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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
30 October 2012

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