PFI (Private Finance Initiative), a way of using private finance and companies to build public infrastructure projects like hospitals, roads and schools. Since coming to power the con-dems have increased the number of PFI projects. Carol Laidlaw looks at plans for the new Royal Liverpool Hospital.
A Question of Money: Rebuilding the Royal
What’s the best way to pay for a new hospital? Use public funding at a cost of £750 million? Or borrow it from a private consortium at £1.2 billion, under a contract that obliges you to pay the consortium as a priority, even if it means cutting the budget for other NHS services?
When Liverpool NHS Trust decided they needed to rebuild the Royal Hospital they went for the second option, but without informing the public of the implications. It took a campaign by Merseyside Keep Our NHS Public (KONP) to expose a plan that would lead to cuts in local health services.
As far back as 2000, the Trust was proposing a new hospital to replace the Royal. They opted for a new building rather than refurbishment of the existing one. There is no disagreement over the need for a new hospital. KONP’s disagreement is with the method of funding. There are essentially two choices: use public funding, or borrow the money from a private consortium. Public funding is cheaper because the government can borrow money at preferential interest rates and it does not have to pay dividends to shareholders. Borrowing from a private consortium under PFI is more expensive because a private company naturally wants to make a profit. Also, once an NHS Trust has signed a contract with a private investor it is obliged to pay them as a priority, even if it means cutting its budget for other health services.
It would look like no contest: public money would cost the NHS Trust £500 million less than private money, and would be less of a risk. But the Trust opted for PFI, and in order to get the public to agree to it, they fudged the figures to disguise how much more expensive PFI would be.
In 2009 the Trust held a series of public consultation meetings about building a new hospital but gave no details about where the funding was coming from. It was then that KONP challenged them.
Sam Semoff, a KONP member, said, “We realised they were planning to use PFI, and we attended the consultations and repeatedly asked them about it, until they reluctantly admitted this was the source of the funding. But we couldn’t prove it was the more expensive option because they refused to make the details of the business plan public until after the general election.”
KONP applied for judicial review, to get the consultation declared unlawful. The Trust met this by offering a compromise, which involved running the public consultation again. But they still refused to give the details of the funding. After the general election in May last year, when details of the business plan were revealed, one of KONP’s members, Greg Dropkin, went through the plan with an accountant, Mark Hellowell. They found six areas where the Trust had made assumptions about the effects of PFI which had no basis in fact. The Trust appeared to have manipulated the figures in order to make PFI appear a better option. KONP renewed their legal challenge to the plan, arguing that the Secretary of State should not have approved it.
This started a fierce public debate about the merits of the rebuilding plan in the letters pages of the Daily Post and the Liverpool Echo. The Echo took the editorial line that Sam Semoff, who had applied for legal aid on behalf of KONP, was personally preventing the people of Liverpool from getting their new hospital. It never did examine the case against PFI as a method of funding, nor did it acknowledge that the use of PFI to build hospitals in other parts of the country had been disastrous. Manchester used PFI to pay for its new Wythenshawe hospital. This will ultimately cost the city £1.06 billion for a hospital whose capital value is only £66 million, and in 2005-2007 it had to cut its budget for other NHS services in order to meet payments on the debt.
Celia Ralph said, “Most people don’t grasp the implications of using PFI funding, but when they do they are horrified. We found this when we had a public debate on the issue at Kensington Community Centre in February. We pretty much won the argument, and a lot of people stayed afterwards to continue the discussion with us.”
There were three Liverpool councillors and the MP Louise Ellman at this discussion, whose only argument was that “there is no alternative” to PFI. But there is. The government approved public funding for two new hospitals in Cumbria and Surrey only two months ago, and a new hospital in Glasgow is to be built with public funding. PFI has become discredited as a source of funding for public buildings.
Merseyside KONP lost their legal challenge in February. This was not because it had no merit. It was because the courts are not motivated to look in detail at arguments about issues like funding hospitals. All a judge in a judicial review case looks at is whether a public body appears to have followed correct procedures, in this instance in arranging the public consultation.
But the argument about PFI is by no means over and is not lost. Health service unions are opposed to the plan, as are increasing numbers of health service users. KONP is now campaigning to get the Trust to apply for public funding, as well as more broadly against the Health Service Bill.
Carol Laidlaw spoke to Sam Semoff and Celia Ralph of Merseyside KONP. Additional information from Richie Krueger.
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