Handout on PFI in the NHS: the purpose and the profit

MEDACT handout on PFI in the NHS: the purpose and the profit

Note: The City wants activists to diversify away from the NHS, which is the ground they want to avoid fighting on. So the best way to fight on PFI is to concentrate on its central role in the NHS privatisation.

What is “the Private Finance Initiative”?
• Invented by the banks (for the benefit of banks)
• Allows private sector profiteering from building services for the public sector
• Created as a profit-generating alternative to public borrowing at low rates and zero risk, PFI costs more and carries more risk for the public sector
• PFI contracts are decades long, over-priced but set up to be hard to escape
• PFI was ostensibly set up as a funding mechanism but is part of the NHS privatisation: designed from the start as a millstone to take hospitals down
• PFIs are “sale and leaseback” deals designed in the City

What are the consequences of PFI?
• Unpayable PFI bills are the main reason why hospitals are going broke; this is an inevitable and intentional consequence of the way things have been structured.
• The contracts are decades long, with charges payable even if medical services are not provided at the site. This aspect is essential to the NHS hospital privatisation.
• PFI hospitals are outside cities – use of PFI deals allowed hospitals in convenient-to-get-to city centre sites to be sold off
• PFI hospitals attract complaints that they are poorly laid out for use as public hospitals. In fact they are designed as “medimalls”/”polyclinics”, predestined for privatisation under the QIPP plan (by McKinsey, commissioned by government in 2009)
• Coventry hospitals: local population preferred refurbishment of city centre hospital at estimated cost £30 million. PFI hospital forced on them cost £400 million to build, but the hospital will have to pay in total £3,300 million.
Why PFI?
1. The official explanation:
• Gaming public service borrowing requirements
• A slightly shady explanation
2. The cynic’s explanation:
• Crony capitalism
• Figures fiddled to get deals signed, gagged hospital staff, official misrepresentation
• Criminality is implicit
3. The 20:20 hindsight explanation:
• PFI as agent of planned privatisation for NHS hospitals

1. The official explanation to the public…
Taxpayers would be funding long-term borrowing on worse terms so that official restrictions on cheap public sector borrowing could be circumvented. Lenders would carry the risks.
This was not a presentation of a best option but a statement that this policy was being adopted. No other options were explored.
The risk transfer argument is nonsense:
• First, the sovereign UK state is in a better position to absorb risk than most private entities, being larger and more diversified.
• Second, the risk was, by and large, not transferred at all!

…but why were the City told the risks would stay with the public sector?
In 2000 Gordon Brown marketed PFI by inviting financiers to invest in:
“core services, which the government is statutorily bound to provide, and for which demand is virtually insatiable.
Your revenue stream is ultimately backed by Government. Where else can you get a business opportunity like that?” BBC Radio 4 6 July 2004
2. The cynic’s explanation
“Time and again my Committee has reported on problems with PFI, including the costly contracting process and the prospect of little risk being transferred but high returns being enjoyed by investors.
We have even seen evidence of excess profits being priced into projects from the start.”
Rt Hon Margaret Hodge,
Public Accounts Committee presentation of Report of Session 2011-2012
…just fleecing the taxpayer….
• Investors
• Those hoping for contracts to run hospitals
• and Middlemen:

3. The strategist’s explanation:
• PFIs started under Major and ramped up under Blair (usual City strategy of getting both parties’ hands dirty so as to mute MP opposition)
• But PFI was mentioned as a component of the Thatcher NHS privatisation plan in the 1980s
• Now PFIs are acting as a millstone dragging hospitals into insolvency and The Special Administration privatisation machine

The NHS hospital privatisation challenge
Challenge for the privatisers:
• How to take over NHS hospitals which are 100% state owned and funded annually from the Treasury?
Privatisers’ desired end state:
• 2/3 NHS hospitals to be closed as undesirable competition for incoming US hospital operators;
• 1/3 to be private sector-run (ratio from 2009 plan update) as UK Medicaid.

The NHS hospital privatisation plan
Essential steps of plan, over 30 years from 1986:
• Somehow separate NHS hospitals out from the state financially to enable an “insolvency” narrative misapplied from corporate law to force takeover;
• Create law to support that “fake insolvency” narrative;
• Load separated hospitals with expensive construction debt on long locked-in contracts to build new private-sector-friendly “medical mall” hospitals;
• At chosen time, constrict funding to NHS hospitals so PFIs become unpayable, and the “insolvent” hospitals can be taken over by private sector using “efficiency” argument;
• Use competition law merger regime under competition regulator to add non-PFI hospitals to PFI-hit hospital trusts. These will be forced to pay PFI charges by selling them for redevelopment, leaving privatisation-compatible PFI hospitals protected by long contracts on offer to US firms.

Plan implementation already almost complete
Task Implementation
1. Separate NHS hospitals out from the state financially Foundation Trust public/private hybrid privatisation form imported to NHS from Spain 2002
Monitor tasked to pass all NHS hospitals through “Foundation Trust pipeline” into the private sector.
2. Create hospital “insolvency” concept and law Health Act 2009 Unsustainable Providers regime created The Special Administration as a way to make NHS hospitals privatisation possible for the first time, heralding the end of the NHS.
3. Build medimalls with PFIs PFIs forced on NHS hospitals from 2000
4. Constrict funding to make PFIs unpayable NHS budgets frozen or cut from 2010, on the basis of “QIPP”, the 2009 privatisation plan update by McKinsey
5. Reconfigure services with mergers, then privatise PFI hospitals 2015 onward: budgets contracted and mergers underway across NHS because of unpayable PFI, which will result in sale of other NHS facilities to pay PFI charges
The South London Healthcare Trust TSA privatisation and the attack on neighbouring Lewisham Hospital are the start of a wave sweeping the nation.
Note also Hinchingbrooke Hospital takeover by banker-run partnership Circle
What, then, is PFI?
PFI has been, at once:
1. As “confessed”, a means to get round PBR limits, though at high cost to the taxpayer over decades into the future.
2. As widely observed, a way for fat cats to fleece the public through political corruption
3. As mostly unremarked, a key component of a sophisticated City-originated plan to manoeuvre one-off and permanent privatisation or closure of NHS hospitals.
PFI has enabled a historic betrayal of the British people.

What should we do about privatisation through hospital PFIs?
Ignore the privatisers’ messaging that we should transfer the PFIs out of hospitals for them to be paid from some other part of the public purse. This is a bad solution for everyone but the PFI lenders!

1. Investigate your PFI and document the mis-statement of financial matters and all legal advice: use FOIs, check accounts through Companies House, etc;

2. Press for prosecution: frauds have been committed;

3. Bring civil cases through judicial review to block land sales;

4. Assume that anyone recommending the bankers’ PFI plan – that central government or local authorities should take over or buy out PFI deals – is on the side of the PFI lenders! That pays the crooks off yet again!

5. Publicise the problem to everyone you meet.

On the last point: an enormous amount of effort has been expended on keeping the public ignorant of this privatisation scam, the deliberate sinking of NHS hospitals via PFI deals on inflated and unreasonable terms. Please do not ignore political conservatives and the politically disengaged: they are ordinary people who will be losers as much as we are. We will be much stronger for mobilising everyone affected.