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Author Topic: Prentis slams ‘flawed’ PFI  (Read 1579 times)

roger

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Prentis slams ‘flawed’ PFI
« on: September 04, 2008, 05:57:50 pm »

Prentis slams ‘flawed’ PFI
(02/09/08) UNISON is calling on the government to abandon its failed private finance initiative (PFI) policy following the latest report from parliament’s public spending watchdog.

The Commons public accounts committee slammed the management of PFI contracts, saying that ministers and officials need to work harder to make sure that deals between the public and private sectors offer taxpayers the best value for money.

However, “sticking plaster solutions” will do nothing to fix a policy that is “fundamentally flawed”, pointed out UNISON general secretary Dave Prentis.

“PFI is an economic disaster, geared towards making mega-profits for private companies at the expense of the public,” he said. “It is a failed policy and should be abandoned.” Taxpayers are being ripped-off to the tune of billions of pounds, Mr Prentis said.

PFI finance costs the NHS around £480 million a year – that’s enough to build three large hospitals a year, equip hospitals with the latest technology or fund sought after new drug treatments.

Mr Prentis also criticised the contracts for being too rigid. Typically spanning 20 to 30 years, the lack of flexibility means the public sector is unable to respond to the changing needs of local communities, he said.
 
 
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roger

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Re: Prentis slams ‘flawed’ PFI
« Reply #1 on: September 04, 2008, 07:39:07 pm »

NHS trusts may hand their private finance initiative hospitals over to specially created charities to avoid reporting PFI debts on their balance sheets, HSJ has learned.

The controversial plans would involve trusts ceding control of the hospitals to a third party.

They follow the Treasury's decision to adopt new international accountancy rules from next April which will see up to £16bn of debt added to NHS balance sheets as PFI liabilities are made transparent.
"The asset is supposed to come back to the taxpayer at the end of the contract"

The Department of Health is concerned that adopting the rules could put NHS trusts in deficit. It has estimated an otherwise financially healthy trust may take 10 years to recover from the change.

Innovative structures

Greg McIntosh, a director of accountants KPMG, said some trusts were looking at "innovative structures" that would allow them to avoid accounting for PFI liabilities on balance sheets.

The options being explored centre on the so-called "residual" of the PFI deal - the value of the hospital building or asset at the end of the PFI contract, typically 30 years.

Under the new international financial reporting standards, PFI assets and their associated debts must come onto an NHS balance sheet if the NHS body is in control of the building and will own it at the end of the contract.

Mr McIntosh said: "It's very difficult to get around the control test. So the only way is to give up control of the residual. Some trusts are looking at setting up a special vehicle to perhaps dispose of the asset to a charitable trust."

He said KPMG did not necessarily endorse such a structure, but was aware several NHS bodies were exploring the possibility. The step could be difficult legally as statute implies that NHS estates should be owned by NHS trusts.

Off the balance sheet

Ernst & Young partner Amin Mawji was also aware that NHS organisations were seeking advice on using charities to avoid bringing PFIs onto their balance sheet. "The difficulty is that they change the economic substance of what you have," he said. "But if the trust is willing to forego the financial benefits of retaining the residual value, then it can achieve an off balance sheet treatment."

But Mr Mawji said that these discussions were "premature" as the DH and foundation trust regulator Monitor were yet to issue guidance as to how or whether the accountancy change would affect the way NHS bodies were rated.

The proposal has met criticism from those concerned at the prospect of trusts not controlling their hospitals. Public accounts committee member Richard Bacon MP (Con) said: "If this is done purely to dodge the new rules it could create all kinds of undesirable and unintended consequences. PFI has always been a funny kind of ownership, but the asset is supposed to come back to the taxpayer at the end of the contract."

Unison head of health Karen Jennings said: "These hospitals have been paid for by the taxpayer and should be owned by the NHS and accountable to the public."

NHS Confederation policy director Nigel Edwards said: "It would be odd for the trusts not to have control over the hospital. The purpose of the accounting rules are to make it clear who is responsible for these buildings, not to subvert the rules with a workaround."

True independence

For the strategy to work, auditors and the Charity Commission would need to be satisfied that the charity was truly independent and not just an NHS trust subsidiary.

Last year the Charity Commission rejected an application for a charity set up to help Salisbury foundation trust circumvent its cap on private patient income.

Monitor chief operating officer Stephen Hay said the regulator may give a foundation trust moving a PFI onto its balance sheet a more adverse risk rating. That could change the amount the trust could borrow under the regulator's prudential borrowing code. It will consult on possible changes to its risk ratings and borrowing code this year.

Mr Hay said it saw the rule as changing accounting methods rather than the amount of cash a foundation had.

Trusts have conflicting advice on whether putting PFIs on the balance sheet would make them liable to a 3.5 per cent capital charge.

A DH spokeswoman said the department was not aware of plans to set up charities. She said: "Such a move would raise a number of technical and legal issues which would have to be carefully considered."

See Trusts survey the wreckage as PFI hospitals begin to crumble
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roger

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Re: Prentis slams ‘flawed’ PFI
« Reply #2 on: September 04, 2008, 07:40:22 pm »

Trusts survey the wreckage as PFI hospitals begin to crumble

    * Published: 04 September 2008 09:00
    * Author: Richard Vize
    * More by this Author
    * Last Updated: 03 September 2008 17:21
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Richard Vize

Richard Vize

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Arcane accountancy rules are in danger of costing the NHS control of some of its buildings. As HSJ reveals this week, the Treasury's decision to adopt new international accountancy standards is pushing trusts with private finance initiative debts to consider hiving off their estate to charities.

The rule change, which comes into force next April after already being postponed for a year, will bring up to £16bn of PFI debt onto trust balance sheets.

It could affect the amount a foundation trust can borrow, increase costs, and throw trusts into debt for perhaps a decade.
"Lawyers, accountants and consultants have been looking for loopholes"

Faced with this financial wreckage, lawyers, accountants and consultants have been looking for loopholes. Handing over hospital buildings to a charity is one option being examined.

Independent entity

This is a treacherous path to take. Charity rules mean such bodies would have to be wholly independent of the hospital.

Even assuming the charity behaved itself, this raises the risk of trusts entering into immensely complex legal and practical arrangements to deliver services.

But more serious dangers lurk. It is easy to imagine a charity becoming the focus of opposition to service closures, or taking sides in a clash between managers and clinicians.

Issue of ownership

There are also issues of principle. In the heated disputes over the rights and wrongs of PFI as a way to build hospitals, government has always tried to damp down opposition by stressing that at the end of the 30 or so years the asset reverts to the NHS. Charitable status would mean this is no longer true. It raises the spectre of billions of pounds of public funds having been spent building hospitals which are not legally part of the state.

With dozens of trusts heading towards this legal and financial quagmire you may be assuming that finance managers are inundated with guidance from the Department of Health on how to cope. But on one of the occasions when government advice would be welcome, nothing of substance has been forthcoming. It has had months to act.

    * Author: Richard Vize. Richard Vize is editor of HSJ
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