A healthy balance?

Author:Broadbent, Jane
Position:Accounting law evaluation

The public finance initiative has been controversial since it launched, but there are a number of accounting issue that still need to be addressed before its success or failure can be proved. Jane Broadbent, Jas Gill and Richard Laughlin report on CIMA-sponsored research

The private finance initiative (PFI) in health involves a partnership between the public services and the private sector to provide healthcare (excluding clinical services). Our work relates to major PFI schemes -- those valued at over 25 million [pounds sterling]. There are currently 34 in England and four more in Wales and Scotland and all of them involve major construction projects. These are the schemes that have caused the most controversy, because they are the ones that have introduced to the NHS a new element, described as "the provision of asset-based services".

All these schemes have involved the construction of hospital premises which will be managed by the private sector. As there is no provision for clinical services to be included in PFI, publicly funded clinical services will run alongside private facilities management in buildings provided by the private sector.

The NHS will pay for the quality and availability of the service as well as for the availability of the building. The relationships are contractual and contracts can last for up to 60 years. There is a monthly charge and other facilities management services will cost extra.

This arrangement means that the public sector does not have to invest large amounts of capital at the start of a scheme. But it does have an effect on the amount of residual cash that is left to spend on other things. This is exacerbated by the fact that private-sector contractors are likely to seek a relatively fast payback, and earlier payments are likely to be greater than those in the later period. This raises issues of affordability.

But the current reality of PFI can really be understood only if you first consider the problems of its genesis. The Conservative government introduced PFI in 1992. It argued that private-sector involvement would bring with it innovation and creativity, and this would increase efficiency.

It hoped that linking construction and services would encourage innovative design which would cut future maintenance costs. Competition was seen as the key to boosting efficiency and best value. All capital schemes had to be tested to see whether they were suitable for PFI and a private finance panel was set up to promote the initiative. At this stage, the motivation for PFI was closely tied to the idea of investment that did not increase public borrowing.

Concerns about whether NHS trusts were legally allowed to undertake PFI deals and who would underwrite trusts that failed, meant that PFI made little progress in healthcare until the election of the Labour government in 1997. The concerns led to two acts: the NHS Residual Liabilities Act 1996, passed by the Conservative government and the NHS (Private Finance) Act 1997, conceived by the Conservatives and passed by the Labour government virtually unchanged.

Following this, schemes began to move forward -- and two have now opened (in Carlisle and in Dartford and Gravesham). The Labour government's...

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