A group of banks and property developers which made a windfall profit of over £80m from the NHS has been condemned for showing the "unacceptable face of capitalism".
In a scathing report, the Public Accounts Committee (PAC) accused the private consortium involved in the rebuilding of the Norfolk and Norwich Hospital of "lining investors' pockets" and putting the trust at increased risk of further losses.
Edward Leigh, chairman of the PAC, said: "This is taxpayers' money and the risk of this large liability was incurred essentially so that investors could have fatter returns ... My committee would not expect to see appearing before it another accounting officer defending what we believe to be the unacceptable face of capitalism. Such a face was shown by this private sector consortium in its dealings with the public sector."
The private investors made their profit by switching the mortgage on the hospital to get a lower rate of interest. They were then able to increase the amount borrowed and pocket the extra cash. The profit from the move was so high - £116m - that the consortium of investors, called Octagon, repaid £34m to the Norfolk and Norwich University Hospitals NHS Trust.
That left £82m to be shared among the investors, who included the 3i group, Barclays Infrastructure, Innisfree Partners, John Laing and Serco Investments.
Publishing the PAC's report into the deal yesterday, Mr Leigh said: "The local NHS trust secured the right to only 29 per cent of the £116m refinancing gain. This was a poor deal."
The private finance initiative (PFI) project to rebuild Norfolk and Norwich Hospital began in 1998, funded by the Octagon consortium, which put up £33m and borrowed £197m. The consortium took the construction risk - but on the back of a government-guaranteed flow of "rent" from the new hospital.
Five years later, in 2003, it refinanced the deal, in effect shopping around for a better rate of interest. This allowed it to increase its borrowings to £306m, £109m more than it had first borrowed.
Mr Leigh said: "Even though this was an early PFI deal, it is hard to escape the conclusion that the staff managing the project were not up to the rough and tumble of negotiating ... with the private sector."
Responding to the earlier NAO report on the Norfolk and Norwich refinancing, the companies defended the deal, saying they took the risk to build the hospital at a time when PFI was new and lenders charged high interest rates because they could not quantify the risk of unproven projects.
The National Audit Office said the windfall was the third it had uncovered after complaints from MPs and the public.Reuse content