Investment in the NHS facing up to the reform agenda. Professor Nick Bosanquet Andrew Haldenby Henry de Zoete

Investment in the NHS facing up to the reform agenda Professor Nick Bosanquet Andrew Haldenby Henry de Zoete July 2006

2 The Authors Nick Bosanquet is Professor of Health Policy at Imperial College. He is a health economist who first carried out research on NHS funding in the 1980s for the York Reports sponsored by the British Medical Association, the Royal College of Nursing and the Institute of Healthcare Management. He has been Special Advisor on public expenditure to the House of Commons Health Select Committee since 2000. He is a Non-Executive Director of a Primary Care Trust in. Andrew Haldenby has been Director of Reform since 2005. Henry de Zoete has been Reform s Health Research Officer since 2003. The authors would like to thank Anna Calvert of Reform for her assistance in this report. Reform Reform is an independent, non-party think tank whose mission is to set out a better way to deliver public services and economic prosperity. We believe that by reforming the public sector, increasing investment and extending choice, high quality services can be made available for everyone. Our vision is of a Britain with 21st Century healthcare, high standards in schools, a modern and efficient transport system, safe streets, and a free, dynamic and competitive economy. Reform s previous reports on health include Staffing and human resources in the NHS facing up to the reform agenda (2006), Maternity Services in the NHS (2005), The NHS in 2010: reform or bust (2005), Cancer care in the NHS (2005), The NHS in 2010 (2004), A Better Way, the final report of Reform s Commission on the Reform of Public Services (2003), and Why The NHS Needs Real Reform (2002).

3 CONTENTS Executive Summary 4 1. Investment and reform 7 2. Danger of an investment stop 9 3. Investment vehicles 15 4. Conclusions and recommendations 17 References 20 Appendix 21

4 Executive summary There is a strong requirement for the NHS to invest if it is to achieve a more flexible pattern of services closer to patients. New investment can lead to greater efficiency by acting as a catalyst for service redesign, in particular by developing care in the primary care sector. Developments in clinical practice are also enabling patient-centred care closer to home. Governments have called for more local delivery before. Now, for the first time, a series of policies the current reform agenda including payment by results, practice based commissioning, patient choice and provider pluralism provides the drivers for actual change. Despite the urgent need for and potential benefits of new investment, the current attitude of NHS managers appears to be based on caution and reluctance. There was a significant NHS capital underspend in 2005-06 of 1.2 billion, double the level of 0.6 billion in 2004-05, which is likely to be repeated in 2006-07. According to the Department of Health, the reason for the underspend is the existence of deficits in a small number of Trusts. But the size of the underspend indicates that the reduction in spending already extends well beyond this group. The actual causes of the unwillingness to invest are deficits, partly due to an over-expansion of capital projects since 1999-00; a lack of financial information and knowledge of costs; and crude attempts by the Department to retrench on spending. The NHS capital programme leaves Britain building more hospitals than the rest of the G7 nations put together. In December 2005, the Department estimated that overall spending on PFI schemes would be 18.3 billion from 1997-98 to 2013-14. The sheer weight of costs is a major reason for the deficits in many NHS units. Some areas of the country plan for considerably more investment in PFI schemes than others. The West Midlands and Strategic Health Authorities plan to spend four times as much per head of population than the South East Coast SHA. Trusts which have much less contracted expenditure current as well as capital are going to be much better placed in the near future to cope with the rigours of the reform agenda as it will be easier to adjust to variation in revenue. Payment by results places a greater premium on financial management. Managers will be reluctant to embark on additional spending of any kind unless they are confident that contracted revenue will cover costs. The lack of adequate financial management in many Trusts, and in particular the ignorance of real costs, is therefore a major impediment to investment. The success of many Foundation Trusts shows that effective financial management is possible.

5 Recent efforts by the Department of Health to regulate capital spending have also undermined investment decisions. The Government is right to review current schemes but not to seek to drive decisions from the centre and not on the basis of cost alone. Instead schemes need to be reviewed in the light of the reform agenda and programmes identified with genuine local commitment which can be afforded under payment-by-results. Public private partnerships, such as the Private Finance Initiative, have been a major step forward on traditional public sector procurement. It would be unfair and wrong for the failings of some white elephant schemes to be laid at the door of such partnerships. To establish a sustainable basis for new investment, some key policy themes should be established: - Greater awareness of costs. Payment by results introduces a clear standard of obsolescence: capital is obsolete if it cannot earn a return under PBR. - Local decision-making. In effect the NHS needs to invest in a new range of dispersed centres which can make more effective use of its investment in human capital. Local freedom and flexibility needs to be increased to use capital to achieve key goals of care integration, quality and more effective use of staff time. - Patient choice. Not only will money follow the patient but also funding and investment too. - Public private partnership. With the outlook for public spending it is highly unlikely that there will be new funding from the public sector. Service improvement and change over the next decade will only take place through public private partnership. Large hospital building schemes are only appropriate in certain situations. Those that will remain will need to be highly intelligent, capital intensive and highly specialised long life buildings. The current PFI model is an appropriate model for building these kinds of schemes. For different schemes the model needs to change so as to allow increased local freedom and flexibility to use capital to achieve key goals of care integration, quality and more effective use of staff time. Key principles of new investment projects will include: - Appraisal of funding options as a first step in service design and a focus throughout on the practical issue of affordability. - Setting depreciation periods in relation to the earning lives of the assets in the local environment rather than in relation to a fixed rule from the centre. This will often be much less than 30 years and may lead to an increase in the annual cost of capital. - Development of a range of options for flexible and modular services with more priority for software and content as well as buildings.

