Rachel Reeves is being urged to reverse a ban on private capital investment for NHS infrastructure and introduce a new Private Finance Initiative (PFI) deal to help build modern hospitals.
However, even with the funding, a quarter of the new hospitals that make up the Government’s New Hospital Programme – which was first introduced under Boris Johnson but has had a radical overhaul under Wes Streeting – are not expected to begin their construction for at least a decade.
The i Paper understands that officials could consider PFI contracts as they examine proposals for more investment in the NHS.
PFI contracts – deals that will have private investment fund the building and maintenance of hospitals and schools in return for regular payments over several years – were introduced by John Major’s Conservative government and expanded en masse under Tony Blair, but they faced criticism for being costly and inflexible, lasting multiple decades.
Taylor urged Reeves to use her spending review to specifically lift the PFI ban so that the NHS can build new facilities “at pace”, including much-mooted neighbourhood health hubs, and while also supporting economic growth and local regeneration.
“While there are justified criticisms of PFI, we should learn the lessons and explore the benefits so that the NHS can get the money it needs for new facilities. The previous government’s delayed and underfunded New Hospital Programme demonstrates the limits of the pure public capital approach. In contrast, almost all previous private projects have been delivered on time and on budget.
Why private contracts were banned
A 2019 report by the IPPR think-tank found NHS hospital trusts were being crippled by PFI: an initial £13bn of private sector-funded investment in new hospitals would end up costing the NHS in England £80bn by the time all contracts come to an end, it said.
Essex Partnership University NHS Foundation Trust, currently the subject of the UK’s biggest mental health inquiry, was identified as having the worst payback ratio at 27 times the original borrowed amount. In July 2003, the trust signed a deal for £40m of private investment – but will have paid back £1.1bn by 2038. The £1.2bn PFI contract for Barts Health trust in London, the largest by value in the English NHS, paid for the building of the Royal London Hospital, which opened in 2012 and has 845 beds spread across 110 wards. However, the entire project will have cost the trust £6.2bn by the time it ends, according to Treasury estimates. Barts spends £116m a year servicing its debt, which is 7.66 per cent of its income, according to the IPPR report. NHS trusts have already paid back over three-and-a-half times what was borrowed, but still owe £605m on average or £44bn across all 80 PFI-laden trusts, according to 2024 analysis by the campaign group We Own It. It said the Royal Free London NHS Foundation Trust would pay back £921m over 33 years on a capital investment of £54m, and Buckinghamshire Healthcare NHS Trust would pay back £1.5bn over 36 years on a £92m investment – both trusts paying 17 times the initial investment.Taylor suggests three vital lessons will need to be learned to avoid past mistakes.
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Read More To keep capital projects “off balance sheet” as this will prevent the cost of them from contributing to the government’s overall debt, while still contributing to economic growth and regeneration. To have an appropriate agreement between the public and private sectors over the level of risk they are taking should the project fail, be changed, or overspend. To ensure effective contractual management, especially around ongoing maintenance and services, so that the NHS would not pay high costs for routine maintenance that it could carry out itself.“This is not about resurrecting the old model of PFI but building a new model that learns from our own experiences and other countries around the world.”
Matthew Taylor has warned that the NHS has struggled for investment (Photo: Andy Rain/Pool via Bloomberg)How the NHS compares to other countries
The Welsh government holds a 15 per cent equity stake in The Velindre Cancer Centre currently being built in north Cardiff, while private investment makes up the rest of the funding.
In Melbourne, Australia, the A$1bn (about £481,000,000), 130,000-square-metre Victorian Comprehensive Cancer Centre is publicly owned and publicly operated, but long-term maintenance is paid for with private investment.
A spokesperson said: “As we look to reform our NHS, shift care out of hospitals and into the community, and modernise technology, how we run our health service will change. We will continue to work with and trust frontline leaders to take decisions that will deliver the best healthcare for their communities for the future.”
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