to bail out seven trusts facing problems with PFI repayments over the remaining life of their contracts - equivalent to £60 million a year… The priority given to meeting PFI annual charges inevitably distorts priorities which is especially worrying at a time when resources are constrained.”

The rising cost of over 650 PFI projects hit £230bn this summer and won’t be fully paid off until 2048, according to a GMB union analysis of the latest Treasury data. Including the £44bn already handed over for PFI schemes up to 2009-10, the public purse will be hit with a total PFI bill of more than £270bn which is almost five times the value of the assets built (£56bn), says the union. “It means that British PFI debt is now equivalent to £9,300 per taxpayer. Annual payments are forecast to break the £10bn mark by 2017-18.”

The way that PFI contracts are framed puts them in a weak position when it comes to renegotiating deals, which can involve interest payments in double figures and exorbitant one-off charges just getting the contractor to change a light bulb. So trusts are locked into paying unaffordable PFI payments.

  

With another 20 or so NHS trusts in dire financial straits – despite an emergency £1 billion bail-out last summer – the private sector is licking its lips. The “failure regime” imposed on South London Healthcare is expected to be used at other trusts, with bids being taken for the continuation of services.

While PFI projects – under which contractors own the assets and lease them to the public sector – began life under the Tory government 1992-97, they were greatly expanded under New Labour by chancellor Gordon Brown. They were seen as a wheeze to build hospitals and schools on the never-never, without showing up as public spending, while giving the private sector a stake. The chickens have come to roost, however, and the NHS is being lined up for auction as a result.

Paul Feldman

Communications editor

New Labour's PFI legacy poisons NHS

Placing a major healthcare trust in Whitehall-led administration could signal the break-up of the NHS under the cover of a financial crisis that is largely the result of the pro-business policies of previous New Labour governments.

South London Healthcare Trust, which serves a million people, runs three hospitals and employs more than 6,000 staff, is in deficit to the tune of more than £1 million a week.

At the heart of its financial crisis are payments on a contract to build two of the hospitals.

These were made under the so-called Private Finance Initiative, which Gordon Brown in particular championed in the 1997-2010 New Labour governments. Under PFI, the finished buildings are leased back to the local NHS, which pays mounting interest payments over 25 years and more.

The PFI schemes in south London, which totalled more than £1 billion, cost more than £60 million annually in interest payments alone. There are also exorbitant costs for maintenance and small improvements, which the contractors set fees for doing.

Draft financial plans submitted by the hospitals to the Department of Health show that it faces a shortfall in its accounts of between £30 million and £75 million annually over the next five years.

Health secretary Andrew Lansley’s unprecedented decision to put the trust into administration will lead to a break-up and transfer of existing services. Some could end up in the hands of the private sector. A similar fate awaits another 20 hospitals in financial difficulty.

PFI deals became widespread from the late 1990s as a way of building hospitals and schools without finding the money up front but at higher-than-average interest rates. The enthusiasm for PFI expressed New Labour’s championing of the private sector as a “partner” for the public sector.

But this was no equal partnership, with the state guaranteeing the fulfilment of high-cost contracts. Lansley intends that the South London PFI contract will be paid directly by his department.

Through a sleight of hand, the costs to the taxpayer do not figure in public accounts and so do not contribute officially to the budget deficit (which the Tories have lost control of, if today’s figures are anything to go by). Nevertheless,  the total bill to the taxpayer over time is estimated at £229 billion on contracts valued at £62 billion.

In April a biting report by the National Audit Office found that each household will have to cough up nearly £400 next year to pay for hospitals, schools and motorways built under PFI.

The City firm Innisfree is the largest single investor in PFI, with money in 28 hospitals representing over 13,000 beds and 260 schools educating over 130,000 children. Innisfree’s profit margin was 53% in 2011. PFI is truly a licence to print money! 

Some PFI rip-off examples include:

• A hospital which charged £52,000 for a job that cost £750. Demolishing a shelter for smokers resulted in the PFI contractor charging £2,600 a year for the “extra cleaning”.
• A hospital in Bromley, south London, which will cost the NHS £1.2billion, more than 10 times what it is worth
• An empty school which will cost taxpayers £370,000 a year until 2027. Another school had to pay £302 for a socket, five times the cost of the equipment it wanted to plug in
• In Belfast, a school closed after seven years but the PFI contractor must be paid £370,000 a year for the next 16 years.

John Lister, director of campaign group, Health Emergency,  described PFI contracts as “a cosmic rip-off by almost every measure” which led to a “mass haemorrhaging of public cash”. He says:

“It also means that private sector profits are protected by legally binding contracts taking an increased share of declining trust budgets, while clinical services, patient care and the jobs of NHS staff are sacrificed, in an impossible battle to balance the books as the NHS faces real-terms cuts for the first time in a decade.”

With the Tories leaving PFI intact and preparing to launch a market-led health service on the unsuspecting public, the NHS has never been in such danger since it was founded in 1948.

Paul Feldman

Communications editor