Private Finance is poisoning our Scottish NHS

Sean Halligan is a Masters student at University of the West of Scotland and independent researcher..

The idea of privatising the NHS is so politically toxic in Scotland that not even the Tories would suggest it. But this does not mean that private companies do not play an increasingly significant role in the NHS, most importantly through private finance programmes which exert significant pressure on the already stretched NHS budget. They have a highly questionable track record when it comes to meeting the needs of staff and patients in Scotland’s hospitals.

It has been estimated that between 2016 and 2017, £246.3m will be paid out in Scotland under Public Private Partnership (PPP) contracts in relation to Health, Wellbeing, and Sport alone. PFI (Public Finance Initiative) and NPD (Non-Profit Distributing Model) are both types of PPP capital funding which, as of 2014, had run up unitary charges to the public sector totalling £35bn, of which (as of 2014) only 18% had been paid.

The number of PPP contracts has increased since then, and therefore so have the charges, and so has the burden on NHS health boards. The problem of private financing is likely to become even more of an issue over time.

PPP has previously been likened to a credit card. It allows government to buy and spend now, while the public pay later, and like with any credit card, interest is added. In 2014, it was estimated that PFI projects on average resulted in unitary charges of 5.4 times the total capital value of the project, while NPD projects were 3.9 times the capital value. PFI spending in Scotland was just over £3,000 per head.

Under PFI groups of private investors oversee the design, build, finance, and operation of public infrastructure. In a stereotypical PFI project, the private investors are composed as an SPV (Special Purpose Vehicle), which then oversee the financing, design, building, operating, and maintenance of the finished project. The initial capital investment needed for transaction costs, land, and to build infrastructure is paid by the SPV with a combination of share capital and loan stock and senior debt from banks and/or bond-holders. Periodic unitary charges paid by the public authority, from when the project is completed and ready for use, ensure the return on both equity and debt capital.

Under the NPD model there is a partnership with a provider from the private sector which finances, builds, and maintains the project. The public sector is then charged an annual fee over a timeframe of roughly 25-30 years from the revenue budget once the project is up and running capital.

PPP and the NHS have a turbulent history of failure and ineptitude. One such example is the Royal Infirmary of Edinburgh, whose PFI provider is Consort. Consort failed to alert the NHS that panic alarms were out of order in 2007, in January 2012 it failed to report that fire alarms in 10 operating theatres were out of order,  and in February 2012 staff were informed that only one security guard would be present during the night shift due to illness. Again in 2012, workers for Consort cut the Royal Infirmary of Edinburgh’s power supply resulting in a complete failure of all the electronic equipment in two operating theatres. This resulted in one patient, who was unconscious and under general anaesthetic, being hand ventilated by staff while surgeons completed the procedure by torchlight, for 11 minutes.

NHS Lothian’s contract sees Consort being paid £50m per year for running and maintaining the Royal Infirmary of Edinburgh. The lease is for 35 years and set to expire in 2028. However, unlike other PFI projects such as in Glasgow, ownership of the building will not transfer over to NHS Lothian. Therefore, by 2028 NHS Lothian will have paid roughly £1.2 billion for the Royal Infirmary of Edinburgh for which it will not own.

Furthermore, at the Royal Edinburgh psychiatric hospital, private contractors such as electricians, joiners, and plumbers were paid up to 3 times the hourly rate by the NHS. Contractors Galliford Try charged NHS Lothian £33 per hour for an electrician and £26 per hour for a painter, this excludes overheads and VAT: in comparison an NHS electrician’s and painter’s hourly rate starts at £9.82 per hour, and £8.59 per hour respectively while the starting hourly rate for a Scottish NHS Band 5 Nurse for 2016/17 is £11.36 per hour. Furthermore, leaked documents  show Galliford Try charging such fees as £250.58 for installing an electrical socket – 4 hours work, £395.50 for moving fire exit signage – 8 hours work, and £306.08 for the ‘installation or relocation of light fitting’ – 3 hours work. NHS Lothian, however, have argued that the rates charged were ‘competitive’ and highlighted that the NHS wages do not include employee and tax costs. Installation costs were not written into the contract, though it wasn’t denied they could apply.

It is not, however, just the Royal Infirmary of Edinburgh that has been affected. Another example is Hairmyres Hospital in South Lanarkshire which was built in 2001 and cost £68m. The contractors, however, will receive roughly 10 times that amount by the time payments cease in 2031.

This is not a new phenomenon. In 2006 Hellowell and Pollock highlighted that PFI buildings costed the NHS more than non-PFI buildings. The NHS payed an annual availability charge equating to roughly 11-18.5% of hospital turnover, compared to 5-8% in non-PFI facilities. As they state:

“This extra cost creates an ‘affordability gap’ which can only be met by diverting revenue from clinical services, staff and supplies. Thus, PFI schemes are associated with service cuts even before contracts are signed.”

PFI results in hospitals that are grossly overpaid for, services that can be up to 3 times more expensive, and dangerous environments that neither patients in hospital nor staff at work deserve to face. Panic and fire alarms should always work, hospitals require adequate security, and patients should never have to be operated on by torchlight.

Leave a Reply

Your email address will not be published. Required fields are marked *