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NHS Trusts on the brink

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23rd Sep 2011
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The cost of paying for new hospitals under the private finance initiative (PFI) is bringing 22 NHS Trusts to the "brink of financial collapse", according to health secretary Andrew Lansley.

Speaking on BBC Radio 4, Lansley said he had been contacted by the trusts that were struggling to cope with the ‘burden’ of the PFI contracts – the previous government’s favoured off-balance sheet option to help re-build public infrastructure.

Lansley said: "The truth is that some hospitals have been landed with PFI deals they simply cannot afford. Like the economy, Labour has brought some parts of the NHS to the brink of financial collapse."

It follows a Public Accounts Committee (PAC) report, Lessons from PFI and other projects that was recently published, which concluded it was far from clear whether PFI provided value for money. “At present, PFI looks like a better deal for the private sector than for the taxpayer,” said Margaret Hodge, chair of the Committee of Public Accounts.

Joining the debate on whether NHS trusts are ‘at risk’ from PFI costs, Matthew Custance, head of Healthcare PPP at KPMG, told AccountingWEB: “We think the issue is overstated and have published research that we did with University College London where it was found that PFI represents good value for money, as well as enhancing patient experience and quality.

“Sometimes organisations procure too big a hospital and end up with long-term problems. Of the 22 trusts that are struggling, the unitary charges usually represent more than 10-15% of their budgets - suggesting that the hospital was over-scoped for the size of the trust.”

Richard Threlfall, UK head for infrastructure at KPMG, also added that we shouldn't lose sight of the fact that many trusts manage well with PFIs including large projects such as the University Hospitals Birmingham and University College London.

“The real issue is the broader need for efficiency in the NHS not the cost of PFI” Threlfall said. “NHS Trusts are having to make big cost savings and where they have costs like the rental on a building that forces them to make bigger savings elsewhere.”

“In ordinary language, we'd all like to buy our houses without a mortgage but life isn't like that. The problem NHS Trusts are facing is no different to the one of millions of people across the country – how to make savings when you have a mortgage or rent to pay on your house. You can’t overnight change the size or cost of a hospital, so it’s a fixed cost you have to accommodate,” Threlfall added.

Tax assumptions

The Public Accounts Committee also found there was information that strongly suggested investors had been making excessive profits from selling on shares in PFI projects.

It warned that investors had made bumper profits from taxpayers by buying up the contracts for schools and hospitals funded through the PFI and taking the proceeds offshore.

The PAC identified 91 PFI projects held in overseas tax havens, including 33 owned by HSBC Infrastructure - an offshoot of the high- street bank, based in Guernsey.

Hodge commented: “The Treasury assumes tax revenues when assessing the value for money of a PFI project, yet does not monitor whether taxes are paid. In our evidence we found that tax revenue is being lost through the use of off-shore arrangements by PFI investors. The Treasury should measure the tax revenues from PFI deals and should ensure that this is taken into account in future assessments of PFI against conventional procurement.

The committee's view was that the government should revisit the tax assumptions it builds into the cost and benefit case for PFI. It also found that one of the largest PFI investment funds had 72% of their shareholders of its management company registered offshore.

KPMG’s Matthew Custance commented on some of the tax issues levelled at the PFI: “The secondary market, where assets can be bought and sold on, has taken advantage of mechanisms where tax can be reduced. However, if these were government-built hospitals there would be no tax paid at all.”

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