35. The NHS is currently experiencing one of the most severe shortages in funding since its creation, due to the government's decision to limit the increase in the amount given to the NHS each year. When the NHS is underfunded it is required eventually to either cut treatments to patients or reduce the amount spent of doctors and nurses, or both. In the short run, NHS organisations run up deficits.
36. The cumulative deficit for NHS hospitals over the period covered by this study was £3.4 billion.1 If £831m had not left the NHS in the form of the pre-tax profits of PFI companies over this period, the impact of this underfunding would have been reduced by almost a quarter.
37. The government maintains that they have given the Department of Health an additional £10bn between 2015 and 2020-21 to address the NHS spending shortfall; the Nuffield Trust and other health think tanks agree, however, that this actually amounts to a £4.5bn real terms increase.10 Using the data from
the analysis set out above we have calculated the amount which the NHS will pay the PFI companies over the same five years to 2020-21 and the amount of this which is likely to leave the NHS in the form of pre-tax profit.
38. Because the annual payments from the NHS are set out in the contracts the future income streams for the PFI companies are exceptionally predictable, and these are also set out in the Treasury database. Over the course of the next 5 years - i.e. 2016/17 to 2020/21 - the Treasury estimates that the NHS will pay £10.4bn (in real terms) to PFI companies for the use of PFI hospitals.xv
39. If the PFI companies continue to accrue profit as a percentage of the unitary charge paid at the same rate as in 2015, i.e. at 9.4%, they will earn around £973m in real terms pre-tax profit over the next 5 years. This means that the equivalent of 22% of the £4.5bn given by the government to the Department of Health will be paid to private companies in the form of pretax profit. Or put another way, almost an additional £1 billion would be available for patient care if the NHS was not required to pay pre-tax profits to PFI companies.
40. However, the profitability of PFI companies is expected to grow over time, as explained in Section 2. As a result it is necessary to estimate the amount of NHS funds which might go to the PFI companies in the form of pre-tax profit if we assume that their profit margins continue to grow as they have done over the past 5 years.
41. We examined how much might be lost to patient care if the average profit rate over this period increased to 12% and further to 16%. As can be seen in Table E, if the upward trend in profitability across the NHS PFI business as a whole continues, an increasing amount of NHS spending will leak out of the system, away from patient care towards pre-tax profits.xvi
Table E Percentage of future NHS payments to PFI companies in pre-tax profits | ||||||
£m (15/16 prices) | 2016-17 | 2017-18 | 2018-19 | 2019-20 | 2020-21 | Total |
NHS payments to PFI companies | £2.02bn | £2.06bn | £2.08bn | £2.09bn | £2.10bn | £10.35bn |
9.4% of NHS payments to pre-tax profit | £190m | £194m | £195m | £196m | £198m | £973m |
12% of NHS payments to pre-tax profit | £243m | £247m | £249m | £251m | £252m | £1.24bn |
16% of NHS payments to pre-tax profit | £324m | £329m | £332m | £334m | £336m | £1.66bn |
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xv Based on estimated unitary charges for all 125 PFI schemes.
xvi All figures given in real terms (2015/16 prices) and based on estimated unitary charges for all 125 PFI schemes.