Borrowing to save: can NHS bodies ease financial pressures by terminating PFI contracts?

Public spending on the NHS is due to fall as a proportion of gross domestic product, from a peak of 8% in 2009-10 to just over 6% in 2020-21.1 The proportion of NHS and foundation trusts in deficit rose from 10% in 2012-13 to 26% in 2013-14, highlighting the scale of the financial challenges facing NHS organisations.2 The payments that trusts are obliged to make under private finance initiative (PFI) deals are a source of budgetary pressure.2 By March 2013 a total of 121 PFI deals had been procured by NHS bodies in England, with an aggregate capital value of £11.8bn ($18.3bn; €16.6bn) and a projected cash cost to the NHS of £81.5bn, £70.1bn of which remained outstanding at that date.3 Two thirds of trusts with a deficit greater than £25m have a PFI deal.2

Numerous calls have been made for PFI contracts to be renegotiated.4 Although there is limited scope to reduce the payments to PFI consortiums, NHS bodies normally have the right to terminate them for a price. Interest in the termination approach has grown among NHS bodies after the decision by Northumbria Healthcare NHS Foundation Trust to borrow money from a local county council to buy out the PFI contract for Hexham General Hospital. The termination was completed in October 2014, at which point the PFI was costing the trust approximately £8m a year and had a further 18.5 years left to run.3

Before the trust could proceed it had to demonstrate that the long term cost to the public sector of terminating the PFI contract would be lower than that of …