Campaign against Privatisation of Public
Waltham Forest Trades Council has launched a campaign
against privatisation of public services. Education, railways and London
Underground, the health service, social services and other local government
services are all being increasingly opened up to the private sector. In two
public meetings people came together to hear speakers representing these
services in the local area explain what is happening in their services and the
impact on both staff and the public.
The first meeting took place just a few days before the
Paddington rail crash, and the RMT union activists warnings about safety
cuts and potential disasters on a part privatised London Underground were made
tragically real. Much of the discussion was focused on this issue in the second
meeting in November. The article below is based on the talk on PFI in the
health services given at the first meeting.
PFI is a key method through which public services are being
opened up as a market by trans-national corporations. This is a global
strategy, and in Seattle at the World Trade Organisation Conference they were
seeking agreements that would roll back national sovereignty and the
restrictions governments may have on the extent to which public services can be
opened to the market place. Allyson Pollock, Professor in Health Policy and
Health Services Research Unit, UCL, speaking at the NHS Support Federation
Conference in October, emphasised the significance of Seattle, and the
importance of the movement of resistance to these and other plans to open every
sphere of life to the market. (See Workers
Weekly, Vol.29, No.21)
PFI AND THE HEALTH SERVICE
Private Finance Initiative in health service
Under government rules any hospital build over £25m
has to be offered for PFI, advertised in European Community Journal, and
tenders invited. Consortia of finance, building, and service companies then bid
to get the contract. Trusts then lease or rent back the buildings, and pay for
support services such as catering, and portering, usually taken over by
consortia. The contracts signed are for 30 60 years. Some contracts mean
at the end of this period the building will still belong to the private sector,
and some that it reverts to the NHS.
As a "public sector comparator" the costs of
building this hospital with public funding have also to be worked up. However,
accounting rules devised by the government make it very difficult for public
sector option to come out less expensive than PFI options. An arbitrary 6% is
added to the public sector costs, which is usually just enough to tip the costs
over the PFI bid. This is justified by using a method of
"discounting" some of the costs if they are spread out over many
years as opposed to spent over a few years, (commercial investment appraisal).
The logic is that while money is not being spent it is earning interest,
ignoring the fact that the health service is not a profit-making enterprise and
the money is supposed to be invested in the health of the population.
To date 37 new hospital projects have been approved, 17 are
under construction. All but four of these are PFI (12 PFI contracts have been
The PFI deals are worth £3.1 billion to the banks,
financiers, construction and service firms forming consortiums to enter this
Changes in NHS and private provision of public services
Until 1990, hospital and community building (capital) was
funded by the Department of Health (DoH). In the early 1960s, parliament agreed
funding for a nation-wide hospital building programme to replace the old
Victorian buildings of pre-war era with modern hospitals. (Only one-third of
this programme was fully completed).
Capital and revenue money was separated in the allocations
to health authorities.
As resources to the NHS were cut back from late 70s,
hospital building was too. Only seven schemes over £25m went ahead in the
17 years between 1980 and 1997. Annual expenditure on capital in 1974 was
£28bn; by 1998 it had shrunk to £3.5bn.
PFI has been long planned for. Back in the late 80s,
the Thatcher think tanks were working out how to privatise the NHS, whilst
getting round the profound opposition there would be to such a move in Britain.
The strategy they adopted was to set up an internal market within the NHS to
prepare the necessary structures and conditions for privatisation. We are only
now fully seeing the consequences.
The 1990 NHS and Community Care Act that set up trusts as
business units to run hospital and community services also introduced capital
charging. Capital charging requires trusts to pay to Region 6% of the book
value of their buildings and other major assets every year. The idea is to
artificially mimic the relationship between a private corporation and its
bankers and shareholders paying interest and dividends. Most of these
buildings have already been built and paid for decades ago. It is in effect a
"tax" on hospitals. Initially this money was re-circulated within the
NHS, issued as capital for new building. It was intended to be the funding
stream for the private sector through PFI. In fact the payment being demanded
is double that or more.
Costs of PFI
The first wave of PFI hospitals are now showing huge costs
above anything they would have been should public funding have been used. To
meet these costs, hospital beds have been cut often by one third, cuts to
community services, to staff including nurses, doctors and other clinical
staff, and privatisation of support staff have been implemented.
