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Saturday, August 14, 2010

Going private

Western Mail Chief Reporter, Martin Shipton has a column in this morning's paper in which he highlights the fact that the NHS in England faces a total bill of £65bn for new hospitals built under the private finance initiative (PFI). It seems that some NHS trusts have been left with annual "mortgage" repayments accounting for more than 10% of their turnover:

Under PFI, private companies win contracts to build and maintain new hospitals and mental

The 103 schemes were valued at a total of £11.3bn when they were built.

But when rising fees and additional costs such as maintenance, cleaning and catering are taken into account, the NHS will have to pay back £65.1bn over the lifetime of the schemes.

According to the data, the NHS currently pays back a total of £1.25bn each year but this figure is expected to increase until 2030 when it will hit £2.3bn, the BBC reported.

The final payment will not be made until 2048.

Martin argues, quite correctly, that in Wales we have the luxury of being able to disregard such problems:

As a direct result of political decisions taken by successive Assembly Governments, there have been precious few PFI projects built by the NHS here.

Consequently, we may be in a better position than England to cope with the cuts. Surely this is something to celebrate, and a good argument for devolution.

However, his insistence that Plaid Cymru can share in the glory with Rhodri Morgan and his policy of clear red water, because they insisted in 2007 on no more PFI schemes in the Welsh NHS as a clause in the One Wales agreement, is only one part of the story.

The English legacy is not recent. It was built up in the early years of this century and it was then that the Welsh Government decided to opt out of this financing mechanism. I believe that one of the only, and possibly the last, Welsh hospitals to be built under PFI was in Neath Port Talbot.

From that point the Labour-Liberal Democrat coalition took the conscious decision not to use PFI again on any large scale. In fact, as a Deputy Minister, I sat in on meetings with Trade Unions where we agreed that even if we used private capital to finance a project, we would not involve staff or services in the contract.

Having said that, and accepting that PFI is not a viable way of funding public sector schemes, that should not rule out a more judicious use of private funding when possible. A good example of that is contained in this report that the One Wales Government is considering establishing a housing trust to pump private money into the social housing sector:

Peter Hughes, head of commercial lending at the Principality Building Society, confirmed one of the most ‘innovative and attractive’ options being discussed was the Welsh Housing Investment Trust, which would raise at least £100 million.

Mr Hughes will outline the principles in the first housing review in Wales to be launched by the Chartered Institute of Housing on 11 February.

Mr Hughes said: ‘Perhaps now is a good time for a strong institutional rented market. It you go back to the early 1990s and 2000s, everyone was interested in buy to let. It’s obviously not the market it was.

‘What may be needed now is not people who hold five or six or a dozen properties but institutions that are prepared to invest seriously.’

Banks, capital markets and possibly the Welsh government would feed money into the trust.

Mr Hughes said it would need at least £100 million from diverse sources put into it.

The trust would buy properties and housing associations would manage them.

‘This model works because of the mix of rent from the broad portfolio of properties in the trust,’ Mr Hughes said. ‘It gives sufficient income for the requirements of the trust.’

The hope is it would also kick-start the building industry giving ‘certainty for the exit for a developer’ in the current depressed market, Mr Hughes said.

He added the advantage with capital investors, such as life insurers and pension trusts, was that they put money in for the longer term. They would invest for 30 to 35 years compared with banks likely to put in money for 10 to 15 years, Mr Hughes explained.

In the review, he also points out the initiative has already got some ministerial support and is being looked at in more detail.

That is a more pragmatic approach to this problem rather than the simplistic mantra we hear time after time of public good, private bad. And after all, if the government can do this for housing then why cannot they do it for health as well?
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