“The scale of the expansion being considered would surpass moves made by the Blair government, which first introduced use of the private sector by the NHS.”
Chronically under-funded and over-indebted, the UK’s National Health Service (NHS) appears to be coming apart at the seams. While the Kier Starmer government refuses to pour new funds into the health service until major “reforms” are enacted– which will primarily involve outsourcing its services to the private sector — the costs to repair many of its crumbling buildings are spiralling. According to an article this week by Morning Star, the total repairs bill for NHS facilities in England surged to £13.8 billion in 2023, up by a fifth on the previous year:
Costs amounting to £3bn were attributed to “high-risk” repairs, which could cause injury if left unaddressed.
“Vital bits of the NHS are literally falling apart after years of underinvestment nationally,” said NHS Providers deputy chief executive Saffron Cordery. “The safety of patients and staff is at risk.”
The spiralling maintenance backlog outstrips the cost of running the NHS estate itself, which also increased by 11 per cent to £13.6bn…
Last month, a report into the state of the health service by Lord Darzi revealed Britain had spent £37bn less on the NHS between 2010 and 2024 than comparable countries in the Organisation for Economic Co-operation and Development.
To make matters worse, the NHS is now being offered a helping hand from the same private hospitals that want to dismember it. Last week, The Telegraph reported that the government is considering taking up an offer from the private sector that would see cancer checks, surgery and intensive care for NHS patients increasingly taking place in private hospitals. Just as we warned during Starmer’s first week in office, his new Labour government is certain to continue, if not intensify, the piecemeal privatisation of the NHS.
From the Telegraph piece:
The NHS has been pleading for extra funds ahead of the Budget on Oct 30, but in his first speech as Health Secretary, Wes Streeting vowed to end “the begging bowl culture, where the only interaction the Treasury has with the Department of Health is ‘we need more money for X, Y and Z’”.
Under the plans, submitted by private hospitals, the independent sector could treat up to 2.5 million more patients, with some treatment starting in weeks…
The Independent Healthcare Providers Network (IHPN), which represents private hospitals, including groups such as Bupa, Circle Health Group and Care UK, has written to the Chancellor and the Health Secretary saying that more than £1 billion of private sector capacity could be invested into facilities for NHS patients…
The scale of the expansion being considered would surpass moves made by the Blair government, which first introduced use of the private sector by the NHS.
Bought and Paid For
Unmentioned in the article is that Streeting has received £175,000 from donors linked to private health firms. Collectively, the Labour government’s cabinet ministers have raked in more than £500,000 in donations from firms with links to the sector, including lobbies representing some of the largest private healthcare corporations in the US. This sort of information often gets overlooked in mainstream media articles about the Labour government’s plans for the NHS.
Given who their backers include, it should hardly come as a surprise that Streeting and his cabinet colleagues are reportedly “very interested” in the private sector’s proposals. Streeting has repeatedly pledged to outdo Tony Blair, his mentor and idol, in deploying the private sector in the provision of NHS care. “If you want to understand my appetite for reform, think New Labour on steroids,” he said in a speech in May. And he seems to be keeping to his word.
Labour just sold £1.3bn of NHS services to private equity.
Pay-off for political donations.
Private equity =profiteering, asset stripping, low investment, staff exploitation, poor care.
30%-40% money vanishes in profits – people get less for more moneyhttps://t.co/TzPGgXfU40
— Prem Sikka (@premnsikka) October 17, 2024
In his mission to accelerate the privatisation of the NHS, Streeting will be able to count on the experience and expertise of Alan Milburn, who is to be given a lead role in the Health Ministry. During his four-year stint as secretary of state for health (1999-2003) under Blair, Milburn did more than just about anyone to advance the privatisation of the UK’s health system.
The former health secretary, like the current one, is a fervent believer in using private healthcare to tackle the NHS’ ever-growing treatment backlog, and has raked in millions as a consultant to some companies with interests in the sector. As The Guardian puts it, this “could trigger claims that his role at the DHSC puts him at risk of being exposed to conflicts of interest between his public and private sector activities” — as if that isn’t the basic model of governance in the UK today.
