The funding timebomb that crippled an NHS healthcare trust

When his first daughter was born, Cahal Milmo's local hospital began a new life through private money. Now he knows, all too well, the true cost of the debts left behind

Both of my children were born on the site now occupied by the financial disaster that is the Princess Royal University Hospital in Bromley. The six-year gap between them encapsulates the way in which an attempt to provide the NHS with modern facilities in south-east London has crippled it with debt and come back to haunt its users.

In December 2002, my daughter was one of the last babies to be born in the Farnborough Hospital maternity unit, a clean but creaking relic of early 20th century healthcare with windows that did not shut and radiators turned up to maximum to compensate for the draught.

The care was excellent but behind plywood barriers carrying a contractor's corporate logo that winter, a glimpse of a shiny future could be seen – rising out of the suburban Kent mud was a £118m state-of-the-art hospital with bright corridors and terracotta cladding that fully opened in April 2003.

When we returned to the new Princess Royal in 2008 for the birth of my son, all seemed well. The maternity ward came complete with aromatherapy kits and high-end CD players. After the baby contracted an infection and had to return to hospital, my wife was provided with a bed and meals for the duration of their stay. The care, again, was faultless.

But lurking in the background was the funding timebomb that has now exploded spectacularly, and yesterday morning left the one million people who live within the ambit of the South London Healthcare NHS Trust (SLHT) feeling a bit like the Greeks – the sparkling edifice of our healthcare eco-system has been revealed to be built on a pestilential marshland of debt into which vital public services are threatening to sink under the burden of payments to the private sector.

The Princess Royal hospital was one of the first hospitals to be born from the Private Finance Initiative (PFI) – the wheeze invented by John Major's government to refurbish Britain's dilapidated hospitals and schools while keeping the outlay off the Treasury's current account in return for phased repayments to private investors over a period of several decades.

After the tender was put out in 1995 it was awarded by Tony Blair's first government, which embraced PFI with gusto, in 1998. The winner was a consortium trading under the name of United Healthcare (Farnborough Hospital Ltd) consisting of Barclays Private Equity, developer Taylor Woodrow and Innisfree, a City investment fund with about 20 staff which has quietly become one of the country's largest PFI players by backing projects to build 269 schools and 28 hospitals costing a total of £6.4bn.

David Metter, the 59-year-old founder and chief executive of Innisfree, is estimated to have made a personal fortune of about £60m from overseeing PFI investments on behalf of pension local authority pension funds.

There is nothing illegal in anything that these companies have done. But the rates of return on their investment are of an order that would make a pay-day loan company blush.

In return for their initial £118m outlay and the provision of services ranging from power to medical equipment, the consortia will receive payments of £1.2bn over 35 years. According the National Audit Office, the rate of return for the contractors is a handsome 70.6 per cent.

The problems with this arrangement, which locks NHS trusts into fixed payments over the life of the PFI contract, contributed to a deficit at the hospital which NHS chiefs attempted to tackle in 2009 by merging the Princess Royal with two other south-east London hospital trusts, including the PFI-funded Queen Elizabeth in Woolwich, which is also part of Innisfree's portfolio.

By the time of the merger, the hospitals were running an annual deficit of £21m. This year the cost to SLHT of servicing its debts will be £61m – nearly 15 per cent of its income – and its total debt mountain exceeds £2bn.

As Dr John Lister, of NHS campaign group London Health Emergency, put it yesterday: "The way to deal with this situation was not to put together trusts with debts to make a single trust with even bigger debts. There is now no way for this trust to balance its books."

The result is a period of uncertainty for SLHT's staff and the public who rely on their services while an administrator decides if and how to carve up this mess to save the institutional patient's healthiest limbs.

Jo Johnson, the Conservative MP for Orpington (and brother of the London mayor), insisted it was better for the trust to take its bitter medicine now rather than allow the problem, which already includes a failure to consistently hit the national 18-week waiting times target for referral to treatment, to fester.

He said: "By acting decisively and making this the first trust to be brought into effectively special measures, [health secretary] Andrew Lansley is short-circuiting the process that could otherwise have these hospitals left to rot on the vine. The issue is to put them back on a sustainable footing as soon as possible."

But with even the most battle-hardened NHS centres of excellence struggling to balance their books, it is not immediately clear where salvation might lie for the Princess Royal and its SLHT stablemates.

During the process to form SLHT a consultation document landed on my doormat laying out a blueprint for ever-improving healthcare provision in this corner of the capital. It was entitled A Picture of Health.

Hardly.

Cause of the malaise? Private finance

Initiated by the Conservatives but expanded and championed by Gordon Brown when he was Chancellor, the Private Finance Initiative was designed as a way to build new hospitals – without the capital costs ending up on the Government's books.

Under the scheme private companies financed and built new hospitals and leased them back to the NHS over a period of up to 30 years.

But PFI has been roundly criticised for providing poor value for money and leaving hospitals with unsustainable annual rents and costs for providing services such as cleaning and maintenance. The Government has now promised to try and renegotiate some PFI contracts but ministers have a poor negotiating hand.

