I’m very grateful to Daphne, a good friend and comrade from Southeast London and a campaigner trying to save Lewisham hospital’s services from closure.
Daphne has been around a while and like me is not so impressed by the recently successful Judicial Review.
She sent me an excellent paper written by Helen Mercer exposing the familiar problem of huge PFI repayments that cannot be afforded and strangely, seem to survive the bankruptcy of hospital trusts in a way that normal debts do not.
You’ve heard it all before – merge the hospitals, sell off the land, take on a huge PFI debt, the service gets worse, the debts pile up;
Is there a way you can include in your blog this paper produced by a friend of mine, Helen Mercer, on the shallowness of the victory of the Save Lewisham Hospital Campaign, now that the DoH has decided to put it in the same trust as the Queen Elizabeth on Woolwich Common?
The QE has an interesting history. Originally it was a military hospital (paid for by taxpayers) Then in the 1990s it was sold to the NHS and had to be substantially redeveloped to be a general public hospital (tax payers paid for it again). This was just as PFI was coming in. Suddenly a £30 million redevelopment plan turned into a £90 million redevelopment plan (all backed by local Labour MP Nick Raynsford).
Redevelopment was limited to mainly low level building because of underground rising water. The buildings are not expected to last beyond a few decades because of subsidence. During the PFI negotiations local health campaigners were refused information on the deals and in particular who the land would belong to after the completion of the period to repay the loan.
As you see from the figures below the PFI debt has ballooned and what the taxpayers have got for their money is a sub-standard building with no air conditioning (try treating elderly people overcome by heat stress during a heat-wave without it). The QE replaced about three major and several minor local hospitals: The Brook –a wonderful sound building with fantastic ventilation built by the Victorians for TB cases (site now a posh housing estate), the Greenwich District Hospital (just a couple of decades old but built with high alumina cement and already crumbling; site now being developed as housing and shops), the Miller, St Nick’s in Plumstead, the Dreadnought Seamen’s Hospital (now the library of Greenwich Uni), The British Home for Mothers and Babies and a cottage hospital in Eltham. Parts of the QE are excellent, other parts are @#&#$£@# [deleted for legal reasons, sorry Daphne], especially geriatric care and A&E.
The QE A&E staff are firmly behind the Save Lewisham Hospital campaign because they know they could not cope with an influx of thousands more patients from Lewisham. Expanding the QE A&E would be impractical for so many reasons. Meanwhile the buildings at Lewisham as far as I know are excellent and likely to last for centuries.
The proposed merger between QEH and Lewisham Hospital
The financial burden of QEH's PFI contracts
The Government’s own figures (see below) show that over the next 16 years PFI charges on the new merged Trust will increase by an average 4.7 percent per year. In contrast, Government support for these charges will be frozen after 2015. Consequently the burden of unsupported PFI charges the new Trust will inherit from QEH will grow an average rate of 6.7 percent.
Savings (or extra income) needed
In cash terms the unsupported PFI burden will grow from 17 million this year to 20 million in 2016-17, to 25 million in 2019-20. By 2029-30 it will be an extra 47.7 million in. This means that just to remain solvent the new Trust will have to make “savings” of millions of pounds every single year. The only way of avoiding these will be to increase income by expanding provision for private patients. Inevitably, a point will be reached were the only way of making ends meet will be through the same sort of savage cuts, such as the closure of whole departments, that the Special Administrator has sought to impose. The difference will be that such cuts will be an internal matter for the Trust and so not something we can challenge through a Judicial Review.
Recognition of the extent of the problem puts an unavoidable duty on the campaign to discuss a response, to seek legal advice as necessary and to raise the issue publicly.
I propose that SLH agrees that support for the merger will depend on the liquidation of, or at least renegotiation, of PFI commitments. One possible route might be to argue that the merger as envisaged should be reviewed with the aim of ensuring that any merger that does take place is preceded by a clear indication of how the PFI debts of the merged trust are to be paid in such a way as to avoid future threats to A&E, maternity services etc in either hospital. Clearly, this requires taking legal advice. Unless this is done, the only way that the new Trust will be viable is through cuts and increased private patients.
I propose that this view should be put to the new management of the Trust, to Lewisham and Greenwich Councils and to Lewisham and Greenwich CCGs.
When a company is insolvent it may go into or be put into ‘administration’ whereby management of the company is taken out of the hands of the directors and the assets are then managed / sold so that creditors may be repaid.
The role of the TSA reflects this process for a hospital, and the key element of Kershaw’s role was to ensure that the liabilities of the SLHT were addressed. The key liabilities were the PFI debts and how he went about securing repayment of those debts therefore became central to our court case.
Where does the judgement leave this process?
The merger between QEH and Lewisham hospital has the effect of leaving the repayment of the PFI debts of QEH to be paid through the new Foundation Trust, with a similar arrangement for the other two hospitals in the SLHT.
The situation for the merged QEH / Lewisham Trust is as follows:
The initial capital cost of the PFI projects at QEH was £91m. The unitary payments between now and the end of the contract amount to £713m. 2013-14 payments are £29.2m and this doubles by the end of the contract in 2030 (and that’s assuming inflation doesn’t increase). The government contribution to these debts will be frozen at £13.6m after 2015-16 and will therefore fall as a proportion of the total debt burden (see Table below).
