Gambling on the private sector

The NHS in England needs £10bn to sort out its deteriorating estate, and is reportedly looking at hedge funds to provide some, if not all of the money needed. ‘Is this really a good idea?’ asks Jane Renton.

We’ve all been there. It’s the school of hard knocks, a situation that arises when personal finances do not add up. Charles Dickens knew all about it, as the child of someone who could never quite balance the books. As David Copperfield’s friend, Mr Micawber (a character believed to have been based on Dickens’s dad), was fond of reminding him: “Annual income twenty pounds, annual expenditure nineteen, nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
It was, and still is, sound advice, but sadly advice that Copperfield’s friend was incapable of following. Even more sadly the same financial equation could also be applied to NHS England: Annual income £101bn, annual aggregate deficit 2015/2016 £2.5bn, result misery - and, by the way, the worst deficit in NHS history. 
The road to hell is paved with good intentions and judging by the NHS a lot of recriminations as well. Last year two thirds of the country’s NHS Trusts were in the red and the Department of Health had to put in a further £2.4bn of extra funding. Total health spending in England is expected to rise by almost £5bn by 2020, after inflation is taken into account. At the same time the NHS is also expected to come up with £22bn of savings within the same period, a sum that is historically unprecedented in scale among any other comparative healthcare system.
While arguments abound about how much “new money” the government has actually put in - £8bn or £10bn - depending on whether you go back for five or six years, waiting lists, bed-blocking and medical rationing are growing realities for many patients. The quality of care is in a parlous state, while demand for care from an ageing population increases. Money for social care is falling, which has resulted in hospitals crammed with people who shouldn’t be there, but have nowhere else to go. In January the Red Cross declared a humanitarian crisis, with 20 hospitals so over-crowded that patient safety could not be guaranteed. There’s also the issue of a culture where people now expect to be treated in hospital for a sprain or a hangover.

Estates
Meanwhile, Sir Robert Naylor’s review into the NHS property and estates concluded that £10bn is needed for proper investment in its estates, with at least £5bn needed to deal with backlog maintenance. His report, published in late March, also called for the establishment of an NHS Property Board to provide the necessary strategic leadership across the organisation. While the review also supported the Department of Health’s goal of releasing £2bn of assets - something that Naylor said could in fact rise to £5.7bn - it said that incentives needed to be provided to overcome barriers preventing NHS Providers from unlocking the best value from their estates.
To many observers, proposals to combine the functions of NHS Property Services, Community Health Partnerships, along with other fragmented healthcare property operations, looks remarkably like a return to the old NHS Estates structure. However, questions remain over whether the new structure can deliver what is needed within an increasingly urgent timeframe. From the perspective of many working in healthcare estates, questions also remain about whether they can actually cope with the levels of investment involved, given that capital teams have been reduced in line with ever-reducing capital plans.
For the past two years the NHS capital budget has been raided to meet day-to-day running costs. In 2016/17 the DoH agreed to transfer £1.2bn from its £4.8bn capital budget to help meet those costs.
While the DoH welcomes the Naylor report, saying it will respond on the recommendations later this year, the one thing that most can agree on is that time is rapidly running out. There are now some 44 Sustainability and Transformation Plans (STPs) in place, covering all healthcare organisations within a given area, including local authorities. Their aim is to provide new models of care that maximise preventative care as well as the integration of health and social care. However, according to a recent report by think-tank, Reform, STPs lack executive authority and are at best a longer-term fix.
Fixing Britain’s broken social care system is also something that is pre-occupying the new government. If it succeeds, it would undoubtedly relieve some of the current crushing burden on the NHS. But the solutions required to do so could involve radical moves such as increased taxation - deferred or otherwise through an inheritance levy, or compulsory social insurance - do not add up to the quick fix needed.

Private money
It is hardly surprising that attention has once again been focused on the private sector, no matter how unpalatable that might be to large swathes of the electorate and to health unions in particular. The NHS is currently in talks to borrow up to £10bn from hedge funds to finance building, repairs and infrastructure projects across the service, according to a number of recent newspaper reports.
“We have to be realistic because we are not going to get a £10 billion cheque to pay for all the transformation under way and the massive maintenance backlog, so we need to think long and hard about another way,” says Jim Mackey, Chief Executive of the financial regulator NHS Improvement.
“Historically low interest rates are a golden opportunity for the NHS but we are constrained by rigid rules around borrowing that prevent us from taking action. An NHS fund could power the improvement needed to sort out problems at our hospitals and to drive the change required to get the NHS ready for future challenges.”
According to the Times newspaper, Mackey is in talks to receive a cash sum that would avoid the necessity of dipping into the Treasury’s budget. Mackey is allegedly in talks with government officials to sign off on the private borrowing plan, which 10 Downing Street continues to insist is “speculation”, though ministers are privately conceding that there will be some need for private cash in the NHS, even if NHS land sales eventually start to contribute to the public coffers.
However, according to the Times, health officials have already reached outline agreement with one or two hedge funds, as well as other investment companies, but no deal can be signed without Treasury approval.
The NHS will be hoping to take advantage of historically low interest rates and believes it could obtain a rate similar to the 1.1% available to the UK government on 10-year loans.
No matter how attractive loan rates might appear, the move is already proving highly controversial. Hedge Funds may be viewed as a form of mutual, but ones that are known for their fiercely aggressive tactics. While they might view any investment in the NHS as the equivalent of owning a Rembrandt, given its ownership by the British state, political fallout is likely to be strong, giving force to allegations that healthcare is being privatised by the back door.
There are also far too many unhappy experiences in the NHS of previous private sector involvement, particularly around the Private Finance Initiative (PFI) schemes of the past two decades, something that led to the creation of many new hospitals, but also imposed a heavy burden on taxpayers. It is important that past mistakes are not repeated, warns Niall Dickson, Chief Executive of the NHS Confederation, a body representing senior health service management.
While it is sensible to explore alternative ways of funding the NHS, caution needs to be exercised: “We need to be very careful,” he told the Financial Times.
The NHS is estimated to be paying £2bn for past and current PFI projects in 2016/17 - or about 2% of NHS England’s budget of £108bn. According to Full Fact, the independent data monitoring charity, 2015 figures by the DoH - the latest available - reveal that the department is currently paying for 105 PFI projects and will continue to do so until 2050, though costs for the projects are expected to reduce as payments for earlier projects cease.
In March, Larry Sanders, brother of US socialist and 2016 Democratic presidential candidate, Bernie Sanders, warned an audience in Glasgow that NHS England was an example of “corporate destruction” of the sort that gave rise to US President Donald Trump.
“There are people sitting down to work every day to break up and privatise the NHS,” Sanders, a spokesman for health for the Green Party of England and Wales told his audience in Scotland.
But while those debates rage and political parties become bogged down arguing about who and how much was promised to the NHS, piecemeal privatisation remains a distinct possibility. A long-awaited and grown-up discussion about the size, scope and the money the taxpayer is prepared to pay for it all is clearly and urgently required. As far as I’m aware this has never taken place. Yet without it, as Mr Micawber might have said, the NHS will never be the hero of its own existence.