PFI contributes to large deficits of Scottish health boards

Money will have to be diverted from patient care throughout the United Kingdom to pay for hospitals constructed under the government's controversial private finance initiative (PFI), a report from the University of Edinburgh has warned.

It says that the schemes (now known as public-private partnerships) are already a key factor in NHS deficits and that this problem will escalate as more of these projects are completed. Under PFI, the private sector builds and pays for new hospitals and other healthcare facilities. In return, the NHS pays an annual charge to the private sector—often for 30 years or more.

The study by the University's Centre for International Public Health has analysed the situation in Scotland after obtaining data from the Scottish Executive under freedom of information legislation. This shows that the NHS will have to pay more than £2.4bn (€3.5bn; $4.7bn) in charges to private companies over the next 30 years for schemes that cost £602m to build.

Mark Hellowell, the lead author of the report, said, “The report shows the impact of large PFI hospital schemes in Scotland on health board budgets. Funding is being diverted away from clinical care, staff and supplies, to pay ‘rent' to the private sector.” The annual “rental” costs are set to increase fivefold over the next five years in Scotland as the PFI programme is expanded further.

The Audit Commission in England has already reported a higher incidence of deficits in NHS organisations that have PFI buildings than in those that do not. In Scotland, the boards with the biggest PFI schemes, NHS Lothian and NHS Lanarkshire, are both experiencing financial difficulties. NHS Lothian recorded overspending of £11.4m in 2005-6, and NHS Lanarkshire's losses came in at £21.7m, despite cost saving measures including closures of services and sales of land.

The report says that PFI buildings cost the NHS more than non-PFI buildings. The annual charge that the NHS pays for acute PFI facilities is about 11-18.5% of hospital turnover, compared with 5-8% for non-PFI facilities. This produces an affordability gap that the report says can be filled only by diverting money from patient care.

“Without a major increase in public expenditure, more of the NHS budget will be diverted away from services to private companies, making already serious financial problems more severe, and creating new pressures for hospital, community and primary care service closures in the medium and long term,” it adds.

This was rejected by Scotland's health minister Andy Kerr who said the report betrays a complete lack of understanding of how public finance works. He said there are always long term costs to pay regardless of the method used to build major hospitals. Detailed comparisons are made between private and public sector options and private finance is only involved when it is shown to be more cost effective, he added. “Rental costs are fully taken into account when the project is planned,” he said.