Keep paying for what you will never own. A story of 'New Labour' and Auld Reekie
AS we face up to the Con-Dem government's plans to "shake up" the National Health Service, reminders are still coming of what 'New Labour' saddled us with.
The Private Finance Initiative (PFI) idea originated in Australia, where it was used for roads and railways, then spread to Britain under John Major's Tory government. It was attacked by Labour, as a form of privatisation, and future Chancellor of the Exchequer Alistair Darling warned that "apparent savings now could be countered by the formidable commitment on revenue expenditure in years to come". Nonetheless, the Treasury pushed Labour to adopt it when it took office in 1997, and soon afterwards Health Secretary Alan Milburn, announced that "when there is a limited amount of public-sector capital available, as there is, it's PFI or bust".
Private Finance Initiative means government turns to private capital for finance, letting business run services or rent back properties until they can revert. As Chancellor, Gordon Brown became especially associated with PFI, telling Labour Party conference that this was the only way to pay for new hospitals and schools. This was more expensive than public borrowing, and cynics say it was Brown's way of hiding mounting debt, leaving it to future generations. Labour's conference rejected the PFI policy, but the government persevered.
With the credit crunch, the government actually turned to lending money to private companies so they could undertake public projects. Brown apparently insisted that private companies were inherently better at managing than public bodies. Meanwhile the PFI idea had been spread internationally, pushed by financial institutions in their drive against public ownership
The Royal Infirmary of Edinburgh is one of the biggest PFI projects in Europe. This hospital's history goes back to the 18th century. In August 1998 a contract was signed to build a new Royal Infirmary on a mostly green field site at Little France, outside Edinburgh, to serve the Scottish capital and surrounding hinterland. In May 2001, Lothian Health Trust sold the old 20 acre Lauriston Place site for £30 million to Southside Capital Ltd, a consortium comprising Taylor Woodrow, Kilmartin Property Group, and the Bank of Scotland. They wanted it for a housing, shopping, leisure and hotel development. People were not happy about losing listed buildings, nor that Edinburgh's main accident and emergency facilities would be some distance from the city centre, and need much improvement in public transport links.
They also questioned the financial side. And now the questions could be raised officially. In what is claimed to be an exclusive in tonight's Edinburgh Evening News, health reporter Adam Morris says:
HEALTH chiefs were today facing demands for an inquiry after it emerged the NHS will have to pay a total of £1.26 billion for the privately built Edinburgh Royal Infirmary - and still not own it.
It means that by 2028, NHS Lothian will have effectively paid for the hospital seven times over but it will remain the property of private operator Consort.
The revelation has prompted fury from unions and politicians, who said it made a mockery of an agreement that was already a bad deal for the taxpayer.
Tom Waterson, Unison's Lothian branch chairman, said: "Can you imagine taking a mortgage out, making huge monthly payments, and then finding at the end you don't own the place?
"We had concerns about this contract from the start. Consort could even evict NHS Lothian at the end of it if they wanted."
NHS Lothian is tied to a £50 million-a-year contract allowing Consort to run and maintain the hospital which expires in 2028. Health authorities will have to negotiate a price with Consort to buy the hospital, extend the lease by another 25 years, or walk away, leaving the hospital and its contents to the firm. Adam Morris says the hospital has dropped nearly £20m in value since it opened 2002, down to £170m. Experts have also pointed out that it may halve in value by 2028, given it was only ever estimated to have a 45-year lifespan.
NHS Lothian's 2010 accounts revealed the deal with Consort allows health chiefs to extend the contract until 2053. Morris says "Privately, senior NHS Lothian bosses - none of whom were involved in the securing of the original deal - are despairing of the contract. They are furious that they have a £70m black hole, a sum which could be almost plugged with just one of the annual payments to the company who built the hospital. Any potential deal to buy the hospital is years off but it is understood there would be no way Consort, which also profits from running the canteen, hospital shops and car park, would sell prior to 2028".
There was a row last year when the Scottish government sought to do away with car parking charges at hospitals. Consort wanted £14.5million to comply. "Politicians including Labour's George Foulkes reacted angrily when details of Consort's massive bill emerged yesterday. Current charges of up to £7 a day now seem likely to stay at Edinburgh Royal Infirmary. Parking at all hospitals built without using private finance initiatives were scrapped at the start of the year."
Wherever big public contracts have been under way, certain names keep recurring. Consort Healthcare is part of the Balfour Beatty group. Balfour Beatty was one of the three lead construction firms involved in the building of the Royal Infirmary of Edinburgh (along with Haden Young and Morrison Construction).
The Infirmary deal has been criticised in British Medical Journal report. Allyson Pollock, a professor of international public health policy at Edinburgh University, and Dr Matthew Dunnigan, of the Glasgow Royal Infirmary, said it came at huge cost to the public purse long-term and it affected patient care. They cited "reduced service delivery across Lothian and its associated Private Finance Initiatives development compared with other Scottish hospitals" and found that targets could also be missed. Their study also found that PFI did not meet targets to cut in-patient and day case admissions and length of hospital stays. This concern was pooh-poohed by some health officials, and dismissed by then Scottish Labour leader Jack McConnell, but received widespread support elsewhere.
The Edinburgh Evening News has brought a mixed bag of responses from readers, some defending the PFI scheme, others saying they have criticised it all along and wondering why the paper has just caught on. The critics seem best informed, among them both workers who were employed in the construction of the new Infirmary and some employed in it talking about shoddy construction. Some of the old infirmary buildings had lasted 200 years and could remain. The new infirmary is given 45 years.
"The building is apparently designed so that lots of internal walls can be removed and the place turned into a factory or superstore or whatever. The whole building is shoddily constructed and I well remember the day that a consultant and I were trapped in his office when the door handle fell off! Oh and the leaking roofs of the cardiac surgery operating theatres and many more faults serious and trivial."
Another person writes:
"PFI has been an unmitigated disaster for the NHS, speaking as an employee of NHS Lothian i am happy to see the full scandalous facts about the RIE being brought into the open, Consort need to be removed from the equation and a compulsory order to purchase outright the building put in place for the princely sum of what it is now worth. After all if the SNP think its worthwhile to buy a bloody bridge out of its PFI contract (Skye Bridge) and to compulsory purchase homes to make way for Donald Pumps rich mans folly then why not do the same for the RIE?.
"Everyone who works in NHS Lothian knew about this sorry mess, but to talk or even mention it was frowned upon, there should a full frank investigation into the mess. It would have been much more cost effective to give the NHS a budget rise of £6 billion a year just to implement a new hospital and facilities building program back in 1999, cost effective and we own the facilities".
In case any of my Scottish friends were feeling that the Royal Infirmary story reflected badly on their reputation for sound sense and shrewdness, I have pointed out that it is here in smart London that plans were made to save money by closing down hospitals that have still to be built. And I cannot help recalling that the New Labour enthusiasts for PFI were the same people who kept admonishing us to "live in the real world".