Renegotiate hospital PFI debts to fair value and use criminal prosecution where necessary

Jeremy Corbyn has called for the Labour party in opposition to campaign for a fund to be set up to bail out NHS trusts from PFI schemes that were forced upon them under the New Labour government.

This is in line with the current draft of the 2015 NHS Reinstatement Bill, that Jeremy Corbyn has co-sponsored as a Private Members Bill along with Caroline Lucas MP and other MPs.

The Bill is due to receive its second reading on 11 March 2016 and it’s vital that all opposition MPs support it – as well as Conservative MPs who respect the wishes of the 77% of Tory supporters who want a publicly-owned and run NHS.

However, not all supporters of the NHS Reinstatement Bill are happy with the section that calls for removal of PFI debts from hospitals and centralisation of the debts in the Treasury, and discussions are underway about proposed amendments to this bit of the Bill.

This is because removing PFI debts from hospitals (which is also the aim of Corbyn’s proposal of fund to buy out the hospital Trusts’ PFI debts) doesn’t do anything to tackle the inappropriate PFI debts, and it helps the PFI lenders launder debts which were arrived at in inappropriate situations – as work by Professor Allyson Pollock documents.

Scrap pfi_largeHere are thoughts on what to do about PFI debts, followed by a reasoned argument.

SUMMARY

To accomplish the goals of protecting NHS hospital sites from being sold, and to address the emergency need to keep the PFI-affected hospitals in running order and adequately funded to take care of the patients who need them and formerly had better access to them:

1. Repeal of the Health Act 2009’s Unsustainable Provider Regime.

2. Creation of a requirement that the Treasury should pay each year to each PFI-affected hospital the amount of its unitary charge and any other PFI-related costs.

3. A ban on the removal of PFI debts from the hospitals. PFI removal will put them at immediate risk of sale, since they currently make the PFI-built hospitals unsaleable, and the government is clearly committed to the QIPP plan requirement to sell off the PFI sites as working hospitals asap.

4. To give guidance on the way forward in the bill, a declarative statement stating how to deal with the debts could be included. The debts can be dealt with just fine under existing law, there is no need for anything new legally in this area.

5. Repeal section 43 of the Freedom Of Information Act 2000: that is, the Commercial Confidentiality exemption.

6. Reinstate the whole of the Ryrie rules which used to ban private financing which was more expensive than public financing. This is a supportive rather than a central measure.

REASONED ARGUMENT (numbering follows that above)

1. Without the Health Act 2009’s “Unsustainable Provider Regime”, hospital sales triggered by removing the PFI debts would be illegal. Repealing it would be a simple idea to block imminent hospital privatisation and give more time to work on investigating and prosecuting PFI frauds where possible, and in getting the other contracts renegotiated to fair value, or voided as concluded under circumstances where misrepresentation was relied upon for the rest.

In fact the whole of the Health Act 2009 should be repealed, along with all other marketising/privatising legislation affecting the NHS, as part of the complete renationalisation needed to protect against the TTIP threat. That’s basically “Back to Bevan”, as that was the last time that the NHS was in a legal form that would meet the trade exemption test for public services under TTIP.

2. The requirement that the Treasury pay the unitary charge and any other PFI-related costs each year to each PFI hospital is so that the hospitals should not be penalised further financially by leaving them to find the money to pay usurious PFI unitary charges that they should never have been subjected to in the first place. This would relieve the unacceptable financial pressure on hospitals in the short-term without putting them at risk of privatisation under Health Act 2009. That would seem to gain the benefit of what the Bill proposes, without the risk of triggering hospital sales.

3. The Bill should not mention moving the PFI debts, because doing this is the last-but-one stage of hospital privatisation (staff retrenchment is always kept for the last stage before sale because it is unpopular), as well as helping the PFI lenders launder debts which were arrived at in inappropriate situations.

Concerning government commitment to selling hospitals as soon as they can, the Lewisham Hospital court case win explicitly blocked the government’s ability to sell NHS hospitals as they wished. This decision was overturned through new law put into the Care Bill 2014, which now enables Hunt to sell any NHS Hospital he wishes using this and Health Act 2009’s Unsustainable Provider Regime. So Hunt’s keen to get them sold: the hold-up in the hospital sales schedule at present is the need to get the PFI debts off the hospitals first, as no purchaser wants one with a PFI in place.

