NHS needs major capital boost and PFI buy-back rights

The thinktank also highlighted the ‘toxic legacy’ left by the private finance initiative (PFI) and called for a right-to-buy scheme to be introduced allowing trusts to bring bad value contracts into public ownership.

The report acknowledges the £1.85bn boost to capital funding announced by prime minister Boris Johnson in August and confirmed in the recent spending round, but said it fell well short of the investment needed. ‘The bluster of Boris’ proposal in August – a small, one-off capital cash-injection – is wholly inappropriate given the scale of this on-going crisis,’ said IPPR health fellow Chris Thomas.

Capital spending should be brought in line with the OECD average in terms of spend per head of population, the report said – in 2018 UK spend was less than half this average. This would require an uplift in spending of £5.6bn in England, which would need to be maintained and rise with inflation.

The increased funds should be used to clear the £3bn of high and significant risk maintenance by the end of the settlement period. All additional funding – totalling £4bn in year one – should be available for a long-term capital transformation fund.
Transformation funds should be devolved to local areas and allocated using a ‘timely and transparent’ bidding process – traits lacking from the current allocation process.

The IPPR’s recommendations would see the departmental capital expenditure limit set at £12.3bn in 202021, rising to £13.3bn by 2024/25. These figures build on figures included in the 2018 Budget, with the recent capital increase contributing towards the required uplift. Funding for the increase should come from government borrowing, with current rates significantly preferable to private financing, the report said.

The private finance initiative has now been banned as a mechanism for funding capital investment. At its peak (2007), capital spending was a record £2.5bn more than the OECD average. But it had turned out to be a bad deal and the government had not provided an alternative source of funds or dealt with its legacy.

Mr Thomas said PFI contracts were still driving billions away from patients and into private bank accounts. ‘And it means the NHS has no mechanism to bring in capital investment – blocking transformation and threatening even basic safety standards in our hospitals,’ he said.

The NHS had only paid around £25bn of the expected £80bn total cost of PFI, acquiring just £13bn of assets, the report said. For some trusts, PFI payments consume 17% of annual income. And the NHS will pay over £2bn this year on PFI. While the ban on new PFI contracts was welcome, the thinktank said NHS trusts needed a ‘right of enfranchisement’.

This would enable PFI tenures to be transferred into a freehold tenure through a one-off, standardised payment, enabling the worst deals to be brought back into public ownership. Meanwhile, trusts paying the largest percentages of their income on PFI should receive direct financial support.

Saffron Cordery (pictured), NHS Providers deputy chief executive, said that there were some well-designed PFIs that were good value, but agreed that some bad deals had left trusts with repayment bills they could not afford. ‘The option for trusts to have a right to buy out these contracts is welcome, but with NHS funding constrained and diverted away from capital over the last few years, it’s vital to remember that trusts don’t always have the means to do this.’