6 - Greater clarity on the purpose of the project. In this way the capital can be a driver for change. With these principles we would recommend one system of access to capital which would establish public /private partnership as the main route for investment in the future. In effect the NHS would move to a modular system which could fund investment of various sizes from 5-30 million. One option would be for property companies to own buildings and rent them to an operating company, whether NHS, for-profit or charitable. It is unnecessary and inefficient for the NHS to own so much capital. It will take time to develop the new approach but it will be time well spent if it leads to an investment system which is related to future patient care. Managers should not be scared of new capital projects. In fact they can be a driver of change as long as they meet the above requirements and can adapt and react to the new NHS environment.

7 1. Investment and reform The need for new investment into the NHS is rooted in both financial and clinical realities. Reform has previously shown that the acceleration of costs over this decade is placing the service under considerable financial strain. Without efforts to control costs and increase productivity, that strain will increase after April 2008 when the rate of growth of funding slows down. 1 New investment can lead to greater efficiency by acting as a catalyst for service redesign to realise the potential for case management to reduce numbers of beds. Developments in clinical practice require the same kind of new local investment. To take one example from cancer care: new care standards such as a greater use of oral chemotherapy will allow more local access at community hospitals and primary care centres. 2 In recent statements, such as the White Papers Our health, our care, our say and Our health, our care, our community: investing in the future of community hospitals and services, the Government has supported this direction of travel. 3 The latter paper argued: Services that are provided locally are more convenient and better able to meet our personal needs. They support independence and promote well-being by fitting closely with local circumstances and, when designed effectively, they offer real value for money. In a speech to the King s Fund on 14 June 2006, Patricia Hewitt said: As we argued in the White Paper Our health, our care, our say, the balance of provision will shift, so that more often care is provided closer to home. will, of course, remain important, but they will change. Some hospital services will be provided in local health centres and even in patients homes, as well as in modern community hospitals that can provide intermediate beds, day case surgery, diagnostics, out-patients and many other services. The old barriers between primary, community and secondary care and between health and social care will be challenged. New spaces for provision will be created, and innovative providers from any sector will find new opportunities to meet the needs of different groups of users. Governments have called for this new approach to service design before, notably in Barbara Castle s paper on community hospitals thirty years ago. 1 The NHS in 2010: reform or bust, Bosanquet, N., de Zoete, H., Beuhler, E., Reform, December 2005. Recent comments from Treasury officials indicated that the next comprehensive spending review in 2007 is likely to announce real increases of at most 3.0 to 4.4 per cent per year for the NHS up to 2011-12: Health summit outlines four key challenges for NHS ahead of lower growth in funding, King s Fund press release, 8 May 2006. 2 Bosanquet, N. and Sikora, K, The Economics of Cancer Care, 2006. 3 Our health, our care, our say, Department of Health, January 2006; Our health, our care, our community: investing in the future of community hospitals and services, Department of Health, July 2006.

But for the first time the current reform agenda payment by results, practice-based-commissioning, patient choice and provider pluralism provides the drivers to underpin actual change. It provides a very positive outlook for NHS physical infrastructure. 8

9 2. Danger of an investment stop Despite the urgent need for and potential benefits of new investment, however, the current attitude of NHS managers appears to be based on caution and reluctance. There was a significant NHS capital underspend in 2005-06 of 1.2 billion, double the level of 0.6 billion in 2004-05. For this year there is a capital allocation of 2.0 billion and on last year s record there is likely to be a substantial underspend again unless causes are identified and remedial action taken. 4 Table 1: 2005-06 capital underspend, million Strategic Health Authority NHS Trust PCT SHA Total North East 7 10 43 60 North West 9 9 203 221 Yorkshire and the Humber 22 20 75 118 East Midlands 18 20 96 134 West Midlands 25 14 41 80 East of England 19 15 37 71 58 26 103 187 South East Coast 25 22 66 112 South Central 23 11 33 67 South West 62 24 26 112 Total 268 170 723 1,162 Source: NHS Financial Performance 2005-06, Department of Health, 7 June 2006 On the current outlook the NHS will already have had delays in replacing equipment and in maintenance extending to two years and beyond. The flight from capital is likely to mean the re-appearance of a backlog in replacement and maintenance. According to the Department of Health, the reason for the underspend is the existence of deficits in a small number of trusts ( this is the result of slippage on capital schemes and acceleration of income from asset disposals. Some of the slippage was undoubtedly generated deliberately in order to release cash to finance revenue deficits 5 ). But the size of the underspend indicates the 4 NHS capital allocations for 2006/07, Department of Health press release, 15 February 2006. 5 NHS Financial Performance 2005-06, Department of Health, 7 June 2006.

