Capital charges: a tax on the NHS

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Abstract
Under the new national framework for assessing performance in the NHS trusts will be compared partly on the basis of their costs per unit of care and of the productivity of capital estate.1 Unit costs and productivity of capital are crucially influenced by two factors: the capital charging system under which the government plays shareholder andbanker to theNHS,recovering a 6% return on all capital used by the NHS,2and the current and future purchasing decisions of primary care groups.Other changes, however—notably, the private finance initiative and the freedom of primary care groups from capital charges—raise questions about the appropriateness of these measures of efficiency. The main argument for the introduction of capital charges in 1992 was that NHS assets werebeing used inefficiently. Requiring NHS trusts to pay interest and dividends on their assets, and to recoup those costs through the prices charged to purchasers, would, it was argued, lead to greater cost effectiveness and allow comparisons to be made between theNHS and the private sector.3 This, however, relies on two arguable premises—firstly, that an NHS provider is sufficiently similar to a commercial enterprise that the imposition of a private sector financial regime will lead to greater efficiency; secondly, that NHS capital charges realistically represent the cost of the buildings and equipment needed to deliver services. Taking the latter …