Select Committee on Health Memoranda

Supplementary memorandum submitted by the Department of Health

Question 4.8c

  1.  At Paragraph 13 of the evidence for Question 4.8 we stated that there were no new revenue support schemes to report this year. The Committee had been notified of the support scheme (referred to as the `smoothing mechanism') for the first twelve major PFI schemes in the evidence submitted to the committee in 1999.

  2.  In our original evidence this year we should have informed the committee of proposals to meet certain costs of Trusts with PFI schemes that could be classed as a revenue support scheme and thus reported. The background is that prior to the publication of the guidance document `Land and Buildings Guidance in PFI schemes' in February 1999, Trusts were led to believe that there would be no requirement to fund the 6% capital charges on land and buildings transferred to the private sector as part of PFI projects. This was a long standing commitment, first given by the Department of Health in late 1996. Following publication of the Land and Buildings guidance in February 1999 reversing this commitment, it was decided that the schemes affected would be reimbursed via direct funding from the centre. The cut off date was schemes at Best and Final Offer by 30 September 1998.

  3.  There is no loss to the NHS as the 6% is financed as part of overall Trust capital charges provisions and it is funded on an actuals basis each year.

  4.  In addition, following revision of the Accounting Standards Board guidance on accounting for PFI in September 1998, several schemes that were approved and incorporated in Trust accounts as being off balance sheet were reclassified as being on balance sheet. These were the schemes at Bromley, Barnet and Chase Farm (previously Wellhouse), South Buckinghamshire, Bradford Community (Horton Park scheme), South Devon (Dawlish scheme), Oxleas and North Bristol.

  5.  The result of this change is that the Trust had to recognise the asset of the new hospital on its balance sheet, and pay capital charges. The Treasury agreed to meet the public finance consequences of these charges by increasing the NHS's borrowing limits for the year in question: the additional revenue consequences brought about by the PFI contracts going on balance sheet are being met by increasing the NHS's overall capital charge provisions and targeting these funds to the Trusts' in question.

  6.  Following the assessment of eligible schemes in autumn 2000 Chief Executives of all relevant Health Authorities were written to on 8 March 2001 informing them of the addition to their revenue cash limit for 2000/01 and which NHS Trusts in their area should be receiving it. The total addition for 2000/01 was £9.3 million to be distributed between 27 eligible Trusts (some of these Trusts will receive their first actual payments in financial year 2001/02). This is its first year of distribution.

  7.  The scheme is recurrent; data is currently being collected for the 2001/02 distribution, which is likely to be a marginal increase. Distribution is expected to reach a peak of approximately £14.7 million in 2005/06 and return to just over £10 million by 2010/11.

  8.  PFI deals provide a fully serviced hospital facility. Figures given are NHS estimates. The value of schemes that have not reached financial close are liable to change.

  9.  Total estimated capital cost to the private sector includes the cost of land, construction, equipment and professional fees, but excludes VAT, rolled up interest and financing costs such as bank arrangements fees, bank due diligence fees, banks' lawyers fees and third party equity costs. As PFI procures a service rather than the underlying asset, capital values shown are necessarily estimates.

  10.  The phasing of capital expenditure by the private sector is generally not available. The spend profile has been determined using a standard formula, below, or a best estimate, to spread the total cost to the private sector over the estimated construction period:

Size of Scheme £m
Yr 1 % of capital cost
Yr 2 % of capital cost
Yr 3 % of capital cost
Yr 4 % of capital cost
Yr 5 % of capital cost
Yr 6 % of capital cost

Under 10
11 to 50
51 to 100

  11.  The information does not provide details of schemes below £10 million.

  12.  These figures may not sum due to rounding.

4.8c—Answer to the second two questions about revenue support

  13.  No revenue support was allocated in the reporting period. No data is therefore provided.

  14.  The nationally agreed support scheme only applied to the first 12 major schemes prioritised in the 1st wave.

  4.8d  Could the Department provide a table showing the increases to the capital cost of schemes since the last expenditure questionnaire and provide a commentary on changes of more than 10%? In addition, could the Department provide the intitial costs of PFI schemes at outline business case (baseline year) for those schemes reported in last year's questionnaire and comment on increases?

  15.  The information requested is contained in the attached tables.

Table 4.8.3


  Comment on any increases over 10 per cent:


  Hexham have 1-8% attributable to indexation—remainder in functional content and revised cost assumptions. 2-8% attributable to indexation—remainder to revised cost assumptions. Z—floor area increased OBC to FBC by 72%. OBC dated October 1995, FBC November 2000. Therefore 5 years indexation. Recalculation in cost assumptions (abnormals).

  South Tees

  Since Financial Close in mid 1999 a post contract variation was made to add additional Cardiac facilities at request of commissioners in response to the NHS Plan (July 2000).

Table 4.8.3



  Queens Medical Centre

  Earlier cost estimates had been based on the Public Sector Comparator. The PFI scope is extended in line with the trusts capital development plans following private sector innovation. It now includes a private patients unit, relocation of the maxilofacial services and retain facilities. This figure includes £1.4 million to be funded at the operational phase by non-SPV sources and the value of land to be disposed.

Table 4.8.3


  Comment on any increases over 10 per cent:

  Norfolk & Norwich

  The initial OBC was for 701 beds. This was then increased to 809 (£143.5 million). A subsequent variation was approved for an additional 144 beds, bringing the total to 953 (£160 million).

  Luton & Dunstable

  The initial OBC did not include staff accommodation (£7.2 million). In August 2001 the Trust signed a variation to the contract for the provision of an additional 28 beds.

  Essex & Herts (Renamed as a PCT)

  The initial OBC cost has been increased to reflect indexation and the inclusion of a location adjustment.

