Private Finance Initiatives – What Now?


We need to be critical of the original and Mark 2 Private Finance Initiatives, especially in individual cases for the reasons which have been rehearsed where projected demand has not come through and commercial arrangements were not agreed in the interests of the NHS. Executive Directors still in post (not many) feel this way.

There is  experience of a large Trust which now has an affordable PFI – 2 brand new hospitals replacing 19th century and a terrible 1950s building for which there was not an available state capital solution.   It was changed at the last minute to increase bed numbers in order to satisfy political requirements that the net position in beds should be no lower than those being closed.  The circumstances where PFI could work are where the NHS could get the benefits of earlier “ownership” in terms of opportunities which arise during the period of the PFI. PFIs are normally built on time because it costs money to change plans – there are   penalties every time  plans are changed and are therefore kept them to a minimum.    State-funded capital schemes have a long history of going over cost and being late.

The risk private funders were taking was whether the revenue would flow to pay for their release of capital and the judgement they made to compare  with what else they could do with it.   Some Trusts made money when ownership of the PFI changed hands which was used to fund NHS services.

In general, we have seen:

– the largest hospital, GP practice (using LIFT) and schools building programme for 30 years under the last Labour government, which will make a massive difference for 30+ years

– this may be difficult to cope with, but building PFIs in crowded hospital markets has driven changes which normally take 20 years to achieve – given the love we all have for local bricks and mortar and the delay promoted by political opposition from all parties. In other words, unaffordable PFI has driven closures to make them affordable (this is also true of state capital funded schemes which mean there is no spare cash to sort out neighbouring NHS facilities).

–  we need to treat “Exchequer” capital properly, not just as a lump sum with a one-off value. Given we have a deficit, state capital needs to be borrowed (with a cost) and has an opportunity cost (ie what else could be done with it for a higher economic return).

– most PFIs include a “service” element, at the extreme this includes support services, estate management, and keeping facilities in good nick (with the ultimate benefit that the capital is the property of the NHS at the end of the period).

For me, the best value option (if we can’t have state capital – at the expense of revenue funding) is for joint ventures, where the NHS shares ownership and brings in private capital on equal terms. One of the big problems with original PFI was that a special economic vehicle was set up without NHS (Trust) participation which created a blockage between the NHS user and the building management. The opportunity to influence building management and to re-tender before the end of term (which could include in-house solutions) for the service element has been restricted.