"NHS Mortgage" putting hospitals at risk

Graham_Devon

Lesson for those who reccomend taking on more and more debt.

Paying off the "NHS mortgage" is putting so much pressure on the system in England that the future of some hospitals is at risk, ministers say.

The government said 22 trusts - running 60 units - are facing difficulties because of the cost of paying for privately-funded building projects.

The group represents nearly a fifth of the 100-plus PFI schemes in the NHS.

The PFI bill is increased by inflation - and ongoing maintenance costs.

PFI is a way of funding building projects using private money. It was originally introduced by the Tories under John Major, but the use of the scheme was largely expanded into the NHS by Labour.

Under the schemes set up in the health service, private firms pay to build hospitals, leaving the NHS to pay an annual fee or "mortgage" over 30 years or so.

Department of Health figures show yearly bills are forecast to rise by 75% to more than £2.5bn in the next 18 years, mainly because of inflation

http://www.bbc.co.uk/news/health-15010279

kabayiri

I really don't get this.

PFI should have provided predictability over running costs of something like a hospital. Expensive perhaps but predictable.

When these hospital deals were being written, they knew the long term nature of the deals.

For them to turn round now and complain of affordability; it sounds like bad financial planning at the start.

Don't they employ accountants and financial analysts at the DoH?

HAMISH_MCTAVISH

Graham_Devon wrote: »

Lesson for those who reccomend taking on more and more debt.

Apparently the lesson according to Graham is "don't build hospitals"....

PFI is the problem here, not debt as such.

The PFI initiatives are actually a pretty good way to build something like a toll road, where a direct revenue stream is taken by the builder.

But a very expensive way to build something like a hospital.

It would have been far cheaper to just get a proper mortgage, but then that would have been counted as actual debt, and people like Graham would have harped on about it forever.

The lesson to be learned here is that taking on cheap debt and just accepting that we need debt to build things like hospitals, is a better option than trying to hide debt through expensive PFI's.

CLAPTON

PFI was known to be a fraud at the time so no surprises here
Brown used it to keep the debts off the governments balance sheet; however that doesn't mean the money doesn't have to be paid back .. sadly for the next 30 years

wotsthat

Graham_Devon wrote: »

Lesson for those who reccomend taking on more and more debt.

I don't want to put words into your mouth so any chance that you might explain what you think the lesson is?

HAMISH_MCTAVISH

Apparently Graham thinks things like hospitals are frivolous luxuries not worth borrowing money to build.

Maybe we should just save up for a couple of decades and build them when we happen to have a bit of spare cash, rather than when they're actually needed.

OptionARMAGEDDON

Simple solution, default on the PFI deals and use QE to build more hospitals at a quarter of the long term price. The construction projects could be considered stimulus for the construction industry.

IveSeenTheLight

wotsthat wrote: »

I don't want to put words into your mouth so any chance that you might explain what you think the lesson is?

Just as a snapshot guess.
Does it mean that renting costs more than buying?

wotsthat

HAMISH_MCTAVISH wrote: »

Apparently Graham thinks things like hospitals are frivolous luxuries not worth borrowing money to build.

Maybe we should just save up for a couple of decades and build them when we happen to have a bit of spare cash, rather than when they're actually needed.

I think he would have advocated saving up for the second world war when Germany invaded Poland. We would have been able to afford it by about 1972 and saved a fortune in interest. Of course we'd be speaking German and the savings would be in Deutschemarks.

zappahey

HAMISH_MCTAVISH wrote: »

Apparently Graham thinks things like hospitals are frivolous luxuries not worth borrowing money to build.

Maybe we should just save up for a couple of decades and build them when we happen to have a bit of spare cash, rather than when they're actually needed.

I would suggest that the lesson is to borrow at the advantageous rates available to government, rather than at commercial rates with a markup on top. And then, as part of your risk management, consider the effect of inflation above target rate, when PFI costs are index-linked (as they appear to be), and whether you should hedge against this risk.

If the inflation rate climbs any higher, I expect there will be a lot more pain to come.

Graham_Devon

Having fun Wotsthat and Hamish?

PFI was buy now, pay heavily later. I.e. debt.

Could have been done in many other ways.