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PFI, failing hospitals and the question of who else was going to pay for the new hospitals that we need.

Filed Under (Hospitals, PFI) by Paul on 28-06-2012

Yesterday was the fifth anniversary of Tony Blair’s departure from Number 10 and  last night I had a small party at my place for some of us who worked for him, so it’s perhaps fitting that today’s post defends one of his health policies.

On Tuesday as South London Hospitals NHS trust was moving towards administration a number of radio journalists asked me to go on the media and talk about it. Unfortunately I didn’t have time on Tuesday but in conversations with the BBC it was clear that the Government was blaming the PFI at the hospital for the financial problems.

There are three very different arguments I would have made.

The first concerned the size of the building programme that was needed in 1997 and the necessity to find the money to pay for it. At that time more than half of the buildings that NHS hospitals inhabited were older than it was. The NHS needed a massive injection of capital and it was right to obtain it from the private sector.

I can understand those on the left – who will never have any prospect of being in Government – being against private sector finance. (Although only the wealthiest members of the far left that I know – and you know who you are – used money from their parents to buy their own houses. The rest of them, and the rest of us, had to borrow money from finance capital to pay for the mortgages to buy the houses we live in).

We are used to borrowing money on a mortgage to buy our homes – so what makes that so odd for building hospitals? For 33 years I paid a mortgage for the homes that I lived in. Over that period the cost of the money I borrowed added up to many times more than the cost of the houses. It’s a normal part of most of our lives ).

But it’s a bit rich (a phrase that resonates so well) for the Cabinet to say that they would have raised the money from the public sector. In 2002 the Conservatives voted against the 1p on National Insurance that was raised in order to increase resources for the NHS. They disagreed with raising the money that the Labour Government invested in the NHS through taxation. I can’t see where they would have got the extra billions from the tax payer to pay for the new hospitals.

They could have course have raised the money by increasing public debt, but I seem to remember them saying – every day for the last three years – that the country was in an economic mess because the Labour Government had raised public debt by too much as it was. Adding a few tens of billions to that would have been going against their own policy.

Given that I cannot see how the Conservatives would have raised the money; I don’t see how they could have built the new hospitals. If they had been in charge between 1997 and 2010 the NHS would have reached its 65th year with more than half its hospital buildings being 65 years old or more.

The second argument is about the affordability of PFI. There is something very odd about hospitals with PFI buildings complaining that they are too expensive. Nearly every PFI application that I saw had had its original request for money considerably reduced. PFI applicants – the hospital trust boards – were clamouring to have much larger debts to pay and all – in their applications – signing off on their ability to pay for them. They complained loudly that the Labour Government would not allow them to get into much more debt than they did. The debt with which they ended up was, so far as they were concerned, affordable when they were applying for the money

Many hospitals have thrived with their PFIs. They recognised that new buildings need to be paid for but have also recognised that they are an asset which will bring in revenue. They have ‘worked the asset’ rather than simply sat back and admired it. When this happens new buildings for hospitals develop value – not just cost.

Of course there are some hospitals that would have liked a new building and not having had to pay for it. But this is the economics of make believe. Someone has to pay for the building and it is clearly right that the hospitals that get the value from the building should pay for them.

The third PFI argument is more directly political. The current Government now seem to be saying it was a bad idea and that we should not have done it. It will take at most a day’s research to find a considerable number of current Cabinet members arguing publicly and passionately for the PFI money to be granted to their local hospital – and celebrating with the local hospital when the PFI credits were granted.

At the time they were passionately in favour of PFI. Now they are not.

But they are also a Government saying that its predecessor borrowed too much and now has to pay it back.

So it’s ‘real economics’ for the country as a whole but fairy tale economics for the NHS,


4 Responses to “PFI, failing hospitals and the question of who else was going to pay for the new hospitals that we need.”

  1. Is not the problem, that the previous government did not fully appreciate that the nature of healthcare would shift. The greater emphasis on chronic conditions doesn’t require the same large centralised infrastructure but PFI contracts don’t have the same flexibility? There were also a number of hospitals which should have been closed during the previous government which were not, and surely this exacerbates the problem (most infomred people in London will acknowledge, privately at least, that Sidcup should have been closed years ago and that there are at least one and probably two, too many hospitals in north east London for example)

  2. Paul,

    You are quite right to say that it makes sense to borrow to fund capital assets: the benefits are spread, so the costs should be too. But the point (which surely you know well) is that PFI debt is the wrong way to do it. PFI debt costs more than simply issuing gilts ie it is a waste of money, but politicians of both parties did it anyway because PFI debt is off-balance sheet ie semi-invisible. They justified it with a load of guff about risk transfer but fundamentally it was a financing wheeze.

  3. What Daniel said. Plus as you know, many of the contracts were rip offs with massive costs for any change to buildings. The NHS and Governemnt conspired in a massive delusion on PFI signing off all sorts of mad plans in the knowledge those who agreed to them would be gone by the time the bad things happened.

  4. Did you ever pause to consider that just perhaps we had to live within our means – yes, even if that meant worse standards than we’d like?

    If PFI was simply a way to pay for capital assets – why do many PFI contracts also cover current expenditure? Such as the absolute disastrous PFI contract that the previous government forced on the MOD for the Future Strategic Tanker Aircraft project.

    How can you compare PFI to a mortgage when under certain PFI deals we won’t even own the capital asset at the end of the contract?!

    Finally, gievn that it has been known for decades and certainly since 1991 that one of the biggest problems in the NHS was too many hospitals, why was it thought appropriate that the priority should be to build even more new ones, particularly on contracts tying the taxpayer for decades?

    After all it is only now that certain hospitals that should have closed 20 years ago are nearly closure.

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