Supplementary memorandum submitted by
the Department of Health
Question 4.8c
1. At Paragraph 13 of the evidence for Question
4.8 we stated that there were no new revenue support schemes to
report this year. The Committee had been notified of the support
scheme (referred to as the `smoothing mechanism') for the first
twelve major PFI schemes in the evidence submitted to the committee
in 1999.
2. In our original evidence this year we
should have informed the committee of proposals to meet certain
costs of Trusts with PFI schemes that could be classed as a revenue
support scheme and thus reported. The background is that prior
to the publication of the guidance document `Land and Buildings
Guidance in PFI schemes' in February 1999, Trusts were led to
believe that there would be no requirement to fund the 6% capital
charges on land and buildings transferred to the private sector
as part of PFI projects. This was a long standing commitment,
first given by the Department of Health in late 1996. Following
publication of the Land and Buildings guidance in February 1999
reversing this commitment, it was decided that the schemes affected
would be reimbursed via direct funding from the centre. The cut
off date was schemes at Best and Final Offer by 30 September 1998.
3. There is no loss to the NHS as the 6%
is financed as part of overall Trust capital charges provisions
and it is funded on an actuals basis each year.
4. In addition, following revision of the
Accounting Standards Board guidance on accounting for PFI in September
1998, several schemes that were approved and incorporated in Trust
accounts as being off balance sheet were reclassified as being
on balance sheet. These were the schemes at Bromley, Barnet and
Chase Farm (previously Wellhouse), South Buckinghamshire, Bradford
Community (Horton Park scheme), South Devon (Dawlish scheme),
Oxleas and North Bristol.
5. The result of this change is that the
Trust had to recognise the asset of the new hospital on its balance
sheet, and pay capital charges. The Treasury agreed to meet the
public finance consequences of these charges by increasing the
NHS's borrowing limits for the year in question: the additional
revenue consequences brought about by the PFI contracts going
on balance sheet are being met by increasing the NHS's overall
capital charge provisions and targeting these funds to the Trusts'
in question.
6. Following the assessment of eligible
schemes in autumn 2000 Chief Executives of all relevant Health
Authorities were written to on 8 March 2001 informing them of
the addition to their revenue cash limit for 2000/01 and which
NHS Trusts in their area should be receiving it. The total addition
for 2000/01 was £9.3 million to be distributed between 27
eligible Trusts (some of these Trusts will receive their first
actual payments in financial year 2001/02). This is its first
year of distribution.
7. The scheme is recurrent; data is currently
being collected for the 2001/02 distribution, which is likely
to be a marginal increase. Distribution is expected to reach a
peak of approximately £14.7 million in 2005/06 and return
to just over £10 million by 2010/11.
8. PFI deals provide a fully serviced hospital
facility. Figures given are NHS estimates. The value of schemes
that have not reached financial close are liable to change.
9. Total estimated capital cost to the private
sector includes the cost of land, construction, equipment and
professional fees, but excludes VAT, rolled up interest and financing
costs such as bank arrangements fees, bank due diligence fees,
banks' lawyers fees and third party equity costs. As PFI procures
a service rather than the underlying asset, capital values shown
are necessarily estimates.
10. The phasing of capital expenditure by
the private sector is generally not available. The spend profile
has been determined using a standard formula, below, or a best
estimate, to spread the total cost to the private sector over
the estimated construction period:
|
| Size of Scheme £m | Yr 1 % of capital cost
| Yr 2 % of capital cost
| Yr 3 % of capital cost
| Yr 4 % of capital cost
| Yr 5 % of capital cost
| Yr 6 % of capital cost
|
|
| Under 10 | 50
| 50 |
| |
| |
| 11 to 50 | 10
| 65 | 25
| |
| |
| 51 to 100 | 10
| 25 | 45
| 20 |
| |
| 101-200 | 10
| 15 | 30
| 30 | 15
| |
| 200+ | 10 |
15 | 25
| 20 | 20
| 10 |
|
11. The information does not provide details of schemes
below £10 million.
12. These figures may not sum due to rounding.
4.8c—Answer to the second two questions about revenue
support
13. No revenue support was allocated in the reporting
period. No data is therefore provided.