10 reduction in spending already extends well beyond the group of Trusts with deficits. The actual causes of the unwillingness to invest are: deficits, partly due to an over-expansion in capital projects since 1999-00; a lack of financial management and knowledge of costs; and crude attempts by the Department to retrench on spending. Planned capital spending 1997-98 to 2013-14 Reform has argued that the emergence of deficits in the NHS is due to a sharp increase in costs and a failure to improve productivity. One cause of the cost escalation is the increase in major capital projects over this decade. The Department of Health s NHS Plan set out a target of over 100 new hospital schemes in total between 2000 and 2010. 6 The Private Finance Initiative (PFI) has been the major method of procurement for this growth in hospital building schemes. In total 57 hospital schemes are now operational and of these 48 were delivered under PFI. 7 In a memorandum to the House of Commons Health Select Committee in December 2005, the Department of Health estimated that overall spending on PFI schemes would be 18.3 billion from 1997-98 to 2013-14. Spending on PFI schemes from 2006-07 to 2013-14 would be 13.6 billion (see Table 2). Reform has argued that the large expansion of human resources since 1999-00 took into account neither the actual costs of the programme nor the forthcoming reform agenda which points in a very different direction towards a smaller, higher quality workforce. 8 The same themes apply to the capital spending programmes. There is a growing realisation within the service that many of the building projects impose costs that are not justified in terms of income under payment by results. In June 2005, for example, Bob Ricketts, head of capacity development at the Department of Health, said: I ve seen some awfully grand PFI schemes that are starting to give us a real problem in our capacity management. We need a fundamental rethink about how much we invest in capital rather than human resources. Some private providers are putting up good, modern, cheap and cheerful builds that will only last five years which is fine because you cannot guesstimate day surgery in 20 years time. We do not need to be designing monuments with long term leases. Some of the better players are recognising that and not getting into big heavy capital investment. 9 6 The NHS Plan, Department of Health, July 2000. 7 Departmental Report 2006, Department of Health, May 2006. 8 Bosanquet, N. et al, Staffing and human resources in the NHS facing up to the reform agenda, Reform, 2006. 9 Health Service Journal, 9 June 2005.

11 Table 2: Expenditure on PFI schemes, million 1997-98 58 1998-99 183 1999-00 362 2000-01 595 2001-02 534 2002-03 445 2003-04 527 2004-05 680 2005-06 1,268 2006-07 1,602 2007-08 1,992 2008-09 2,279 2009-10 2,334 2010-11 2,145 2011-12 1,527 2012-13 1,145 2013-14 619 Total 18,295 Source: memorandum to the House of Commons Health Select Committee, Department of Health, December 2005 Mark Britnell, the Chief Executive of South Central Strategic Health Authority and former Chief Executive of University Birmingham NHS Trust which recently closed one of the largest PFI deals said this year that there should be a radical look at what should be within scope 10 and I doubt whether many new hospitals will be built in their entirety again. 11 Some areas of the country plan for considerably more investment in PFI schemes than others. As Table 3 shows, the West Midlands and Strategic Health Authorities plan for a very high level of PFI spending from 1997-98 to 2013-14. Those areas plan to spend four times as much per head of population than the South East Coast SHA. Trusts which have much less contracted expenditure current as well as capital are going to be much better placed in the near future to cope with the rigours of the reform agenda as it will be easier to adjust to variation in revenue. Areas with a plethora of large hospitals or inflexible current costs will be unable to react appropriately and could well find themselves under tough pressures. 10 Health Service Journal, 4 May 2006. 11 The Times, 19 May 2006.

12 A full breakdown of schemes across the country is presented in the Appendix. Table 3: Spending on PFI schemes with value greater than 10 million by Strategic Health Authority Strategic Health Authority Population (ONS 2004 mid year estimate) Total capital spend on PFI schemes 1997-98 to 2013-14, million, Spending per head, North East 2,545,073 786 309 North West 6,827,170 2,390 350 Yorkshire and The Humber 5,038,849 1,058 210 East Midlands 4,279,707 1,373 321 West Midlands 5,334,006 2,911 546 East of England 5,491,293 2,044 372 7,428,590 3,927 529 South East Coast 4,187,941 607 145 South Central 3,992,301 1,134 284 South West 5,038,200 1,593 316 Total 50,163,130 17,825 Average spend per head: 355 Source: memorandum to the House of Commons Health Select Committee, Department of Health, December 2005; Department of Health Strategic Health Authority Configurations Lack of financial management and knowledge of costs Payment by results inevitably creates greater uncertainty about revenue, placing a greater premium on financial management. Managers will be reluctant to embark on additional spending of any kind unless they are confident that contracted revenue will cover costs. These inhibitions will be particularly great over the next two years during the initial phase of PBR. 12 The lack of adequate financial management in many Trusts, and in particular a knowledge of real costs, is therefore a major impediment to investment. The Audit Commission s recent report on the financial management of Trusts in deficit noted that a common characteristic of many NHS organisations that 12 A lack of transparency on commissioning decisions is one aspect of poor financial management. The Audit Commission recently found: We noted a marked absence of explicit financial analysis underpinning key commissioning decisions. In the organisations we visited we were often surprised at a lack of transparency surrounding key commissioning decisions, especially those that involved funding new models and care to be delivered by the PCT s own provider arm or within primary care. We found that such decisions could arouse an unhealthy degree of scepticism from acute hospital management, and in one instance were linked directly to perceived underfunding of the local acute NHS trust Learning the lessons from financial failure in the NHS, Audit Commission, July 2006.

