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

BMJ 2015; 351 doi: (Published 12 August 2015) Cite this as: BMJ 2015;351:h4030

The real problem with PFI is lack of flexibility

While the article does a good job of analysing the possibility of lowering NHS spending by buying out PFI contracts, it misses something very significant in where the problems with PFI actually are: lack of flexibility.

Many have argued that PFI is an unsustainable burden on the system because, to paraphrase much of the debate "the evil private sector is profiteering from the poverty stricken NHS". In other words, the reason PFI is a problem is because the costs are higher than the alternatives.

The article shows that some trusts can reduce their costs by buying out the contracts but also admits that some will struggle to make this work.

But the analysis misses the most significant problem with the contracts. This is the almost complete lack of flexibility in the way the future payments and plans were devised. NHS planners focussed on making the payments as "affordable" as possible according to treasury rules which, in practice, meant signing up for long terms to achieve the lowest annual payments. Under the last three governments, the Treasury and parts of DH encouraged this as the resulting capital spending would be outside recorded public expenditure (which is pretty much Enron accounting for the public sector). Even given the general encouragement from government, significant concerns were raised about several major schemes (two of the worst, Peterborough and Barts) were approved despite significant internal concerns and serious warnings from the regulators.

The incredibly damaging side effect is that the contracts look affordable when signed only if the future activity of the hospitals (and the payments they get) stay exactly as forecast for perhaps 30 years into the future. Given the major changes in both available budgets and the possible mix of activity that occur even year to year, this is a major, catastrophic error. The real problem isn't that PFI finance is expensive, it is that existing contracts were built with no flexibility to allow the NHS to adapt to the very uncertain environment.

Failing to build in flexibility to plans is pretty much standard operating procedure in NHS planning but PFI schemes have embedded that absence of flexibility in reinforced concrete with a 30-year lifespan.

The lesson needs to be learned. Yes, some trusts can buy-out their contracts and get flexibility back. Others might need government help. But everyone needs to learn that, in future, building in flexibility is critical. This lesson should not be missed because PFI is naively and emotively tagged as a "private sector rip off".

Competing interests: No competing interests

12 August 2015
stephen black
data scientist
biggleswade, bedfordshire