تحلیل انتقادی مالی طرح سرمایه گذاری خصوصی: انتخاب یک روش تامین مالی و یا تخصیص سرمایه اقتصادی؟

The UK government’s Private Finance Initiative (PFI) policy raises a series of questions about the rationality and distributive implications of using private finance, inevitably more expensive than public finance, in essential public services. This paper, by examining the process, the financial methodology, its assumptions and the data used in the system of appraisal for new hospital builds under PFI, shows that the decisions rested upon the ambiguous concepts of risk transfer and value for money at the level of the individual hospital rather than the system or society as a whole. These concepts were far from neutral and provided the rationalising motif for a process that transfers resources from the public at large to the financial elite, thereby obscuring the distribution issues that were largely missing from the policy debate.

The British government has used the Private Finance Initiative (PFI) to finance the modernisation of Britain’s ageing public and social infrastructure, including roads, prisons, hospitals and schools. Introduced by the Conservative government in 1992, the incoming Labour government revitalised the PFI and rebranded it as Public Private Partnerships, an umbrella term that includes PFI, in 1997. While privatisation was the preferred policy measure for reform of the state owned trading enterprises, partnerships are playing a key role in the transformation of the largely non-traded public services that could not be privatised for political or financial reasons. Partnerships have taken different forms in each of the public services. While they differ in their mode of operation, they nevertheless share certain common features. Services remain publicly funded and subject to a regulatory framework set by government, and the core professional or front line services as in health and education are provided by the public agency: this is the ‘public’ aspect. The ancillary services are provided by the private sector, as is the physical infrastructure to support both the professional and ancillary services: this is the ‘private’ and ‘finance’ aspect of the partnership arrangement. Like the privatisation programme that preceded it, it is a policy that is now being emulated around the world. The purpose of this paper, a critical financial appraisal of the policy, has therefore international relevance. As with many public policies, the rationale has changed over time. The government now emphasises that PFI will deliver greater value for money (VFM) over the life of the projects because the private sector assumes some of the financial risks (and costs) that the public sector would otherwise carry (Treasury Taskforce, 1997a and Treasury Taskforce, 1997b). Indeed, value for money is the main justification for choosing public or private finance for delivering public services. Its central element is the standard investment appraisal technique based on the comparison of the discounted cash flows of different options, including privately financed options, and the selection of the one that offers the greatest financial benefits, although affordability and public service obligations should also be considered. PFI proposals have to prove their expected value for money to the public agency to gain approval to proceed. The emphasis on appraisal and ‘value for money’ is part of a wider government initiative to introduce formal techniques into the UK public sector decision-making process to allocate resources on a more rational basis, free from political interference or managerial preference, which in turn is assumed to lead to a more socially efficient allocation of resources (Treasury, 1997a). But the theory and practice of investment appraisal is not unproblematic, particularly in the context of public services, as others have noted (King, 1975, Ross, 1995 and Tribe, 1972). The complexities of PFI add further difficulties (Froud and Shaoul, 2001). In addition, the use of such techniques at the unit level, particularly in the context of services such as health, whose complexity requires planning if comprehensive, universal and equitable coverage, key goals of the National Health Service (NHS), are to be achieved, does not necessarily ensure sound decision making at a wider level, either locally or nationally. But as others have pointed out, it is not just that such techniques can be problematic or misused, they are also value laden: “the myth endures that techniques in themselves lack substantive content” (Tribe, 1972, p. 75). In the context of investment decisions between public and private finance, what is at stake is not just the selection of particular projects, but also the allocation of resources between the public and private sectors of the economy (Brown and Jackson, 1990), and the important distributional consequences that flow from that choice. This paper therefore explores the distributional implications of the methodology and practice of appraisal put in place by the government using ex ante evidence from the first wave of acute hospitals to be built under the PFI. Public discussion and academic research, following the agenda set by the British government, has largely taken an ‘evaluative’ approach whereby proposals are judged at the narrow project level in terms of their value for money. There have been a number of empirical studies examining the ex ante value for money in specific hospital projects (Gaffney and Pollock, 1999a, Pollock et al., 2000, Price et al., 1999a and Price et al., 1999b), in the health service (Gaffney and Pollock, 1999b, Gaffney et al., 1999b and Hodges and Mellett, 1999), in transport (Gaffney et al., 2000 and Shaoul, 2002), and in education (Ball et al., 2001 and Edwards and Shaoul, 2003a). Froud and Shaoul (2001) considered the process of appraisal and its operation in the context of the NHS. These studies have questioned whether the projects