Feature Private Finance Initiative

Hard times: is this the end of the road for the private finance initiative?

BMJ 2010; 341 doi: http://dx.doi.org/10.1136/bmj.c3828 (Published 20 July 2010) Cite this as: BMJ 2010;341:c3828
  1. Peter Davies, freelance journalist
  1. 1London
  1. petergdavies{at}ntlworld.com

    The initiative that led to more than 100 new hospital schemes in Labour’s boom years is looking increasingly unaffordable in this era of austerity, finds Peter Davies

    What prospects await the private finance initiative (PFI)—that unlikely emblem of Labour’s boom years when hospital building (and investors’ profits) flourished as never before? In an era of austerity, with a Conservative and Liberal Democrat coalition government, will PFI remain “the only game in town” for NHS capital development or be seen as increasingly unaffordable? Has it left a legacy to be proud of or merely mortgaged a huge chunk of the NHS’s income for generations to come?

    Currently 76 large PFI contracts are operating in the English NHS, costing £890m (€1bn; $1.4bn) a year.1 Since 1997 more than 100 new hospital schemes have opened, with over 90% of the £12bn invested coming from PFIs.2 But the golden age has long since peaked. By 2005 a survey found big falls in the number of bids from the private sector,3 and in 2006 the Department of Health halved the value of 15 schemes approved two years earlier.4

    Today’s economic climate is harsher than anything foreseen five years ago. According to Carl Emmerson, deputy director of the Institute for Fiscal Studies: “If the private sector is still finding it harder to borrow than before the financial crisis, that may mean PFI is more expensive and less likely to be the value for money option. So for the more marginal cases, conventional finance may be more attractive to government.”

    But as Mr Emmerson points out, the coalition’s emergency budget stated that funds for all conventional public investment would be cut from £49bn in 2009-10 to £20.6bn by 2014-5. The result is much less public sector capital development of any kind, he says. …

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