13 get into financial difficulties is an absence of adequate understanding of costs and their relationship with clinical activity. 13 Some may argue that the current financial difficulties of the service should mean a slowing of payment by results. Such a delay would be a great mistake since payment by results will drive much needed competition and productivity. The right reaction is an acceleration of improved financial management and awareness of costs by Trusts. The success of many Foundation Trusts shows that this is possible. If strong financial management is achieved, the current capital underspend could be turned into an opportunity to improve the performance medical and financial of Trusts. Once revenue streams and costs are worked out, the unspent capital can be used quickly and appropriately to improve productivity and efficiency. Alternatively, continued weakness in financial management will lead to continued caution regarding capital spending, an increase in the capital underspend and inappropriate procurement where it happens at all. A new stop-go cycle of capital spending has been created where high costs and caution lead to a stop in capital spending and a building up of an underspend. This will be followed by a go as and when the capital is spent. The sooner the go occurs i.e. when financial management has improved the better, so that such a cycle does not begin and steady self-sustaining investment becomes the norm. It should be noted that this is an issue of properly managing the level of capital spend rather than the method of procurement. Central direction Recent efforts by the Department of Health to regulate capital spending have also undermined investment decisions. The most recent operating framework called for a reappraisal of capital spending based on a stronger role for the centre: SHAs will need to have conclusions ratified by the Department before proceeding. This exercise will be prioritised to ensure that resources are applied to the more developed schemes and the Department will provide support to the NHS if it requires it. In addition, in future, trusts will be required to seek formal approval, under the usual delegated authorities, before they can appoint a preferred bidder. This process will help to ensure that plans are robust and viable in the context of the reformed NHS, and deliverable once they are put to the market. 14 The latest Department of Health annual report reiterated this point: 13 Learning the lessons from financial failure in the NHS, Audit Commission, July 2006. 14 The NHS in England: the operating framework for 2006-07, Department of Health, 26 January 2006.

14 SHAs have been asked to work with PCTs and trusts to reconfirm their investment plans (including PFI schemes) in light of current reforms to the NHS. This specifically includes choice, movement of services into primary and community settings, and the current and new financial regime. The Department will issue guidance on assessing the impact of these reforms on their schemes and on all aspects of affordability. SHAs will need to have their conclusions ratified by the Department before proceeding. 15 The result is to skew investment decisions towards central priorities rather than local initiative. Those central priorities may include short-term and potentially short-sighted decisions simply to reduce the costs of schemes instead of a reviewing of each scheme s individual merits in the new reformed service. The operating framework suggested that the reappraisal would lead to a lower overall level of spending: PFI will remain the major vehicle for delivering capital investment in acute services in the NHS. Even after completion of this reappraisal, we expect that the NHS will remain the largest single user of PFI in government with a programme valued at an estimated 7-9 billion. Furthermore, the investment programme will be on a more sustainable footing and the delivery of that programme will continue at renewed pace. The 200 million reduction to the 761 million plans for a PFI scheme at University of Leicester Trust was reported to have been a directive from the Department of Health. 16 In fact these kinds of reviews should be carried out by local managers who have a good knowledge of costs and activity. The recent letter from Sir Ian Carruthers to Trust chief executivess and finance directors announced that the Department will complete the review before the end of the year and may publish the results. 17 The recent Public Accounts Committee Report on LIFT is also likely to lead to greater caution over the longer terms costs of LIFT schemes. 18 15 Departmental Report 2006, Department of Health, May 2006. 16 Health Service Journal, 18 May 2006. 17 We announced in The NHS in England: the operating framework for 2006-07 that all Trusts would need to reconfirm any plans they had for PFI or any other major investment. The aim of this process will be to confirm the sustainability of the PFI programme and that they take account of the direction of travel signalled in the recent White Paper and patient needs. The entire process will take no longer than 4-5 months and the objective will be to reaffirm the size, scope and timing of the NHS s PFI programme. It is intended that the agreed scale and scope of each scheme, together with the timing of its entry into the market, will be made publicly available letter, 10 May 2006. 18 NHS Local Improvement Finance Trusts, House of Commons Public Accounts Committee, 4 July 2006.

15 3. Investment vehicles The method of NHS infrastructure procurement up to the 1990s left much to be desired. The key moment for a health infrastructure project tended to be its announcement. Projects were likely to underestimate costs, overestimate benefits and underestimate risks (if they were estimated at all). There were no incentives for managers to deliver projects happen on time or on budget. Capital allocations were separate from and preceded any business plan for the project. The Private Finance Initiative was developed in the early 1990s in the Treasury. It aimed to use the lessons of privatisation to improve public sector procurement. This was done by dealing with the whole of a project (from design to operation), by looking at through-life costs rather than just construction costs and by making the public sector focus on exact requirements and on the associated risks. The result has been greater honesty in costing and substantial benefits in efficiency. Once procured the schemes have delivered to time, budget and risk structure and been a substantial improvement on traditional public sector procurement methods. Where cost overruns have occurred, private sector companies have absorbed those risks rather than the public sector. The practical application of PFI in the health service has not, however, delivered on all the potential benefits of the programme. In its recent paper, the Audit Commission noted that the PFI process had not prevented some Trusts agreeing programmes on naive or wishful assumptions: We also found recently completed capital building projects being blamed for driving unaffordable long term expenditure levels, although this should be considered as part of the outline business case for the project. The attraction of the big building project, both to local NHS management and across the wider community, makes it difficult to withdraw from negotiations or reshape the vision once strategic approval has been gained and detailed discussions are underway. This carries a clear risk of commitment to spending levels based on optimistic future income assumptions, ambitious savings arising from improved operational efficiency, or both. 19 One reason may be that while PFI aims to bring together decisions on design and funding, in the NHS those responsibilities have been divided. Schemes seem to have been designed by committees with little responsibility for funding and then finance directors are expected to find funding afterwards. The issue of affordability seems to come up very late in the day. The CBI has also shown that there is the possibility of cost overruns between selecting a contractor and finalising the contract. Delays cost an average of 2.4 million per PFI scheme. 20 19 Learning the lessons from financial failure in the NHS, Audit Commission, July 2006. 20 Buying the best for the NHS, ensuring smarter capital procurement, CBI, April 2006.

