1992; under a Conservative government led by John Major, the PFI was launched across all government departments. As Greenaway et al put it;
"Ideologically it suited the Conservative Party's New Right liberal economic market agenda; financially it was designed to allow capital spending on the public sector to bypass the Public Sector Borrowing Requirement (PSBR) with all its attendant sensitivities (particularly as a result of the criteria of the Maastricht Treaty of 1992)" (2004, 511)4.
But the PFI was not carefully thought through5 and progress was slow. Across all sectors (not just health) only ten, mostly small, projects were signed by 1993 (Greenaway et al 2004, 512).
August 1993; in an attempt to get the public-private partnership working faster, Kenneth Clarke as the new Chancellor of the Exchequer, created the Private Finance Panel (PFP) within the Treasury, comprising people from both the private and public sectors. Greenaway and others argue that it quickly became apparent that the PFI could be used as a new means of enhancing Treasury leverage over the spending departments. Private Finance Units (PFUs) were set up in every department to promote and implement the policy from 1994. This included the Department of Health in spite of some scepticism within the department about the PFI (Greenaway et al 2004, 513,514)
November 1994; the power exerted by the Treasury as a result of its institutional leadership of PFI was emphatically illustrated by its announcement that it would not approve any further capital investment projects without the prior exploration of private finance (Greenaway et al 2004, 514). Increasingly Treasury control meant the standardisation of terms and conditions for PFI schemes.
In the meantime, there were strong objections to PFI from within the Labour party - at all levels. For example, the Labour Party distributed "Save the NHS leaflets" in opposition to a proposed PFI hospital for the elderly in Stonehaven, south of Aberdeen. At the same time, John McAllion, the Dundee Labour MP, described the PFI idea as "a complete betrayal of the founding principles of the NHS" (Private Eye, March-April 2004, 3).
1995; Margaret Beckett, the then shadow health secretary, denounced PFI as "totally unacceptable" (see Shaw 2004, 65).
1996; Harriet Harman (who was to become Labour's Minister of Social Security and, since June 2007, Deputy Leader and Chair of the Labour Party) described PFI as a "Trojan horse for privatisation" (Pollock et al 2004, 26). This presumably signified disapproval and, again, before the 1997 General Election, Alistair Darling (then Shadow Chief Secretary to the Treasury and now - April 2009 - Chancellor of the Exchequer) said that "apparent savings now could be countered by the formidable commitment on revenue expenditure in years to come" (quoted in Monbiot 2000, 81).
1997; By contrast, there was considerable approval of the PFI from within the ruling Conservative Party. But in spite of such approval, by the time the Labour Party won the general election in May 1997, and even though the PFI policy had been 'approved' for five years, no contracts had been signed off in the health sector (Greenaway et al 2004, 516).
Things were about to change rapidly. In its Manifesto for the 1997 General Election, the Labour Party had claimed that;
"Labour will overcome the problems that have plagued the Private Finance Initiative, end the delays, sort out the confusion and develop new forms of public/private partnership that work better and protect the interests of the NHS" (quoted in Greenaway et al 2004, 517).
The Labour Party certainly ended the delays when it came to power. It cleared all remaining obstacles out of the way. A letter, dated August 28, from Richard Douglas (as Deputy Director, Finance and Performance at the NHS Executive) and circulated to all managers in the NHS, pointed out that the NHS (Private Finance) Act of July 1997 was designed to remove the doubts that the private sector held about the power of NHS Trusts to enter into PFI contracts (see Shaw 2004, 72 and Sussex 2001, 27). According to Greenaway et al 2004, it was this Act that "cleared the way for the final agreement of the scheme at Dartford and, later, the new Norfolk and Norwich hospital in early 1998" (page 518).
The letter from Douglas repeated the point that within the NHS all capital procurement should normally test for PFI and that value for money would remain the litmus test for all transactions. However he stated that even if the case of value for money for a publicly-financed scheme was made, there was no guarantee that public capital would be available to fund it (Department of Health, August 1997)6.
By 1997, the NHS was in desperate need of investment. Between 1980 and 1997, under successive Conservative governments, it had been starved of investment with only seven NHS 'major' (that is costing more than £25 millions) capital schemes being completed, and by 1997, the NHS maintenance backlog was said to amount to over £2 billion (Pollock et al 2004, 40, 49).
2002; a report for the Treasury by Derek Wanless stated that if the NHS was to provide a wide-ranging high quality service for the public and on a par with that provided by other countries in the European Union, then the UK would have to spend a significantly larger share of its national income on health care over the next 20 years (Wanless 2002, 76)7. Wanless envisaged that the annual real growth in NHS expenditure would have to be between 4.2% and 5.1% over the 20 years to 2022 (page 77). This was one and a half times the rate of growth in real NHS expenditure over the previous 20 years - that is between 1980 and 2000 - of only about 3% pa.
By the time that the Wanless report appeared, the Labour Government had already announced that NHS expenditure would be increased. In January 2000, prompted by a 'winter beds crisis', the government had pledged to increase spending on NHS by almost 30 per cent over the next four years (Pollock et al 2004, 62). Later in the same year, in July, a NHS Plan was produced which contained within it a 'Concordat' with the private sector (Pollock et al 2004, 66).
The NHS Plan committed the Government to delivering over 100 new hospital schemes between 2000 and 2010, but by the time (two years later in 2002) that the Wanless report appeared, annual investment in the NHS was still running at about the same level (of just over £2 bn a year) as it had been in 1997. However, over the 10 years to 2012, Wanless envisaged a much more ambitious investment programme with annual investment rising from just over £2 bn in 2002 to £5 bn a year by around 2008 (Wanless 2002, 83).
In 2002, the Government produced "Delivering the NHS Plan" which stated that the plan was to get "to health spending of 9.4% of GDP by 2008 - easily on a par with European levels of health spending" (Secretary of State for Health 2002, paragraph 2)
April 2003; by this time, a year after the Wanless report, 117 investment schemes had been approved by the Department of Health with a value of £3.2 billion (Edwards P et al 2004, 8). More than 100 of these were under the PFI (Davis 2004, page 85). The pattern that had emerged was that most of the smaller capital investments in the NHS continued to be financed directly by the Exchequer, while most of the larger projects were being financed through the PFI. The Labour government was recognising that there was a need for new investment in the NHS, but much of that need was being met through the PFI.
4 The Maastricht Treaty placed controls on the budget deficits and public sector debt-to- GDP ratios of countries joining the Euro. The UK did not adopt the Euro but the Maastricht Treaty has been something of a reference point for UK governments.
5 See Greenaway et al 2004, page 512 for this and, more generally, for more details on the history of the PFI in the health sector.
6 For details of later moves by the Labour Government to promote the PFI including the setting up of a PFI Task Force in the Treasury, see Flinders, 2005, 221
7 . Wanless recognised that higher health expenditure as a proportion of National Income did not guarantee better health output. Thus the USA spends almost 13% of its income on health (public and private) compared to just under 8% in Sweden, and yet life expectancy is higher in Sweden than in the USA. But Wanless thought that getting the UK care system up to a par with other countries in the European Union would necessitate a higher real growth rate in expenditure (Wanless 2002, chapter 5).