House of Commons - Health

Select Committee on Health Memoranda

Table 5.4.6(j)

2000-01 SOURCES AND APPLICATION OF HCHS CAPITAL

		2000-01 Plan (2000-01 DR) £m	2000-01 Forecast Outturn £m	2000-01 Final Outturn £m
HCHS Capital Expenditure
Sources:	Net Capital HCHS Expenditure (1)	1,708	1,468	1,288
	Plus:
	NHS Trust Receipts	209	277	378
	Retained Estate Capital Receipts	154	298	298
	Total Receipts	363	575	676
	Gross HCHS Capital Expenditure	2,071	2,043	1,964
Applications:	Retained Estate Costs (2)	25	35	35
	NHS Trust Capital Receipts (3)	211	277	378
	Non NHS Trust Capital Spend (4)	160	200	138
	Initial transfers to Revenue (5)	220	220	188
	NHS Trust Voted Expenditure	1,455	1,311	1,225
	Total Capital	2,071	2,043	1,964
Financing of Trust Capital :
	Depreciation (6)	1,001	1,001	1,001
	External Financing Limit (EFL)	454	310	224
	Total Trust Voted Capital	1,455	1,311	1,225
	Plus:
	NHS trust capital receipts spent as capital	209	277	377
	Total Capital Available to Trusts	1,664	1,588	1,602
Financing of EFL:
	Borrowing from Secretary of State	454	277	183
	Market Borrowing		33	41
	EFL	454	310	224

(1) The figures are after the transfer to revenue of the IM&T Modernisation Fund (£240 million) and Ambulance Response Times (£23 million).

(2) These are costs associated with the maintenance and disposal of the NHS retained estate funded from gross capital receipts on the retained estate.

(3) These are the capital receipts generated from the sale of NHS trust assets. These receipts can be spent in addition to those voted in Estimates.

(4) Includes centrally held budgets, Health Authority Capital Cash Limits and High Security Psychiatric Hospitals.

(5) This is to cover:

(i) the higher capital threshold in the NHS;

(ii) capital expenditure on Joint Finance and GMS which are recorded as revenue as they are spent by a third party.

(6) The element of capital charges included in HCHS revenue but earned by NHS trusts in prices and used to finance capital expenditure.

(7) Figures may not sum due to rounding.

Table 5.4.6(k)

DISPOSITION OF 2002-03 CAPITAL RESOURCES

	£m	£m
Total NHS capital Investment		3,539
Less: PFI Investment		-783
Gross NHS Capital		2,756
Less:
Costs associated with the retained estate:	30
NHS Trust Receipts	55
Transfer to revenue for Primary Care	66
Other NHS Capital	34	-185
HCHS capital available for allocation:		2,571
To be allocated as follows:
Central Budgets		86
NHS Trusts/Health Authorities/Primary Care Trusts
General Allocations	1,462
Secure Hospitals—Fallon Enquiry	9
Renal Services	9
Additional Medical Students	26
Cancer	71
Coronary Heart Disease	114
Waiting Lists—Action On Programmes	41
On Site Nurseries	15
Ante-natal and Child Screening	3
Mental Health	62
Junior Doctor Working hours	2
Older People	41
Looked After Children	10
Decontamination and Sterilisation facilities	150
Maternity	50
Elimination of Nightingale Wards	40
Learning Disability Development Fund	20
Performance Fund—revenue transfer	50
Genetics	3
Pharmaceutical Manufacturing	4
Clinical Assessment System	16
Diagnostic and Treatment Centres	15
Primary Care Access—NHS LIFT	35
To be allocated later	237
Total to NHS Trusts/Health Authorities/Primary Care Trusts		2,485

5.4 Long Term Capital Projects and PFI

5.4.7 For major projects (currently defined as those greater than £25 million in value), could the Department please provide a comparison between the PFI price and the publicly financed option. The publicly financed comparator's costings should be broken down as follows:

— basic construction contract, broken down between pre-implementation and post implementation costs;

