Dealing with the legacy of PFI – options for policymakers

Vivek Kotecha & Dr Mark Hellowell | October 18, 2018 | Reports

NB: This version of the report was revised on 25/10/18 to correct some errors in the presentation of Option 5.

This report analyses five options available to policy makers to address the problems caused by existing PFI schemes. For each option, it quantifies its impact and assesses its advantages, disadvantages, and feasibility.

The report reveals 15% of all NHS trusts using PFI could terminate a contract due to poor performance. In addition, excess interest and inflation payments on PFI debts costed trusts £1.3bn over the three years from 2014/15 to 2016/17. In 2016/17 alone these excess PFI interest and inflation costs would have reduced the trusts’ overall deficit by 30% if they had been paid centrally instead.

These are just two key findings from a study by leading experts on how to deal with the toxic legacy of PFI in the NHS.

Dealing with the legacy of PFI – options for policymakers

The Private Finance Initiative (PFI) has been used to build 127 NHS hospitals and facilities but has locked the NHS into 25-30 year contracts paying back debt at very high interest rates while generating high profits for the companies involved.

Because individual NHS trusts bear this debt burden, many have been pushed into financial deficits – with money meant for patient care instead going to PFI lenders and investors.

Over £831 million has already extracted from the NHS in the form of PFI profits with a further £1 billion expected to leak out by 2021.

Dealing with this toxic legacy of high cost debt is a big challenge. Finance was provided by the City for these deals on the basis that the NHS would continue to pay back the money borrowed no matter what. The contracts require the taxpayer to pay huge compensation if they are terminated or bought out and investors know they are well protected by the contracts that they signed.

As a result, government must use all the tools at its disposal to reduce the financial burden of PFI and release much needed money for NHS care.

Our report looks at 5 options for policy makers:

  • Enhance the monitoring and enforcement of PFI contracts
  • Centralise the PFI debt to remove the burden from NHS trusts
  • Tax the profits of PFI companies
  • Terminate or buyout PFI contracts
  • Nationalise the PFI companies

Dealing with the legacy of PFI – options for policymakers

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About the authors

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Vivek Kotecha

Vivek was CHPI's Research Manager from 2016 to 2020 ─ leading on a number of high-profile projects in this time. Before coming to CHPI he worked as a manager in Monitor and NHS Improvement analysing and reporting on the operational and financial performance of the provider sector. Prior to that he worked as a management consultant at Deloitte for 4 years.See all posts by Vivek Kotecha
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Dr Mark Hellowell

Dr Mark Hellowell is a Lecturer in Global Health Policy at the University of Edinburgh. His research focuses on the public/private sector interface in healthcare financing and service provision. He has advised a number of international agencies, including the World Bank, on the evaluation of public-private partnerships for health services, and has acted as special adviser on private finance in public infrastructure to the House of Commons Treasury Select Committee.See all posts by Dr Mark Hellowell