• Foundation trust says Treasury will not support a PFI buyout
  • University College London Hospital says it could save at least £30m a year

A leading foundation trust says inflexible Treasury rules are preventing it from buying out a private finance initiative contract, which could deliver savings of £30m a year.

University College London Hospital FT said it would cost £550m to buy out its PFI contract, but told HSJ it cannot raise the money to do so because “it would increase reported public sector debt”.

The half-billion would also count against the Department of Health and Social Care’s capital spending limit in the year of termination, the trust added. It would constitute more than 9 per cent of the DHSC’s £5.9bn CDEL for 2019-20, for example.

The trust said in a statement: “UCLH believes that it is in the public interest to bring back into the public sector, with a strong financial case for doing so, and would welcome more flexibility of [DHSC] and Treasury rules to enable this…

“NHSI are supportive of exploring termination and bringing back into the public sector but the Treasury are not supportive”, the trust said.

The north London trust estimated buying out the contract would initially save £30m a year, including interest payments on the debt it would use to fund the contract termination. It said these savings would rise each year in the future.

The trust first explored issuing a bond to pay for the buyout in 2015-16.

A handful of trusts have managed to buy out their PFI contracts, including Northumbria Healthcare FT, which borrowed £114.2m from Northumberland County Council over 25 years

Last year, the Treasury provided a combined £100m to Sandwell and West Birmingham Hospital Trust and the Royal Liverpool and Broadgreen University Hospitals Trust to terminate their PFI deals, following the collapse of Carillion.

These cases put significant pressure on already squeezed capital budgets.

UCLH entered its 40-year PFI contract in 2000. The building programme on Euston Road was completed in 2008 at a cost of £422m. The trust said equity holders are currently receiving around £20m in dividends each year through the contract. This is “double the figure envisaged at the start of the project and [is] projected to rise to £60m by the end of the deal,” the trust added.

The DHSC said in a statement: “We are committed to helping trusts assess the costs and performance of PFI contracts, to help maximise support for frontline services and make every penny of our record NHS funding count.

“We consider requests to terminate contracts when it is affordable for the Trust to do so and represents good value for money for the taxpayer.”

The Treasury was also approached for comment but it deferred to DHSC. 

Last year, the Centre for Health and the Public Interest warned the NHS of “crippling” cost pressures from PFI contracts over the next decade, when aggregate repayments on the deals will reach their peak.

Meanwhile, shadow chancellor John McDonnell has suggested a Labour government would buy out PFI contracts.

Update: this story was updated at 17.12 on 26 July to include a response from DHSC.