Thursday, May 04, 2006

PFI hospitals: 'the unacceptable face of capitalism'?

Rightwing Tory MP Edward Leigh – speaking on behalf of the Commons Public Accounts Committee – has branded the consortium that built Norfolk and Norwich Hospital as ‘the unacceptable face of capitalism’.

That a Conservative believes that capitalism can have an unacceptable face is progress of sorts, I suppose. That puts him ahead of most Labour MPs, who seem to find every last visage of the market perfectly acceptable.

But Leigh (pictured left) is right. This particular PFI scheme has seen the taxpayer shafted for tens of millions of pounds. How does this happen, especially under a Labour government? I looked at the issue of hospital PFIs in my book, Labour Party plc:

‘In most areas of public services, no alternatives to PPP and PFI are even being considered. Let’s take hospitals as an example. As health secretary Alan Milburn proclaimed in July 1997, while still new to the job: "When there is a limited amount of public sector capital available, as there is, it’s PFI or bust."

‘As of December 2001, some 68 NHS hospitals had been built privately since New Labour took office. Out go the crumbling relics of Victorian philanthropy, in come shiny happy superhospitals . . . or so the government would have us believe.

‘Here comes the supposedly clever bit. Capital spending hasn’t come from the state, but from the private sector. Once built, the hospitals are leased back for NHS use, typically for 30 years. But at the end of that period, they remain the property of the owner, to do with as they please. It’s like paying off your mortgage and then giving your house back to the building society.

‘It is blindingly obvious why private construction companies are up for such deals. Research compiled by the London Health Emergency pressure group estimated returns for PFI hospital contractors of up to 25%.

‘The study found that the first six completed schemes had a capital cost of £423m, yet involved payments of £2.4bn over the life of the contracts. Fourteen further projects under construction involved total payments of a further £7.5bn. This is money that could and should be ploughed back into provision of health services.

‘The only logic in doing things this way is that the payments do not count against public sector borrowing requirement. PFI is an Enron-style off balance sheet financing vehicle par excellence.

‘That was particularly an important consideration during New Labour’s first two years in office, as it pledged to stick to inherited Tory spending plans.

‘Yet the public sector borrowing requirement is simply a question of definition. Other countries solve the problem by changing the definition to exclude capital expenditure.

‘Another justification sometimes advanced for PFI is that it results in extra investment. The figures used to substantiate such claims are again based on manipulation of the particular accounting methods used in the public sector.

‘The notional cost of providing investment through the public sector is what is known as the ‘public sector comparator’. A high notional value is assigned to the ‘transfer of risk’ supposedly borne by the private sector in undertaking the project.

‘But many contracts are practically risk-free. It would be politically impossible for an NHS trust to be allowed to go under. PFI hospitals are guaranteed three-decade cash cows.

‘On top of that, calculations frequently do not take into account the
millions spent on legal fees and consultancy bills to bring the projects to fruition.’


Later on in the book, I added:

‘There have already been repercussions at the ballot box. One of the few moments of real interest for those sitting up half the night to watch the results roll in at the last [2001 general] election was the victory of independent Richard Taylor in Wyre Forest, who ousted a sitting Labour MP after standing on a ‘health concern’ ticket. This small earthquake in the West Midlands constituency was almost entirely down to a PFI hospital.

‘The costs of building a PFI replacement for the Worcester Royal Infirmary rose by 118 per cent between 1996 and 2000. As a result, the local health authority was forced to inflict cuts at Kidderminster General, most notably in accident and emergency services.

‘The population – a small but representative sample of Middle England – was horrified and willing to express its displeasure in the voting booth.

‘The critique of PFI hospitals focuses on inflated costs, poor quality, inflexibility, lack of accountability and the knock-on costs to other parts of the NHS, as well as the huge profits that are being made.

‘The Government’s so-called ‘design tsar’ Sir Stuart Lipton has described many of the new hospitals as ‘urban disasters’. He may well have had the likes of Cumberland Infirmary in Carlisle in mind.

‘Blair gave his personal blessing to the privately built and managed hospital by performing the opening ceremony. Within weeks, ceilings had collapsed and operating theatres were flooded with sewage. The following year, surgery had to be cancelled after the electrical wiring caught fire.

‘Still more PFI hospitals have been heavily delayed. The new hospital for the Barts and London Trust, announced in 1998, will not be open until 2007 at the earliest.

‘A new hospital for Swindon was announced in 1997, but the final contract had not been signed by early 2002.

‘Yet over the next 30 years, the taxpayer will have to fork out £500m, when facilities could have been provided for the public sector at an estimated price of just £76m.4.'


The sooner a government - of whatever party - drops the stupidity of insisting PFI is the only way to pay for major public sector projects and readopts commonsense methods of footing these bills, the better.

UPDATE: Oliver Kamm has just emailed to remind me that the phrase 'unacceptable face of capitalism' was in fact first used by a Tory. Edward Heath coined th expression in the early 1970s to describe Lonrho. Just to leave me even more red-faced, I am old enough to remember this, while OK wasn't even born at the time. Yep, that dude sure is clever.



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