Privatisation from the ground up: property sales and rich NHS Trusts


On 18 May, in its property section, the Guardian ran an article entitled ‘NHS privately planning to develop Royal Free nurses’ home into luxury flats.’   

A week earlier the HSJ (paywalled) reported that University College London Hospital Foundation Trust boasted a £76m surplus after asset sales and a Sustainability and Transformation ‘bonus’.    

Most of the focus on privatisation of the NHS has been on the outsourcing of clinical services to private health providers. More recently the creation of wholly-owned private Subsidiary Companies has attracted attention and they have been debated in parliament. But there is consistently less attention paid to the extent of the policies in place dedicated to selling NHS land. These policies are shrinking the amount of publicly owned land in the name of providing cash to ‘pump prime’ transformation.   

In a Guardian article 8 February Brett Christophers, Professor of Social and Economic Geography at Uppsala University wrote, “All told, around 2 million hectares of public land have been privatised during the past four decades. This amounts to an eye-watering 10% of the entire British land mass, and about half of all the land that was owned by public bodies when (Mrs) Thatcher assumed power.”  

Despite all protestations to the contrary the NHS has been increasingly expected to transform to commercial business practice over the last 40 years and the articles above illustrate the effects of those policies. This is a mass transfer of property from public to private ownership. It has affected our utilities, education, the courts, probation and prison service, housing – and the NHS. There are no exceptions.   

Reducing the NHS Estate: The 5 Year Forward View and The Naylor review 

The 5 Year Forward View (5YFV) and the Naylor Review are based specifically on the reduction of the number of sites from which the NHS operates: fewer GP family practices, closure and downgrading of hospitals, centralisation of services. The ownership of sections of the NHS is played out in the language of the private sector – mergers and acquisitions, sweating assets – and belongs firmly in the realm of privatisation. Sales, leases with commercial rents for properties that were previously part of a real ‘one public estate’ and the transfer of properties out of the control of local governing bodies and into publicly-owned private companies like NHS Property Services are all part of the process. 

The Naylor Review was published in March 2017. It examines how the NHS in England can raise cash from its premises. Its findings are in line with the requirements set out in the Sustainability and Transformation Plans (STPs) which were introduced in December 2015 to fast forward NHS England’s 5YFV.  

The Review emphasises the need to develop out of hospital care and to provide the necessary infrastructure to increase care in the community. It explicitly states that it is the acute division of the service that is to be scaled back and the GP family practice model to be dismantled.  

Naylor argues that 57% of the cash that can be found from the sales which will pump prime these changes will be found in London. Charing Cross Hospital, for example, may be reduced to just 14% of its existing area and the rest sold off for development. He has a second report on London estates unpublished for reasons of commercial confidentiality.  

The reality for investors looking at development properties is that central London hospitals occupy valuable sites; long-derelict, small town general practice surgeries do not. Naylor’s Review emphasises the combination of sales of existing estates and the introduction of private finance to create newbuilds as key to changing the Estate to meet the New Models of Care set out in the 5YFV.  

The danger of taking ‘surplus’ land at face value 

Although the NHS land sales are being used as part of a programme for enforced change, they are not unique in the public sector. Across all departments land sales are being promoted as a solution to the housing crisis. Theresa May chose to prioritise this area in her 2017 conference speech. This appears to be evidence of a worrying trend to prioritise land values and property, which give high returns to private investors, over the provision of essential public services. The real risk for the NHS is that the more it moves from its core purpose, the less likely it is to be there to provide a service for future generations.  

There are a growing number of campaigners, think tanks and housing organisations who support the ‘release’ of land on the basis that it should be re-used for beneficial public purpose of a different kind.  

For example, New Economics Foundation has an interactive map which shows a huge amount of public property for sale and proposes that users start to have a say in creating new community developments on those sites. The National Housing Federation produced a briefing, ‘Releasing NHS Estates for Community Benefit’. Its executive summary says: 

“The National Housing Federation has been working to explore new ways that housing providers and the NHS can work together to use NHS surplus land. NHS trusts often have surplus land, but do not have the skills or resources to develop and manage it. Given that early release housing or key worker housing could provide improved patient outcomes and reduce cost of care there is a strong case for housing providers and NHS trusts to work together in developing surplus land. 

