Allyson Pollock
Centre for International Public Health
University of Edinburgh prison privatisation September
2007
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Cost - debt
Affordability- Revenue
Quality - staff, environment resources
Value for money and risk transfer
Accountability prison privatisation September
2007
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The first large projects for hospitals and schools were not signed until the Labour administration came to power in 1997.
Private finance is now a major plank of UK government policy and the bulk of most
Departmental (Ministerial) capital investment projects are undertaken in this way.
Already, 749 deals have been signed at a value of
£48.4 billion pounds sterling in the UK (app. $92 billion USD).
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2007
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Previous funding of investment in health sector
Government formerly raised investment funds through borrowing, gilts (Government bonds) or through taxation.
Prior to 1991, funding of hospitals was traditionally through government grant. prison privatisation September
2007
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“Under the PFI, the public sector does not buy assets, it buys services. The private sector is responsible for deciding how to supply these services and what investment is required to support these services”.
Kenneth Clark, 1996 Budget prison privatisation September
2007
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PFI differs from Government loan schemes in that: a) the Government contracts with the private sector for services and not for, say the mere construction of a building.
b) the money is raised by the private sectorbank loans and equity (issue of shares), or bonds.
c) the contracts average 30 years and are guaranteed by Government.
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PFI is not new investment, it is public sector government debt.
Interest and service charges are repaid by the public sector in an annual (or six-monthly) unitary charge.
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2007
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The PFI is a charge on capital payable from revenue. The PFI annual unitary charge is made up of two elements:
• availability fee (for building availability) (capital element of debt) + life cycle costs and maintenance.
• facilities management fee (services e.g., catering, cleaning, laundry etc).
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2007
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PFI investment is long term public sector debt and the 30 year contracts mean that in the future there will be calls upon the PFI expenditure.
These are shown in a graph of data derived from FoI requests to the Doh in England: (next slide) prison privatisation September
2007
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1500
1000
500
£m
0
-500
-1000
-1500
-2000
Figure 1. Capital expenditure and unitary payments for signed PFI contracts
Capital expenditure by the private sector (£m)i Unitary charges (£m)ii prison privatisation September
2007
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Between April 1997 and April 2007, the majority of contracts for new hospital projects – 85 out of 110, or some 87.3% - came through PFI. -
£8.5 billion out of a total of £9.7 billion - of the capital investment in the hospital building programme.
[1]
As of April 2007, the Department of Health had approved 126 PFI projects with a total capital value to £15.5 billion. 85 have been signed with private sector consortia, at a capital value of £8.5 billion have been approved. billion1. A further 41 PFI hospital schemes with a total capital value of £7
Future expenditure commitments for all current and future NHS
PFI schemes will increase from £52 billion as of November 2006, to £90 billion in 2013.
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2007
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The upfront capital expenditure relating to PFI schemes signed as of 30 November 2006 was
£8.3 billion [1] , whereas NHS spending commitments amount to more than £52 billion.
[2]
Payments to be made by the NHS will therefore be around six times greater than the upfront capital cost to the private sector. prison privatisation September
2007
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What role does the PFI play in acute service reconfiguration?
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2007
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The costs of PFI always escalate during the planning stage and before, for example, hospital contracts are signed off.
Once signed, contracts between the public health provider and the private investor are legally binding and therefore usually inflexible.
This results in affordability issues: from the outset, the public authorities have calculated what they can afford to pay from their revenue budgets and so any cost escalation is a new cost pressure - see next slide.
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2007
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Increase in costs from Outline Business Case to current – Full Business Case
Trust
Swindon
Worcester
South Manchester
Norfolk
Bishop Auckland
South Tees
North Durham
Bromley
Dartford
Calderdale
Wellhouse
OBC cost
(£m)
Current cost
(£m)
90
26
65
60
80
45
49
40
97
55
30 prison privatisation September
2007
148
116
89
200
52
106
96
120
137
77
40
Change
(%)
229
137
123
122
100
63
60
50
41
40
33
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Cost escalation squeezes the projected revenue budget and the result is that service planners come under pressure to make the project affordable by reducing services, closing hospitals, reducing the number of beds, cancelling services and making staff cuts; (see slide on beds and staff).
