Private companies make £831m profits from NHS contracts

Private companies with contracts to build and run NHS hospitals have made pre-tax profits of £831m over the past six years, according to a report.

The research, published on Wednesday by the Centre for Health and the Public Interest, a think-tank, found that a company behind one of the schemes — University College Hospital London — had made pre-tax profits of £140m over this period.

Colin Leys, co-chair of the CHPI, said the data — derived from accounts filed at Companies House — showed for the first time the amount of taxpayers’ money “leaking” out of the NHS through profits generated by companies that operate contracts under the private finance initiative (PFI).

“Given the extreme austerity in the NHS where patients are being denied treatment and waiting times for operations are rising, the government needs to take action,” he said.

Under PFI deals, private companies construct buildings, which are then leased to the public sector, with the companies also providing maintenance and support services — such as catering and cleaning. Companies make profits from “unitary charges”, which are made up of loan repayments and fees for the services.

These deals were intended to deliver value for money for the public sector by transferring construction risk to the private sector. The incentive for private companies to generate a profit was also expected to provide greater impetus to deliver services more cost-effectively than the public sector would.

A review of NHS PFI deals by the National Audit Office in 2010 concluded that the cost of support services provided as part of these deals was comparable to the costs of publicly run services.

But the NHS Confederation has previously raised concerns about the inflexibility of PFI contracts, which in some cases tied trusts into paying for buildings or services that were no longer needed.

The disclosure from CHPI of the size of profits made by PFI companies prompted calls from Stella Creasey, a campaigning Labour MP, for a new “windfall tax” on the PFI companies — along the lines of the windfall tax on privatised utilities imposed by New Labour two decades ago.

Ms Creasey called on the government to try to renegotiate original deals: “If these companies are resistant to consolidating these loans to a more realistic cost, then it is time to look again at their tax reliefs or — given the evidence of excessive profits in this industry that shareholders have received — resurrect one of New Labour’s early hits with a windfall tax on the returns made.”

In 2014, Northumbria Healthcare Foundation Trust became the first NHS trust to buy itself out of a PFI contract in an effort to save money over the longer term.

Previous governments have signed more than 700 PFI deals. According to the Treasury’s own figures, these deals have created £57bn of assets. Taxpayers are expected to pay £307bn by 2049-50 to cover the construction costs and accompanying services.

Annual charges in 2015 were £1.9bn with the PFI companies earning pre-tax profits of £183m, according to the CHPI research.

The government has already moved away from PFI because of, in part, the long-running controversy around the scheme. It has started a new “PF2” with more stringent conditions designed to maintain value for money for taxpayers, although few new projects have been tendered under this scheme.

Jeremy Corbyn, Labour leader, has talked about using public funds to buy hospitals out of their contracts, possibly over the long term. However, the Labour manifesto in June was less specific, talking only about wanting to “reverse privatisation of our NHS”.

A Department of Health spokesperson said: “The NHS is recognised by the independent Commonwealth Fund as the most efficient healthcare system in the world and currently spends less than 3 per cent of its annual budget on PFI.

“The first PFI contracts for NHS hospitals, which were signed in 1997, range between 25-30 years — this report analyses just six years of contracts and as a result does not represent the full picture.”