CIPFA: £500m annual PFI bill for Scottish health service
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Wednesday, 24, Oct 2007 12:00
The Private Finance Initiative will soon cost Scotland’s NHS an extra £500 million per year – a fivefold increase in as many years – two leading academics claimed today. Writing in the journal Public Money & Management, Mark Hellowell and Allyson Pollock of Edinburgh University, warned the rapid expansion of PFI expenditure could threaten health services across Scotland.
As the authors explain, since 1997 all new Scottish hospital projects costing more than £10m have been procured through PFI contracts - whereby funding is raised on the financial markets by groups of banks, builders and service contractors who then lease the hospital back to the NHS. The money to pay the lease comes from the hospital’s own revenue budget which is also used to provide clinical services, staff and supplies.
Mark Hellowell, said:
“We looked at total capital expenditure delivered through PFI for all schemes in Scotland signed before November 2006, and compared this with projections of future annual NHS revenue spending on these deals. Responses by the Scottish Executive under the Freedom of Information Act provided data on capital expenditure by the private sector and the actual annual unitary charges for all PFI contracts. Expenditure on deals signed was £602 million, but the projected debt facing health boards is £4 billion, a potentially huge deficit.”
The report goes on to explain that in one year alone, 2005/06, Scottish health boards paid out over £100m to service already completed PFI contracts, almost a quarter of the total value of the original investment. With the average lease lasting for 30 years, the PFI consortium could, in theory, enjoy 26 years of profit. When soon-to-be-completed contracts are also factored in, the annual bill will rise to over £500m by the beginning of the next decade, the authors claimed.
Mark Hellowell, summed up:
“Prior to the May 2007 election, the Scottish Executive maintained that acute services across the Scottish NHS would not be distorted by PFI expenditure and affordability problems, but would be motivated by the health care needs of local communities.
“But, it is clear that the high cost of PFI, and the huge increase in its scale that is envisaged, will place a burden on the non-PFI parts of the NHS estate, and provide pressure for closure of services within them.”
Ends
Contact: Richard Taylor
CIPFA Press Office, tel: 020 7543 5687
email: Richard.taylor@cipfa.org
Notes to Editors:
1. For a copy of the full article, which appears in the current edition of Public Money & Management, contact Richard Taylor on 020 7543 5687; Richard.taylor@cipfa.org
2. Public Money & Management is owned and managed by the Chartered Institute of Public Finance and Accountancy (CIPFA), www.cipfa.org.uk. The journal is published on behalf of CIPFA by Blackwell Publishing. It has a multidisciplinary and international audience. It publishes articles which contribute new knowledge as a basis for policy or management improvements, or which reflect on evidence from public service management and finance in order to suggest topics for research. Readers include: officials in all types of public service organizations; academics; consultants and advisers working with the public services; politicians; journalists; and students on both academic and professional courses. www.cipfa.org.uk/pt/pmm.cfm
The Chartered Institute of Public Finance and Accountancy (CIPFA) is one of the leading professional accountancy bodies in the UK and the only one which specialises in the public services. It is responsible for the education and training of professional accountants and for their regulation through the setting and monitoring of professional standards. Uniquely among the professional accountancy bodies in the UK, CIPFA has responsibility for setting accounting standards for a significant part of the economy, namely local government. CIPFA’s members work (often at the most senior level) in the public service bodies, in the national audit agencies and major accountancy firms. They are respected throughout for their high technical and ethical standards and professional integrity. CIPFA also provides a range of high quality advisory, information and training and consultancy services to public service organisations. As such, CIPFA is the leading independent commentator on managing and accounting for public money.