Profiting from closure: the private finance initiative and the NHS

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Abstract
Private investment is efficient when it maximises the returns on capital. Public investment is efficient when it maximises returns within the constraints of public policy goals, like meeting the population's healthcare needs. Given these different aspirations, what does partnership between the private and public sectors mean in practice? Specifically, what happens when private finance funds hospital redevelopment, as the private finance initiative attempts to do? In a BMA report published this week, Declan Gaffney and Allyson Pollock of St George's Hospital Medical School address this question in what is the most detailed independent study to date of the 14 private finance initiative schemes approved in June this year.1 Reliance on private investment, the authors say, inflates the scale of capital schemes to levels which far exceed more prudent public proposals as bidders try to improve their rate of return. This cost escalation puts new demands on public revenue, which in turn leads to the search for new economies and new subsidies. The economies inspire bed reductions and unpiloted innovations in healthcare provision, while the subsidies entail transfers from other health sectors and raids on the very public funds that private finance was meant to replace. Returns …

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