Feature / Building nations

Our series on capital funding continues with a look at sources of finance in Scotland, Wales and Northern Ireland. Seamus Ward reports


NHS capital funding across the UK is shrinking; one of the features of the impact of the current economic environment on the service. But demand for new or refurbished hospitals and clinics remains. So how are the devolved government in Scotland, Wales and Northern Ireland finding the investment needed?

Prior to devolution, the private finance initiative (PFI) was used in all three nations and some form of private funding mechanism is being pursued by the devolved administrations. However, private finance is not the only route the NHS can take. Although public capital is dwindling, the devolved administrations have been happy to use this to fund major hospital developments.

Scotland

Perhaps the most stunning example is the £842m Southern General Hospital campus in Glasgow. Entirely publicly funded, and the single largest NHS building project ever undertaken in Scotland, the development is scheduled to open in 2015, bringing together maternity, children’s and adult acute hospitals with laboratory services on the same site. When it is fully operational, 10,000 NHS staff will be based at the campus.

However, the Scottish government also hopes to attract private investment through its non-profit distributing (NPD) model, which is operated by the Scottish Futures Trust.

‘The cornerstone of our work is delivering value for money to the taxpayer,’ says Kerry Alexander, NPD programme director. She explains that the trust aims to bring in £750m in investment for health, with around £500m for NPD projects and £250m for primary care schemes under its Hub initiative.

In the latter, Scotland has been divided into five geographical areas. In each area, public sector bodies come together to decide what facilities are needed, select a private sector partner and set up a joint venture to deliver community infrastructure. This may be in the form of a number of sites bundled together or co-located, such as the £15.5m Aberdeen Health Village, set to open this month.

There are five NPD health projects under the SFT umbrella. By far the largest is the £200m Dumfries and Galloway Royal acute services redevelopment project, followed by the £155m Royal Hospital for Sick Children. Four of the five are in procurement and it is expected preferred bidders will be named in spring 2014. The fifth project, the £60m Balfour Hospital on Orkney, is still in development.

Ms Alexander says the schemes will use private funding, but they will differ from PFIs. ‘The main difference is that the companies being set up are non-profit distributing. There is no dividend to equity shareholders and the private sector return is capped. Where the project company generates a surplus, it will flow back into the public sector.

‘The Scottish government is providing the revenue support and the capital and financing costs. The health boards are responsible for finding the hard facilities management and some of the life cycle costs from their revenue.’

There are legacy PFI schemes in Scotland, including 29 hospital schemes with an aggregate capital value of more than £1.3bn.

Wales

In Wales, whose government will not use the PFI, there are 10 legacy PFIs and five public-private partnership schemes. Recent developments have been supported with public funds, including the £106m Ysbyty Glan Clwyd in Rhyl and the £64m second phase of the children’s hospital at the University Hospital of Wales in Cardiff.

However, it is also looking to attract private funding, through its innovative finance initiative, which is examining a range of mechanisms, including non-dividend investments. This could be used to fund the new cancer centre at Velindre NHS Trust, which has an estimated capital value of £200m.

Northern Ireland

In Northern Ireland, PFI has been used in seven schemes, but only one major hospital has been procured using the initiative. This is the £276m South West Acute Hospital in Enniskillen, which opened last year.

Other schemes have been funded using public capital, including the new £80m Omagh local hospital and phase B of the Ulster Hospital redevelopment (£198m). PFI has been rebadged as the revenue finance initiative (RFI) and is used where it can be shown to offer best value for money.

At present RFI is limited to two health and care centres in Newry and Lisburn, valued at £39m and £37m respectively. According to the Department of Health, Social Services and Public Safety, they are run using third-party development leases, and a wider programme is planned if these pathfinder projects demonstrate value for money.

While administrations across the UK are taking a similar approach to health capital funding, using a mix of public and private sources, traditional PFI is no longer an option for new developments.

February issue: a new children’s hospital at Alder Hey