£63bn PFI bill for the NHS – Dr Charles West

Recent Questions by Liberal Democrats have highlighted the burden that the NHS is facing as a result of the Private Finance Initiative (PFI).

Local Campaigner Dr Charles West said: “In a futile attempt to manipulate government borrowing targets Gordon Brown has left the NHS facing crippling burdens of debt.

“PFI schemes make money for developers and management consultants. Typically these schemes cost the NHS between four and eight times as much as they would if the NHS built the new hospitals itself. As a result hospitals all round the country are being built with too few beds for the local needs and with horrendous debts that will last for sixty years.”

Commenting on Number 10’s refusal to answer questions about the £63bn PFI bill facing the NHS, Liberal Democrat Shadow Health Secretary, Norman Lamb, said: “Labour’s scandalous mismanagement of the NHS has left many hospitals facing PFI bills they simply cannot afford.
“Gordon Brown’s speech contains even more spending commitments but he has yet to explain how on earth he intends to pay for the damage he’s already done to the future of the NHS.

“Despite the enormous amounts of money we owe for these hospitals, many of them will never end up in public ownership. Hospitals all over the country are mortgaged to the hilt and there are serious concerns that these repayments will lead to cuts in vital services.

“We need a new approach to public services in this country. By setting up an infrastructure bank the Liberal Democrats will ensure that key projects get access to the funding they need to revitalise our economy.

“The Liberal Democrats will change the way the NHS works so that money goes further and patients come first.”

Notes to Editors

  1. At yesterday’s lobby briefing the Prime Minister’s spokesman was asked if, in the Prime Minister speech on the NHS today, he would be ‘extolling the virtues’ of Private Finance Initiatives. This was in response to the Liberal Democrats research showing that the NHS will pay £63bn for PFI hospitals that were worth £11bn. The spokesman replied that the Prime Minister ‘feels passionately’ about the NHS. Value for money was a ‘key driving force’ in the NHS. He said he was not aware of the report but would try to reply later in the day.

2. Liberal Democrat analysis of HM Treasury figures has revealed that the NHS will have paid back £63bn on NHS Private Finance Initiative projects for projects with a capital value of £11bn. The first payments for hospital PFI’s began in 1999 and the NHS still owes £58bn on 106 PFI contracts over the next three decades.

3. The NHS will have to pay back £7.3bn in PFI payments over the next Parliament alone (2010-2015). The most expensive PFI contract was for Wythenshawe Hospital where the NHS will pay back 16 times the original capital value. The excel sheet attached shows the overall total and provides figures by each individual project. The figures were released by HM Treasury and are up to date as September 2009 but further contracts may have been signed since then. Treasury overall figures for PFI debt can be found here: http://www.hm-treasury.gov.uk/ppp_pfi_stats.htm

4. The ONS estimated that at the end of December 2009: net public sector debt was £870.0 billion, equivalent to 61.7 per cent of gross domestic product. However many PFI projects are excluded from this figures as for a public sector finance lease liability to exist for an asset, under a PFI or PPP project or any other leasing arrangement: 

a. The public sector must be the economic owner of the asset. That means that it has taken on the risks of ownership, such as the obligation to make repairs. 

b. The asset must be operational.

5. Unitary charge payments are calculated by reference to the costs incurred by the private project company, these include: construction costs; service costs; financing costs; insurance costs; other project costs. The various input costs are brought together to produce an annual service payment for each year of the contract term.

6. Liberal Democrats are proposing a new UK Infrastructure Bank (UKIB) to deal with the ongoing problem of underinvestment in UK infrastructure. Working in partnership with the private sector UKIB would leverage a small amount of public capital with private capital in order to make long-term investments in UK Infrastructure. The key difference between this approach and PFI projects is that the infrastructure would remain in public ownership.

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One Response to £63bn PFI bill for the NHS – Dr Charles West

  1. According to the Liberal Democrats “the NHS is facing a £63bn bill for hospitals built under the Private Finance Initiative (PFI) which are only worth £11bn….with the NHS still owing some £58bn on 106 PFI contracts”
    Lib Dem shadow health secretary Norman Lamb is reported as saying: “…We’re entering into one of the most difficult financial periods in the NHS’s history and this government’s legacy will be a mountain of debt. Despite the enormous amounts of money we owe for these hospitals, many of them will never end up in public ownership. Hospitals all over the country are mortgaged to the hilt and there are serious concerns that these repayments will lead to cuts in vital services.”

    Although the Article unfairly fails to address the fact that the £58bn owing includes maintenance and operational costs for the remainder of the next 30 or so years, there are few doubts that Hospital Trusts will need to make cuts to service their PFI commitments.

    However, a not inconsiderable sum of money could be saved by the NHS looking again at their PFI Contracts and seeing the extent to which they are paying for services they are not receiving. This is not a simple exercise, but experience suggests the costs that could be saved may be considerable, possibly running to hundreds of millions of pounds across the NHS estate.

    From my experience, the problem with PFI is that the public sector just has not been able to get to grips with challenge of effectively managing profit driven PFI companies. Such a problem is not unique to the NHS; it exists in just about every sector of PFI. If the public sector managers do not fully understand the contracts they have signed up to and if they do not sufficiently resource their contract teams to audit performance, then invariably service will suffer and money will be lost.

    Although the National Audit Office periodically appears alert to the problems in managing PFI Contracts, there has in my view been a systemic failure on the part of the Government to ensure that those burdened with managing PFI Contracts are given the support and expertise necessary to do the job effectively.

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