As a caveat: this is not all debt repayment and it is proving quite difficult for researchers to separate out payments for services and servicing the debt.
And of course Lewisham does have its own PFI as well part of which was recently sold by John Laing to Innisfree (with an expected rate of return of 15%!). The new trust will have a massive and growing burden of debt.
This is exactly what has happened to Whipps Cross. This hospital too, was saved by a mass campaign but later merged with Newham and Barts & the London hospitals to form what is now the largest trust in England, Barts Health. Of course the hospitals were not forgiven their debts; they carried them with them into the new trust. As John Lister reported recently, “Just two months into the financial year the trust.. is already £15.7m in the red and losing £2m a week. It is falling well short of its massive £77.5m target for cash savings this year - over 6 per cent of its £1.25bn budget.”
Debts and ruinous PFI obligations are not just a burden on the public purse they distort the way the NHS operates. It is easy to see that such debts can lead straight to bankruptcy and the closure of departments. However, the burden of debt also has damaging effects even when it is sustainable. The fact that Foundation Trusts can supplement the dwindling government tariff through private patients must clearly be the means that the new Trust is expected to use to meet its liabilities. So, in the case of Lewisham, we can expect that the new Trust will place a major emphasis on private work to the detriment of the local population which, as we all know, scores high on deprivation league tables.
Can we, should we, challenge the merger?
I noticed that on the last day of the judicial review the government’s barrister asked for a speedy decision as the merger was planned to go ahead in October. I pondered that at the time, but over the last few days I have decided that its significance would appear to be that the government anticipated a challenge to the merger. If we don’t challenge the merger the threat to local health services, including to Lewisham hospital remains. Indeed it could be that all that we have worked for could count as naught as far as the local experience of healthcare is concerned.
I understand that (a) the hospital itself favours the merger; (b) all hospitals must become Foundation Trusts by 2014; (c) Lewisham hospital is considered too ‘small’ to become a Foundation Trust on its own. However, I still think we need a discussion on the balance between these arguments and the financial dangers that lie ahead, and hence the future of healthcare services in the area.
Unitary (PFI) payments of QEH
Proposed government support for QEH
Government support as % of total PFI debt
Source for table: 2nd column figures from government PFI spreadsheet, 3rd column from Figure 24 of Kershaw’s final report
A bit of background: the wider significance of PFI
The current government is sworn to reduce the public debt. (In fact private debt is a much more significant aspect of our current economic dilemma but they are using public debt as an excuse for swingeing attacks on public services). The reason why the public debt rocketed after 2007 was that our main financial institutions, primarily the banks, were, for all practical purposes, insolvent. They were insolvent because their assets – rooted in unsustainable loans to sub-prime buyers via derivatives – were ‘non-performing’. That meant that the stream of income from their assets was nowhere near enough for them to meet their liabilities – what they owed to short-term depositors /investors etc. Thus they were insolvent.
Those private liabilities of the banks including non-performing loans were effectively socialised or nationalised in 2007/8 and added to the public debt so that the banks had the means to become solvent or ‘restructure their balance sheets’ – the phrase often used by the Press.
Unitary payments owed by hospitals to banks, investment trusts, like Innisfree, are the stream of income expected from their assets – the PFI debts. The total outstanding PFI debt in the UK was, about two years ago, £300bn. Were the government to take on the PFI debts of public bodies (even assuming just a 25% of unitary payments represents servicing the debt) we would be a Greece with bells on. The UK would have the highest private debt to GDP ratio AND one of the highest public debts to GDP ratios.
SLHT was the first case of a hospital going into administration. If the government could not find a robust way to repay creditors, repayment of all PFI contracts would begin to look shaky, prompting credit rating agencies to downgrade banks, investment trusts etc right, left and centre. The vague possibility of non-payment at times like these could shake the whole financial sector.
I am making these points because we have to understand just how high the stakes are in our fight. We have to understand that the government does not have much room for manoeuvre.
There are various options that the government can pursue. They can protect the financial sector wholly, take on the debts and force repayment of the public debt through cuts to the public sector or even helping themselves to people’s savings as they did in Cyprus. This is effectively the route that this government is going down. (So I would advise you all to reduce your savings / bonds etc with any one bank, just in case!)
The other alternative is to seek ‘haircuts’ from the financial sector, that is some restructuring of the debt, in which creditors accept some losses. The ECB and the EU were powerful enough (and the extent of popular protest was sufficient) to force such a concession for Greece, even though the main route has been decimation of the welfare state. In Argentina the debt restructuring in 2001 was successful prior to the current crisis in that it allowed the country to come out of a deep recession. Interestingly that settlement is now under threat because one of the creditors is suing the Argentine government in the US courts for the full repayment of his loans.
My proposal is calling for the alternative – the haircut route. In the case of Lewisham it is not a bank which will take the main hit, but an investment trust – Innisfree, whose CEO was recently dubbed the ‘King of the PFIs’’. I, for one, do not have a problem with this.