16 But these very limited criticisms do not amount to criticism of the whole programme, which has certainly been positive. The current problems involving capital underspend and deficits are not the fault of PFI schemes but are instead due to the over-enthusiasm for spending on schemes since 1999-00 coupled with a widespread ignorance of costs. The real weakness of the recent capital building programme, as noted above, is the level of over-spending in the absence of a proper understanding of costs. It would be unfair and wrong for the failings of white elephant schemes to be laid at the door of public-private partnerships. LIFT The modernisation and building of primary care infrastructure has mainly been carried out via the Local Improvement Finance Trust (LIFT) initiative. LIFT schemes are financed via a combination of public and private money as a Public Private Partnership (PPP) with PCTs, the private sector and Partnerships for Health (made up of the Department of Health and Partnerships UK) as shareholders. There are currently 50 LIFT schemes of which 42 have reached financial close. By the end of 2005-06 LIFT schemes will have attracted nearly 775 million of private capital investment which will grow in the years to come. This is supported by 210 million of public capital. 21 There has been a promising development of LIFT schemes but they remain highly variable in content with some simply replacements for health centres and others offering much for scope for re-engineering services. 21 Departmental Report 2006, Department of Health, May 2006.

17 4. Conclusions and recommendations There is a strong requirement for the NHS to invest if it is to achieve the more flexible pattern of services closer to patients. The short-fall in capital spending, however, points to the real possibility of an investment block or investment phobia which will affect all forms of investment. To establish a sustainable basis for new investment, some key policy themes should be established: Greater awareness of costs. Value for money is the absolute key element of future procurement. Payment by results introduces a clear standard of obsolescence: capital is obsolete if it cannot earn a return under PBR. The productivity of services within the physical resources will determine the viability of those resources. Therefore all capital must be linked with efficiency, productivity and value for money. This can only be done effectively if managers are aware of their costs. To this end the NHS will see the introduction of statistics which have not been seen before such as sales per employee. Local decision-making. In effect the NHS is about to invest in a new range of dispersed centres which can make more effective use of its investment in human capital. It is essential to have a new approach which will firmly place local responsibility for investment with local managers and professionals. Local freedom and flexibility needs to be increased to use capital to achieve key goals of care integration, quality and more effective use of staff time. Patient choice. Under the reforms funding follows patient choice. This means that not only do doctors follow patient choice as they are employed in revenue raising areas of the service but so do buildings. Investment programmes will react to patient demand. Public-private partnership. With the outlook for public spending it is highly unlikely that there will be new funding from the public sector. Service improvement and change over the next decade will only take place through public private partnership. Given these themes, the Government is right to review current schemes but wrong to seek to drive decisions from the centre partly or wholly on the basis of cost alone. There is little point making schemes smaller while leaving unchanged the principles on which they are based. Instead schemes need to be reviewed in the light of the reform agenda and programmes identified with genuine local commitment which can be afforded under payment-byresults. In the new world of a reformed NHS, large hospital building schemes are only appropriate in certain situations. With care shifting into smaller primary care providers there will be a large reduction in the number of acute hospitals. Those that will remain will need to be highly intelligent, capital intensive

18 and highly specialised long life buildings. The current PFI model is an appropriate model for building these kinds of schemes. For different schemes the model needs to change so as to allow increased local freedom and flexibility to use capital to achieve key goals of care integration, quality and more effective use of staff time. This could, for example, take the form of amended PFI or a developing of the LIFT model. Key principles of new investment projects will include: Appraisal of funding options as a first step in service design and a focus throughout on the practical issue of affordability. Setting depreciation periods in relation to the earning lives of the assets in the local environment rather than in relation to a fixed rule from the centre. This will often be much less than 30 years and may lead to an increase in the annual cost of capital. Development of a range of options for flexible and modular services with more priority to software and content as well as to buildings. What is actually needed must be decided before the process of procurement is even started. I.e. the business plan comes before the capital. The vehicle for the purchase can then be decided upon. In this way the capital can be a driver for change. With these principles we would recommend one system of access to capital which would establish public-private partnership as the main route for investment in the future. There should be a continuing range of options including PFI but with a new emphasis on smaller projects LIFT and direct financing from a variety of public and private routes. The aim should be that those who can fund improvements should be able to manage them so as to get results quickly. In effect the NHS would move to a modular system which could fund investment of various sizes from 5-30 million. If investment is to be integrated between primary and secondary care it has to be made accessible in modules which will be realistic for the funding power of primary care which has been accustomed to much smaller projects. The projects also need to be smaller so they can be related clearly to specific income streams under the tariff. The NHS should embrace new innovative private and public partnerships and new variations in the set up of capital resources. Options include property companies owning buildings and renting it to an operating company, of whatever sector NHS or independent or charitable. This works effectively in many other areas. There is no reason why the NHS should own so much capital. It is unnecessary and inefficient. It is bound to take time to develop the new approach but this will be time well spent for a system which will be related to care in the future.

