PFI and NHS funding

As indicated through the free market ‘engineered’ collapse of Carillon this week, many NHS services including hospitals who were ‘persuaded’ into private finance initiative (PFI) deals or in the case of GP services LIFT purchasing arrangements are also being ‘engineered’ into collapse due to inability to repay on unrealistic terms which benefit investors with offshore tax arrangements.

Added to this the reduction of the NHS tariff payments makes not just the so-called £22bn efficency savings impossible but the operation of some hospitals ensnared in PFI arrangements. I once chatted briefly with someone who had previously been CEO of a large NHS hospital and had found a way of financing a new wing without resorting to PFI.

Keep our NHS Public Oxfordshire campaign were set up originally in 1995 as PFI Alert, specifically in response to the implementation of PFI by the Conservatives – they saw the disastrous liabilities heading towards the NHS even then. Also Professor Allyson Pollock and John Lister amongst others, who study national and international health policy have completed research on PFI since that time. As an example, some key points about PFI from Professor Allyson Pollock

  • PFI has been the dominant form of procurement for large national health service (NHS) projects. More than 90% of the £11.6 billion of capital expenditure contracted to take place under England’s hospital – building programme has come through PFI. By April 2009, 101 of the 133 new hospitals built between 1997 and 2008, or under construction, were privately financed.

  • PFI costs drive service closures, bed and staff reductions due to the high cost of debt servicing and enormous transfers of resources from patient care to bankers, shareholders and financiers.

  • PFI lacks accountability as the contracts are secret and hidden from public view.

  • PFI involves a long term, 30 to 60 year, contract between the public and the private sector

  • Sovereign debt is always cheaper that finance borrowed privately for individual investments (‘project finance’). Successive governments have argued that the higher cost of private finance reflects risk transfer to the private sector, which generates savings that outweigh the extra cost. However, risk can be transferred to the private sector by using fixed price contracts and public borrowing instead of private finance.

  • Although governments justify PFI on cost efficiency grounds, they are usually thought to adopt the policy for fiscal not efficiency reasons. Most PFIs are not included on the public balance sheet and do not count as part of public borrowing totals. New investment can therefore be undertaken without any immediate increase in government spending or debt.

  • The implications of manipulating spending figures and public sector debt in this way have serious long term implications

  • PFI simply alters the timing of payments to creditors; it does not eliminate them or bring extra resources. There is no economic case for off-balance sheet treatment.

  • PFI borrowing costs are consistently higher than public borrowing costs.1

Total PFI debt has increased since the publication of this video but Helen Mercer explains how the special purpose vehicle which owns the PFI debt also profits from the hard and soft facilities management (FM) which is outsourced as a result of the PFI.

With the NHS being asked to achieve an impossible second round of £22billion so-called efficiency savings, many hospitals are unable to repay their PFI debt and the PFI owners are making huge profits which are held offshore and not being returned to improve services and care. In addition with the austerity policy and the ongoing reduction in funding of the NHS including the reduction in the tariff paid to hospitals for the cost of delivering services/treatment/care, so-called efficiency savings are not just a misnomer but impossible to achieve.

The Nuffield Trust shows a very useful graphic overview of the reality of NHS finances , also the National Audit Office.

With international attention being focused on the NHS as everything that has been warned about since the first outsourcing of facilities management by Margaret Thatcher in the 1980s, national funding of the NHS isn’t just a so-called socialised nice to have service but a coherent way to continuously improve the NHS and achieve cost efficiencies and invest back into not just the health services but the investment of healthy people working and spending money back into the local and national economies. Another message being distributed is that hypothecated tax, increases in National Insurance are a solution to NHS funding but this will not work as explained by Richard Murphy

the proposal to increase National Insurance for the purpose of paying for the NHS is another wholly misleading political message representation that plays on the belief that many people have that National Insurance either pays for pensions, or the NHS, or both, when  in fact none of these things is true.  National Insurance is, for all intents and purposes, just another tax.  According to this year’s budget  National Insurance will raise about £110 billion this year whereas the cost of the NHS will be £140 billion  and the state pension over £100 billion. Quite clearly NIC can’t cover all this.

But there is something  more important to realise about National Insurance, which is that it is a deeply regressive tax for two reasons. The first is that National Insurance charge on employees falls from a rate of 13.8%  to just 2% when earnings exceed £41,865  a year.  This means that as earnings rise above this point the overall percentage rate of contribution paid by a higher earning employee falls as a part of income.

Secondly, National Insurance is regressive because it only applies to earned income. That means that if a person can live off investment earnings, or they can recategorise their earnings as investment income, as many self-employed people do by recording their income through a company and by then paying themselves dividends, then national insurance is not paid and this has the result of making this particular tax in some part in voluntary, and in another part a tax only on labour, and not on capital. Both factors suggest that that the tax is already deeply unfair when every member of society benefits from the tax paid.  If, therefore, any tax was to be hypothecated, National Insurance is definitely not the one to use.2


1. Pollock A, Price D (2013), PFI and the National Health Service in England, Queen Mary University London, available at
http://www.allysonpollock.com/wp-content/uploads/2013/09/AP_2013_Pollock_PFILewisham.pdf

2. Murphy R (2018), The last thing the NHS needs is a hypothecated tax: Labour please note, Tax Research blog, available at http://www.taxresearch.org.uk/Blog/2018/01/20/the-last-thing-the-nhs-needs-is-a-hypothecated-tax-labour-please-note/

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