Website of the Department of Health

Q1. Are you aware that several newspaper articles last year reported on structural and service problems at the first two major PFI hospitals to open, Carlisle and North Durham?

A1. We are aware of these articles. Every new hospital experiences teething problems; these have been leaped on and embellished as these are PFI schemes. Both Trusts have issued full responses to the critical articles explaining the position and how genuine problems will be solved.

Q2. The Private Sector "partners" on these PFI schemes are in line to make huge windfall profits through refinancing, which the Trust will have no share in.

A2. News of refinancing deals should be welcomed. Refinancing benefits both the private and the public sector as partnerships should. PFI schemes have already demonstrated value for money when compared to a Public Sector Comparator on the financing terms at the time of signing, so any refinancing gains to an NHS Trust are a bonus.

In just 3 of the very early PFI schemes the NHS does not get a share of any refinancing gains. The other schemes that have already been signed (with the 3 exceptions) have specific clawback provisions or are bond financed, which makes them very difficult to refinance.

The first NHS scheme where outstanding loans were successfully refinanced was at Calderdale in May 2002. Under the original terms of the contract the trust would have been eligible for 10% of such savings; this was successfully negotiated up to 30%. We believe this is a fair settlement from the early PFI schemes and represents a good deal for the NHS and the Trust.

Under a new code of conduct published in October 2002 by the Office of Government Commerce (OGC) the public sector will benefit from a 30% share of any refinancing gains in all similar early signed schemes. OGC produced guidance at the same time providing for a 50% share of refinancing gains in all new contracts.

The monies released will be used to improve healthcare for people in the area by the Trust. Since this scheme was value for money to the NHS on the financing terms at the time of signing, this is a bonus for the local health economy, not some kind of loss.

Q3. The IPPR Report published on Monday 25 June 2001 said that at the moment PFI in hospitals was not offering significant value for money gains compared to other sectors like roads and prisons, a point made in the Health Select Committee report.

A3. Government has always taken a pragmatic view on what is best for each sector. In Health PFI schemes NHS clinical services continue to be provided by NHS clinical staff; in prisons virtually all the custodial services are provided by the private sector partner, creating the potential for increased value for money gains. Government has always been open about the fact that savings on health projects to date have been relatively marginal compared to other sectors, but this is still savings which can be ploughed back into frontline patient services.

Q4. How can PFI schemes be better value for money when the private sector cannot borrow money from the banks as cheaply as the Government can?

A4. It is true that the Government can borrow more cheaply than the private sector, but determining value for money is not simply about comparing interest rates. Any additional costs of borrowing are more than offset by the private sector:

In any case, capital expenditure forms on average just 22% of the total cost of PFI projects; the balance is the long term cost of providing support services.

Q5. Isn't it the case that NHS Trusts will be locked into schemes that bankrupt them, and force them to make savings by cutting clinical services, thereby making patients suffer?

A5. No. Figures have been produced in response to Parliamentary Questions which show that the annual payments NHS Trusts make to their private sector partners are almost constant in real terms. The only increase will be to take account of inflation.

Q6. But don't PFI schemes require NHS Trusts to shed staff in order to meet the cost of these schemes?

A6. No - the number and type of staff employed by an NHS Trust have to be adequate to operate the new hospital. Some staff may become redundant when a PFI scheme goes ahead, but this is because the new hospital is more efficient and/or involves shutting down two or more old facilities. Rationalised facilities requires fewer staff. A hospital that was not fully staffed would not be value for money and would not attract Health Authority support. Nor would it be approved by the Department of Health.

Q7. Are bed numbers being cut at PFI hospitals to make them affordable?

A7. Not true. The level and mix of services at any new hospital are determined by NHS managers and clinicians long before a decision is taken on whether it should be built using public capital or the PFI route. Figures have been produced in written answers and to the Health Select Committee which show that in almost every case, the same number of beds would have been provided at the new PFI hospitals if they had been built under the public sector route. In some cases they are less, in others more. But this is due to normal development of the planning process, not pressure from the PFI partner.

The service planning for all the early PFI schemes occurred many years before the National Beds Inquiry (NBI). The NHS Plan endorses the NBI findings that the total number of acute sector and intermediate care beds needs to rise to meet the Government's pledges on reducing waiting times and delivering the "care closer to home" model of health care.

The Long Term Planning Guidance implementing the bed increases, issued in February 2001, might mean additional G&A beds are required at the existing PFI schemes, but this is something the Department are prepared for. PFI is flexible to cope with changes in requirements throughout the contract period, as shown by the recent addition of 144 beds at Norfolk & Norwich even though the contract was signed in January 1998.

The 29 New schemes announced in February 2001 were the first major schemes to be fully planned from the start after the NBI report and NHS plan. Taken together, the 29 schemes are planned to increase NHS beds by 2,900. These will be increases in both acute and intermediate care beds, contributing to the targets in the NHS Plan.

Q8. A lot of extra money is being put into the NHS. Why can't this be used to fund all the new hospitals from public capital?