Currently there is a fear of capital spending owing to the financial environment and worries about adding to running costs. Managers should not be scared of new capital projects. In fact they can be a driver of change as long as they meet the above requirements and can adapt and react to the new NHS environment. 19

20 References Audit Commission, Learning the lessons from financial failure in the NHS, July 2006. CBI, Buying the best for the NHS, ensuring smarter capital procurement, April 2006. Department of Health, Go ahead for the Barts and the, press release, 8 March 2006. Department of Health, Billion pound boost for new NHS hospitals, press release, 12 April 2006. Department of Health, Departmental Report 2006, May 2006. Department of Health, NHS Financial Performance 2005-06, 7 June 2006. Department of Health, NHS capital allocations for 2006/07, press release, 15 February 2006. Department of Health, Our health, our care, our community: investing in the future of community hospitals and services, 5 July 2006. Department of Health, Our health, our care, our say: a new direction for community services, January 2006. Department of Health, Public Expenditure on Health and Personal Social Services (memorandum to the House of Commons Health Select Committee), 2005. Department of Health, The NHS in England: the operating framework for 2006/7, 26 January 2006. Department of Health, The NHS Plan, July 2000. Health Policy Unit, Royal Holloway and Bedford New College and St Mary s Hospital Medical School, Community in the 1990s: Clwyd Health Authority A Case Study, Tucker, H. & Bosanquet, N., 1991. Health Service Journal, 9 June 2005. Health Service Journal, 4 May 2006. House of Commons Public Accounts Committee, NHS Local Improvement Finance Trusts, 4 July 2006. King s Fund, Health summit outlines four key challenges for NHS ahead of lower growth in funding, press release, 8 May 2006. Reform, The NHS in 2010: reform or bust, Bosanquet, N., de Zoete, H. and Beuhler, E., December 2005.

21 Appendix Table 4: Capital spend on PFI schemes, North East Strategic Health Authority Scheme Previous Strategic Health Authority Start on Site Date Completion Date Total ( million) South of Tyne & Wearside Mental Health Tees & North East Yorkshire Northgate & Prudoe Trust Neuro Disability Centre Newcastle Upon Tyne Newcastle, North Tyneside & Northumberland MH Northumbria Healthcare - Hexham South Tees Acute County Durham & Darlington Acute - South County Durham & Darlington Acute - North Durham & Darlington Priority Services West Park County Durham & Darlington Acute Chesterle-street Northumbria Health Care - Wansbeck Northumberland, Tyne & Wear Northumberland, Tyne and Wear Northumberland, Tyne & Wear Northumberland, Tyne & Wear Northumberland, Tyne & Wear Northumberland, Tyne & Wear County Durham and Tees Valley County Durham & Tees Valley County Durham & Tees Valley County Durham & Tees Valley County Durham & tees Valley Northumberland, Tyne & Wear 2008/09 Being finalised 50.0 01/08/2007 01/10/2009 78.0 21/07/2005 01/02/2007 24.0 27/04/2005 01/10/2007 298.6 10/05/2004 01/03/2006 31.8 27/04/2001 12/07/2003 29.1 16/08/1999 01/08/2003 121.9 28/05/1999 08/06/2002 48.0 31/03/1998 02/04/2001 61.0 04/07/2003 20/08/2004 15.7 30/05/2002 18/11/2003 10.4 16/11/2000 25/03/2003 17.8 Total 786.3

22 Table 5: Capital spend on PFI schemes, North West Strategic Health Authority Scheme Previous Strategic Health Authority Start on Site Date Completion Date Total ( million) Royal Liverpool & Broadgreen University Hospital Mersey Care Royal Liverpool Children s Hospital Aintree St Helens & Knowsley Tameside & Glossop Acute Services Salford Royal Central Manchester & Manchester Children s University East Lancashire - Burnley East Lancashire - Blackburn South Manchester University North Cumbria Cumberland Infirmary Cheshire & Merseyside Cheshire & Merseyside Cheshire & Merseyside Cheshire & Merseyside Cheshire & Merseyside Greater Manchester Greater Manchester Greater Manchester Cumbria & Lancashire Cumbria & Lancashire Greater Manchester Cumbria & Lancashire 2009/10 Being finalised 450.0 2008/09 Being finalised 120.0 2008/09 Being finalised 300.0 2007/08 Being finalised 50.0 30/10/2005 01/10/2008 380.1 01/09/2006 01/01/2009 114.7 01/03/2006 01/03/2010 190.0 14/12/2004 01/06/2009 511.6 13/10/2003 01/06/2006 30.1 09/07/2003 01/08/2006 109.6 08/06/1998 25/07/2001 66.7 3/11/1997 10/04/2000 66.7 Total 2,389.5