Resuscitating PFI
Milburn was also the first health secretary to begin applying the disastrous Private Finance Initiative (PFI) to NHS infrastructure projects. Three decades later, the single biggest financial burden for many NHS trusts is the regular payments they must make for buildings constructed and maintained via PFI. As the FT noted a few days ago, PFI has saddled many local authorities and NHS trusts with “crippling debt repayments.”
Under PFI, instead of borrowing to build, the government began contracting with private sector firms to finance, design, build and maintain public assets, including hospitals, schools, roads, prisons, street lighting and military equipment. The contracts typically run for 25–30 years, and many of them are coming to an end soon.
The only real advantage of PFI is that it allowed government to harness vast sums of private capital to invest in public projects, such as roads, new schools and hospitals, without paying any money up front, allowing it to keep the level of current public debt lower than it would otherwise be. But the costs of servicing that debt are significantly higher than is typically the case with public debt.
In 2018, PFI was finally scrapped after the collapse of one of its biggest beneficiaries, the construction and facilities management services firm Carillion. In total, some 700 PFI contracts with a capital value of £57bn were signed between the mid-90s and 2018, mainly by Labour governments. Around £140 bn has been paid for their use and maintenance and another £160bn is still owed, according to the Kings Trust, a public health think tank.
As the FT puts it, PFI was ultimately deemed to be “poor value” for taxpayers, which is one hell of an understatement (more on that later).
Yet there are signs that PFI is being resuscitated — this time in the form of the £7.3 billion National Wealth Fund which aims to finance big infrastructure projects like ports (Special Economic Zones?), gigafactories, green hydrogen and carbon capture by generating £3 of private sector investment for every £1 it invests while providing government guarantees of returns to investors. As Lord Prem Sikka, a Labour peer, explained in a recent speech to the House of Lords, the resemblance to PFI is uncanny:
Govt revives the disastrous Private Finance Initiative (PFI).
PFI ran 1992-2018. Govts got £60bn private investment, repayment £306bn.
Now £1 of public investment to be matched by £3 of private, will repay £15-£18, guaranteeing corporate profits
There are sensible alternatives pic.twitter.com/gq1qjRyKdc
— Prem Sikka (@premnsikka) July 28, 2024
According to the FT, the Labour government is being urged by investors to launch a new version of PFI after a review by former Siemens chief executive Jürgen Maier backed the model:
Former Labour minister Lord Hutton believes an amended version of PFI could work for future projects. This could include the Welsh model, where the government or local authority takes an equity stake and investor returns are capped.
Water regulator Ofwat is also encouraging utilities to use a similar model called “direct procurement for customers” for £14bn of new infrastructure.
Lord Hutton heads the Association of Infrastructure Investors in Public Private Partnerships, a new organisation representing PFI investors. With many PFI contracts scheduled to come to an end over the next few years, it was set up to encourage collaboration to avoid costly legal wrangles. Call me cynical but the fact that investors are calling for a new PFI scheme just as many of the old contracts are reaching termination suggests that another big can is about to be kicked down the road.
As the King’s Trust warns, concerns are rising about just how messy things could get if the government doesn’t step in:
“Everyone is worried about how these contracts will finally end: those in the public sector who hold them; the PFI industry itself; the National Audit Office; and the [government’s Infrastructure and Projects Authority], which is the government’s centre of expertise on PFI and all other major projects.”
The big question is whether the government is doing enough to provide the huge amount of support that individual hospitals, schools and others are going to need to avoid what the Financial Times dubbed ‘a bitter end’ to the UK’s use of the private finance initiative…
PFI has been controversial for a whole variety of reasons. But one real attraction was the obligation to maintain these hospitals and other assets well so that they would be handed back to the public sector in fine working order.
This was attractive not least because governments of all colours tend to cut capital expenditure, which includes maintenance, when times are tight. This has led to a bill for backlog maintenance in the public sector of at least £37bn. Some £10bn of that is in the NHS. As a result, areas involving patient treatment are being closed ‘all the time’, NHS England told MPs recently.