A8. This government is not driven by dogma. The PFI is only a procurement tool - not an end in itself - and will only be used in cases where it offers value for money to the taxpayer and the NHS. It will continue to be used alongside public capital to meet health service needs. The Government's success with the PFI and the increase in public capital expenditure it is planned to grow to £4.4 billion by 2005/06 representing an annual average real terms increase of 11% since 1997/98 - has enabled it to start the largest hospital building programme in the history of the NHS.

64 major PFI hospital projects worth over £8.3 billion have been given the go ahead under this Government at the same time as 4 publicly funded schemes worth £172 million. These increases in expenditure are of course tremendous news but they still have to be used as carefully and as efficiently as possible: need will always be greater than supply. This is illustrated by the fact that when the Government took office in May 1997, the bill for backlog maintenance alone in the NHS amounted to £2.5 billion.

Q9. This is all very well, but PFI payments are made by NHS Trusts from their revenue budgets. Surely this affects what can be spent on clinical care?

A9. No. PFI costs are mainly paid for from the revenue allocations NHS Trusts already receive to pay for their existing facilities. Where overall costs are higher, additional revenue is found from the HA or from RO capital allocations. In no way, therefore, are clinical services compromised or threatened.

Q10. Do the National Audit Office (NAO) reports on the Dartford & Gravesham and West Middlesex PFI schemes support the Government's case?

A10. The NAO have now looked at two major NHS PFI projects - Dartford & Gravesham and West Middlesex - and confirmed that both projects are value for money, offering savings of £5.1m and £5.5m respectively. The NAO has accepted the underlying principles and methodology behind the PFI and has now issued its own guidance.

Q11. Government has admitted £52 million spent on advisers costs for first 18 major schemes. Why are these so high?

A11. Advisers costs on these early PFI schemes were high as the PFI market was being developed and delays to schemes caused by incompetence of previous administration. Of the £45 million spent on the first 15 of these schemes £18 million was spent before May 1997 and nothing was built. Since May 1997 we spent £27 million delivering these 15 new schemes  2.2% of the total cost.

Q12. Why do some non-clinical support staff have to transfer to the private sector partner under PFI deals?

A12. Under PFI the NHS does not procure an asset; it purchases a fully-maintained facility. The private sector takes on a significant amount of the risk associated with a PFI scheme since it will lose money if it does not provide the hospital and ensure that the agreed quality standards are met. These standards will cover every aspect of the building-related services provided by the private contractor eg: engineering and electrical. Unless the contractors employ these staff direct, they will be unable to manage the risk.

However, it is no longer an automatic requirement for staff who provide non-property related support services (eg: catering, portering) to be transferred to the private sector partner. The extent to which these staff do transfer will depend on an NHS Trust's individual circumstances in achieving best value for money under the contract.

Q13. How are NHS staff terms and conditions protected when they have to transfer to the trust's private sector partner?

A13. It is in the long term interests of the NHS that NHS Trusts select private sector partners who employ well-trained, well-motivated staff who will supply a high quality service to NHS patients. This Government has introduced a number of measures to ensure this happens. Ministers will not approve a PFI scheme unless the terms and conditions of service of transferred staff are protected by the Transfer of Undertakings (Protection Employment) Regulations 1981 (TUPE) and they are offered broadly comparable pension terms by the new employer at primary and subsequent contracting rounds.

In addition, the 2001 manifesto stated that:

"PFI should not be delivered at the expense of the pay and conditions of the staff employed in these schemes. We will seek ways in which, within the the framework of PFI management, support staff could remain part of the NHS team".

A trial model to implement this was piloted at 3 PFI schemes in negotiations with bidders - Stoke Mandeville, Roehampton and Havering - and the most advanced major scheme, Walsgrave. Rather then transferring under TUPE, the pilots were for five categories of "soft" facilities management (FM) staff (portering, catering, domestics, laundry services and security staff) to retain all their NHS employment terms, but be managed by the private sector the Retention of the Employment (ROE) Model. This entails a form of legal secondment to the private sector partner.

Agreement on the model was reached with UNISON in July 2002. The first scheme (Walsgrave) reached financial close in November 2002, demonstrating that PFI schemes with the model can deliver value for money. Formal guidance will now be developed and rolled out to the service. All schemes incorporating the ROE model in the future will still have to demonstrate value for money on a case by case basis.

Q14. Why allow all these PFI contractors to make a profit at the NHS's expense?

A14. The British economy needs a healthy, profit making private sector; and the NHS has always had to deal with organisations who make profits. Drug manufacturers, equipment manufacturers and suppliers and building maintenance companies all make profits. And if we build assets from public funds, the building companies still make a profit.

Q15. Will NHS clinical services be run by the private sector?

A15. We have published a list of non-clinical support services which may be provided under contract by the private sector under existing Public Private Partnership arrangements like the Private Finance Initiative (PFI). The NHS Plan commits us to exploring new forms of partnership with the private sector; any proposals which include categories of services or staff other than those on the list must be approved by Ministers.