On this principle three uses have been identified: 

  • step down facility 
  • supported housing 
  • key worker housing. 

The challenge with these proposals are the Treasury targets for income and housing receipts. This paper, including analysis from Frontier Economics seeks to explore the economic benefit and examine some specific case studies for how organisations can work together.”

The Royal Free and the lie of ‘surplus’ land 

The clash between rhetoric and reality is illustrated in the case of the Royal Free. In the Guardian article the property for sale is already keyworker accommodation. But because it is a valuable site it is proposed that it should be sold off for development for luxury flats. However, the building itself was gifted to the Royal Free nearly 100 years ago by Lord Leverhulme. That means that its current running cost will be modest and accommodation can be provided at low rents. To buy land at current prices in order to develop new key worker accommodation is likely to be impossible without increasing rental charges.  

The agents, Frank, Knight and Rutley are advertising the development on a restricted access webpage. The plans have not yet received local authority planning permission, but with everyone from the Prime Minister to local housing campaign groups squarely supporting a policy of surplus land disposal, it is easy to see why the estate agent is behaving as if it is a foregone conclusion. In the article, one current resident said, “the trust has sold several other key worker accommodation blocks in recent years”. “We wouldn’t be the first residential place they’ve sold,” he said. “They seem to be doing quite a lot of selling their affordable properties for development.” 

Perhaps the resident was referring to The Royal Free Foundation Trust acquisition of Barnet and Chase Farm Hospitals NHS Trust in July 2014. Chase Farm Hospital was the focus of local campaigning over the loss of its A&E but it is now subject to planning permission. Although a downgraded hospital is included in the plans, the key workers’ accommodation there has been lost too and 500 residential homes and a primary school will be built on the site.  

Resistance will be met with regulatory power 

As well as a push to develop any identified surpluses, Naylor’s recommendations are that GPs must move out of their old properties which they own into new ones which they will not own. Naylor suggests, “GP practices can be given incentives to move into new facilities, supported by substantial private sector investment. NHS commissioners and regulators have considerable latent authority to insist that premises be fit for purpose. These powers could be used far more explicitly to ensure that new investment is in line with the 5YFV and to force the pace of investment in or exit from inadequate premises.” 

Naylor’s analysis of the GP estate demonstrates a clear preference and expectation of mass transfer from public to private ownership and financing. Naylor himself was reported as being delighted at the £3.3billion of private financing for new primary care facilities. According to the investors, the money could fund up to 750 new primary care centres but this is predicted to cost the NHS up to £200million a year in new rental charges. 

The Review claims that within each STP those providers that have greater potential to raise money will share the money with those poorer and less well-endowed providers they are partnered with. However, with the bulk of the cash being found from sales in London it is not clear how these benefits will extend to the whole country. And that highlights a problem with the Guardian’s headline: ‘NHS privately planning to develop Royal Free nurses’ home into luxury flats’ because it isn’t ‘the NHS’ that is doing this, it is the Foundation Trust, as a business, which will reap the profit itself. 

What’s mine is mine: the inexorable rise of the disproportionately wealthy hospital trusts 

The Shelford Group, representing some of the richest foundation trusts in the country, raised the issue of cross-subsidy in their written submission to the Health Select Committee on Integrated Care Systems. The HSJ 13 April 2018 reported that the Integrated Care Systems are under threat from this approach as organisations are unwilling to risk losing their sustainability funding if a neighbouring clinical commissioning group fails to meet its plan.  

The HSJ article on University College London Hospitals Foundation Trust (UCLH) shows just how much that matters. The Trust has sold The Eastman Dental Hospital site to University College London. It has also sold a subsidiary company it created in 2011 for its radiology services in which it had a 50% share in partnership with Australian firm Everlight Radiology. 

The HSJ says, ‘the trust said it was approached to dispose of its stake as part of a process in which Everlight sold its teleradiology business to an asset management group. It was sold for £6.1m, generating a profit of £4.8m. Its original stake in the partnership had been £0.75m.  

These profits will net UCLH additional Sustainability and Transformation Fund payments of £35m on top of its own core allocation of £15m. This is the second year running it has accrued substantial additional payments because of land sales. The extra money comes from awards allocated but not paid to other Trusts either because they failed to meet their financial targets or didn’t agree one. 