— the value of risk adjustment, again broken down between pre-implementation and post implementation costs, in both pounds and percentage terms; and

— the final total real full life cost of both options. [4.8f]

1. The information requested is contained in the attached tables.

Gloucestershire Hospitals NHS Trust

	Publicly funded option				PFI option
Phase of project	NPC (£m)	Risk (£m)	Risk (%)	NPC (£m)	Risk (£m)	Risk (%)
Pre-implementation	28.7	2.2	7	Na	0.8	Na
Post-implementation	-17.5	7.9	-83	Na	5.8	Na
Total	11.2	10.1	47	13.5	6.6	32.8
Risk adjusted total	21.3			20.1

Nuffield Orthopaedic Centre NHS Trust

	Publicly funded option				PFI option
Phase of project	NPC (£m)	Risk (£m)	Risk (%)	NPC (£m)	Risk (£m)	Risk (%)
Pre-implementation	Na	Na	Na	Na	Na	Na
Post-implementation	Na	Na	Na	Na	Na	Na
Total	70.5	7.4	9.5	72.7	1.9	2.5
Risk adjusted total	77.9			74.6

Na = information cannot be accurately extracted from Business Case

Explanatory Notes:

1. All values are expressed as net present costs (NPCs) over the life of the project, including the risk values. The project life is typically assumed to be 60 years.

2. The NPC of the risk adjustment in each phase (pre and post implementation) is expressed as a percentage of the NPC of each phase. The NPCs and risks in the post-implementation phase are often not comparable between projects, because they include variable amounts of costs and risks that are common to both options. For example, the West Middlesex and Dudley projects include the cost of clinical services in the analysis, so the NPCs are high compared to other projects.

3. The cost of PFI options is not broken down into pre and post implementation, because the Trusts do not start paying the unitary charge for the development until it is built and available for use.

4. The pre-implementation costs refer mainly to costs associated with the construction of the buildings and the large equipment items. Some other costs, such as small equipment items and backlog maintenance, are included in the post-implementation costs in all cases, even though some of these costs are incurred before the new building is commissioned. This approach has been taken to increase the extent to which projects can be compared on a like for like basis.

5.4 Long Term Capital Projects and PFI

5.4.8 Where adjustments have been made to the PFI costs (to bring prices to a like for like basis), these should be broken down on the same basis as the publicly funded option.[4.8f]

1. Please refer to answer provided for question 5.4.7

5.4 Long Term Capital Projects and PFI

5.4.9 Could the Department also provide a brief commentary on any apparent differences between the reported schemes.[4.8f]

1. Please refer to answer provided to question 5.4.7

5.4 Long Term Capital Projects and PFI

5.4.10 Could the Department specify to us the cost of raising finance for a PFI hospital as compared to that of a conventionally financed hospital (for which we would expect the NHS would be able to borrow at a lower rate than the private sector) both before and after adjustment for risk?

1. PFI funding cannot be replaced by conventional funding without other scheme aspects changing. It is not possible therefore to directly make the comparison between the cost of raising PFI finance with that of a conventionally financed hospital.

2. The cost of borrowing cannot be separated from the project risk. When the public sector undertakes a project it also bears the risks of implementation, which come at a price. This price is not reflected in the cost of gilts (ie Government borrowing) but is borne by the Government—that is the taxpayer—nonetheless. Specifically the risk of cost and time overruns on public schemes means on average additional borrowing would be needed and the duration of the borrowing would be longer. With PFI funding the private sector partner has its own money at risk which provides the incentive to use the money it raises more efficiently. This leads to better risk management and where risks are managed (and paid for) by the private sector, they cost less to the taxpayer overall. It is these savings, however which more than make up for any higher cost of finance and so provide better VfM.

5.4 Long Term Capital Projects and PFI

5.4.11 Could the Department update the information given in Table 4.8g on donated capital additions by region only? [4.8g]

1. The information requested is contained in Table 5.4.11



© Parliamentary copyright 2003	Prepared 17 February 2003