Why Public/Private ownership deals are bad for your health
31 May 2002
By Allyson M Pollock, Jean Shaoul and Neil Vickers
Like ducks in a shooting gallery, Australia's State Labor governments have lined up behind so-called public-private partnerships (PPPs). In an article republished here from the Evatt Foundation journal, Allyson Pollock and her colleagues interrogate the rhetoric of 'risk transfer' in light of the UK's public hospital 'partnerships'.
Since 1992 the British government has favoured paying for capital works in
the public service through the private finance initiative (PFI) - that is,
through loans raised by the private sector. For public hospitals, this means
that a private sector consortium designs, builds, finances and operates the
hospital. In return, the National Health Service (NHS) trust pays an annual fee
to cover both the capital cost, including the cost of borrowing, and maintenance
of the hospital and any non-clinical services provided over the 25-35 year life
of the contract. The policy has been controversial because of its high cost and
the impact on clinical budgets.
When first introduced in 1992, proponents claimed that the PFI would lead to
more investment without increasing the public sector borrowing requirement. The
UK budget surpluses of recent years (£23 billion - $A60 billion - for 2000-01
alone) have, however, been much greater than the total of £14 billion ($A37
billion) in private investment deals signed in 1997-2001. The present generation
of taxpayers could have funded considerably more capital investment out of
existing revenue instead of displacing the cost onto future generations.
Furthermore, there is no evidence that the PFI has increased overall levels
of service. On the contrary, the policy's use in the NHS has had two main
effects. Firstly, it has displaced the burden of debt from central government to
NHS trusts, and with it the responsibility for managing spending controls and
planning services, thereby hindering a coherent national strategy. Secondly, the
high cost of PFI schemes has presented NHS trusts with an affordability gap.
This has been closed by external subsidies, the diversion of funds from clinical
budgets, sales of assets, appeals for charitable donations, and, crucially, by
30 per cent cuts in bed capacity and 20 per cent reductions in staff in
hospitals financed through PFI. Though NHS funds have increased since 1999,
there is no evidence that much has flowed through to baseline services.
Thus, not only are the macroeconomic arguments in favour of the PFI illusory;
the PFI has also had a negative impact on levels of service. Largely as a result
of this, the case for the PFI now rests on the "value for money" argument. The
government's claim is that the PFI delivers value for money through lowering
costs over the life of the project, because of greater private sector
efficiency, and because the private sector assumes the risks that the public
sector normally carries. Here we examine the extra costs to NHS trusts of
private finance compared with public finance, and evaluate the value for money
argument with respect to the risks transferred.
To read more go to http://evatt.labor.net.au/
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