Allyson pollock

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  • 1. PFI: Lessons from the UK NHS PFI is now a discredited Public Policy throughout public sector Affordability VFM Cost of finance PrestonMarch2013 1
  • 2. Public Expenditure Rules Efforts to meet fiscal rules at national and European level may have contributed to misuse of PFI Lack of capital and Departmental Expenditure Limits have encouraged and may encourage poor investment decisionsTreasury Committee 2011 PrestonMarch2013 2
  • 3. Treasury Committee report Aug 2011 Main benefit claimed was transfer of construction cost risk . However in a PFI contract which lasts 30 years it is not necessary to transfer that risk We are concerned that VfM appraisal system biased to favour PFI Some of claimed risk transfer may also be illusory PrestonMarch2013 3
  • 4. The involvement of private finance in taking on performance risk is crucial to the benefits offered by PFI, incentivising projects to be completed on time and on budget, and to take into account the whole of life costs of an asset in design and construction. HM Treasury. PFI: meeting the investment challenge July 2003 PrestonMarch2013 4
  • 5. Treasury Committee 2011 No convincing evidence ..that PFIprojects are delivered more quickly and atlower out- turn costs than projects usingconventional procurement methods. .Increase in private finance costs mean thatPFI financing method is now inefficient PrestonMarch2013 5
  • 6. PFI Issues Affordability problems come home to roost. Risk transfer argument is now being treated with scepticism i.e. the policy is seen to be political not economic. Banking crisis is driving reform (because bank lending has dried up). But it is reform not abolition -search is on for alternative means of passing risks on to service users. PrestonMarch2013 6
  • 7. Public Expenditure Rules: Golden Rule (borrow to invest) sustainable investment rule: public debt < 40% GDP- now abandoned) Treasury tests: Affordability Value for Money PrestonMarch2013 7
  • 8. Capital value and unitary payments for signed PFI projects in Northern Ireland, England and Wales (1990-2008; n=500) 8000 6000 Capital value in m Total unitary charge in m 4000 2000 34.7 billions 0 34.7m -2000 billio ns 191 191.3 billions -4000 billion -6000 s -8000 1993 1996 2002 2005 2008 2014 2023 2029 2032 2035 2041 2044 1990 1999 2011 2017 2020 2026 2038 2047 years PrestonMarch2013 Source: HM Treasury (2008). Signed Projects List (March 2008). Available at: 8 (Accessed: 24 November 2008).
  • 9. Loss of Monitoring the true costs of PFI Data issues 1. No account of additional contributions to PFI schemes - land sales and receipts, NHS capital, Treasury smoothing mechanisms 2. PFI payments not broken down by sector 3. PFI payments do not provide split between FM and availability - therefore disguise true cost of capital 4. Inconsistent definitions of PFI estimates of capital (capital not defined) 5. Revisions to contracts and payments not provided PrestonMarch2013 9
  • 10. NHS Hospitals 159 PFI hospitals Capital value 13.6 billion (2009-10) Aggragate of all PFI availability payments is 42.8 billion (2009-10) , service charges 30.7 billion (2009-10) PrestonMarch2013 10
  • 11. Organising principles of NHS Public health systems and services : geographic populations, comprehensive. Administrative Integration and block grants. Capital budgets Market systems: individuals and groups of individuals, operate by risk selection and risk allocation which is managed through a commercial contract and a pricing mechanism which reflects risks ex ante PrestonMarch2013 11
  • 12. Capital programmes in the NHS: switch to PFI Buildings and Assets converted into a stream of services: charge on capital Changes to accounting regime Lease payments (interest and PDC) Revenue substitute for capital Payments for capital substitute for labour PrestonMarch2013 12
  • 13. Annual revenue implications of capital costs for 19 PFI hospital schemes comparing costs before and in the first year in which the PFI scheme is operating: ring fenced charges Before PFI After PFI NHS Trust (Capital charges + Availability (Capital charges as fee as % of projected % of income 1998-9) income in 1st year of operations)Dartford & Gravesham 6.7 32.7Swindon & Marlborough 3.8 16.4Greenwich Healthcare 2.1 16.2West Middlesex University Hospital* 9.3 15.5Carlisle Hospitals