The PFI cloud

Private Finance Initiatives, the means whereby since 1997 hospitals and other infrastructure has been built on a "use-now-pay-later basis", have multiplied. About 100 PCTs are operating such schemes. The project is financed by private construction, and then leased back to the public sector for a specified number of years before the construction cost isrepaid by the PCT or other user.

The point was to have the "immediate" use when there was no finance to build, or there was a wish to keep it off the public accounts.

By the end of the present financial year, about £5 billion of the £60 billion PFI used by the NHS will have been repaid. During the next spending review period , 2011-2014 a further £4.18 billion is due to be repaid, meaning about £1 billion more annual repayments than hitherto. Bearing in mind that the total spending on the NHS is about £100 billion, and is likely to be frozen despite the mounting needs, the extra PFI payments will constitute a very heavy extra burden.

The NHS told the Treasury recently that the value of the buildings is about £12 billion, or only one fifth of the debt. PFI projects also have higher running costs, about 30%, than other similar schemes financed traditionally.

In at least one area, in South London and Kent, where four hospitals are facing debts the one to be closed will be the only one, in Sidcup, which is not PFI. The reason is that the other three are PFI financed and have little scope to cut fixed costs.

PFI has brought on stream more hospitals than would otherwise havebeen possible, and benefited the present generation, but at a great cost in the remaining years of the leasing contracts. Those who will lose out are those who are at need in the present and immediately following medium term, when services are cut back.