New research: 17 NHS Trusts facing deep cuts
10:02 am - June 4th 2011
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A report in the Financial Times today finds that 17 NHS Trusts are in danger of going bankrupt thanks to the spending squeeze, unless they impose deep cuts to services.
The impending financial meltdown at the trusts means local communities could lose their accident and emergency departments and maternity services, forcing patients to travel further for certain treatments.
In nearly all cases, the downsized hospitals will be taken over by other organisations and in some cases they may be run by the private sector as an NHS franchise.
Most controversially, struggling hospitals built under the private finance initiative threaten to undermine services at neighbouring institutions, which may have to shut to spare the PFI hospitals, thought to be too expensive to close.
Although the spending cuts play an important part, they aren’t the sole reason why some trusts are in financial trouble.
Private Finance Initiative (PFI) contracts are also to blame.
Over half of the 17, however, also have buildings funded through the private finance initiative, the annual payments for which often amount to more than 10 per cent of their turnover.
Nigel Edwards, departing chief executive of the NHS Confederation, said: “If you are one of these hospitals and you have a PFI, you really are in trouble. You are locked into a 25-year availability payment which means that even if you stop using space in the hospital, you are still paying for it.”
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Trusts with unaffordable PFIs include South London, which embraces three hospitals in Bromley, Sidcup and Woolwich. It closed the A&E and maternity unit at one of the sites in December but is expected to have to go further to balance its books and meet PFI payments that are already more than 15 per cent of its income. That proportion will rise as it anticipates an 8 per cent fall in its annual income.
We’re in for a torrid time with the NHS ahead.
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Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments
I do find it hard to understand these PFI stories. If you build a hospital in the conventional manner – i.e. just pay for building it and then own it – spreading the cost of doing things that way over 25 years could amount to “10 per cent of turnover” each year … or not. It’s like trying to figure out whether buying a car with cash up front is cheaper than buying it via annual payments – you can’t figure that out just by being told the annual payments amount to x% of your annual income, you need two figures to compare.
They talk about having to pay under PFI “whether you are using the building or not” … well if you build a building the conventional way, you have paid for it whether you use it or not too. For a large organization like the NHS, paying for something with a big sum up front, or via 25 annual payments, shouldn’t matter, what matters is which option provides better value for money.
Maybe PFI simply lured certaint trusts into building new hospitals that they couldn’t afford – they couldn’t have afforded to them if they’d built them non-PFI, but they were fooled into thinking they could if they did it PFI … I don’t know how this screw up happened, the PFI deal should have made it quite plain how much it was going to cost each year, how can the people who commissioned these new hospitals not have anticipated they would be unable to afford the payments?
[1] “how can the people who commissioned these new hospitals not have anticipated they would be unable to afford the payments?” – because the protagonists are long gone when the shit hits the fan.
In a decade or so when more and more people find access to health services increasingly problematic – it will be a case of Andrew ‘who’.
http://videojournalismweb.files.wordpress.com/2011/03/andrew-lansley_300x225.jpg
The PFI contracts often included payments for an array of annual services – such as cleaning and maintenance – as well as the costs of designing, building and equipping hospitals.
FWIW my impression is that too many hospital executive teams leaped into bad deals in order to get new buildings asap – perhaps assuming that downstream political pressures would ensure bail outs for ensuing deficits in order to avoid the political penalties from failing healthcare services. In theory HM Treasury was supposed to check out that the deals represented good-value-for-money but there was often strong local populist pressures to get the new hospitals.
People often talk about PFI as a way for govt to hide debt, but if they had embarked on an ambitious hospital building program and overspent, that error may have been hidden in central govt debt, not necessarily reflected in each hospital’s operating costs. In some respects PFI makes the mistake more visible. Of course the structure also means individual hospitals may go bankrupt which they wouldn’t if central govt simply built their hospitals for them
@Luis: “”In some respects PFI makes the mistake more visible.”
But the regular future payments due in PFI contracts were not capitalised and included in the official figures for Britain’s national debt.
The payments amounted to future contractual current liabilities – so what was happening was far from transparent unless a researcher set about getting information about PFI contracts as approved bt HM Treasury.
The empowering legislation had been pushed through by Norman Lamont when he was Chancellor but the Major government made no use of it. Gordon Brown as Chancellor seized on PFI funding, especially for NHS projects, to bypass his own fiscal Golden Rules:
http://en.wikipedia.org/wiki/Golden_Rule_(fiscal_policy)
Don’t blame me. I didn’t vote in the 2005 election.
Bob, I think you miss my point. It’s not about how debt was accounted for, it’s that under PFI the cost of the building is visible in the hospital’s P&L each year .. . I’m not sure how it would show up under conventional funded construction but I’m guessing it would less clear and we wouldn’t see hospitals going bust or cutting back because the govt spent too much building the hospital
@Luis
Sorry, I did misunderstand.
My local hospital is about to be redeveloped at a cost of c. £219m with the finance coming from NHS central finance, not the PFI. The gestation of this project goes back more than a decade. I won’t bore readers here with the tedious history but approval for the go-ahead only goes back a few months and that was evidently only after long and careful vetting by the NHS centrally and by HM Treasury. There’s an impression that PFI projects for the NHS weren’t that carefully vetted because, from a central NHS perspective, almost all the costs to the NHS came in the future.
Reactions: Twitter, blogs
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Liberal Conspiracy
New research: 17 NHS Trusts facing deep cuts http://bit.ly/mID77b
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Mike Rowley
New research: 17 NHS Trusts facing deep cuts http://bit.ly/mID77b
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Alex Perkins
New research: 17 NHS Trusts facing deep cuts http://bit.ly/mID77b
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Hhaylo
RT @libcon: New research: 17 NHS Trusts facing deep cuts http://t.co/SwmtYaj >Incuding my Trust & the cuts are definitly deep. #savethenhs
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Pucci Dellanno
New research: 17 NHS Trusts facing deep cuts http://bit.ly/mID77b
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Naadir Jeewa
Reading: New research: 17 NHS Trusts facing deep cuts: A report in the Financial Times today finds that 17 NHS T… http://bit.ly/iJBayH
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Suzanne Newman
RT @libcon: New research: 17 NHS Trusts facing deep cuts http://t.co/SwmtYaj >Incuding my Trust & the cuts are definitly deep. #savethenhs
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