The government has announced plans for an overhaul of the troubled Private Finance Initiative (PFI) scheme, but has reiterated its commitment to private involvement in infrastructure.
In his Autumn Statement, Chancellor George Osborne unveiled plans for a new-look PFI system to replace the existing, “discredited” version, which is beset with problems and has faced much criticism.
“Since we can all see now that the public sector was sharing the risk, we will now ensure we also share in the reward”, he said.
Under the PFI scheme trusts award contracts to private contractors to build and maintain hospitals which are then effectively leased back to the state.
The government said is still committed to private sector involvement in delivering infrastructure, but that it has recognised the widespread concerns with PFI – that the public sector has not been getting value for money and taxpayers have not been getting a fair deal – spurring the need for reform.
The new version – PFI 2 – will see the taxpayer become a shareholder in projects and share in ongoing investor returns. In addition, it seeks to improve the value for money of these projects and secure greater transparency, particularly in terms of liability, as well as accelerate the procurement process.
But aside from the name change, “the core of the model – i.e, using private finance to finance construction and getting repaid over a long period of time – remains the same,” Richard Abadie, the global head of infrastructure at PwC told the media.
“The increase in equity required for projects is a surprise as it will likely make projects more expensive. Maybe the government feels that by buying up to half the equity, they can argue the increased cost is being returned to the taxpayer,” he said.
According to Mike Farrar, chief executive of the NHS Confederation, while the government “is right to look at how the NHS can develop more flexible and affordable options to provide appropriate and modern facilities for patients”, “we need any new approach to PFI to drive real savings not just tinker around the edges”.
“We also need to look at practical ways the NHS can squeeze more value from existing deals, given the severe financial pressures on the health service,” he stressed.
And the British Medical Association’s Paul Flynn said it has “long argued that PFI building projects resulted in many hospitals being crippled with very high repayment contracts”, and therefore welcomes the Chancellor’s promise to reassess the contracts.
Cash injection for research
Elsewhere, amid the Chancellor’s rather gloomy Statement there was a glimmer of good news for the life sciences sector, which is to benefit from a multi-million-pound cash injection from the government.
The move, which comes on top of the third of a billion pounds announced this autumn for British science, will see the UK’s scientific research infrastructure get an additional £600 million.
Lloyd Payne, chief executive of Euprotec, said it is “very encouraging to see the government backing the scientific community and signalling investment into innovative, high-growth businesses”.
“We’re of the firm belief that highly specialist skills and facilities, which are particularly prevalent in our sector, are as exportable as manufactured goods,” he said, and noted that “they potentially hold the key to helping the UK get back on an even economic keel”.
Stephen Whitehead, Chief Executive of the Association of the British Pharmaceutical Industry, also welcomed the extra investment, but noted the commercial environment in the UK is equally important, and that more could be done to ensure that UK patients benefit from the medicines resulting from science research.
“Companies do not know if their newly developed medicines will ever be used in the NHS,” he said, stressing that “this doubt inevitably causes companies to think twice about investing in the UK”.
NHS spending row
Meanwhile, while the Chancellor also promised to reinvest any efficiency savings made by the NHS to protect health spend, Labour has claimed a small victory in a row over Conservative claims that real-terms NHS spending in England has increased over the last two years.
Following a complaint by Labour, the UK Statistics Authority concluded that figures actually suggest that “expenditure on the NHS in real terms was lower in 2011-12 than it was in 2009-10″.
“For months, David Cameron’s Government have made misleading boasts about NHS spending, misrepresenting the true financial difficulties he has brought upon the NHS,” commented shadow health secretary Andy Burnham.
“The Prime Minister must come to the House of Commons at the earliest opportunity and correct the record. He has been found out. He has cut the NHS budget for two years running and he owes it to patients and NHS staff to be honest about that,” Burnham said.
Andrew Dilnot, chair of the UK Statistics Authority, has also asked the Department of Health to clarify its statements on NHS spend.
