Q What is the Private Finance Initiative?
A It is a way of encouraging private investment in substantial public construction projects, such as roads, schools and hospitals. Pioneered by the Conservatives, it has been embraced by Labour.
Q What is the advantage?
A It means that private companies, not the Government, have to find the capital to build facilities. This keeps the borrowing off the national balance sheet, reducing the tax burden or the public sector borrowing requirement.
Q How does it work?
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A A consortium — usually consisting of a construction company, a bank or financier, a facilities management company and consultants — put up the money to build a hospital. They undertake to build it, and run it for at least 25 years, providing maintenance and upkeep, but not medical staff. In return, the NHS pays an annual “rent” that covers the interest on the money spent and the cost of maintenance, as well as a profit margin to the private partner.
Q For example?
A The Barts and the London scheme, the biggest yet, will cost £1.15 billion to build. Skanska Innisfree, which is the private sector partner, will be paid £111 million a year for 42 years, covering interest, catering, cleaning, laundry, and so on.
This represents 20 per cent of the trust’s income.
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Q That sounds a lot. Does PFI make sense?
A Traditionalists say not, arguing that it costs more and ties the NHS in to hospital buildings that may not be appropriate in the future — “monuments on long-term leases”.
But before PFI few hospitals were built because the Treasury was reluctant to fund them. Trusts have been encouraged to go for PFI projects by the Department of Health, which until now has never had a bad word to say about them