Health ministers want to develop a 'hybrid' form of the private finance initiative which does away with the complications of service contracts. Matthew Limb reports from the Commons health committee

Health ministers want to develop a new 'hybrid' form of the private finance initiative for future NHS building projects.

It could mean the health service leasing facilities from private consortia, which would finance, build and maintain them, but not run services.

The idea was floated before the Commons health committee last week.

Ministers have dubbed the scheme a 'half-way house' between the Exchequer- led capital programme and PFI, based on the design-build-finance-and-operate model.

They want the new approach to carry the same 'disciplines' as PFI, and reduce delays without the complications of attaching long-term service contracts.

And they may group general practice and community health projects with acute hospital schemes in PFI deals to modernise local health economies.

'There is no shortage of money in the private sector,' health minister Alan Milburn told MPs. 'The trick of government is how to get hold of that money on the best terms for the NHS.'

Mr Milburn was one of four health ministers called before the committee to be questioned on policy and expenditure issues.

Committee chair David Hinchliffe asked how the government's espousal of PFI squared with its intention to steer the NHS away from the internal market.

Both Mr Milburn and health secretary Frank Dobson mounted a robust defence of government policy.

The track record of public sector procurement of new hospitals had been a 'disgrace', Mr Dobson said. On average, costs had overrun by 20 per cent, so the NHS got five hospitals for the price of six, he said.

PFI, by contrast, brought in more money, worth 2bn over the next three years, Mr Dobson said. Private firms also bore the costs of any overrun and would take responsibility for maintenance.

Asked to differentiate Labour's PFI policy from that of its Tory predecessors, Mr Dobson said: 'Under us it has worked. They spent millions on consultancy fees, but nothing on bricklayers.'

Mr Milburn added: 'We are looking at capital developments, not on the basis of what the

market wants but what the NHS needs.'

Under the previous system, he argued, PFI hospitals were developed on a 'stand-alone' basis, without reference to an area's total health needs.

'In future, I expect to see us looking at PFI and capital developments for a local health economy,' he added.

Mr Hinchliffe suggested that the revenue consequences of PFI made the scheme seem 'less rosy' for the health service.

He challenged ministers on the alleged 'leak' of funds from the public to the private sector said to occur under the initiative.

Mr Milburn cited a critique of PFI made in the British Medical Journal (18 July, 1998) by Allyson Pollock, senior lecturer in public health medicine at St George's Hospital Medical School, London.

This claimed that funding left the system when NHS services were provided by the private sector, which did not pay capital charges to the Treasury.

Mr Hinchliffe quoted from the article, which said: 'Unless there is a concomitant increase in NHS revenue to offset this leakage, this will lead to the bizarre phenomenon of privately financed hospitals being funded through what is in effect a tax on hospitals in public ownership.'

But Mr Milburn said the argument was wrong.

He said the 14m revenue consequences of PFI for the next financial year did not mean that the money was being 'siphoned off' from the NHS.

Asked to clarify the position, NHS director of finance and performance Colin Reeves told the committee that there was 'no real waste' with regard to the flow of money.

Although trusts had to pay capital charges, the Treasury provided extra money to health authorities to pay for it, he said.

And the PFI also brought value for money in terms of generating additional income, Mr Reeves added.

Mr Dobson said the leasing idea was not merely an attempt to 'nudge' the costs of new hospitals off the public sector balance sheet.

It amounted to a 'new method of procurement' and would mean transferring the risk of any scheme delays and extra costs onto the private sector.

Mr Milburn attacked the 'myth' that PFI was 'a destroyer of hospital beds'.

He said the first 15 PFI hospital projects would create 8,334 beds, 58 more than if these had been NHS schemes.

Where beds were being lost, this was not necessarily a consequence of PFI, but of much needed service rationalisation and modernisation, Mr Milburn said.

Labour MP John Austin suggested that private financiers were showing little interest in smaller projects such as building health centres.

The health ministers rebutted this, saying that 'hundreds' of smaller schemes in the community and primary care sector were in the pipeline.

But they conceded that they might need to look at how to turn them into 'bigger deals' to make them more attractive.

Mr Dobson said the government was looking at producing 'off the peg' schemes such as general practices. These could be adjusted to suit local circumstances and would be quicker to get off the ground.

Junior health minister Paul Boateng said PFI had so far played a small role in personal social services but there were signs that the market was developing.

MPs also pressed health ministers on the implications of the government's comprehensive spending review.

Mr Dobson said the rise in health service spending would average 4.7 per cent over the next three years.

Tory MP Robert Walter said the supposed generosity of the settlement would depend on the success of the economy and inflation. 'What level of variation (of inflation) would trigger a review?' he asked.

Mr Dobson said the government was confident of meeting its targets on the economy, adding: 'If you announce there will be a trigger at a certain point, that trigger is always reached.'

He was also pressed by MPs on what assumptions ministers were making about the likely level of NHS pay settlements.

Pay levels would depend on recommendations of the review bodies and negotiations with non-review body staff, Mr Dobson said.

'I hope pay settlements that are arrived at can be coped with,' he added.

'We have to try to make sure we recruit and retain staff in adequate numbers and of the right quality, and ensure they are sufficiently trained to do the brilliant job they are doing. I'm confident that can be delivered.'