PFI is funded locally and can put pressure on Trusts' financial position
4.2 Unlike the Local Government sector and other parts of Central Government, NHS PFIs are not subsidised centrally by PFI credits or other forms of capital grant. In general, Trusts fund capital investment, including PFIs, from their local income.
4.3 Most Trust income comes from Primary Care Trusts through the Payment by Results scheme. This makes payments for each unit of activity the hospital carries out, rather than block funding hospitals on historical activity. It aims to provide incentives for Trusts to make efficiency savings. The tariff for how much the hospital receives for each unit of activity is set centrally, based on average costs across the NHS. Thus average costs of maintaining the existing estate is factored into the tariff. The annual tariff uplift for inflation and unavoidable costs also includes the average estimated costs of new capital investment. But Trusts wanting to invest in new buildings, through conventional funding or PFI, do not get specific allowances for that investment, and may need to fund some of it from their surpluses.
4.4 PFI annual charge payments represent between 0.4 and 18.3 per cent of a Trust's annual operating costs with a mean of 5.8 per cent. For larger PFI schemes, especially those where the contract covers the whole estate, the PFI represents a large fixed cost. This can make finding efficiencies across the Trusts' cost base more difficult and can exacerbate difficulties for Trusts in financial difficulty. Although the majority of Trusts with a PFI scheme ended 2008-09 in surplus, of the six Trusts with a deficit, five have PFI contracts.14 These deficits cannot be solely attributed to the use of PFI, but the PFI costs cannot be easily reduced to assist in returning the Trust to financial balance.
4.5 The Department aims for all NHS acute and mental health Trusts to become Foundation Trusts. Foundations are independent of the Department and can retain their surpluses and borrow to invest. Foundations are accountable to their local communities through their members and governors, their commissioners through contracts, to Parliament and to Monitor as their regulator (Figure 17).
4.6 Some Trusts have found it difficult to achieve Foundation status with the high fixed costs from their PFI project. For example, St Helens and Knowsley's application was rejected on the grounds that it could not demonstrate that it could fund its PFI from efficiencies. It aims to apply again once the Trust has proved its efficiency programme is working. Other applicant Trusts have reconsidered planned capital investment, or decided to carry it out incrementally, after Monitor has expressed concerns based on PFI affordability.
Figure 17 Monitor is responsible for determining whether a Trust is ready to become an NHS Foundation Trust and ensuring that, once authorised, NHS Foundation Trusts comply with the terms and conditions they signed up to. It makes sure that all Foundations are professionally managed, legally set up and run, and have their finances in good order. This includes assessing Trusts' PFI obligations and how they affect the Trusts' financial stability. It also assesses and comments on new significant capital investments by Foundations, including new PFI projects. Source: Monitor |
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14 Audit Commission, Evaluation and Use of Resources 2008-09 Summary results for NHS trusts and primary care trusts, October 2009.