Not only do the new owners of public assets never want purchases with previous long-term debts still in place, the terms of a PFI are such that with one of these contracts in place, the managers are forced to pay inflated charges for core services, and worse, they cannot even control hospital cleanliness adequately because cleaning’s outsourced, often to low-grade providers. The sale of every PFI-built hospital to the private sector has been planned all along, one can see it even in the architectural blueprints. The reason the sales aren’t happening as yet is that the buyers require the PFI debts to be removed first. Accommodating this wish will lead to a round of mass firings from the NHS using Health and Social Care Act 2012 ss300-301 and Sch 23, followed swiftly by a wave of hospital sales to foreign operators.

4. We can deal with the PFI debts by an overall policy of in situ renegotiation to fair value where no more stringent action seems feasible, with a more aggressive approach on a case by case basis, according to local circumstances, on grounds of misrepresentation or fraud/its related offences. Where outright fraud (or any of the linked offences) is provable, this approach should be used: initial advice is that a number of different criminal statutes would appear to apply to those taking different roles in the PFI implementation, where the evidence appears pretty solid, which in some cases we can already see it is. All of these options would recoup public funds for our hospitals. This would be a process achieved using various existing laws, and not needing new legislation.

5. To facilitate renegotiation, prosecution etc. needs full access to the PFI deal documentation. This is currently unavailable because of the Freedom Of Information Act 2000’s s43 Commercial Confidentiality exemption. This allows commercial partners to insist that information on public spending is withheld from the public, in blatant contravention of the spirit of FOI legislation: the one area that requires the closest scrutiny is denied it at the preference of the profit-making party.

6. The Ryrie Rules required as a condition for private financing to be legal, that it must be provably cheaper than the cheapest public option, sovereign borrowing. This can never be achieved in practice because interest rates on major financing for private borrowers are always higher than sovereign borrowing rates, and then profit must be found from somewhere too. So in 1989 John Major as Chief Treasury Secretary abolished the Ryrie Rules and they were replaced by PFI in 1992

10 thoughts on “Renegotiate hospital PFI debts to fair value and use criminal prosecution where necessary

  1. Pingback: Calderdale & Kirklees 999 Call for the NHS asks Shadow Health Secretary to support campaign to stop and reverse NHS cuts and sell offs – Calderdale and Kirklees 999 Call for the NHS

  2. Brilliant article jenny. Its very clear what needs to be done. Lets hope Jeremy Corbyn and crew know this and can push to get something done about it.

    • Hi Sarah, here is a short version, I hope this makes sense and is what you need. If not please say and I’ll try and clarify. STARTS

      Successive governments have sold off the old hospitals that we, the public, used to own. Often it sold them to consortia of building and finance companies who have then ripped us off by building new hospitals that THEY own and lease back to us/ the NHS at exorbitant rates of interest plus high charges for the maintenance and servicing of the buildings. This is what the NHS Private Finance Initiative is.

      This means that over the duration of the lease the private consortia get back 7 times the money that it cost them to build the hospitals. One hospital for the price of 7. (The cost of building PFI hospitals was £11.9bn. Over the life of the hospital leases, the NHS will pay £79bn).

      The cost of repaying the PFI is crippling the NHS. It takes 10% of the annual NHS budget for Calderdale to pay for the Calderdale Royal Hospital PFI. This is money that isn’t going on patient care. Now there isn’t enough money to keep the hospital running safely, particularly since the government has been requiring it to keep cutting its costs year on year since 2011. So now the hospital’s running a deficit, the market competition enforcer Monitor has put it in special measures and who knows what’s going to happen to the hospital?

      To make matters worse, the consortia don’t pay tax on their massive earnings from the PFI repayments, because they are registered in tax havens. And they often sell the debt on to other finance companies at huge profits, that they don’t pay tax on either. The Calderdale Royal Hospital PFI debt has been sold on 10 times.

      And because the hospitals were so expensive to build, they are smaller with fewer beds than the old hospitals they replaced, so hospitals are in a state of permanent chaos because there aren’t enough beds. And the PFI hospitals were badly designed by consortia that had no clinical skills or knowledge of how a hospital works.

      And anyway the whole PFI thing was unlawful until the government changed the law to make it lawful. Government rules called the Ryrie Rules required that any private financing for public infrastructure must be provably cheaper than the cheapest public option, which is government borrowing. But this can never be achieved in practice, because interest rates on major financing for private borrowers are always higher than government borrowing rates. So the early PFI deals all incorporate blatantly dishonest financial modelling, to make it look as if they’re following the Ryrie Rules. Then the government passed a law to remove the obstructive Ryrie Rules which made the PFI deals illegal.

