Quite a few people, rightly outraged by Calderdale Royal Hospital’s rip-off PFI debt, are calling for Calderdale Council to lend the hospitals Trust the money to buy out the debt, along the lines of the Council-financed Hexham Hospital buy out of its PFI debt in 2014.

The Hexham PFI contract allowed an early exit, the CRH one doesn’t

The Council’s PFI debt buy-out was possible at Hexham Hospital because of PFI contract conditions that don’t apply at Calderdale Royal Hospital (CRH). As the Chief Executive of Northumbria Healthcare (the Trust that runs Hexham hospital) told the Financial Times:

Northumbria benefited from a rare clause that allowed an early exit, which many PFI agreements do not include.

The Calderdale Royal Hospital PFI Contract has a break clause after 30 years, with a £200m penalty if the break clause is activated – in other words, if the Trust gets out of the contract.

Even if it were possible for Calderdale Council to finance Calderdale and Huddersfield NHS Foundation Trust to take on the debt from the banksters that currently hold the PFI debt, this wouldn’t necessarily be a good thing, for reasons explained below. And there is a better solution.

Bring the NHS back into full public ownership and management

The National Health Action Party recommends that the Treasury should make direct payments to hospital Trusts burdened with PFI debts. This would mean that the Trusts would not have to repay the PFI debts out of their own income – which currently takes about 2% of the NHS budget – because the Treasury would give them the necessary money. The Treasury could then use its strong central bargaining power as government to renegotiate the debts down to a fair rate of return.

However, without restoring the NHS to full public ownership and management, a drawback of this solution is that once a PFI debt is removed from a hospital, it makes it vulnerable to privatisation – whereas no private health care company would take on a hospital with a PFI debt.

The ultimate solution to the NHS PFI rip-off has to involve a definitive end to all forms of NHS privatisation and marketisation, through returning the NHS to full public ownership, management and democratic accountability via the NHS Reinstatement Bill.

Why Councils funding hospitals’ PFI debts is not a good idea

Once Hexham Council had bought out/refinanced the Hexham Hospital PFI debt, the hospital was returned to public ownership – it no longer belonged to the banksters who had financed the PFI debt. This must mean it is now in the ownership of the Local Authority – as it is always the mortgagor who owns the property until the debt is repaid in full.

But there is a now a huge (and unmissable) push to sell as much public estate as possible.

The pressure is particularly hard on local authorities.

Local Authority financing is not at all like central government. In fact LA funding probably more resembles a ‘household budget’, as it is a ‘user’ of currency, not a ‘creator’ of currency (the opposite of central government finance). In other words it can genuinely only spend what it can get from its various income sources and from borrowing.

Central government has cut local authority funding by 40% since 2010, and made
borrowing from the Public Works Loan Board more expensive. This has left local
authorities in a situation where, as Joel Benjamin of People Vs PFI writes:

“They have little choice but to borrow from private banks (with criminal pedigree) at usurious rates of interest.”

Given this situation, and since local authorities can only borrow within limits (unlike central government), borrowing to refinance a hospital debt at lower rates of interest benefits the hospital by a reduction in its regular outgoings – but constrains the LA’s future borrowing potential.

This makes any local authority that is the mortgagor for a previously PFI-funded hospital vulnerable to succumb to the next big investment opportunity for the private sector – this is for hospital chains to replace Foundation Trusts as the main provider of services. (The Financial Times has reported that this is next big investment opportunity for private health companies.)

Hospital chains due to take over deficit-ridden hospital Trusts

The Monitor boss threatened Hospital Finance Managers with this at their Conference in the summer of 2015, saying that Monitor would ensure that hospital chains take over hospitals that don’t bring down their deficits. This is in line with the Dalton Review recommendations.

The Pre-Consultation Business Case (PCBC) for cutting and closing hospital services in Calderdale and Huddersfield says that even if all the cost-cutting measures are carried out, the CHFT will still carry the highest Continuity of Service Risk Rating (COSRR), which is level 1. This rating is applied to hospitals that are at the most serious risk of not being able to survive and the PCBC says that this means the hospital trust will remain under Monitor’s ‘enforcement’ regime.

This must make CHFT most vulnerable to the threat of takeover by a hospital chain. As the Monitor boss warned the Health Finance Managers Association Conference last summer, takeover by a hospital chain means that our NHS hospitals would not be able to decide their own strategy and the way they run their services. This includes the power to retain their surpluses and borrow to invest in services for patients.

Local authorities’ drive to disinvest from public sector

The logic of the situation is that any Local Authorities that own hospitals in their area,by virtue of being the mortgagor, will end up selling the hospitals as part of their general public sector disinvestment drive.

At Hexham, the PFI consortium has been paid off in a good deal for them and the LA will sell, if they are true to form, at below value. The private sector wins & wins.

The National Health Action party, which opposes private involvement in the NHS, said the new deal ‘should not be seen as a solution to the PFI crisis in our NHS.’

Dr Louise Irvine said:

“Northumberland found a solution which at least protects their hospital – their local authority has bought out the debt.
But this would not be a model for other hospital trusts saddled with PFI debts. In most cases local authorities would have nowhere near the cash required, especially as many of the PFI debts are even bigger than in Northumbria. The headline cost of the Peterborough PFI for example is over £300m.

“What’ s more, this type of approach would generate a new postcode lottery depending on the political colour of the council. It also just passes the debt from one public authority to another and the money still comes from the
taxpayers to pay the extortionate debts of the PFI companies.”

Thanks to Deborah Harrington for much of the information in this article.