Intended for healthcare professionals

Feature Private Finance Initiative

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

BMJ 2010; 341 doi: https://doi.org/10.1136/bmj.c3828 (Published 20 July 2010) Cite this as: BMJ 2010;341:c3828

Everyone should share the blame for the failings of PFI

Whatever the failures of PFI schemes as a way of getting
more new hospitals, it is important to understand what went
wrong so the errors can be avoided next time. Many of the
causes of problems are not addressed by Peter Davies'
article but are worth mentioning as they will affect new
decisions about capital investment in the NHS however it is
funded.

A great deal of the drive for PFI was to keep hospital
investment off the governments capital spending books ("off
balance sheet"). The upside of this, as Paul Corrigan points
out, was to get money that might not have appeared
otherwise. But the downside is a lack of realism about the
real long term liabilities (as one senior NHS leader had it
this amounted to "Enron accounting for the public sector").

This lack of realism was combined with an attitude by the
people planning the schemes that they were spending someone
else's money and led to bad choices about the new designs.

One key choice which seems to be a common factor in many
problematic schemes (at least the handful I've seen) is
about the flexibility of the facilities: there usually isn't
any, despite the long expected lifetimes. The lack of
flexibility is a critical failing in a rapidly changing NHS
where both the scale and nature of facilities are likely to
need to change rapidly. Unfortunately almost every party
with a finger in PFI plans is guilty. The Treasury regards
flexibility as a sign of poor planning. The unit cost of a
flexible facility looks worse at the start so planners
remove it to make the treasury happier and the apparent
value for money better. This combines with the political
drive to have the biggest, most prestigious hospital to bias
the planning process to produce bigger but less flexible
facilities than are really required in the long term.

But flexibility is only bad value if you can plan the next
30 years perfectly. Business cases of several volumes and
thousands of pages only create the illusion of this, not the
reality. In the real world the NHS does extremely well if
its plans for the capacity and nature of its facilities come
close to reality over 3 years never mind 30. Over the life
of a new hospital, flexibility is very valuable indeed.

If hospital planners were spending their own money and
acting like businesses they simply wouldn't contemplate PFI-
like schemes. But the politics of hospital management,
Treasury and Department of Health rules, plus a naive belief
that detailed planning can eliminate uncertainty, combined
to create the monster that is PFI.

Most of the failures of PFI schemes will happen again
whoever provides the capital. So it is important to identify
the real problems rather than just blaming the providers of
private capital.

Competing interests:
None declared

Competing interests: No competing interests

27 July 2010
stephen black
management consultant
london sw1w 9sr