Government will act as guarantor on PFI

Andrew Lansley said the government had “carefully reviewed” the value for money offered by PFI and had decided that although trusts would face “stricter tests” for embarking on new schemes, the government would guarantee them if trusts financially collapsed.

During a visit to Alder Hey Children’s Foundation Trust in Liverpool – one of a handful of trusts awaiting a government decision on stalled PFI plans – Mr Lansley said: “I can confirm today that the government will continue to act as a guarantor for schemes that can prove they are providing value for money and are affordable.

“This will involve stricter tests than in the past, and any trusts looking to use PFI for new schemes, including Alder Hey, will need to show that their plans can meet these strict tests.”

More detail about the tests will be published shortly.

The announcement will be good news for Papworth Hospital Foundation Trust, North Tees and Hartlepool Foundation Trust, Royal Liverpool and Broadgreen University Hospitals Trust and the Royal National Orthopaedic Hospital Trust, which also have deals on hold. Sandwell and West Birmingham Hospitals Trust has just begun talks with the Treasury on a £370m PFI deal.

Previous PFIs have been underwritten by the Department of Health with a “deed of safeguard”, which ensures that contractors are not left unpaid if a trust cannot fulfil its obligations. Without this, private lenders would have been reluctant to put up the money for the deals.

Before the general election, then shadow chancellor George Osborne said the PFI model used under Labour offered poor value for money and would be replaced. Although the Conservatives’ language has been warmer towards PFI since they won power, no new deals have been approved for hospitals since then.

The wording of the Health Bill added to the uncertainty by including provision for insolvency law to be applied to foundation trusts. This implied that a deed of safeguard would not be provided by the government.

Confirming the government would continue to issue deeds of safeguards, Mr Lansley said he would also press ahead with plans to find £1.5bn of savings across the existing 495 PFI projects.

He said a recent pilot study at the Queen’s Hospital in Romford identified savings opportunities of around 5 per cent of annual payments.

Stephen Hughes, a partner at law firm Bevan Brittan, who ran a team dedicated to PFI deals, told HSJ that while it was “excellent” news for trusts waiting to go ahead with PFI buildings, clarity was required on the foundation trust failure regime so that “funders can begin to understand the risks associated with lending to the FT market”.