14. The nationally agreed support scheme only applied
to the first 12 major schemes prioritised in the 1st wave.
4.8d Could the Department provide a table showing
the increases to the capital cost of schemes since the last expenditure
questionnaire and provide a commentary on changes of more than
10%? In addition, could the Department provide the intitial costs
of PFI schemes at outline business case (baseline year) for those
schemes reported in last year's questionnaire and comment on increases?
15. The information requested is contained in the attached
tables.
Table 4.8.3
INCREASES TO THE CAPITAL COST OF PFI SCHEMES
Comment on any increases over 10 per cent:
Northumbria—Hexham
Hexham have 1-8% attributable to indexation—remainder
in functional content and revised cost assumptions. 2-8% attributable
to indexation—remainder to revised cost assumptions. Z—floor
area increased OBC to FBC by 72%. OBC dated October 1995, FBC
November 2000. Therefore 5 years indexation. Recalculation in
cost assumptions (abnormals).
South Tees
Since Financial Close in mid 1999 a post contract variation
was made to add additional Cardiac facilities at request of commissioners
in response to the NHS Plan (July 2000).
Table 4.8.3
INCREASES TO THE CAPITAL COST OF PFI SCHEMES
Notes:
Queens Medical Centre
Earlier cost estimates had been based on the Public Sector
Comparator. The PFI scope is extended in line with the trusts
capital development plans following private sector innovation.
It now includes a private patients unit, relocation of the maxilofacial
services and retain facilities. This figure includes £1.4
million to be funded at the operational phase by non-SPV sources
and the value of land to be disposed.
Table 4.8.3
INCREASES TO THE CAPITAL COST OF PFI
Comment on any increases over 10 per cent:
Norfolk & Norwich
The initial OBC was for 701 beds. This was then increased
to 809 (£143.5 million). A subsequent variation was approved
for an additional 144 beds, bringing the total to 953 (£160
million).
Luton & Dunstable
The initial OBC did not include staff accommodation (£7.2
million). In August 2001 the Trust signed a variation to the contract
for the provision of an additional 28 beds.
Essex & Herts (Renamed as a PCT)
The initial OBC cost has been increased to reflect indexation
and the inclusion of a location adjustment.
Table 4.8.3
INCREASES TO THE CAPITAL COST OF PFI
Comment on any increases over 10 per cent:
University College Hospitals NHS Trust
The capital cost at OBC stage relates to the proposed scheme
based on a 1996 tender. The PFI scheme, which came forward in
October 1997, differed radically from the solution identified
in the OBC (March 1995) in that it proposed a single site solution
comprising a high rise ward block linked to a lower rise podium
block, rather than a four site solution. The service and revenue
advantages of a single site, all new build hospital offset the
high construction costs. The trust undertook several cost reduction
exercises and the consortium price properly reflected the location
and type of scheme. The scheme then changed further in scale and
cost which were attributable to inflation costs, land acquisition
costs and additional facilities not within original scheme (as
well as debt service costs).
Greenwich Healthcare NHS Trust
The increase in costs since approval of the OBC from £57.1
million to £96.1 million is due to the agreed change of the
scheme from refurbishing old buildings to building a modern hospital.
St Georges Healthcare NHS Trust
The increase in costs since approval of the OBC from £31.4
million to £45.7 million was due to adjustment for the standard
inflation allowance between approval of the OBC in 1995 and approval
of the FBC in 2000 and extensions to the scheme. These extensions
included additional clinical accommodation, 2 shelled operating
theatres and 2 additional ITU beds.
West Middlesex University NHS Trust
There was a mistake in not updating the initial capital cost
of the scheme as it developed and progressed. The capital cost
of £38 million featured on submissions to the Health Select
Committee last year; it should have read £50 million.
The final figure of £50 million was due to increases
caused by a review of the floor area (£4 million) and technical
issues such as on costs and fees amounting to an additional £7
million.
North East London Mental Health NHS Trust
The increase in costs since approval of the OBC from £7.6
million to £10.4 million was due to adjustment for the standard
inflation allowance and extending the scope of the scheme. The
scheme has been extended to include a day hospital for older people,
additional therapy space and further additional space to enable
compliance with Government policy on single sex segregation.
