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The UK government should not shy away from using private capital to invest in crumbling NHS hospitals, according to a report from health leaders.
A discussion paper produced by the NHS Confederation, which represents health managers in England, suggests ministers should look at developing a “new generation” of private finance models.
The report, shared with the Financial Times, concludes that ministers are likely to need several options to raise capital, including shared investment models to secure funding on a project-by-project basis from private capital, in addition to government borrowing.
It comes after a landmark report into the state of the NHS last month found England had spent almost £37bn less than peer countries on health assets and infrastructure since the 2010s, forcing the health service to raid capital budgets in order to manage day-to-day spending.
This capital investment shortfall has left the service with crumbling buildings and led to a maintenance backlog of more than £11.6bn, the highest on record, hitting productivity.
Matthew Taylor, chief executive of the NHS Confederation and a former Labour party strategist, said the government could learn from “mistakes made in the past” to develop new models of private finance. NHS leaders estimate the health service will require an extra £6.4bn per year in capital investment over the next few years.
Speaking to the FT, Taylor said: “The best, cheapest and most effective way to invest in the health service is through traditional borrowing by the Treasury. We are clear that any other routes should not undermine that core argument.
“And while I am aware of the challenges of PFI and we don’t want to be the source of superprofits for the private sector, there are ways of thinking about how you bring private investment in to enable you to invest more in capital and we should be imaginative about ways of doing that, as well as learning from mistakes made in the past.
“There is a lot of scope in the health service for impact bond type investment and we need to be more willing to explore that.”
Private finance initiative schemes were dropped for central government in 2018 after hospitals, schools and local authorities struggled to cope with crippling debt repayments and a National Audit Office report warned they were poor value for money for taxpayers.
However, several local authorities have continued to launch PFI schemes and the government is understood to be considering it for the £9bn Lower Thames Crossing, a new road and tunnel across the river Thames to the east of London.
Investors have been lobbying for a new model of the private finance initiative to be introduced but it comes amid scores of disputes over the handover terms between the contracting authorities and investors as PFI schemes that were set up almost three decades ago come to an end.
The NHS Confederation paper concludes that if the drawbacks of PFI could be “mitigated”, private finance could still be an option available to policymakers when it comes to raising extra capital spending.
Private investment in the health service’s estate could include private finance initiatives, third-party development and buyback, as well as mutual investment models, infrastructure and investment partnerships.
David Rowland, director of the Centre for Health and the Public Interest, a research group, said: “NHS trusts are still contending with the toxic legacy of PFI from the last Labour government. In some cases cash-strapped trusts have to spend more on their PFI bills than on drugs.
“The higher cost of private finance has never been outweighed by the alleged efficiencies or risk transfer gains which were used to justify the original policy.”