Free and Public

It failed in the UK so why export it?

In the town of Huddersfield in northern England, the local hospital’s Accident and Emergency Department is set to be closed. 130,000 local people have signed petitions against the closure, fearing the impact on their community.

The local health service around Huddersfield is under increasing financial pressure, and one of the reasons is the Public-Private Partnership (PPP) deal in neighbouring Calderdale Royal Hospital. The hospital was built between 1998 and 2001. Its planned initial cost of £34 million has increased three folds to £ 103 million by the time it was finished.

Under the terms of the PPP deal, the local health service is expected to pay $966 million over 30 years in order to be able to use the hospital. The Local MP Jason McCartney from the governing Conservative party has called this situation “scandalous”. These huge costs have contributed to the local health service seeking to close the Accident and Emergency Department at Huddersfield Royal Infirmary.

The UK’s PPPs Disaster

The high costs of PPPs are being felt across public service sectors throughout the UK. PPPs (or the ‘Private Finance Initiative’ as they are known in the UK) began in the early 1990s, but new schemes were at their peak from 1998 to 2007. They consist of a contract between a public body and a private company, where the latter builds and operates a public infrastructure, and the public body guarantees to pay to use it through a long-term contract, usually around 30 years.

Such PPPs have been far more expensive than the alternative of the government borrowing to build the infrastructure itself. An inquiry by the UK parliament’s Treasury Select Committee found that PPPs have “The effect of increasing the cost … to the government”. A review by the National Audit Office, the independent body responsible for investigating government accounts, found that the interest rates ultimately paid by the government through PPPs are double those paid by the government when it borrows directly. Moreover, PPPs further increase the cost to the public sector, including through the payment of high profits and inflated running costs to the private companies, as well as the financial cost of expensive lawyers and consultancy companies hired to work on the complex contracts behind PPP schemes.

Since they started in the early 1990s a capital investment of $71 billion in the UK has been through PPPs, but the government will pay more than five times that amount under the terms of the PPP contracts it has signed up to.

Despite their high cost, one of the reasons PPPs were pursued is that they keep debts hidden, off the government’s accounts. Although the actual payments made by governments for PPPs are higher than if the government had borrowed directly, these payments don’t go on the government’s books in the same way as direct government borrowing. Therefore, PPPs are an expensive way to bypass transparency and accountability and to hide public debt. Even the IMF criticise PPPs impact on debt. The IMF’s Fiscal Affairs Department state that in many countries, investment projects have been procured as PPPs not for efficiency reasons, but to circumvent budget constraints and postpone recording the fiscal costs of providing infrastructure services.

The promotion of PPPs around the world

The disaster of PPPs in the UK has been criticised by politicians from all parties. In 2015, the UK’s Health Minister, Jeremy Hunt, from the Conservative Party said: “One of my biggest concerns is that many of the hospitals now facing huge deficits are seeing their situation made infinitely worse by PFI debt.” The Mayor of London, Sadiq Khan, from the Labour party described the PPP deals as “a millstone round the necks” of London hospitals.

Professor Jean Shaoul from Manchester Business School concludes that PPPs in the UK have been “an enormous financial disaster in terms of cost” adding: “Frankly, it’s very corrupt… no rational government, looking at the interests of the citizenry as a whole, would do this.”

Yet despite the evidence from the UK and from other countries  PPPs have been heavily promoted around the world by institutions such as the World Bank. Shockingly, in an evaluation in 2014, the World Bank’s own Independent Evaluation Group found that of 442 PPPs supported by the World Bank across numerous sectors, assessments of their impact on poverty were conducted for just nine of them (2%), and of their fiscal impact for just 12 (3%).

In the UK PPPs constitute an inefficient use of public money to provide health service. Governments elsewhere should adopt evidence-based policies to finance and run health services. International institutions, such as the World Bank, should refrain from pushing countries to adopt ideology-based policies such as PPPs. Instead, countries should be helped to adopt strategies that ensure that health services are accessible to all those who need it without breaking the budget of the household or the country.

This blog is based on ‘The UK’s PPPs disaster: Lessons on private finance for the rest of the world’ by Jubilee Debt Campaign http://jubileedebt.org.uk/reports-briefings/briefing/uks-ppps-disaster-lessons-private-finance-rest-world

Tim Jones, Policy Officer, Jubilee Debt Campaign

Share

Global Health Check was created by Anna Marriott and is currently edited by Mohga Kamal-Yanni