23 Table 6: Capital spend on PFI schemes, Yorkshire and The Humber Strategic Health Authority Scheme Leeds Teaching Children s East Lincolnshire PCT Selby & York PCT Mid Yorkshire - Wakefield Hull & East Yorkshire Previous Strategic Health Authority Start on Site Date Completion Date Total ( million) West Yorkshire 2009/10 Being finalised 234.0 North & East Yorkshire & Northern Lincolnshire 01/07/2006 01/07/2008 24.9 North & East 2006/07 Being finalised 24.2 Yorkshire & Northern Lincolnshire West Yorkshire 01/06/2006 01/01/2010 265.7 North & East Yorkshire & Northern Lincolnshire 10/11/2005 01/12/2007 63.3 South Yorkshire 19/12/2004 01/10/2006 35.0 Sheffield Teaching Leeds Teaching West Yorkshire 15/10/2004 01/08/2008 221.0 North Kirklees PCT West Yorkshire 21/04/2004 31/10/2005 27.0 Hull & East North & East 08/12/2000 29/03/2003 22.0 Yorkshire Yorkshire & Maternity & Acute Northern Leeds Community High Royds Reprovision Calderdale & Huddersfield Healthcare Doncaster & South Humber Leeds Teaching - Wharfedale Lincolnshire West Yorkshire 01/03/2000 16/12/2002 47.0 West Yorkshire 31/07/1998 08/04/2001 64.6 South Yorkshire 11/08/2003 01/01/2005 15.0 West Yorkshire 20/09/2002 30/11/2004 14.1 Total 1,057.8

24 Table 7: Capital spend on PFI schemes, East Midlands Strategic Health Authority Scheme Leicestershire Partnership Northamptonshire Healthcare University of Leicester Previous Strategic Health Authority Start on Site Date Completion Date Total ( million) Leicestershire, Northamptonshire & Rutland 2006/07 2010/11 67.2 Leicestershire, 01/12/2006 01/12/2008 31.0 Northamptonshire & Rutland Leicestershire, 01/04/2006 01/02/2011 574.0 Northamptonshire & Rutland Trent 01/04/2006 01/08/2007 28.5 Derbyshire Mental Health Sherwood Forest Trent 01/09/2005 01/04/2009 296.0 Daventry & South Leicestershire, 03/03/2005 01/01/2008 28.2 Northamptonshire Northamptonshire & PCT Rutland Derby Trent 12/09/2003 01/05/2008 312.2 Nottinghamshire Trent 23/12/2004 01/02/2007 19.4 Healthcare QMC, Nottingham Trent 24/05/1999 01/10/2000 16.6 University Hospital Total 1,373.1

25 Table 8: Capital spend on PFI schemes, West Midlands Strategic Health Authority Scheme Previous Strategic Health Authority Start on Site Date Completion Date Total ( million) Royal Wolverhampton Sandwell & W Birmingham Walsall University Birmingham University of North Staffordshire University Coventry & Warwickshire - Walsgrave Sandwell & W Birmingham City Hospital Dudley Group of North Staffordshire Combined Healthcare Hereford Worcestershire Acute The Royal Wolverhampton Birmingham & Solihull Mental Health Birmingham & Black Country Birmingham & Black Country Birmingham & Black Country Birmingham & Black Country Shropshire & Staffordshire West Midlands South Birmingham & Black Country Birmingham & Black Country Shropshire & Staffordshire West Midland South West Midland South Birmingham & Black Country Birmingham & Black Country 2008/09 Being finalised 317.0 2008/09 Q2 2012 591.0 01/01/2007 01/03/2009 164.5 01/09/2005 01/06/2009 696.0 31/09/2005 01/02/2010 391.3 27/11/2002 01/07/2006 378.9 19/12/2002 15/10/2004 26.1 01/05/2001 01/12/2004 137.0 08/12/1999 01/09/2001 28.1 31/03/1999 01/03/2002 64.1 18/03/1999 18/03/2002 86.6 20/03/2002 23/06/2003 12.8 15/08/2000 18/03/2002 18.0 Total 2,911.4

26 Table 9: Capital spend on PFI schemes, East of England Strategic Health Authority Scheme East & North Hertfordshire Papworth Previous Strategic Health Authority Bedfordshire & Hertfordshire Norfolk, Suffolk & Cambridgeshire Start on Site Completion Total ( Date Date million) 2008/09 Q2 2012 880.0 2008/09 Q3 2011 148.0 Southend Hospital Essex 2008/09 Q1 2012 100.0 Brentwood, Billericay & Wickford PCT Peterborough South Essex Partnership Essex Rivers Healthcare Ipswich Hospital Mid Essex Cambridge University - Addenbrookes Norfolk & Norwich Royston Buntingford & Bishop Stortford PCT Luton & Dunstable Essex 2006/07 Being finalised 25.8 Norfolk, Suffolk & 31/03/2006 01/01/2012 381.0 Cambridgeshire Essex 2005/06 Being finalised 25.0 Essex 01/11/2005 Originally 01/09/2007 but now cancelled 0 Norfolk, Suffolk & 01/10/2005 Being finalised 35.0 Cambridgeshire Essex 01/09/2005 01/07/2009 186.0 Norfolk, Suffolk & Cambridgeshire Norfolk, Suffolk & Cambridgeshire Bedfordshire & Hertfordshire 27/10/2004 01/02/2007 76.0 09/01/1998 21/09/2001 158.0 04/05/2001 28/04/2003 14.8 Bedfordshire & Hertfordshire 21/11/2000 09/09/2002 14.7 Total 2,044.3

