Cost of new hospital now triple funding allocation says CEO

Lance McCarthy, the chief executive of Princess Alexandra Hospital Trust, said costs were going up “literally by the day” for plans to replace the existing estate.

The trust was originally allocated £350m when the government first announced plans to build 40 new hospitals in 2019, although this was lower than the trust’s own £480m estimate of what was needed for its preferred scheme.

Rising inflation meant the trust’s estimate increased to £850m last year, and Mr McCarthy told HSJ: “It’s probably more like £1bn now because of inflation, especially in the construction industry.”

He said there are major problems with the current site, which has serious implications for the trust’s finances and performance.

He added: “It’s not fit for purpose from a perspective of the underlying infrastructure – pipework, electricity, etc – all of which causes us problems regularly and costs the taxpayer money but the bigger issue from a clinical service perspective is we’ve got a hospital that was built in the 1960s that was half the size it is now and to meet about a third of the current demand.

“And we’ve now got departments which are just not in the right place in terms of co-location with other departments. This creates inefficiencies for our clinical teams.”

Other “pathfinder” schemes – once front runners in the New Hospital Programme – have also flagged spiralling costs as they await funding and approval to proceed.

Alastair Finney, the Whipps Cross redevelopment director, has said their initial allocation was £450m, but suggested costs have now escalated to at least £900m.

He told HSJ: “With construction industry inflation running at such high levels for the past two years, if we were formally submitting a request for funding today our estimate would certainly begin with a nine and could possibly be as much as a billion pounds.”

Simon Barton, the deputy chief executive at University Hospitals of Leicester Trust, said in a council report this month: “At the time that funding was announced, £450m would have been sufficient to deliver the whole scheme.

“Since this time, there have been two pressures which have increased this cost of the scheme: the requirement to deliver a standardised scheme…including net zero carbon, and inflation, which has had a significant impact on the cost of the scheme.”

His report said NHP expected a “programmatic approach” would offset some increased costs and said the Treasury would “manage inflation centrally”.

NHP is working on a standardised design for new hospitals, with a health minister previously saying this “cookie-cutter approach” would bring economies of scale.

James Blythe, managing director at Epsom and St Helier University Hospitals Trust, said this approach brought benefits, but added: “What is going to offset that quite a lot, the longer it goes on, is we are in a really inflationary environment for construction. It has slowed down a little bit. But it’s still pretty difficult.”

Sir Mike Deegan, the chief executive of Manchester University FT, told Steve Barclay in a letter last month the “lack of progress” over the NHP was costing around £13m a month, with inflation increasing the cost of plans by 30 per cent and the trust dealing with issues with ageing estates in the meantime.

Trusts are hoping to find out their funding allocations after the major projects review group reviews the NHP programme business case in late February or March.

A Department of Health and Social Care spokesperson said: “We are investing £3.7bn for the first four years of the New Hospital Programme and remain committed to the delivery of all schemes as part of the biggest hospital building programme in a generation.

“All major construction projects need to consider the impacts of inflation on costs, but our national standardised approach to building hospitals will reduce delivery timescales meaning new hospitals will be built more rapidly and ensure value for money.”