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2007
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Annual revenue implications of capital costs for 19 PFI hospital schemes comparing costs before and in the first year in which the PFI scheme is operating
NHS Trust
Dartford & Gravesham
Swindon & Marlborough
Greenwich Healthcare
West Middlesex University Hospital*
Carlisle Hospitals
Hereford Hospitals
South Tees Acute
Calderdale Healthcare
The Dudley Group of Hospitals*
University College London Hospitals*
Worcester Royal Infirmary
Before PFI
(Capital charges as % of income 1998-9)
6.7
After PFI
(Capital charges + Availability fee as % of projected income in 1st year of operations)
32.7
3.8
2.1
16.4
16.2
9.3
4.0
3.8
5.6
15.5
14.7
14.6
13.2
3.4
8.3
6.2
5.3
13.1
12.8
12.5
12.4
All calculations include payments to Treasury on existing and retained estate. * Refers to 1999-2000 prison privatisation September
2007
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Changes in bed numbers at NHS trusts under PFI development
Values are average no’s of beds available daily (all specialties)
Trust
Bromley Hospitals
Calderdale Healthcare
Dartford & Gravesham
North Durham Acute Hospitals
Norfolk & Norwich
South Manchester
Worcester Royal Infirmary
South Buckinghamshire
Hereford Hospitals
Carlisle
Greenwich
Total
Percentage change from 1995-96
1995-96
610
797
524
665
1,120
1,342
697
745
397
506
660
8,063
1996-97
625
772
506
597
1,008
1,238
699
732
384
507
566
7,634
(-5.2) prison privatisation September
2007
Planned
507
553
400
454
809
736
390
535
250
465
484
5,583
(-30.8)
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Another way of seeking affordability is to transfer some hospital care to “social services”, funded out of the budgets of local authorities.
Alternatively, services may close so that patients have to go elsewhere , go without care or pay to go privately. prison privatisation September
2007
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Further economies are sought through staff cuts or reform of work practices (see slide).
However, evidence suggests that even when services are reduced there continue to be affordability problems and underfunding of
PFI charges.
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2007
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The costs of PFI – the evidence from the
FBCs- first wave of closures
30% reduction in acute bed numbers.
Reductions in budgets for primary care and community services.
Hospital closures - often 3 into 1.
Reductions in staff budgets especially nurses.
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2007
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Figure 2 Capital costs for Trusts with PFI schemes with a capital value of over £50m, in 2005/06
40
25
20
15
10
5
35
30
All capital costs as percentage of total income (%)
Capital costs funded in the tariff (%)
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National Health Service Trusts prison privatisation September
2007
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Trusts are funded for average capital costs of
5.8% of income.
PFI Trusts have average capital costs of 10.5%.
Deficits and service closures. prison privatisation September
2007
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The key argument for PFI is “Value for Money”
- it is claimed that risk is transferred from the public to the private sector which is better able to manage it.
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2007
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The Government claims that PFI projects are more likely to come in on time and on budget.
But not all Treasury commissioned support these claims. For example, Pollock AM, Price
D, Player S. “An examination of the UK
Treasury’s evidence base for cost and time overrun data in UK value for money policy and appraisal. Public Money & Management, forthcoming 2 007”. www.health.ed.ac.uk/ciphp prison privatisation September
2007
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Evaluating PFI: National Audit Office (1)
563 PFI deals were signed by April 2003 a) However, only eight financial inquiries into operational PFIs have been undertaken.
b) Only one inquiry attempts to audit the relationship between the cost of private finance and risk transfer.
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2007
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Evaluating PFI: National Audit Office (2) c) Government’s justification of PFI in terms of risk transfer is not evaluated.
d) This failure to evaluate raises fundamental questions about accountability.
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2007
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Loss of transparency at all levels.
Loss of public and parliamentary accountability over what used to be public bodies.
Democratic implications of long term debt finance- mortgaging the future.
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2007
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Inequities in funding and provision.
Political impact of health service cuts and reduction in capacity of health services.
Confusion of public and private sector roles as former civil servants take up posts in PFI companies (“revolving door” principle).
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2007
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The effect of creating NHS trusts and introducing PFI has been to decentralise responsibilities for capital investment.
The affordability problem means that the PFI has to be made to work at the expense of other services e.g., older people’s care, mental health, community provision.
Inequities are arising between services, service groups, patients and at area level.
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2007
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