CREDIT: This story was first seen in OnMedica
Private Finance Initiatives (PFIs) have racked up £831 million in pre-tax profits over the past six years for the companies involved — money which would have cut NHS hospital deficits by a quarter during this time — finds a report* published by an independent think tank, OnMedica reports.
At a time of such extreme austerity, excess profit-making from these contracts needs to be curbed to protect patient care, says the Centre for Health and the Public Interest.
The PFI scheme enables private companies to borrow money from banks and shareholders to build NHS hospitals and facilities. The NHS pays an annual charge to these companies to cover use and maintenance of the buildings and the cost of the loan. Contracts can last for up to 40 years.
The report is based on a study of official Treasury data on PFI schemes and the accounts of PFI companies held by Companies House between 2010 and 2015 inclusive.
The analysis shows that over the past six years, companies running PFI contracts to build and run NHS hospitals and other facilities have made pre-tax profits of £831m.
If the NHS had not been paying profits on PFI schemes, deficits in NHS hospitals would have been reduced by a quarter over this six-year period, it says.
The returns expected by those investing in and lending to PFI projects are far higher than expected from investment elsewhere, even though they are very low-risk. This is because the government guarantees that the payments will be made so long as the hospital is available for use and the services meet the standard set out in the contract.
But in some instances, the amount of NHS funding for PFI hospitals, which goes to pre-tax profit, exceeds eight per cent. In 13 contracts it was over 20%, says the report.
For example, the University College Hospital London (UCLH), PFI initiative generated £139.7 million in pre-tax profit over the course of 2010-2015 for the company running it, amounting to 31% of all the money paid to it by the NHS Trust.
Between 2005 and 2015 the trust paid out £724.8m, resulting in pre-tax profits of £190.4m and post-tax profits of £150.1m for the company. Yet, the total capital value of the hospital according to the treasury is £292m, says the report.
Over the next five years, almost £1bn of taxpayer funds (£973m) will go to PFI companies in the form of pre-tax profits – equivalent to a quarter (22%) of the additional amount of money (£4.5bn) that the government has promised the NHS over this period, it points out.
Furthermore, just eight companies own or have equity stakes in 92% of all the companies holding PFI contracts with the NHS, it says.
The report makes several recommendations for curtail excess PFI company profits, including using public sector loans to buy-out the contracts and taxing the companies to recoup some of the profits which have been made.
Contracts should also be renegotiated to reduce the amounts the NHS has to pay.
It suggests that the amount of profit a private PFI company operating an exclusive public-sector contract with the NHS should be capped and that profits made from sales of equity stakes in PFI contracts should be shared out.
Greater transparency of equity sales should be mandatory to prevent the unnoticed consolidation of market power by a small number of investors, it recommends.
Dr Chaand Nagpaul, BMA council chair, said: “NHS providers and commissioners are being pushed to breaking point because of unprecedented financial pressures so it is outrageous to see over £800 million of much needed money being leaked out to private companies for profit alone.”
He added: “Private Finance Initiatives are an extortionate drain on the public purse, with private companies scandalously gaining at the expense of taxpayers and patients. The government should instead be properly funding new NHS capital projects to ensure money remains in the NHS in the long term. ”