10 June 2005
Health Secretary Patricia Hewitt will come under pressure to put together a financial rescue package for the NHS in Norfolk after government auditors confirmed that the local trust is paying over the odds for its Private Finance Initiative hospital.
Norman Lamb, the MP for North Norfolk whose campaigning prompted the National Audit Office review of the deal, told Public Finance that the health service across the county was struggling with mounting debts.
These were being exacerbated by the high costs that Norfolk and Norwich University Hospital NHS Trust is paying to contractor Octogon for the construction and management of a new hospital, he said.
'This report shows we are paying a premium for being a pioneer of the PFI in the health service,' Lamb added. 'We've got a big historic burden of debt. We need to get help. I'm going to challenge the secretary of state with these findings to try to persuade her to help the Norfolk health economy out of this mess.'
The deal was refinanced in 2003, nearly six years after the original contract was agreed, netting the contractors £115m in gains. Of this, just £34m was shared with the trust and will be taken over time rather than as a lump sum. This decision was having an adverse effect on patient services, Lamb said.
But the Department of Health said that, as it was a capital receipt, it would be wrong for the trust to take all the gain now and use it as a short-term fix.
'Taking the gain over time will ensure that all users of the hospital, as well as future local taxpayers, share the benefits for the next 30 years,' a spokesman told PF. 'The refinancing has delivered real gains for the NHS. The trust is now paying £1.7m less in annual fees.'
The NAO's review of the refinancing concluded that, although Norfolk and Norwich was paying a premium, these costs were to some extent offset by savings elsewhere. As a partner in one of the earliest PFI deals, the trust had benefited from lower construction costs, which have increased by 48% since 1998.
But the June 10 report also calls on the DoH to analyse other factors that could affect price comparisons between early PFI deals and their successors. In particular, the department should look at whether the private sector is delivering cost efficiencies as it becomes more experienced in delivering PFI projects, the report says.
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