South Norfolk MP Richard Bacon has described as “woeful” the quality of the advice offered by the Department of Health to the Norfolk and Norwich hospital over its PFI project.

He was speaking as the Commons public accounts committee today (Wednesday 3 May 2006) published a report on the refinancing of the Norfolk and Norwich PFI hospital by the PFI consortium Octagon Healthcare, which borrowed an extra £106 million at the time of the refinancing in order to triple its rate of return from 19% to over 60%.

In the refinancing, Octagon Healthcare received an immediate £95 million cash benefit. The Norfolk and Norwich hospital, following advice from the Department of Health, only receives its share of the gains spread over 35 years in the former of slightly lower payments to the PFI consortium.

Mr Bacon, a longstanding critic of PFI and a member of the committee, said: “This extra borrowing was not to build more wards or a new cardiac unit. It wasn’t even for a bigger car park. The sole purpose of this extra borrowing was to speed up the rate of return to the investors”.

“We should not be surprised that private sector companies seek to maximise their profits. What is shocking and unacceptable is that the Department of Health allowed a contract like this to be signed, which put the public sector in such a weak position”.

“The Department of Health would not allow the hospital to include a refinancing clause in the original contract. This meant the hospital had no right to receive any proceeds from the refinancing at all, let alone the 29% share it eventually secured. And that right was only obtained by taking on huge extra potential liabilities. The hospital could now have to pay up to £257 million more to break the contract early as a result of Octagon increasing its borrowings, which were incurred simply to make it easier for the investors to achieve high returns.”

“It is hardly surprising that people are sceptical of PFI when it produces outcomes like this. PFI has produced spectacular returns for investors but nurses and others hospital workers facing the sack will rightly feel very angry and will not understand how it has been allowed to happen”.

“The quality of advice from central government has been woeful. While the investors took their £95 million cash benefit immediately after the refinancing, the Department of Health advised the hospital to take its share of the refinancing gains spread over 35 years, in the form of slightly lower payments to the PFI provider. Yet given the choice between cash now and cash later, most people wouldn’t hesitate to take it now”.

“As an early PFI hospital the Norfolk and Norwich is paying a premium which other later PFI hospitals do not suffer. Other PFI projects have benefited from the experience of the Norfolk and Norwich, which should not be expected to meet the additional costs unaided.”

The Norfolk and Norwich hospital has recently announced that it expects to face a £22 million shortfall in the current financial year and will have to reduce staffing levels.

3 May 2006

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See also:
PAC REPORT: The refinancing of the Norfolk & Norwich Hospital