The Private Finance Initiative
a1m2p | 30.01.2004 11:58 | Analysis | Health
The PFI, or Private Finance Initiative, has been called by the Labour Government as "The Third Way". It is seen by the political leaft as a procedure by which a public institution remains public only by name. It is managed and profited from by a -usually multinational - company that charges the public institution (the NHS in case of health care) a rent for the premises and the running of the services.
Unlike Foundation Hospitals, which are a proposal by the Labour Government, PFI was 'invented' by the Tory government. It decided that when public services needed improvements at a cost of more than 10 million pounds, the public body would need to consider contracting out those improvements if it was more cost-effective to do it via the private sector with that via the public sector. The Labour government has gone a bit further: in the words of Alan Milburn, the secretary of state for health, that "it's PFI or bust": forget testing - the only money the government will allow hospitals to receive for refurbishment is private money.
George Monbiot, regular columnist in The Guardian, has written a book called 'captive state', where he describes how public services are being sold off to private corporations. He states that renovation schemes are too small to generate serious profits, so big corporations do not tend to bid for such schemes. As a result, the NHS needs to build a new hospital where all that was needed was less costly renovation.
Then a bidding process starts, which has to be international. Private corporations compete for the contract offering good prices. The NHS selects the "preferred bidder" according to set criteria and starts negotiating. The company then rises the initial price and lowers the services it can offer, discovering new risks and/or exaggerating the financial risks. In theory the NHS could de-select the preferred bidder, but an insider who prefers not to be named said 'I am not aware of a single instance' of this. The price of the project can rise 2 or 3 times before the final contract. All this is documented in 'Captive State', by George Monbiot.
If the hospital is located in the centre of a city, the company will want to destroy it, build another one in a less central location. This happened in Coventry, where the company sold the land in the centre.
Once the final contract is signed, it can not be amended. The NHS is then locked to a contract that can last from 25 to 30 years. During those years, says John Saxby, manager of two PFI hospitals, the NHS pays the private company a rent for the premises and any additional services it provides. The rent is in return for the investment and will necessarily include a profit element. Otherwise, Mr. Saxby adds, the private companies would not put the money in the first place. The companies make a profit also from the loan system. To build a hospital, a company borrows money from the banks. Interest rates are high according to the risk of the enterprise - if money was lent to the Government instead, the rate would always a lot lower, as it is considered the most secure borrower. So when a private company borrows money to build a hospital, that loan is already more expensive than if it had been publicly borrowed money. However, once the hospital is built, most of the risk dissappears because the company has a guaranteed income from the NHS for 25 to 30 years.
George Monbiot, regular columnist in The Guardian, has written a book called 'captive state', where he describes how public services are being sold off to private corporations. He states that renovation schemes are too small to generate serious profits, so big corporations do not tend to bid for such schemes. As a result, the NHS needs to build a new hospital where all that was needed was less costly renovation.
Then a bidding process starts, which has to be international. Private corporations compete for the contract offering good prices. The NHS selects the "preferred bidder" according to set criteria and starts negotiating. The company then rises the initial price and lowers the services it can offer, discovering new risks and/or exaggerating the financial risks. In theory the NHS could de-select the preferred bidder, but an insider who prefers not to be named said 'I am not aware of a single instance' of this. The price of the project can rise 2 or 3 times before the final contract. All this is documented in 'Captive State', by George Monbiot.
If the hospital is located in the centre of a city, the company will want to destroy it, build another one in a less central location. This happened in Coventry, where the company sold the land in the centre.
Once the final contract is signed, it can not be amended. The NHS is then locked to a contract that can last from 25 to 30 years. During those years, says John Saxby, manager of two PFI hospitals, the NHS pays the private company a rent for the premises and any additional services it provides. The rent is in return for the investment and will necessarily include a profit element. Otherwise, Mr. Saxby adds, the private companies would not put the money in the first place. The companies make a profit also from the loan system. To build a hospital, a company borrows money from the banks. Interest rates are high according to the risk of the enterprise - if money was lent to the Government instead, the rate would always a lot lower, as it is considered the most secure borrower. So when a private company borrows money to build a hospital, that loan is already more expensive than if it had been publicly borrowed money. However, once the hospital is built, most of the risk dissappears because the company has a guaranteed income from the NHS for 25 to 30 years.
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