Banks rescuscitated by the NHS!

Prof Allyson Pollock, Centre for International Public Health Policy
PFI interest rates by bailed-out banks unjustified

The UK government is allowing banks to restore their profits by charging unjustifiably high interest rates for health service private finance initiative (PFI) projects, a study claims.

An opportunity to negotiate better interest rates is being missed, researchers suggest, now that two banks providing investment for new hospitals are partly owned by the government.

As a result, say researchers at the University of Edinburgh, the quality and financial performance of NHS services are being impaired.

The study analysed the 149 major PFI hospital projects that have been signed by the NHS so far. The researchers found that two banks in which the government is the major shareholder – Royal Bank of Scotland and Lloyds – have provided senior debt (the low interest portion of the borrowing) to 38 projects and have equity in 16.

The researchers say that these projects have raised £12.27 billion under PFI – but that over the next 30 to 60 years, the public sector will pay a total of £41 billion for the cost of capital alone.

Prof Allyson Pollock, of the University of Edinburgh’s Centre for International Public Health Policy, said: “Instead of using the opportunity of the taxpayer bail-out to reopen the contracts and negotiate better rates in favour of the public sector, the UK government is allowing the banks to restore their balance sheet by charging relatively high rates of interest for PFI schemes.

“The increased costs of servicing the debt are met from annual budgets of the NHS, and result in reductions in the money available for services.”

Prof Pollock said that the policy of using private finance is used to disguise public expenditure liabilities, since it takes capital investment off the government’s books. International accounting rules that would have required government to put PFI back on the balance sheet are being ignored.

She added: “The policy is expensive; compared with conventional government borrowing and procurement, PFI is associated with high costs of borrowing which include high rates of returns to the investors.

“There is a risk that reductions in public expenditure could provide a new political impetus for using PFI regardless of whether the policy is socially and economically beneficial and this will continue to be at the expense of major reductions in public services and public expenditure cuts.”

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