The NHS has been warned of “crippling” cost pressures from its PFI contracts over the next decade, when aggregate repayments on the deals will reach their peak.

The warning has been issued in new research which explores various policy changes to ease the pressures, while concerns have also been raised by a former chief executive of NHS Improvement.

Analysis by the Centre for Health and the Public Interest found the annual “unitary payments” on private finance initiative contracts held by all government departments peaked at around £10.5bn in 2017-18.

But unitary payments due on NHS contracts will continue rising over the next 10 years, from £2.2bn in 2019-20 to their peak of £2.7bn in 2029-30.

Around 100 trusts have PFI contracts, and the research notes the wide variation in cost pressures across the deals, with some carrying interest rates of more than 10 per cent.

The report also highlights the RPI-linked inflation charges within the deals, and HSJ has found the combined finance charges (interest and inflation) for some providers have already reached 5 per cent of their turnover.

Trusts with the largest PFI finance costs (2016-17)

OrganisationInterest charge  (£m)Inflation payments (£m)Total finance payments (£m)Total finance payments as % of turnover
North Bristol Trust 26.3 6.7 32.9 6.2
Dartford and Gravesham Trust* 7.8 6.7 14.5 5.8
Sherwood Forest Hospitals Foundation Trust 17.2 0.0 17.2 5.8
Norfolk And Norwich University Hospitals Foundation Trust 17.6 11.0 28.6 5.1
St Helens and Knowsley Teaching Hospitals Trust* 9.2 6.9 16.1 4.6
Barking, Havering and Redbridge University Hospitals Trust* 17.9 6.9 24.9 4.5
Great Western Hospitals Foundation Trust 10.3 4.5 14.8 4.3
Lewisham and Greenwich Trust* 15.2 7.6 22.8 4.2
Alder Hey Children’s Foundation Trust 8.2 0.5 8.7 3.9
Barts Health Trust 37.3 20.1 57.5 3.9

* Trust received a share of £21m of government support 

Vivek Kotecha, a former manager at NHSI who authored the report for the CHPI, told HSJ: “Linking their annual PFI repayments to rising inflation is crippling for trusts as their income does not rise by as much as RPI inflation.

“For PFI companies these inflation rises represent a great windfall: firstly, their income rises with RPI yearly, whilst the costs of providing services only rise with the far lower CPI measure of inflation, and secondly their loan repayments do not rise, but instead fall, with inflation.

“At a time of minimal growth in NHS budgets and rising demand, these inflation linked PFI payments take much needed cash away from front line care and investment. It’s no surprise that many trusts are now reliant on emergency cash loans to help meet their PFI and day-to-day running costs.”

While he was chief executive of NHSI, Jim Mackey initiated a project to assess the scope for trusts to reduce their PFI costs, or even terminate their contracts as his Northumbria Healthcare Foundation Trust had done.

HSJ is aware of many trusts that have explored these options, but there appears to have been limited success due to the government’s reluctance to buy out contracts, due to the immediate impact this would have on the reported national debt.

Mr Mackey said: “With borrowing costs having been so low, it would have been great to see more trusts able to take the opportunity to buy those (PFI) assets back, and save significant sums in doing so.

“I think we all understand that this is difficult on any scale because of the impact on CDEL (the government’s annual spending limit for capital projects).

“However, whether a large scale buy back process is or isn’t possible, we should all be ensuring that PFI providers deliver what they are paid for and, where not, the full benefits of the contract materialise. In some cases, this could mean that a termination is justified, and necessary.”

The report cites Tees, Esk and Wear Valleys FT for successfully terminating its PFI due to contract breaches, although it had to defend its process in court. It also notes that 15 other trusts had indicated in an NHSI survey that they had potentially been in a position to terminate their contracts within the last three years, but had not pursued this option. HSJ understands the high upfront costs and lack of financial support from the government proved a key impediment for many of these trusts.

The Department of Health and Social Care does already provide some financial support for seven NHS trusts. This totalled £21m in 2016-17, according to the CHPI.

The report outlines five options which could be deployed by government and regulators to ease the burden of PFI for the NHS. But it adds: “We do not believe that any option is inherently superior to the others, each involves their own trade-offs and costs.

“Many of these options are not mutually exclusive and can be implemented concurrently or sequentially. They provide a toolkit from which policy makers can select the most appropriate option.”

The options

  • Improve the contract and performance management of PFI schemes – potential savings of £15m per year.
  • Centralise part of the PFI interest payment – this would transfer around £400m of “excess” interest and inflation costs from trusts to the DHSC.
  • Windfall tax on excess profit making – potential annual savings of £20m.
  • Terminate or buyout the PFI contracts – difficult to quantify costs and savings.
  • Nationalise the PFI operating companies (special purpose vehicles) – upfront cost of £2.6bn across public sector but potential annual savings of £1.4bn from the profits made by current SPVs. 

The savings figure referenced in the final option has been changed from £900m to £1.4bn, after the CHPI said the latter figure should have been used in its report.