Select Committee on Health Minutes of Evidence

Memorandum by the Association of Community Health Councils for England and Wales (PS 2)


  1.  The Association of Community Health Councils for England and Wales (ACHCEW) was set up in 1977, under provisions of the NHS (Reorganisation) Act 1977, to provide a forum for member CHCs; to provide information and advisory services to CHCs; and to represent the public interest in the NHS at a national level.

  2.  In principle, access to Private Finance could be a useful addition to the repertoire of the NHS in England and thus in the interests of patients, carers and the public. In practice, both the manner of its introduction and the way in which it has operated have created avoidable problems.

  3.  It is too early to reach a definitive, sweeping judgement about the Private Finance Initiative in the NHS in England for several reasons:

    (a)  no major scheme was signed off before the spring of 1997 so actual experience of the running of PFI hospitals is limited;

    (b)  there has been a long learning process involving the refinement of contractual terms;

    (c)  official attitudes to the allocation of risk between the NHS and the private sector have changed significantly over time;

    (d)  the policy context in terms of projections of hospital beds has changed radically;

    (e)  the costs and value for money of PFI schemes have been the subject of extensive polemic;

    (f)  there is apparent uncertainty as to whether conventional procurement conventionally financed constitutes a genuine alternative or merely an artificial benchmark against which schemes are judged.

  4.  ACHCEW passed the following motion at its 1999 AGM:

    "This AGM notes that hospitals built under the Private Finance Initiative (PFI) have extra capital costs which can only be met largely at the expense of clinical budgets and service capacity. Under the PFI, new hospitals have:

    (a)  many fewer beds—on average 28 per cent fewer.

    (b)  high throughput ratios—over 90 patients per bed per year, up from 54.

    (c)  hundreds of staff redundancies—1,000 for every 200 million investment.

    (d)  proportionately fewer trained nurses.

    (e)  subsidies worth millions of pounds, at the expense of publicly owned hospitals and community service elsewhere.

    In view of national evidence that acute bed closures and staffing shortages have gone too far, this AGM considers the NHS cannot afford the Private Finance Initiative. It, therefore, calls upon the Government to abandon it as a principal means of capital investment."

  Although the accumulation of evidence and experience since then has added to its knowledge of the PFI, it has not been such as to justify any modification in that view.

  5.  No major scheme could be signed off before the spring of 1997 because the legal status of liabilities of NHS Trusts was unclear. Legislation then gave the Secretary of State power to guarantee such liabilities. Refinement of contractual terms has resulted in avoidance of windfall profits through refinancing deals and speculative deals in surplus land; this has meant allocating more risk to the NHS than in the earliest deals. Many of the original deals were associated with substantial reductions in bed numbers; this ceased to be the case from the spring 2000 when a requirement was brought in to test them against the findings of the National Beds Inquiry. Although in principle value for money should be demonstrated, both opponents and proponents have used questionable techniques to reach their conclusions. Opponents have been known to exclude the costs of providing some services included in schemes from their estimates of the public sectors, while it is far from clear that in the more recent schemes the reduced proportion of risk carried by the private sector has been taken into account (this is highly pertinent since "Building Better Partnerships"[32] shows that the value of transferred risks—inevitably an arbitrary figure—exceeds the difference between the scheme and the public sector comparator!). There is also confusion as to whether public capital would be available if a PFI scheme failed to meet the value for money test or whether the project would be cancelled or at least delayed.

  6.  However, it is fair to say that the later waves of PFI schemes represent a considerable improvement on the first wave. It is also possible that some projects within them may represent genuine value for money as against the public sector alternative (this is likely since there appears to be wide variations between the existing Regional Offices of the NHS Executive in terms of openness and quality of process—with London towards the high end of the range and the West Midlands near the low end). However, it is not practicable to identify any of them with any confidence.

  7.  The improvements in the later waves have reflected both refinement and restriction of the original concept of PFI. In this context it is difficult to see the logic of extending the scope of PFI to the provision of clinical services.

  8.  Originally, PFI was put forward as a means of obtaining capital for new schemes more quickly. This may have been true initially. However, the process of procurement and negotiation appears to be longer than for conventional contracts. Furthermore, some of the improvements incorporated in the later waves have been achieved at the cost of lengthy delays during the period before signature (one current example is the effective suspension of negotiations in all but three schemes not signed off before the middle of June 2001 pending development of an arrangement based on retention of employment of Ancillary staff). In addition, the timing of "financial close" (the point where funding is agreed) can be delayed for substantial periods by market conditions (eg the state of financial markets near the end of 1999).

  9.  Despite the drawbacks set out, the weight of evidence is not enough to justify complete abandonment of the PFI by the NHS in England. For it to have a fair chance to make a contribution which adds value, both better scrutiny of the procurement process and the creation of a credible competitive threat from the conventionally-financed and conventionally procured option are needed. In that way, Private Finance could serve the interests of patients and the public rather than the other way round.

32   IPPR (July 2001) "Building Better Partnerships: Commission on Public Private Partnerships", pp 91. Back

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