In order to get banks and private companies to lend the money in the first place, the Treasury had to underwrite all the risk of the projects. So even if a PFI hospital closes the tax payer is still responsible for keeping up the payments.

Oliver Wright

VIDEO
News
weird news... and film it, obviously
Arts & Entertainment
tv
News
Matthew Mcnulty and Jessica Brown Findlay in 'Jamaica Inn'
mediaHundreds complain over dialogue levels in period drama
News
peopleJay Z and Beyoncé to buy £5.5m London townhouse
Voices
voicesMoyes' tragedy is one the Deputy PM understands all too well, says Matthew Norman
Arts & Entertainment
Rocker of ages: Chuck Berry
musicWhy do musicians play into old age?
Arts & Entertainment
With Jo Joyner in 'Trying Again'
tvHe talks to Alice Jones on swapping politics for pillow talk
News
Jilly's jewels: gardener Alan Titchmarsh
peopleCountry Life magazine's list of 'gallant' public figures throws light on what it means to be a gentleman in the modern world
Sport
John Terry goes down injured in the 70th minute
sportAtletico Madrid 0 Chelsea 0: Blues can finish the job at Stamford Bridge, but injuries to Terry and Cech are a concern for Mourinho
Student
student
News
<b>Rebecca Adlington</b>
<br />This, the first British swimmer to win two
Olympic gold medals in 100 years, is the eversmiling
face of the athletes who will, we're
confident, make us all proud at London 2012
peopleRebecca Adlington on 'nose surgery'
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Have you tried new the Independent Digital Edition iPad app?

ES Rentals

    Independent Dating
    and  

    By clicking 'Search' you
    are agreeing to our
    Terms of Use.

    iJobs Job Widget
    iJobs General

    Clinical Negligence

    Very Competitive: Austen Lloyd: Clinical Negligence - Oxford An opportunity f...

    Projects Financial Analyst - Global Technology firm

    £55000 - £62000 per annum + outstanding benefits and bonus: Pro-Recruitment Gr...

    Reception Teacher

    £120 per day: Randstad Education Luton: Reception teacher required for an Outs...

    Commercial B2B Pricing Specialist - Global Bids and Tenders

    £35000 - £45000 per annum + excellent company benefits : Pro-Recruitment Group...

    Day In a Page

    Brits who migrate to Costa del Sol more unhappy than those who stay at home

    It's not always fun in the sun: Moving abroad does not guarantee happiness

    Brits who migrate to Costa del Sol more unhappy than those who stay at home
    Migrants in Britain a decade on: They came, they worked, they stayed in Lincolnshire

    Migrants in Britain a decade on

    They came, they worked, they stayed in Lincolnshire
    Chris Addison on swapping politics for pillow talk

    Chris Addison on swapping politics for pillow talk

    The 'Thick of It' favourite thinks the romcom is an 'awful genre'. So why is he happy with a starring role in Sky Living's new Lake District-set series 'Trying Again'?
    Why musicians play into their old age

    Why musicians play into their old age

    Nick Hasted looks at how they are driven by a burning desire to keep on entertaining fans despite risking ridicule
    How can you tell a gentleman?

    How can you tell a gentleman?

    A list of public figures with gallant attributes by Country Life magazine throws a fascinating light on what it means to be a gentleman in the modern world
    Pet a porter: posh pet pampering

    Pet a porter: posh pet pampering

    The duo behind Asos and Achica have launched a new venture offering haute couture to help make furry companions fashionable
    A History of the First World War in 100 moments: The mutiny that sent a ripple of fear through the Empire

    A History of the First World War in 100 moments

    The mutiny that sent a ripple of fear through the Empire
    Hot stuff: 10 best kettles

    Hot stuff: 10 best kettles

    Celebrate St George’s Day with a nice cup of tea. Now you just need to get the water boiled
    Sam Wallace: Why Giggs is perfect fit as Manchester United boss... in the longer term

    Sam Wallace

    Why Ryan Giggs is perfect fit as Manchester United boss... in the longer term
    Renaud Lavillenie: The sky's the limit for this pole vaulter's ambitions

    Renaud Lavillenie: The sky's the limit for this pole vaulter's ambitions

    Having smashed Sergei Bubka's 21-year-old record, the French phenomenon tells Simon Turnbull he can go higher
    Through the screen: British Pathé opens its archives

    Through the screen

    British Pathé opens its archives
    The man behind the papier mâché mask

    Frank Sidebottom

    The man behind the papier mâché mask
    Chris Marker: Mystic film-maker with a Midas touch

    Mystic film-maker with a Midas touch

    Chris Marker retrospective is a revelation
    Boston runs again: Thousands take to the streets for marathon as city honours dead and injured of last year's bombing

    Boston runs again

    Thousands of runners take to the streets as city honours dead of last year
    40 years of fostering and still holding the babies (and with no plans to retire)

    40 years of fostering and holding the babies

    In their seventies and still working as specialist foster parents