Lansley's hypocrisy on NHS cuts and PFI

26 Sep 11
Mark Hellowell

The PFI is being blamed by Andrew Lansley for the NHS's financial problems. But the policy has been supported by successive governments, including this one - and the bigger cause of cuts lies elsewhere 

I've been researching or writing about PFI for more than 10 years. The
topic always has a high profile, but its impact on the financial
stability of NHS trusts has recently become headline news (see, for example, Daily
Mail, Telegraph, Guardian, Today programme etc). This story followed a
lot of recent coverage of parliamentary committee reports on PFI,
which have been very critical.

The latest coverage was based on a briefing by Andrew Lansley last week in which
he suggested that PFI was the cause of major financial problems among
22 NHS trusts. He added that these problems would give rise to
'consequences', including the closure of hospital services. The media
coverage has largely reflected the Secretary of State's line that the
coalition is now faced with the task of cleaning up the Labour
government's 'PFI mess'.

However, there are a number of important points that were omitted from
the media coverage that are essential for a proper understanding of
the facts, among them the following:

1. All the press coverage presented the PFI programme as a historial
phenemenon - a policy of the last government. But, as I made clear in
a recent Channel 4 news interview (see, the
PFI programme is being advanced by the coalition, which has signed off
on some very substantial new hospital projects (currently in
procurement). It has also indicated that more are on the way.

In addition to the fact that it was John Major's government that
initiated the use of PFI in the NHS (true, they lost the election in
1997 before any projects were completed but that is no more than a
historical accident), this makes Lansley's attempt to politicise
this issue highly misleading. The reality is that successive
governments have used PFI to invest in new buildings over and above
what formal capital budgets would allow. In today's context, in which
the deficit reduction is the key political priority, it is no surprise
that the new government has embraced PFI, just as Major did in similar

2. The de-stabilising influence of PFI within the context of Payment
by Results has long been understood - I began writing about it in
2003, and have published on the topic more recently
The fact is that PFI leads to high fixed costs for the trusts
involved. Since PbR pays trusts per treatment based on average
treatment costs across the NHS acute sector, it is clear that PFI
trusts will have a tendency to run deficits on their income and
expenditure accounts. If a trust manages its variable costs with only
average efficiency, it will run into financial problems because its
fixed costs are higher than average. The question is, what we should do
about this?

The answer, from a public health and geographical equity point of
view, is obvious. Since some NHS trusts have high fixed costs, it
serves no efficiency purpose to penalise them (and the populations
they serve) for this. After all, few would doubt that these trusts
needed the new hospitals they commissioned, and the government forced
them to use PFI (nobody would have touched it had it not been the only
game in town - to borrow Alan Milburn's phrase). Therefore, fairness
dictates that these costs should be borne centrally: the PbR tariff
should be adjusted so that trusts with high costs are fully funded for
these costs.

3. There is a danger that ministers intend to use the PFI story to
channel attention away from hospital service closures, which
Conservatives have long said were unnecessary. The coming
rationalisation of maternity services in Barnet, for example, is
highly embarassing for David Cameron. It was in Barnet hospital where,
as leader of the opposition, he promised that the services would be
retained under a Conservative government. To state that PFI is the
sole cause of the need to close these services is misleading because:
a) the PFI burden is simply not big enough to be the main driver of
this change, which is actually motivated by a broad array of financial
and clinical factors; and b) as said above, such problems as are
caused by PFI could easily be solved through a judicious adjustment in
the PbR tariff.

Of course, if PFI is indeed such a great source of financial
difficulties due to its inherent inefficiency, then the question has
to be asked: why is the coalition pursuing a £1.4 billion programme of
new NHS PFI schemes?

Did you enjoy this article?