PFI – the £65bn NHS mortgage

13 08 2010

So after yesterday’s hullaballoo about £500 trips to Blackpool, today we have news of some genuinely expensive public sector spending.

And no prizes for guessing – it’s PFI.

The BBC reports that New Labour’s favourite cash-guzzler has left the NHS with a £65bn bill under PFI contracts – the so-called ‘NHS mortgage’.

None of which will surprise readers of Private Eye, of course.

Under the 103 PFI deals, NHS trusts pay private companies contractually agreed sums over a period of decades to cover the cost of construction, operation and maintenance of facilities. The payments cover the loans that private companies take out to fund the up-front work.

The fixed nature of the operation and maintenance costs means that in squeezed financial times – such as now – trusts can’t make savings on non-frontline functions, such as catering, that have been sub-contracted out under the PFI deals. Such costs are fixed under the contracts – meaning hospitals have little choice but to make cuts to frontline services, the costs of which are met in-house and are not fixed.

The King’s Fund health think tank is now urging trusts to try and renegotiate the PFI deals.

But given that the contractually agreed costs cover borrowing from commercial bank lending, often from banks that are trying to rebuild their finances following the credit crunch, good luck with that.

More here. And good on the BBC for crunching the numbers.

PFI – the £65bn NHS mortgage

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One response

26 08 2010
Richard Blogger

I am not a fan of PFI, it seems to be a wheeze to take health spending off the government’s balance sheet, and it seems that this wheeze has backfired. At least we have the shiny new hospitals, which had we had a Tory government over the last 13 years they would not have been built.

However, I would caution you about making judgements over the eye watering figures provided by the BBC. The situation is not as bad as the figures suggest. Have a read of the following analysis at Liberal Conspiracy:

http://liberalconspiracy.org/2010/08/18/why-the-nhs-65bn-pfi-cost-may-be-a-good-deal/

The fact is, if you borrow £11bn over 30 years you will not pay a total of £11bn. No loan works that way.

The article reckons that the £65bn cost over 30 years equates to a 6% interest rate. That’s more than the 3.5% rate that the government can borrow at, but if you then take into account that the payments to PFI companies include service charges (money that would be spent anyway) then the cost starts to look a bit more reasonable.

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