The government seems headed for another storm

The NHS is on the verge of a change that could have profound implications in the longer term. That change goes under the name of the private finance initiative. Its ostensible purpose is to attract private finance to enable NHS trusts to undertake capital projects that might otherwise not be funded. The risk is that in the wrong hands the private finance initiative could make a reality of claims that the provision of NHS services is being privatised.

The private finance initiative affects all parts of the public sector and was launched by the chancellor of the exchequer in 1992. Its aim is to reduce public spending on capital projects by providing incentives for private finance to fund schemes in energy, transport, health, and other sectors. To date the initiative has had only a marginal impact on the NHS, but under arrangements currently being put in place it is likely to have a substantial influence on both the financing and management of health services.

The reason for this is that, under rules established by the Treasury, NHS trusts have to show that they have actively sought private finance before they can be considered for funding through government sources. This means that private finance is now the preferred method of paying for capital projects. In practice, NHS trusts will have to advertise in the official journal of the European Union at the stage when finance is wanted. Only if this approach fails will an NHS trust be eligible to seek finance from the Treasury.

Given that capital raised from the private sector is more expensive than money provided by the Treasury, this has …