The PFI bailout machine has run out of juice

Although it is nearly 20 years ago, I can still recall being lobbied by the representatives of a private consortium who had nascent plans to redevelop a hospital in south London using the then fabulous new idea we called the private finance initiative.  Before you jump to too many delirious conclusions, the meeting took place in my office, not in an expensive restaurant, and it was the only one I ever had with the group. I may have splashed out on a plate of civil service issue custard creams.

At the time I was the special adviser to the then Secretary of State for Health, Virginia Bottomley, and the main item on her desk – and mine – was a plan daringly called ‘Making London Better’ which, when you got down to it, involved shutting down quite a lot of London hospitals. The arguments seemed wearingly familiar even then. There were too many hospitals and hospital beds in London, too much duplication of specialist services, and not nearly enough being spent on primary care. This had been going on for years, but another fabulous new idea – the internal market – had found it out. Rather awkwardly in fact, it had started to find it out in 1991, the year before a general election. This is why the previous Health Secretary, William Waldegrave, for whom I also worked, had commissioned a report about it, thus neatly nudging the issue beyond the polls and into his successor’s in-tray.

Which is where it was as I listened to my guests explain their ideas for re-developing the St Helier, and how it would all be paid for by them and not by us.  Naturally, they were selling it to me on the basis of being a great example of the Government’s new PFI policy in action. Probably because I knew a lot more about ‘Making London Better’ than I did about the abstruse accounting arrangements of PFI, I could only really think of one question to ask: why, if we were in the process of trying to shut down hospitals in London, and reduce the number of beds, did we need a plan to give us a lot more beds and a brand new hospital?  In hindsight, this probably explains why it was the only meeting with them I had.

Today the hospital in question is part of the Epsom & St Helier University Hospitals Trust, one of those large omni-trusts that are now the operational norm, and one of those on the Government’s at-risk register of potential basket-cases. PFI has played its part in this hospital group having outgoings far in excess of the income it can ever hope to earn from patients who need to be sent there for treatment. By moving to place a neighbouring trust – the South London Hospitals – into administration, Andrew Lansley is signalling to this group, and to all the others, that the perpetual bailout machine has run out of juice.  These hospitals must, in the jargon, ‘reconfigure’, just as, 20 years ago, we were trying (with limited success and much political abuse) to get the central London hospitals to slim down and cut out costs.

PFI is a discredited policy. It has now even been defended by Tony Blair, which can generally be counted upon as the final nail in most coffins.  In this week’s Spectator, Ross Clark sets out in detail how a mixture of political opportunism and Treasury gullibility allowed the private consortia to fleece the taxpayer, harvesting a premium return at little or no actual risk to themselves.  The additional cost of these PFI deals, according to Jesse Norman MP, an avid campaigner against PFI, is £20 billion. It seems like an awful lot to pay for a stage-setting for Gordon Brown when he wanted to launch Labour’s 2010 election campaign. 

The nature of these PFI deals, rigged against the taxpayers’ interest, is shameful enough, but there is a prior question here of why so many of them were allowed to go ahead at all. As my London example shows, health ministers have known for decades that the fundamental structural issue in the NHS is that there is an over-provision of hospitals and too little effort and resource being spent on improving services that keep people healthy and out of hospital in the first place. Advances in medical technology have meant this has become even more of an imbalance.  Yet those ministers, desperate for photo-opportunity ready examples of their commitment to building the NHS, were more than pleased to sign-off on deals that in many cases meant new buildings that weren’t really needed.  The sorcery of PFI ensured that the Treasury and Gordon Brown went along and Mr Blair was, and still is, happy to take the credit.

This particular can is now lying on Andrew Lansley’s patch of road, and, this week at least, he has looked like a rare example of a Government minister who knows what he is doing. You wait and see however: if we really are to get ‘reconfiguration’ and not just another fudge, then this is a story that will soon enough turn from being about financial mismanagement to one of shut-down hospitals and patients killed by cuts.