Table 4.8.3


  Comment on any increases over 10 per cent:

  University College Hospitals NHS Trust

  The capital cost at OBC stage relates to the proposed scheme based on a 1996 tender. The PFI scheme, which came forward in October 1997, differed radically from the solution identified in the OBC (March 1995) in that it proposed a single site solution comprising a high rise ward block linked to a lower rise podium block, rather than a four site solution. The service and revenue advantages of a single site, all new build hospital offset the high construction costs. The trust undertook several cost reduction exercises and the consortium price properly reflected the location and type of scheme. The scheme then changed further in scale and cost which were attributable to inflation costs, land acquisition costs and additional facilities not within original scheme (as well as debt service costs).

  Greenwich Healthcare NHS Trust

  The increase in costs since approval of the OBC from £57.1 million to £96.1 million is due to the agreed change of the scheme from refurbishing old buildings to building a modern hospital.

  St Georges Healthcare NHS Trust

  The increase in costs since approval of the OBC from £31.4 million to £45.7 million was due to adjustment for the standard inflation allowance between approval of the OBC in 1995 and approval of the FBC in 2000 and extensions to the scheme. These extensions included additional clinical accommodation, 2 shelled operating theatres and 2 additional ITU beds.

  West Middlesex University NHS Trust

  There was a mistake in not updating the initial capital cost of the scheme as it developed and progressed. The capital cost of £38 million featured on submissions to the Health Select Committee last year; it should have read £50 million.

  The final figure of £50 million was due to increases caused by a review of the floor area (£4 million) and technical issues such as on costs and fees amounting to an additional £7 million.

  North East London Mental Health NHS Trust

  The increase in costs since approval of the OBC from £7.6 million to £10.4 million was due to adjustment for the standard inflation allowance and extending the scope of the scheme. The scheme has been extended to include a day hospital for older people, additional therapy space and further additional space to enable compliance with Government policy on single sex segregation.

Table 4.8.3


  Comment on any increases over 10 per cent:


  Apart from inflation (MIPs indexation/location factor), there are no major variations from the approved OBC/Addendum. However, since "last years figures" (ie the original OBC) the childrens centre has been added and the University new build has been replaced by a refurbishment of Level 4 JR.

  Stoke Mandeville

  Technical changes due to required changes in costing methodology. The impact of the Health Building Notice Requirement on the scheme which means that a new mortuary is required rather than a refurbishment. Changes required due to the need to meet the NHS Plan such as improved waiting list capacity. Changed Trust specification.


  The increase in the value of the scheme of 11.7 per cent is due to the inclusion of an additional two operating theatres within the scheme. Since the OBC the Trust expanded its theatre capacity and this is now reflected within the PFI.

  Surrey Hampshire borders

  Increase caused by increasing the capital costs to MIPS 331 Q2/2001and final space adjustments.

  Sussex Weald

  The preferred option for which the capital cost is shown above, changed radically between OBC and the PFI agreement date.

Table 4.8.3


  Comment on any increases over 10 per cent:

  Exeter and District—Tiverton

  As reported last year Exeter and District Tiverton scheme was never £15.5 million. This should have been £10.5 million.


  From OBC to FBC the cost of the scheme will be increased according to the MIPS index. If the gap between OBC and FBC is 18 months, the figure reported will be the lower OBC and only when the FBC is submitted will the Figures be updated. The figures reported to the HSC between OBC and FBC will be out of date. This is the case with Gloucester where as the FBC is being finalised we now know the figure is £33.5 million not £32 million.

Table 4.8.3


  Comment on any increases over 10 per cent:

  Worcester Royal Infirmary

  MIPS increase is significant plus the changes in HBNs. The PFI development also includes a significant level of new build

  * The capital values are the same as reported last year. As stated in last year's evidence "Both Worcester and Hereford 's preferred solutions at OBC included a large amount of refurbishment. The preferred solution in the PFI scheme includes less refurbishment and more new build."


  The PSC was £49 million. The difference is a significantly greater level of site redevelopment than first expected. * see note for Worcester.

  North Staffordshire Combined Care

  Mainly caused by MIPS indexation—plus HBNs and slightly bigger build.

  Dudley Group

  Combination of MIPS indices—HBNs, increased requirement of Trust (extra 21 beds) and greater functionality not in the PSC.

Table 4.8.3


  Comment on any increases over 10 per cent:

  Blackburn Hyndburn & Ribble Valley

  The Blackburn scheme has undergone significant revisions to reflect the extra capacity demands of the NHS Plan/NBI report. These are:

    i.  The original intention in the OBC was to reduce the number of Surgical beds from 223 to 217. In the light of the NHS Plan this has been changed to increase the numbers from 223 to 252.

    ii.  In the original OBC a rise in day case beds from 54 to 64 was planned. As a result of the NHS Plan the capacity was increased from 54 to 78.

    iii.  The number of Adult Medical beds has been increased from an OBC figure of 234 to 238. This increase is made up of new Coronary Care beds to reflect NHS Plan targets.

  In addition to these bed increases, a new day case theatre and chemotherapy unit has been brought into the scheme as a direct result of the NHS Plan.

  4.8e  Could the Department provide data on the revenue consequences of schemes which have reached financial close and represent long term contractual commitment over the next 25 years? Could the Department provide an update of the Departmental Report table showing the source and applications of HCHS capital, giving the outturn position for 2000-01?

  16.  There are three supporting tables for this question.

  (see Table 4.8.4)

  17.  This details the revenue consequences of schemes at Financial close, split by region with a global summary sheet.

  (see Tables 4.8.4b and 4.8.4c)

  18.  These tables are presented separately and show the forecast outturn and an update of the capital disposition table shown in the 2001-02 Departmental Report.

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Prepared 17 January 2002