HSJ’s expert briefing on NHS finances, savings and efforts to get the health service back in the black.
Private investors have been queuing up to build new hospitals for the NHS, but a new wave of private finance initiative type deals will have to wait until the Treasury has figured out how to keep the schemes away from the national debt.
From a yearly average of around 50 projects during the previous decade, the pipeline of major government projects funded through private investment has almost completely dried up over the last few years. Just one deal was completed in 2016-17.
While political controversy and the 2008 financial crisis put an end to PFI, changes to European accountancy rules since 2013 have largely held back its successor PF2 (which is virtually the same as PFI).
The “Eurostat” rules have made it more difficult for governments to keep privately financed schemes off the balance sheet and off their national debt.
The rule change chimed with the findings of a 2011 report from Commons Treasury committee, which found PFI was being favoured over traditional public capital because of its balance sheet treatment.
The committee recommended that schemes should be brought back on balance sheet so that value for money became the main factor in choosing the preferred funding mechanism.
Only game in town
But according to a report from the National Audit Office last month, the Treasury is planning changes to the structure of PF2 to ensure future projects qualify as off balance sheet.
The changes involve the reduction and removal of two “gain share” mechanisms that were inserted into PF2 contracts to help public bodies benefit from unexpected profits.
Essentially, the Treasury is willing to make the contracts more expensive, in order to keep the country’s debt statistics artificially low.
Whatever the macroeconomic benefits of doing this are, there will be a strong suspicion that past mistakes are being repeated.
However, with the tight constraints on public capital funding likely to remain in place for the foreseeable future, many in the NHS will still be desperate to get their hands on PF2. So much so that Jim Mackey has even been trying to sort out an “NHS alternative to PFI”.
It may have replaced the only game in town, but the PF2 ball has been stuck on a roof with everyone waiting for the Treasury to climb up and get it.
Off plan for Q3
NHS Improvement’s quarterly performance report for the trust sector, showing the latest financial position and year-end forecast, was supposed to be published earlier this week but did not appear.
At a meeting of finance directors hosted by NHSI last week, I’m also told the regulator dodged questions on the latest position.
This suggests something may be up (or down) with the forecasts, and some to and fro could be happening between the regulator and trusts over the numbers they’ve submitted (as we’ve seen before). Or perhaps they just need more time to work on the communications strategy.
It won’t be the biggest deterioration this year but the month nine revision by Basildon and Thurrock University Hospitals Foundation Trust is perhaps the most embarrassing.
The trust has admitted that it won’t meet its pre-Sustainability and Transformation Fund control total of £23m, and will instead post a pre-STF deficit of £30m this financial year.
It comes after the trust went against the advice of former finance director Rick Tazzini in signing up to the target last year, when it sent a list of caveats to NHSI alongside its acceptance letter.
Mr Tazzini pointed out the binary nature of control totals, telling the board not to agree to a target it could not hit without risking patient safety.
This point was reiterated in a letter to trusts last week from Elizabeth O’Mahoney, chief financial officer of NHSI, who wrote: “There must be no ambiguity in your plan about whether or not you have accepted or rejected your control total; we will use the financial planning template only to capture the board approved decision… If the control total is not accepted this is likely to trigger action under the single oversight framework.”