The PropCo and Commercial Rents 

The 5YFV’s New Models of Care, on which all these property deals and ‘re-shaping’ of the estate are based, are experimental. Such a large-scale change without extensive consultation and testing jeopardises the NHS’s ability to provide safe care. Historically the replacement of NHS delivery of mental health care led to disastrous consequences for patients. The 5YFV relies on a similar care-in-the-community model replacing many NHS services with an emphasis on self-care and non-clinical services. Land sales and privatisation must be examined in this context. 

The Health & Social Care Act (2012) made provision for the creation of the NHS’ own private limited company which was registered with Companies House in 2011 (before the Act was passed), NHS Property Services Ltd (PropCo). It owns the property which was previously under the stewardship of the Strategic Health Authorities and the Primary Care Trusts. Although it is currently wholly-owned by the Secretary of State for Health, it is a private limited company. These properties have passed from public to private ownership. 

The precipitous creation of the company and its nature caused concern to the House of Commons Health Committee. The National Audit Office (NAO) investigated and uncovered failures of good practice. It noted that the government had failed to properly consider forms of public ownership and failed to provide detailed operating objectives. The NAO noted that one of the outlined advantages of setting up a company was the possibility of a future complete sale to the private sector.  

There is precedent for this with the sale of both the Department of Work & Pensions estate and the HMRC estate, so this is not idle speculation. 

The PropCo announced in April 2016 it was to start charging market rents to its NHS tenants with immediate effect. The company has already commercialised the leases on the properties it acquired. The biggest transfer of properties so far took place in December 2016, when the company completed the acquisition of the freeholds of 12 Community Hospitals in Devon into its ownership, with the last line of their press release stating: ‘leases to regularise occupation are currently being finalised’. It is clear that in this context ‘regularise’ can only mean ‘commercialise’ and that rent increases will follow.  

It is estimated that GP surgeries and Community Hospitals owned by the PropCo (which are not already listed or projected for sale) will have to find in the region of £60million a year from their diminishing incomes to pay these rents.  This is another step in aligning the NHS with commercial and market practices.  

Despite the commercial rents the PropCo is taking from the funding given to NHS bodies by the government to provide frontline services, its Annual Report and Accounts show it is making a loss. Its auditors report that: ‘the substantial shortfall between the costs required to provide the company’s services and the income derived through rental is funded through a recharge to NHS England and the Clinical Commissioning Groups. This recharge is in the nature of a grant and does not have any conditions attached to it.’  

It is a private company whose debts are covered by the Treasury to keep it solvent whilst its charges undermine the solvency of its tenants. 

Project Phoenix: private organisations rising from the ashes of public service 

The latest private sector creation to be involved with this complex web of sales and public-private partnerships is Project Phoenix. Project Phoenix is the creation of six major regional public/private property deals which could be in place by June 2019. The procurement process is due to start shortly. The Project is described as a venture to attract companies to ‘unlock’ capital funding for the NHS. The companies formed by these six property deals will be known as Regional Health Infrastructure Companies (RHICs). Just like PFI, these infrastructure projects will be ‘off the balance sheet’ and will sell publicly owned property and replace it with private rented. They are described as the “delivery route” for trusts and Sustainability and Transformation Partnerships to transform their estate. 

Project Phoenix is the realisation of Sir Robert Naylor’s plan in his review of NHS property. He calculated that up to £5.7billion of funds could be ‘accessed’. The RHICs will increase the number of private subsidiary companies already proliferating in the NHS as they will be set up to run the development projects necessary to create the new privatised NHS estate. 

Bring it back into public hands  

The response from the Department of Health and Social Care to the petitioner who achieved the debate on privatisation which was held in Westminster Hall on 23 April said, the private sector has always played a vital supporting role in the NHS, for example in building hospitals, in providing facilities management services”. But the pretence that this commercial property and private company development is a normal part of public service delivery must not be allowed to carry on if we are to retain an NHS which is fit for purpose. 

Private companies can be sold, as the NAO warned about NHS Property Services Ltd and UCLH have demonstrated with their sale of their radio-imaging company. Unless something is done, unless this process is halted, there will be a proliferation of sales and developments of land, and transfers of subsidiary companies into private hands. The need to restore the NHS to public service becomes ever more urgent.