27 Table 10: Capital spend on PFI schemes, Strategic Health Authority Scheme Whipps Cross University Hospital Royal National Orthopaedic Hospital Hillingdon Hospital North West Northwick Park Barnet & Chase Farm North Middlesex Barts & The Previous Strategic Health Authority North East North Central North West North West Start on Site Date Completion Date Total ( million) 2008/09 Being finalised 328.0 2007/08 Q2 2010 121.0 2007/08 Q2 2010 337.9 2007/08 Q4 2010 305.0 North Central 30/09/2006 01/05/2009 79.8 North West 31/03/2006 31/12/2008 108.0 North East 01/09/2005 01/09/2013 1,128.0 Kingston Hospital South West 23/11/2004 01/05/2006 32.7 Lewisham Hospital South East 08/07/2004 01/09/2006 72.0 Wandsworth PCT - Roehampton Newham Healthcare Barking, Havering & Redbridge North West The Whittington Hospital Brent PCT - Willesdon West Middlesex University University College St George s Hospital South West North East North East North West North Central North West North West North Central South West 06/05/2004 01/01//2006 75.4 27/01/2004 01/06/2006 54.8 15/01/2004 15/11/2006 238.0 06/11/2003 01/01/2006 69.3 09/10/2002 01/01/2007 31.9 05/12/2002 21/04/2005 21.9 30/01/2001 16/05/2003 60.0 12/07/2000 12/06/2005 422.0 20/02/2000 11/09/2003 46.1 Kings Healthcare South East 06/12/1999 07/10/2002 75.5 Barnet & Chase Farm North Central 01/02/1999 02/03/2002 54.3 Bromley Healthcare North Central 19/11/1998 29/03/2003 117.9 Queen Elizabeth South East 01/07/1998 28/02/2001 96.1 Hospital East & the City Mental Health North East 05/09/2000 11/06/2002 14.5

28 Oxleas South East 04/07/2000 20/12/2001 10.8 North East Mental Health North East 04/07/2000 04/03/2000 10.8 Queens Mary s South East 11/12/1998 30/03/2000 15.0 Hospital Sidcup Total 3926.7

29 Table 11: Capital spend on PFI schemes, South East Coast Strategic Health Authority Scheme Previous Strategic Health Authority Start on Site Date Completion Date Total ( million) Maidstone & Surrey & Sussex 01/11/2006 01/08/2010 427.6 Tunbridge Wells Brighton & Sussex Surrey & Sussex 10/06/2004 30/04/2007 36.0 University Guildford & Surrey & Sussex 29/10/2001 01/11/2003 29.0 Waverley PCT - Farnham West Sussex Health Surrey & Sussex 24/06/1999 31/01/2001 22.0 & Social Care Dartford & Kent & Medway 30/07/1997 11/09/2000 94.0 Gravesham Total 608.6

30 Table 12: Capital spend on PFI schemes, South Central Strategic Health Authority Scheme Heatherwood & Wexham Park Southampton University Previous Strategic Start on Site Completion Total ( Health Authority Date Date million) Thames Valley 2010/11 Being finalised 385.0 Hampshire & Isle of Wight 2008/09 Q4 2010 80.0 Portsmouth Hampshire & isle 01/09/2005 01/10/2008 193.0 of Wight Oxford Radcliffe Thames Valley 14/08/2005 01/02/2008 129.0 New Forest PCT - Hampshire & Isle 18/11/2004 01/11/2006 36.0 Lymington of Wight Buckinghamshire Thames Valley 21/05/2004 11/08/2006 46.6 Stoke Mandeville Oxford Radcliffe Thames Valley 19/12/2003 30/05/2007 134.0 Nuffield Thames Valley 20/04/2002 01/09/2006 37.0 Orthopaedic Centre Berkshire Health Thames Valley 02/05/2001 29/04/2003 29.7 Care Buckinghamshire Thames Valley 14/12/1997 17/10/2000 45.1 Newbury PCT Thames Valley 04/07/2002 01/03/2004 18.8 Total 1,134.2

31 Table 13: Capital spend on PFI schemes, South West Strategic Health Authority Scheme Previous Strategic Health Authority Start on Site Date Completion Date Total ( million) Plymouth South West 2009/10 Being finalised 360.0 Peninsula Plymouth South West 2008/09 Being finalised 200.0 Peninsula United Bristol Avon, 2008/09 Being finalised 104.0 Gloucestershire & Wiltshire North Bristol/South Avon, 2008/09 Q1 2013 310.0 Gloucestershire Gloucestershire & Wiltshire South Devon South west 2007/08 Q1 2010 341.2 Healthcare Peninsula Avon & Western Avon, 01/03/2004 31/03/2006 83.0 Wiltshire Mental Health Gloucestershire & Wiltshire Salisbury Healthcare Dorset & Somerset 04/03/2004 01/02/2006 24.1 Gloucestershire Royal Swindon & Marlborough Avon, Gloucestershire & Wiltshire Avon, Gloucestershire & Wiltshire 01/05/2002 30/11/2004 32.0 05/10/1999 03/12/2002 100.2 Taunton & Somerset Dorset & Somerset 01/09/2005 01/08/2007 18.0 Mid Devon PCT South West 01/07/2002 25/05/2004 10.4 Peninsula Cornwall Healthcare South West 31/10/2000 01/06/2002 10.2 Peninsula Total 1,593.1 NOTES for Appendix Source: memorandum to the House of Commons Health Select Committee, Department of Health, December 2005. Schemes costing below 10 million not included.

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