demonstrated value for money and raised other issues of concern. The National Audit Office has produced more than 20 reports on PFI, including one that sought to examine whether value for money had in general been achieved (NAO, 1999b) and another that raised concerns about the reliance that can be placed on the complex financial modelling required for the value for money appraisals (NAO, 2000a). In addition, there have been reports by management consultants (Andersen Consulting, 2000) and policy think tanks (IPPR, 2001 and Sussex, 2001) that have collated secondary evidence on the ex ante value for money issue. The policy is too new for there to be many studies evaluating value for money on an ex post facto basis. Shaoul (2000) examined the outcomes of the Passport Agency’s failed PFI project while Edwards and Shaoul (2003b) examined the implications of failed information technology projects for assessing value for money outcomes. While the NAO, 1999a, NAO, 1999c, NAO, 2000b, NAO, 2001a and NAO, 2001b, its investigations were not directly concerned with value for money. Other researchers have analysed other aspects of the policy. Terry (1996) reviewed the development of the policy. Heald (1997), Broadbent and Laughlin (1999) and Mayston (1999) made an a priori appraisal of the issues raised by its implementation. Heald and Geaughan (1997) and Kirk and Wall (2001) examined the issues raised by the accounting treatment of PFI. But there has as yet been little explicit consideration of either the assumptions or the distributional implications of the appraisal methodology, although a number of studies have highlighted the way that PFI redistributes costs within the healthcare economy and the economy as a whole (Gaffney et al., 1999a and Gaffney et al., 1999c). The purpose of this paper is two-fold: firstly to examine the assumptions, methodology and interpretation of the appraisal process in the National Health Service (NHS); and secondly to make a financial analysis of the proposals for the first wave of new hospitals, in order to identify the probable winners and losers, and assess the degree to which the appraisal process and methodology is likely to lead to a rational and equitable allocation of resources. Hospitals provide an opportunity to do so because, unlike other sectors such as roads and prisons, a number of the Trusts’ business cases submitted for approval and their own annual report and accounts are publicly available. It is therefore possible not only to examine the ex ante value for money case, but also the likely impact of PFI on affordability, work force planning, case loads, etc. The study also makes use of interviews with a range of personnel involved in the PFI process to clarify contextual issues and a wide variety of official documents and case studies of individual hospital projects. While the data presented is largely drawn from published sources relating to the acute hospital sector, there is insufficient consistent data for a sector wide or aggregated analysis. The study is therefore indicative and exploratory rather than definitive. The paper is organised into five further sections. The first section explains the restructuring of the NHS hospitals, the introduction of capital charging, and its implications for the current financial regime of NHS hospitals, new capital expenditure and PFI. The second section sets out the PFI process in the context of hospitals. The third section discusses the appraisal process: its methodology, criteria, and assumptions. The fourth section presents a financial analysis of the Trusts’ cases justifying their PFI projects and identifies the winners and losers. The final section concludes by drawing out the implications for the various stakeholders, explains the significance of the value for money rhetoric and private finance, and sets the PFI within a wider political economy framework.

This paper set out to explore the distributional implications of the VFM methodology and practice of appraisal put in place by the government, and the degree to which the system of appraisal leads to a rational and equitable allocation of resources. While this study has relied upon evidence derived from published sources of a few examples of the first wave of PFI hospitals, only a handful of PFI hospitals are operational at the time of writing (June 2003) thereby limiting the kinds of analyses that can be undertaken. But these results are important because, as the government says, “64 PFI major PFI hospital building projects have been initiated with a value of over £7.5bn and these along with medium sized and smaller schemes will ensure that the NHS Plan target of 100 new hospitals by 2010 will be easily exceeded” (DoH, 2002b). The analysis of the VFM methodology showed that it relied upon a new methodology, expressly introduced for the purpose that was premised upon concepts such as value for money and risk transfer that despite their intuitive plausibility have little objective empirical content. It raised a series of questions and ambiguities about their meaning and measurement. Value for money rested upon discounted cash flow techniques that were not value free. Political choices were exercised in the selection of the technique, the discount rate, and the appraisal process. The ex ante risk transfer appeared to be little more than a device that both close the gap between the public and private options and ensure to preference was given to the PFI options. The business cases, far from demonstrating risk transfer, simply asserted what they were supposed to prove. Secondly, the analysis challenged the claim that the introduction of such appraisal processes would allocate resources on a more rational basis, free from political interference or managerial preference. Firstly, the system of appraisal was itself the result of political choices and interference. Secondly, in the absence of public finance for public investment, itself an