      These reasons are why PFI needs to stop being used any more in the NHS or any other public sector infrastructure. To deal with existing PFI debts, 999 Call for the NHS campaigners think they need to be renegotiated to fair value if possible and where they can be shown to be onerous/fraudulent, the consortia responsible for them should be subject to criminal prosecution.

      PFI was a key part of the privatisation of the NHS, because it privatised the hospitals – unlike the old hospitals, we the public don’t own them, we just lease them. So if we want to restore the NHS to full public ownership via the 2015 NHS Reinstatement Bill, clearly dealing with PFI is a key part of the process.

      The current draft of the Bill proposes to take the burden of the PFI debt repayments and hospital maintenance and service charges off the NHS, by centralising them in the Treasury. But 999 Call for the NHS thinks that this isn’t a very good idea because it still leaves the public paying for the usurious rip off debts set up by the private finance and building consortia.

      That’s why we think it would be better for the 2015 NHS Reinstatement Bill to say that NHS PFI debts will be investigated as to their legality and where they are onerous/fraudulent, the PFI consortia should be prosecuted under criminal law, and elsewhere they should be renegotiated to fair value.

  3. 1. What evidence is there that hospitals are due to be sold off? What gain would any buyer get?
    2. You state selling off the hospitals was in the blue prints. Yet they were built under PFI with 25-35 year terms
    3. Who will negotiate at each of the PFI sites to get the contract changed.? NHS managers have already be seen to be out gunned by private sector PFI negotiators

    Ron SInger

    • Thanks for your comment. 1) Evidence that hospitals are due to be sold off includes the Dalton Review, which suggests handing over hospitals to private companies and also that private companies or “successful” NHS trusts – ie those without a deficit – could take over a lot of hospitals and operate as a hospital chain. Private companies would have a role in deciding which NHS Trusts would be judged “successful” and so able to take over other hospitals and operate as a chain.

      The Monitor boss repeated this message to the Health Finance Managers Association Conference earlier this year.

      A private health care lobbying network representative was on the Dalton Review Advisory Panel. Jim Easton, managing director of Care UK, represented the NHS Partners Network, the UK’s primary lobbying group for the private healthcare sector. This was not declared publicly and only came to light through a FoI request.

      The Dalton Review describes itself as the “delivery vehicle” for NHS England’s Five Year Forward View.

      It says District General Hospitals can struggle to meet the needs of the population and that their Boards should “determine the scale and scope of their service portfolios” and consider “new organisational form[s]”.

      NHS England’s Five Year Forward View plans to turn many District General Hospitals into “viable smaller hospitals”. These are likely to be part of a hospital chain, which may well be privately owned and run if the Dalton Review is anything to go by.

      Other evidence, as well as the Dalton Review and Monitor statements, is that under the New Labour government NHS hospitals entered the privatisation pipeline via incorporating as companies under the rubric of “foundation trust” status. A Foundation Trust is a privatisation device that eases the transition of public sector property (NHS hospital land and buildings) into private hands. “The Plot Against the NHS”, Leys & Player 2010, pages 20-26 explains how this works. P 21 says “Foundation Trust hospitals in England would not be managed – at least for the time being – by private companies, but they were given the same sort of managerial independence. They would no longer be supervised by the Department of Health, but by a new independent regulator called Monitor.” As independent businesses, FT hospitals were supposed to make a surplus and if they went bust Monitor could step in and decide on the future of the hospital. Which is what is now happening. It all looks very much like the “Defund- run down- privatise” route to privatisation.

      2. The 25-30 year PFI contracts that were started in the late 1990s will mature just in time for the end of NHS England’s Five Year Forward View 2014-19 (Simon Steven’s plan for stealth-privatising the NHS by the end of this Parliament).

      3. The question of who will renegotiate the hospital PFI contracts – or decide whether the PFI consortia who set them up should be prosecuted for fraud – is a good one and the detail remains to be worked out. But the intention of this proposed amendment to the 2015 NHS Reinstatement Bill is that this should be done by central government, not by individual hospital Trusts.

    • QIPP stands for Quality Innovation Productivity and Prevention. It’s a euphemism for “cuts”. The government introduced it in 2010 when it announced the £20bn so-called NHS efficiency savings, to take place over the next 4 years. This had been called for under the New Labour government, because of the 2008 financial sector collapse and the government’s bail out of the bankers, which used up £trillions of public sector money. But it was the Tory government that actually carried it out. All Clinical Commissioning Groups have to have a QIPP Plan that shows how they’re going to cut spending – which the government calls “addressing the quality and productivity challenge”.