In addition, as cash-strapped hospitals and others have sought to manage their PFI contracts more vigorously – looking for reasons to make deductions from the annual payments because of defects – relations have deteriorated.
According to the IPA’s report by two independent PFI experts – the White Fraiser report – this has spawned ‘a lucrative and self-perpetuating disputes advisory market’. One in which the advisers make things worse by seeking to win for their side ‘at all costs’. Hence increasingly toxic relationships, most notably in the health sector.
While there is plenty of guidance on managing the end of a contract, and some central support, the fact remains that these exit negotiations are still being done by individual hospitals and others, usually by people who have not done this before and are likely only to do it once, while the PFI industry has always been more concentrated and hence more expert. To the outside eye, this looks like a less than balanced equation.
A Decades-long “Fraud on the People”
The PFI began life back in 1992 when then-Chancellor (and former steering committee member of the Bilderberg Group) Kenneth Clarke set up a PFI panel that evolved into a taskforce inside HM Treasury and was eventually rebranded as Partnerships UK. As The Independent recounted in its long-form article, “The Great PFI Heist,” various executives from big banks “appeared on secondment. It was later privatised with the shares sold off to financial institutions including Barclays, HSBC and RBS.”
PFI and its second incarnation, PF2, allowed construction firms to charge absurdly inflated costs while bankers and financial consultants were able to gorge on massively inflated interest rates and fees for run-of-the-mill infrastructure projects. Meanwhile, public institutions like the NHS were saddled with debts they would struggle to repay over the course of decades. It was, put simply, “a fraud on the people”, as even Sir Howard Davies, chairman of the Royal Bank of Scotland (RBS), admitted on BBC1’s Question Time in 2018:
The government can borrow money more cheaply than anyone else, and therefore if you’re going to hand over the total provision of a hospital to someone whose borrowing costs are going to be higher than yours, what is the advantage of doing that? Unless you’re absolutely certain they’re going to be much more efficient. And if you think they’re going to be efficient, why not give them a fixed price contract? Why hand over the whole thing?
I think PFI has been a fraud, and there has been a very interesting report by the National Audit Office today which shows just how much we have paid for the privilege of the Private Finance Initiative.
It’s no surpise the UK has anemic growth, low productivity, declining real wages and massive debt. We have a “cuckoo in the nest” banking sector that admits to actively defrauding the public with the connivance of govt.
— Ian Fraser (@Ian_Fraser) January 19, 2018
Edinburgh Royal Infirmary to which RBS lent, and of whose Consort consortium it was a part cost £180m to build but NHS Lothian will pay back £1.6bn by 2034 https://t.co/QfCSXQLh4C
— Ian Fraser (@Ian_Fraser) January 19, 2018
By the time PFI came to an end, in 2018, the government had coughed up roughly £110 billion in fees and interest. Yet it would still have to pay investors and companies another £199 billion between April 2017 until the 2040s for existing deals — working out out at a total outlay of around £309 billion for 700 projects worth a measly £60-something billion.
For successive governments (though most certainly not their voters), the benefits of PFI and its successor scheme, PF2, were obvious: they allowed ministers to harness huge sums of private capital to invest in public projects, such as roads, new schools and hospitals, without paying any money up front or bringing it onto its balance sheet — thus keeping the level of current public debt lower than it would otherwise be.
What Sir Howard Davies didn’t mention on Question Time is how his bank and others like it had helped set in motion this historic heist. As the researcher and campaigner Joel Benjamin of The People vs PFI wrote a few years ago, “Politicians did not simply wake up one morning and declare that banks should finance and own schools and hospitals, off-balance-sheet, via offshore tax havens; they were lobbied by City interests, prior to the implementation of PFI.”
Now, something similar could be about to happen, albeit with large infrastructure projects in the logistics and green energy sectors. PFI could soon be brought back to life, in what can only be described as the definition of financial madness.