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Some hospitals are spending more on PFI debt than they are on drugs

The health service is still on the hook for around £50bn in public finance initiative debt.

By Michael Goodier

English NHS trusts are spending more than £2bn a year paying back debt on legacy private finance initiative (PFI) projects, despite the government abolishing contracts for any new projects back in 2018, with some spending more than twice the amount on PFI debt as they did on drugs.

A Spotlight analysis of NHS accounting figures shows trusts spent a combined £2.14bn in unitary payments in 2019/20 — the latest financial year for which data is published.

The figures show a PFI “postcode lottery”, with some trusts particularly burdened by historical schemes.

Sherwood Forest Hospitals NHS Foundation Trust spent more than double on its PFI repayments (£45.8m) than on drugs costs (drugs inventory consumed and purchase of non-inventory drugs, which amounted to £22.6m). That works out as more than £1 in every £8 of income it received from patient care activities, finance income and other operating income being spent on paying off PFI debt. 

It was followed by St Helens And Knowsley Teaching Hospitals NHS Trust (which spent 12.1 per cent of its income on PFI, more than double its drug spend), University Hospitals Coventry And Warwickshire NHS Trust (11.7 per cent of income on PFI, 1.4 times what it spent on drugs), and North West Anglia NHS Foundation Trust (11.2 per cent, 1.2 times what it spent on drugs).

A further 21 trusts also spent more on paying back their PFI debt than on drugs, according to the accounting data.

PFI is a way of funding infrastructure and one-off projects such as NHS hospitals. It uses private funding to pay for the upfront costs of their design, construction and maintenance, which is then paid back over many years to the companies who financed the project – often banks and construction firms.

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Government figures from 2018 show the value of the initial PFI investments in the NHS was just £12.8bn, but the Department for Health and Social Care will have spent a total £80.7bn once they are all paid off (this figure includes services such as facilities management supplied by the PFI providers).

In 2018 – after the collapse of Carillion, which was the main provider for two major hospital constructions contracts, both under PFI – the government decided to stop any new PFI deals. Then chancellor Phillip Hammond said at the time: “I have never signed off on a PFI contract as chancellor, and I can confirm today that I never will.”

These figures show that despite no new contracts being signed since, PFI is alive and well, with hospitals still facing massive bills to settle historic debts. NHS accounts show that trusts still have around £50bn left to pay, meaning the service will likely be bearing the burden of PFI decades into the future.

The figures mean that money that could be going towards upgrading NHS facilities and helping patients is instead going into private hands.

The NHS estimated in 2020/2021 that it would cost around £9.2bn to pay off its capital backlog - meaning the amount of money it would have to spend to get its run-down buildings and equipment back to a suitable condition. That was up from £9bn the year before. Over the past ten years, the severity as well as the volume of disrepair across the NHS estate has increased, with around £1.6bn of the capital backlog now considered “high-risk”.

The good news is that the government’s Spending Review last October did include £5.9bn in additional capital funding over the three years to 2024/25.

This followed years of underinvestment, which meant that capital funding from central government (used for infrastructure and one-off spending) was being diverted into day-to-day (revenue) spending in the NHS. However, it’s still unclear how much of the new capital budget will be allocated to the growing backlog of repairs in England’s hospitals.

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