Select Committee on Health Minutes of Evidence

Examination of Witnesses (Questions 375 - 379)




  375. Can I welcome you to this session of the Committee and can I particularly welcome our witnesses. We are very grateful for your cooperation in this inquiry and for the evidence you have submitted to the Committee. Could I ask you each briefly to introduce yourself to the Committee.
  (Mr Davis) Michael Davis, Chief Executive of Catalyst Healthcare Management Ltd, which is the investment management company for the Catalyst consortium members.

  376. And you began life as a cleaner.
  (Mr Davis) Not quite, but I wanted to pick up the point that I had some operational experience in hospitals which was actually at the ground roots.
  (Mr Stone) Tim Stone, I am Chairman of KPMG's PFI and PPB business—not an accountant, a banker, but have been involved in PFI schemes since the very inception in the early 1990s and a number of hospital schemes all the way through too.
  (Mr Gritten) Mark Gritten. I am the Chief Executive of the Royal Berkshire and Battle Hospitals NHS Trust. I have been with the trust since October 1998.
  (Professor Pollock) Allyson Pollock. I have two jobs. I work as the director of Research and Development at UCLH but I am here in my capacity as head of health policy and health services research unit at University College London (UCL).
  (Mr Deegan) My name is Mike Deegan and I am Chief Executive of Central Manchester and Manchester Children's NHS Trust and have been so since mid-September.
  (Ms Jackson) Helen Jackson, Director of PFI within the same trust. I have been there for two years.
  (Ms Herbert) Jane Herbert, Chief Executive of South Manchester University Hospitals NHS Trust. I have been there for about three and a half years.

  377. Can I begin by asking you, Professor Pollock, you are, I think it is fair to say, regarded as highly critical of the PFI route. What we are hoping to achieve with these sessions is some interchange between witnesses about the different perspectives of this key area of health policy. Would it be possible for you briefly to summarise the chief concerns that you have about PFI?
  (Professor Pollock) Yes. I suppose I should begin with a basic principle of the NHS, with which you are all familiar, the principle of risk pooling and risk sharing in order to achieve universality. Risk pooling and risk sharing means spreading the risks and costs of ill health across society, from poor to healthy and from ill to well. That concept of risk sharing and risk pooling is actually built into the financial and institutional organisation of the NHS. Markets and market structures so you start fragments that risk. It is very important to understand that. Risk pooling was actually built into the design of the delivery system from 1948, and the risk pool is fragmented when groups, such as the elderly, for example, are excluded or services such as long-term care, dental and optical services are excluded—or when services are privatised. For example by using Private Finance. What is not sufficiently well understood is that NHS capital was issued from central Government. In the interests of equity it has been issued as block grant. There has been no requirement up until 1991 for hospitals actually to pay a charge on that capital. It was a public good. That was in order to achieve equity—because after all hospitals could do very little about the estate that they inherited or the legacy and conclusions of assets. One of the things about contracting with the private sector is that the payment includes a charge on capital which you actually have to pay for out of your revenue budgets. When you contract with the private sector for services a new claim is made on the revenue budget, you are making a new charge on that revenue budge. Of course that is a new cost pressure. It has a number of effects: it fragments, it distorts the planning process, but it also creates new inefficiencies. There is plenty of evidence from around the world, especially from the US, to show that the transaction costs climb when you start to contract out your services; you become increasingly inefficient. Transactions costs in the NHS before the internal market were estimated at around 5 or 6 per cent; they rose to 12 per cent with the introduction of the internal market. We know in the States transaction costs are in excess of 25 per cent. That means that for every penny in the pound, you are using 25 pence in the pound in transaction costs (using the US experience of transactions costs). In fact, privatisation is inefficient in all sorts of terms and there is no system in the world that delivers a universal health care service on the back of profit providers. I think it is very important that the Committee understands that. That is to do with the principle of risk pooling and risk sharing and risk allocation.

  378. Do you have any concerns that some commentators suggest that the interest in PFI within the NHS is related to the wider political objectives of the current Government, particularly obviously in relation to Europe.
  (Professor Pollock) Others much more erudite and learned than myself in economics, including the IPPR, have already shown there is no macro-economic case for PFI, either in terms of the public sector borrowing requirement or in terms of the Maastricht criteria for Europe. So the arguments now rest with the micro-economic case. The key one which has been given is value for money—and I am sure you will want to pursue that—however, I think there are other concerns, which is the fact that PFI is being used as a trail blazer by the Treasury and the International Financial Services Lobby to promote and sell this model abroad. I have just returned from Canada where the UK division of PriceWaterhouseCooper were advising the local government on putting forward a PFI on hospitals and in schools. They were using their recent report which has a very flaky methodology to sell it. So PFI becoming an international tool.

  379. Before I bring colleagues in, you are probably aware that we want to look at some of the issues relating to the involvement of other witnesses in local schemes and their experience. Are you familiar with the schemes. I appreciate you have just come back from abroad and it may be you have not had a chance to look at the background, to our witnesses, but are you familiar with some of the local schemes?
  (Professor Pollock) No, I have not seen the Central Manchester business case and I did not know South Manchester was being called today.

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