Private finance ‘draining’ NHS trusts

In the wake of a renewed drive to expand Private Finance Initiatives (PFI) across the public sector, it has been revealed that earlier projects have been draining cash at the expense of Trust-owned properties.

Submitted by Freedom on June 22, 2006

PFI allows companies to take out private loans to build major projects such as new hospitals, which are then underwritten and repaid by state funds over long periods of time.

A senior hospital official has found that the continued repayments and support for the PFI-built Calderdal Royal Hospital in West Yorkshire have been draining money from Huddersfield Royal Infirmary as the Trust attempts to pay its lease on the building.

In a 99-page report, Director of Estates Stephen Bannister admitted that the Trust’s attempts to keep up with payments were at the expense of its own holdings.

Critics from the Save Our NHS campaign have pointed to the admission as another example of PFI companies borrowing at commercial rates, taking a profit, and passing a vastly inflated cost on to the public over an extended timeframe.

The cash crisis at Huddersfield, which is suffering from West Yorkshire’s £2.6M overspend for the year, has led to dangerous situations as repairs are not completed.

The report for example highlights serious risks of a potential loss of power to ‘multiple locations’ due to the vulnerability of the mains switchgear to flooding.

Meanwhile the Norfolk and Norwich hospital scheme, the original flagship of the PFI initiative and cited personally by Tony Blair as an example of the scheme’s potential, has been found to have been massively exploited by major companies.

The Norfolk and Norwich, which has been attacked by senior staff, patients and health groups for its poor quality, has had vast sums of money ripped out of it by the companies involved.

John Laing, Innisfree, 3i, Barclays Infrastructure and Serco, who were awarded the PFI contract to build and manage the Norfolk and Norwich in 1998, refinanced the entire operation just five years later.

The companies took out a £106m loan based on the equity in the hospital, in order to pay back profits to their shareholders more quickly. The high risk venture, which was entirely legal, saw the group’s return on investment rise from 19-60% while the NHS took the added burden of longer and tougher liabilities in exchange for a slice of the increased profits held against their debts.

The Trust is now contracted until 2037. In order to close the deal, it would have to find £257m extra to buy its way out – unlikely as it is currently having difficulty meeting its commitments and is shedding 450 jobs to plug a £15m funding gap.

Chief executive of PFI organiser Partnerships UK, James Stewart said at the sixth annual Public Private Finance Congress: "At the time it was a market opener …… and an 18-year debt was all we could get." Since then, however, the UK has developed an "extremely efficient capital market", he added. Today debt is on offer for up to 30 years.

The head of the Treasury’s private finance unit has said a vast number of deals across the sector, affecting not just hospitals but schools, housing projects and even fire stations, will continue to be signed.

Speaking at the Public Private Finance Congress, Richard Abadie predicted about 40 deals a year a capital value of £4bn.

On May 18th for example, despite a 500 strong petition from tenants and residents, the total opposition of the Little London Tenants and Residents Association (LLTRA) Committee and Save Little London Campaign, and huge support from neighbouring communities, Leeds’ Council Executive took the decision to go ahead with its PFI regeneration scheme in Little London.

- Rob Ray -