Q331 Baroness Kingsmill: What about the credit crunch and the current drying up of refinancing?
Sir Peter Dixon: In other circumstances we would be trying to get our scheme refinanced to get the capital receipt into the trust, partly to pay for our new cancer centre.
Q332 Chairman: On the point you were making about refinancing and the profits going to the shareholders' pocket, the point you were making about the building costs and so on, was that a feature only of early PFI schemes on which lessons have been learned?
Sir Peter Dixon: Lessons were learned and the later ones had a different split of profits. In the early ones they had to negotiate quite hard, later schemes have a 50-50 split built in.
Q333 Chairman: If, credit crunch apart, more normal conditions applied, does this ability to refinance actually bring more money into the PFI sector?
Sir Peter Dixon: It will bring money into the original shareholders on the basis that they have then made a capital profit, which they may or may not wish to reinvest, and it will bring money into us, but in a sense all that is doing is giving us money now instead of money further along. There is no additional money, it is a divvying up of what is there.
Q334 Lord Levene of Portsoken: Sir Peter, as I understand it what you have told us is that you inherited a very large PFI project which it was too late for you to change which worked out very expensive. You now have a new project ongoing which you have been able to manage yourselves. Two questions really: we have heard that it is very difficult for any health authority or any health trust to get funding other than through a PFI scheme so could you tell us, firstly, how is it that you have been able to fund this one without doing that? The second question is I do not know how far into the new cancer centre project you are but it would be interesting to know if that is remaining on cost and on budget and if it is how you have managed to do that when so many others have fallen by the wayside?
Sir Peter Dixon: I suspect our lessons are not generalisable. We had the capital receipt from the sale of the old Middlesex Hospital site which we sold on very successfully and as a foundation trust we were able to keep it and, having paid off some other things, we are reinvesting that. Why we think we can control that project is that we have taken a great deal of care over it as one would if one was running a commercial company. If I was the chairman of a private company and we had just procured a big building I would not expect to have to do it through a PFI scheme, I would expect to do it by a proper process of project control within my organisation. I have to say I cannot see why the public sector should not be able to do those things. I agree that it has not always done them well but I cannot see why it should not. If this does go wrong-and I shall only be there for another nine months, unfortunately, because I have done long enough-it is the chairman and the chief executive of the organisation that screwed it up. One of the slight advantages of foundation trusts is that we are independent of the Department of Health, we do not get bossed around by them and told what to do. The same thing applies to housing associations, they have an independence, they are responsible for their own actions and it seems to me that that is fundamental to any form of decent project control. You cannot be on the end of somebody else's piece of string.
Q335 Baroness Kingsmill: It may also be that lessons have been learned, have they not, from the procurement process and that it will be improved in the future?
Sir Peter Dixon: I hope so. We may not have got this right but I know perfectly well if we have not it is my fault.
Q336 Lord Moonie: As a foundation trust what additional flexibility do you have in raising capital? Can you look at bonding, for example?
Sir Peter Dixon: We can, but in fact the cheapest financing available to us is through something called the Foundation Trust Financing Facility which is available to FTs throughout England. We can borrow money from them-they are term loans-on very fine terms. It is not unlike the way in which housing associations used to borrow except that housing associations were borrowing from the private sector and we are actually borrowing in effect from the Treasury. I would like to see a similar model for the health services-in fact I advocated this 12 years ago now-whereby there is a thriving market for bank debt for foundation hospitals. We had nearly £40 billion of facilities available to housing associations; no bank ever lost a penny because it was a regulated market and we took great care over it. I would like to see a similar system operating in healthcare and I cannot see now why it does not and I could not see why it did not operate when I first suggested it 12 years ago.
Q337 Chairman: What is the financial risk on that from the bank's point of view?
Sir Peter Dixon: The risks are very similar. You are financing a series of cash flows-rents from tenants, largely paid by housing benefit it has to be said, or payment for the things that hospitals do in terms of replacing granny's hip or whatever else it is. They are things that people absolutely have to have and therefore there is a very good, predictable set of cash flows. If hospitals are well run and well managed-as more of them are now with more transparent accountancy than there used to be-then the risks for the banks are relatively low. We were borrowing money in housing at less than 20 basis points 18 months ago and until the world ended. That was too cheap, but we could actually borrow large sums of money for 30 years at 20 basis points which was ridiculously cheap.
Q338 Lord Moonie: Just to finish that point, on the cancer centre did you try to reconfigure anything in the hospital or was it always going to be a new building?
Sir Peter Dixon: It was going to be a new build because we needed additional capacity to do things differently; it is around ambulatory care rather than having beds. This will be taking people out of beds.
Q339 Lord Griffiths of Fforestfach: Do you have a view on PFI and innovation, whether it hinders or fosters innovation?
Sir Peter Dixon: I suspect it hinders it because part of it is about risk transfer. If you are taking on the building of a large construction project you are not going to experiment with something new when the downside is down to you so provided you have got the right pricing on your contract you are going to be more concerned with delivering what you think is going to happen and getting the certainty of the profit you planned for than on getting a little bit more profit by doing something different. I suspect, therefore, that it militates against innovation. In terms of services going forward I am sure it does. Our food for the hospital comes in from Wales in frozen containers; it is cook chill and the provision of facilities within the hospital are such that that is all we can do. It will be trucked in from Wales or somewhere else for the next 35 years because we have no kitchens anywhere in the hospital. We have the facility for heating up boxes. There is no room for innovation there, it has been designed out-except at very high cost.
Q340 Chairman: I suppose that particular example is something that might happen on a traditional contract as well.
Sir Peter Dixon: It could, I accept that entirely, but one might perhaps have given a little bit more thought for flexibility, I do not know. I would like to think we would.