The "rental charges" set by the consortiums to
recoup the construction costs, pay back loans to financiers, pay dividends, and
a small lifetime maintenance allowance are ranging from 11.2 18.5% of
total construction costs, each year. This compares to capital charges paid in
publicly funded options of 6%. A high rate of profit is ensured with
shareholders in PFI schemes able to expect 15 25% return per year.
If the treasury financed the building out of their own
borrowing they would pay only 3 3.5% interest.
The example of Worcester Royal Infirmary PFI project is a good illustration.
The original cost identified in the business case was
£45m; the actual PFI cost for building the hospital is now £116m. The
annual charge payable to consortium by the local health service is £16.9m
more than a quarter of the Trusts projected income. Of this just
under half is the "availability" charge, or lease payment, giving a
total cost of £216m to lease the hospital for 30 years, nearly twice the
The scheme will only be financially viable if 27% of local
hospital beds are cut, and an astounding 50% increase is achieved in the number
of patients treated per bed, by the time the hospital opens in 2002.
The government recently gave this scheme the go-ahead in
face of intense local opposition.
In many cases the government gives additional funding to
enable the PFI project to happen, taking capital money from the pot that would
have been available for other hospitals.
Cuts to staff and services
Worcester is just one example. Once PFI is brought in,
paying the consortium has the first claim on local health resources.
Now, health planning no longer pretends to start from the
health needs of the population and best practice models of delivering care, but
concentrating resources to ensure the profitability of the PFI scheme for the
consortiums is the staring point. "Affordability" decides the bed
numbers, not projected patient needs.
As the proportion of a local trusts income spent on
capital has increased, so the expenditure on patient care has to go down. (In
Edinburgh it has increased from 8% - 18% of income).
Predictions of beds needed are arrived at not from analysis
of local conditions and patterns of service but on bed numbers elsewhere,
irrespective of whether these districts are comparable, and on anonymised
commercial data bases. The aim is to justify reductions, however much this
deprives local people of care they need.
Staff make up the main resource of the Health Service and 62
- 70% of trust budgets is spent on staffing. So it is there they look to find
money for the consortiums.
In Edinburgh there will be 18% fewer staff, in North Durham
14% fewer qualified nurses. In both cases a greater proportion of nursing staff
will be unqualified. Admin and clerical and ancillary face 30% cuts as well as
Private sector in care pays on average far lower wages and
employs fewer qualified staff. The private community care sector average pay is
£8,000. The NHS mental health and community average annual wage cost is
A drive to move to the private provision of public services
is central to Government policy. "Public-private partnership" is a
global phenomena promoted by global financial institutions.
The aim, according to the European Union, is to produce
major savings in public spending and create fresh opportunities for private
business. (European Commission, 1997. "Making the most of the opening
of public procurement").
The European Union market for public sector and facilities
(transport, bridges, etc) in 1994 was worth 720 billion Ecus, 11.5% of gross
national product of the 15 member states of the European Union.
Cash is being released for profit by cutting services,
restricting peoples access to services either through waiting lists or
through re-defining categories of conditions or people out of entitlement to
NHS care. Services are shifted to a sector with only partial funding and
partial user charging, for example, many social services. In this way the costs
of investment in healthcare are being shifted from society in general to the
users of public services.
On a global level, private finance for public services is
integral to structural adjustment programmes imposed by the IMF and World Bank
and a prerequisite for loans to developing countries.
Britain has been among the first states in the developed
world to take up two key recommendations designed to facilitate transfer of
public services to the private sector: commercial accounting (capital charges)
and commercial investment appraisal ("discounting" that gives
advantage to PFI in cost and Value For Money appraisal).
Who is behind this agenda? The banks are one force, the US
health industry which is a trillion dollar business is another. US foreign
policy is to export this industry. A subsidiary of the largest health
maintenance organisation in the USA, Columbia/HCA, has already teamed up with
the PPP largest private health insurer in the UK to go for the health market
opening in Britain.
It is necessary to see that this is not just an issue of the
private sector making money, or just a question of being ideologically against
privatisation. The domination of health care and other public services by these
forces, ensuring everything is geared to paying the very wealthy, is
incompatible with caring for people. It is incompatible with peoples
right to have society ensure their best standards of wellbeing.
References: British Medical Journal, 1999, volume
319, 3rd, 10th,17th and 24th July,
by Allyson Pollock, Professor at Health Policy and Health Services Research
Unit, School of Public Policy, University College London. Other information is
taken from colleagues in that and other universities, from London Health
Emergency and from UNISON.