Table 4.8.3
INCREASES TO THE CAPITAL COST OF PFI SCHEMES
Comment on any increases over 10 per cent:
Oxford
Apart from inflation (MIPs indexation/location factor), there
are no major variations from the approved OBC/Addendum. However,
since "last years figures" (ie the original OBC) the
childrens centre has been added and the University new build has
been replaced by a refurbishment of Level 4 JR.
Stoke Mandeville
Technical changes due to required changes in costing methodology.
The impact of the Health Building Notice Requirement on the scheme
which means that a new mortuary is required rather than a refurbishment.
Changes required due to the need to meet the NHS Plan such as
improved waiting list capacity. Changed Trust specification.
Nuffield
The increase in the value of the scheme of 11.7 per cent
is due to the inclusion of an additional two operating theatres
within the scheme. Since the OBC the Trust expanded its theatre
capacity and this is now reflected within the PFI.
Surrey Hampshire borders
Increase caused by increasing the capital costs to MIPS 331
Q2/2001and final space adjustments.
Sussex Weald
The preferred option for which the capital cost is shown
above, changed radically between OBC and the PFI agreement date.
Table 4.8.3
INCREASES TO THE CAPITAL COST OF PFI SCHEMES
Comment on any increases over 10 per cent:
Exeter and District—Tiverton
As reported last year Exeter and District Tiverton scheme
was never £15.5 million. This should have been £10.5
million.
Gloucester
From OBC to FBC the cost of the scheme will be increased
according to the MIPS index. If the gap between OBC and FBC is
18 months, the figure reported will be the lower OBC and only
when the FBC is submitted will the Figures be updated. The figures
reported to the HSC between OBC and FBC will be out of date. This
is the case with Gloucester where as the FBC is being finalised
we now know the figure is £33.5 million not £32 million.
Table 4.8.3
INCREASES TO THE CAPITAL COST OF PFI SCHEMES
Comment on any increases over 10 per cent:
Worcester Royal Infirmary
MIPS increase is significant plus the changes in HBNs. The
PFI development also includes a significant level of new build
* The capital values are the same as reported last year.
As stated in last year's evidence "Both Worcester and Hereford
's preferred solutions at OBC included a large amount of refurbishment.
The preferred solution in the PFI scheme includes less refurbishment
and more new build."
Hereford
The PSC was £49 million. The difference is a significantly
greater level of site redevelopment than first expected. * see
note for Worcester.
North Staffordshire Combined Care
Mainly caused by MIPS indexation—plus HBNs and slightly
bigger build.
Dudley Group
Combination of MIPS indices—HBNs, increased requirement
of Trust (extra 21 beds) and greater functionality not in the
PSC.
Table 4.8.3
INCREASES TO THE CAPITAL COST OF PFI SCHEMES
Comment on any increases over 10 per cent:
Blackburn Hyndburn & Ribble Valley
The Blackburn scheme has undergone significant revisions
to reflect the extra capacity demands of the NHS Plan/NBI report.
These are:
i. The original intention in the OBC was to reduce the
number of Surgical beds from 223 to 217. In the light of the NHS
Plan this has been changed to increase the numbers from 223 to
252.
ii. In the original OBC a rise in day case beds from 54
to 64 was planned. As a result of the NHS Plan the capacity was
increased from 54 to 78.
iii. The number of Adult Medical beds has been increased
from an OBC figure of 234 to 238. This increase is made up of
new Coronary Care beds to reflect NHS Plan targets.
In addition to these bed increases, a new day case theatre
and chemotherapy unit has been brought into the scheme as a direct
result of the NHS Plan.
4.8e Could the Department provide data on the revenue
consequences of schemes which have reached financial close and
represent long term contractual commitment over the next 25 years?
Could the Department provide an update of the Departmental Report
table showing the source and applications of HCHS capital, giving
the outturn position for 2000-01?
16. There are three supporting tables for this question.
(see Table 4.8.4)
17. This details the revenue consequences of schemes
at Financial close, split by region with a global summary sheet.
(see Tables 4.8.4b and 4.8.4c)
18. These tables are presented separately and show the
forecast outturn and an update of the capital disposition table
shown in the 2001-02 Departmental Report.
| 
