Labour hospital and acute care PFI contracts in England cost £1.4 billion in 2017/18

An image shared on Facebook makes various claims about the cost of private finance initiatives (PFIs) that were used to build hospitals. We were asked by readers to factcheck this post.

These claims overstate the cost of PFIs. 

What are PFIs?

PFIs are schemes that allow the public sector to enter into a contract with a private company to build infrastructure, such as schools, hospitals and roads. The private company pays the upfront costs and owns the asset. 

The private company then leases the asset to the public sector organisation, for example the NHS, who make annual repayments that typically last 25 to 30 years. The repayments cover the costs of the services being delivered, plus the costs of interest and repayment of the debt. At the end of the term, the assets are owned by the public sector. 

PFIs were first introduced under the Conservative government in 1992. The initiative was then expanded under the Labour government when they came to power in 1997. At the 2018 Budget, it was announced that PFIs would no longer be used for new projects.

PFIs are a controversial topic and we have written about them before.

What do PFIs have to do with renting hospital buildings?

The Facebook image claims that Labour sold the hospitals to private investors and now the NHS pays rent. 

Using the terms ‘sold’ and ‘rent’ to describe these payments isn’t quite right. 

As we’ve said, PFIs are a type of procurement and, for a hospital, the private company may design, build and maintain the building. The public sector repayments are for this service and the interest and debt acquired by the private company during this time.

The post also claims that Labour sold the “majority” of NHS hospital buildings. This isn’t correct. 

Now, because of some strange gap in public data, we don’t actually know exactly how many hospitals there are in the UK. In 2013, the Department for Health and Social Care responded to an FOI showing that there were 850 in England alone.

But that’s enough to disprove the claim that the “majority” of hospital buildings were “sold off”. There are only 148 PFI current projects relating to hospital and acute health, which includes other healthcare buildings as well as hospitals.   

This doesn’t include projects which have concluded or been bought out already, but the number of these will be relatively few, given that almost all hospital and acute care contracts run over a 25 year time period or even longer (and so should still be current), and there have been very few buy outs. 

NHS spending on PFIs

The post claims that around £4 billion is spent annually on hospital PFI contracts. This is an overestimate. The latest data from the Treasury shows that £2.3 billion was spent paying hospitals and acute health PFIs across the UK in 2017/18 (the most recent year we have final figures for). The majority of these PFIs are for hospitals, but this figure also includes buildings for mental health services, primary care and other specialist units.

Since 1999, health spending has been devolved so the UK government is only responsible for health spending in England. Looking just at the figures for England around £2 billion was spent in 2017/18 paying hospitals and acute health PFIs.

Projects that began in England under a Labour government (May 1997 to May 2010) contributed £1.4 billion to this figure compared to £0.6 billion under the Conservative and Coalition governments in power since 1992.

The Treasury estimates that around £79 billion in total will be paid into hospital and acute health PFIs in total across the UK. Of this figure, an estimated £57 billion will be paid for projects that began under a Labour government and the remaining £21 billion on projects started under Conservative or Coalition governments. 

This only factors in PFI contracts that are still operational. In addition there will be costs from a small number of PFI contracts that have already concluded or been bought out.

The price to buy back hospital PFI contracts

One proposed method to end future PFI payments is to buy out the contracts by paying the PFI owners a one-off termination fee. Compensation would differ by each contract, meaning it is hard to know how much it would cost. 

But the figure given in the Facebook post of £1 trillion is far too high. 

Think tank, the Centre for Health and the Public Interest say, of buy outs: “The compensation to the PFI operator needs to leave them in roughly the same financial position as if they had continued the contract until the end.”

Analysing eight hospital PFI contracts, it found the costs of buying out the contracts was slightly higher than the cost of continuing to repay the debt.

Given that the current payments are due to be in the region of £80 billion (not including the few contracts which have already been bought out or concluded), this means that it’s implausible to suggest the value of buying out the contracts will be £1 trillion—over ten times higher.