1.3 The BMA believes that PFI is "ill-conceived and will prove to be a millstone around the NHS for the next generation."6 There are significant concerns as to the affordability of PFI projects in the long term as PFI contracts legally bind NHS Trusts into making significant payments over 25 to 30 years in an increasingly difficult financial period. This will threaten local health economies, and result in reduced services for patients.
1.4 This is demonstrated in the context of the Payment by Results system (PbR). PbR is the tariff system whereby hospitals are funded on the basis of their activity with adjustments made for casemix. From the income trusts receive from PbR, 5.8% is provided for capital costs. However it is suggested that the capital costs of trusts with PFI schemes average 8.3% with some rising to 10.2% thus creating significant shortfalls.7
1.5 In addition, while capital charges are paid back to the Treasury and can be reinvested into the economy, the availability charge is paid to the private consortium and lost to the system. This was conservatively estimatedin2004tobecosting the government £125 million a year in lost revenue and as more schemes become operational, the amount of funds that are being lost in this way will only increase.8
1.6 The inflexibility of PFI also limits the ability of NHS trusts to strategically plan for the future as they are contractually bound to pay for a building and a pattern of service provision which could later prove inappropriate and unfit for purpose. It is interesting that this is occurring at the same time that the Government is encouraging service redesign and is attempting to move more health care services from secondary care into the community and primary care sector. The relationship between these changes and hospitals that have been built or are planned under PFI is unclear. What we do know is that the duration and inflexibility of PFI contracts limits the available options for future strategic planning.
1.7 This is also occurring in an increasingly difficult financial climate. The NHS has its funding guaranteed until 2011, but after that the budget is expected to stagnate or be cut in real terms as public spending is tightened.9 However at the same time (during the next spending review period from 2011-14) repayments for NHS PFI projects will reach £4.18 billion, an increase of almost £1 billion from current levels.10 As a legal contract PFI removes discretion in capital spending11 and it is likely that hospitals will be forced to make cuts to health care services to make their ongoing PFI repayments.
1.8 On a regional level, the inflexibility of PFI contracts means that Strategic Health Authorities (SHAs) are more likely to make economies at hospitals without PFI commitments. For example, it has recently been reported that South London and Kent planners have decided that of four hospitals battling debts, closures should occur at Queen Mary's Hospital in Sidcup because the other three (Lewisham, Woolwich and Bromley) all have PFI repayment obligations.12
1.9 Recent guidance issued by Monitor, the Foundation Trust regulator, stipulates that organisations wanting to become foundation trusts will not be allowed to take on annual repayments which are more than 10% of their income.13 While this figure is currently already being breached by many of the trusts making repayments on deals,14 the guidance appears to provide them with an exemption.15 This has significant implications for claims as to the value for money of PFI. If the financial performance of trusts is taken as an indicator of the affordability of schemes, the fact that trusts are already operating with considerable deficits, despite underlying efficiency, suggests that again, PFI does not represent good value.
3. Is there significant risk transfer to the private sector or is it more apparent than real?
3.1 Since Governments are unlikely to default on their repayments and become bankrupt they are able to borrow money at more attractive rates than private companies.16 Consequently, as PFI deals involve the private sector borrowing at higher rates the cost of financing a new hospital is greater. Nonetheless, supporters argue that PFIs are value for money because risk and associated costs (which would have been shouldered by the public sector) are transferred to the private sector. The BMA is not convinced that there is significant risk transfer to the private sector and consequently, this argument is fundamentally flawed.
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6 2006 BMA Annual Representative Meeting Resolution.
7 Hellowell, M and Pollock A M, (2007) Private finance, Public Deficits: A Report on the Cost of PFI and its Impact on Health Services in England, Edinburgh: University of Edinburgh. Available at www.health.ed.ac.uk /CIPHP/Documents/CIPHP_2007 PrviateFinancePublicDeficits_Hellowell.odf
8 Edwards P, Shaoul J, Stafford A, Arblaster L, (2004) Evaluating the operation of PFI in roads and hospitals research report no 84, The Association of Chartered Certified Accountants. London: Certified Accountants Educational Trust, at p 11. Available at http://www.accaglobal.com/publicinterest/activities/research/reports/accountability/rr-084
9 Timmins N, (2009) Financial Times Budget lays bare cost to NHS of economic crisis as it is told to make efficiency savings of £2.3bn BMJ: 338:b1754.
10 Donnelly L, and Ball J, (2009) Hospital to cut services to pay for £60bn private finance deal, Telegraph, 8 August. Available at http://www.telegraph.co.uk /health/healthnews/5995025/Hospitals-to-cut-services-to-pay-for-pay-60bn-private-finance-deal.html
11 Greener I, (2009) Healthcare in the UK: Understanding continuity and change, Bristol: Policy Press.
12 See Donnelly L, and Ball J, (2009) Hospitals to cut services to pay for £60bn private finance deal, Telegraph, 8 August. Available at http://www.telegraph.co.uk/health/healthnews/5995025/Hospitals-to-cut-services-to-pay-for-pay-60bn-private-finance-deal.html
13 Monitor, (2009) Prudential Borrowing Code (PBC) for NHS Foundation Trusts, London: Monitor, at pg 8. Available at http://www.monitor-nhsft.gov.uk/home/our-publications/browse-category/guidance-foundation-trusts/mandatory-guidance/prudential-borro
14 Gainsbury, S, (2009) Monitor has "effectively cancelled" PFI contracts, Health Services Journal, 24 June. Available at http://www.hsj.co.uk/news/finance/monitor-has-effectively-cancelled-pfi-contracts/5003163.article
15 See paragraph 20 of Monitor (2009) Prudential Borrowing Code (PBC) for NHS Foundation Trusts, London: Monitor, at p 8. Available at http://www.monitor-nhsft.gov.uk/home/our-publications/browse-category/guidance-foundation-trusts/mandatory-guidance/prudential-borro
16 Hellowell M, and Pollock A, (2009) The Private Financing of NHS Hospitals: Politics, Policy and Practice, Economic Affairs, Vol 29, Issue 1, pp 13-19, March 2009 at p 14.