explicit political choice given large budget surpluses and low borrowing ratios, the Trusts were forced to manipulate their Full Business Cases, particularly via their assessment of risk transfer, to show that the PFI option was cheaper if their projects were to receive approval. Thirdly, irrespective of the merits of any particular appraisal technique, its use at a narrow project level does not ensure rationality at the national or regional level. Fourthly, it is hard to see the rationality from either a public finance or healthcare perspective of an appraisal methodology and process that results in more expensive hospitals with less capacity under conditions where lack of capacity is already a problem. Capacity in the first wave of PFI hospitals has been cut by up to 30%. Twenty percent of the workforce are set to lose their jobs. The Trusts face ever increasing financial instability. Primary care, social services and patients and their families will bear the cost of adjustment while the nation, as taxpayers, will have to fund extra facilities simply to preserve the status quo. In other words, an appraisal process and methodology that purports simply to select a financing method also serves to reallocate resources. The VFM methodology has produced results that are far from rational and serve to redistribute wealth and increase ‘social exclusion’. The government’s claims ignored the conflicting demands of the numerous stakeholders in the context of a cash strapped, labour intensive service where the process is also the product and much of capital infrastructure is old and inadequate. The appraisal techniques ensured that the conflict was resolved in favour of providers of finance—the private sector—under the guise of value for money and risk transfer. Thus PFI comes at the expense of patients and their families, taxpayers past, present and future, as well as the workforce. While PFI differs from privatisation in that services remain publicly funded, it is similar in a number of ways. It introduces new stakeholders that require a higher surplus from an activity whose income per unit of output is not set to rise. Its benefits are concentrated among the few, while the costs are diffused throughout the population, thereby increasing the ever widening social polarisation and health inequality that has become the hallmark of Britain today (Acheson, 1998). Thus while the government’s case rested upon value for money, including the transfer of risk, PFI is likely to lead to a loss of benefits in kind and a redistribution of income, not from the rich to the poor but from the broad mass of the population to the elite few. PFI has boosted the construction industry whose PFI subsidiaries are now the most profitable parts of their enterprises. It has led to a huge expansion of the facilities management sector, now dependent for the overwhelming majority of its income from the state, whose profit margins may be low but return on capital is truly heroic. But the real winners are likely to be the financial institutions whose loans are effectively underwritten by the taxpayers as evidenced by the renegotiation of the Royal Armouries PFI (NAO, 2001a). The government, by focusing on the need for private finance to modernise Britain’s ageing hospitals and concepts as ambiguous as value for money and risk transfer, made the distribution issue invisible in order to justify a deeply unpopular policy. While it is possible to draw very general conclusions about the distributive implications of the policy, more detailed research is needed to quantify ex post facto the impact on public expenditure, the hospitals’ financial stability, the performance and outputs of the NHS as a whole, and the SPVs and their financial backers. What then are the likely implications for the various stakeholders? The Trusts, as businesses, are caught between reduced capacity, lower income, particularly when the average fee for service system outlined in the White Paper: Delivering the NHS Plan (DoH, 2002c) becomes operational, and higher costs. There are in principle several remedies: increase revenue; reduce labour costs, the main cost, or restructure, all of which have implications for other stakeholders. In a cash-strapped publicly funded system, any increase in revenue comes at the expense of the local healthcare economy. The possibility for revenue generation in the form of income from private beds, charges for car parking, shops, etc., is small in the context of their needs. The ability to reduce labour costs means increasing patient flow and in turn depends upon short stay, day treatments, new technological developments that reduce the length of stay, new drugs or out-patient treatments that increase costs elsewhere in the system, etc. But while increasing patient flow or altering the case mix via conveyor belt treatments reduces unit costs, it is perverse from several points of view. Only those treatments, which can maximise patient flow and income, will be given. This undermines the plans for the provision of local healthcare services since the concentration of services at certain sites and the closure of others, especially the more expensive inner city sites, means ever fewer and larger hospitals, increasingly inaccessible to those without cars. It involves a policy of early discharge and short stay, largely favouring those with acute illnesses rather than those who are chronically sick. It entails closing those facilities where the flow is low and unpredictable, such as maternity services. Thus public hospitals come to resemble private sector enterprises that can make a profit by excluding bad risks and unprofitable business. The increased efficiency is achieved by passing the costs onto primary, social services and the patients’ family. Furthermore, patients will have to contend with not only a reduced level of access to healthcare treatment, but a reduced level of service and quality of care that flows inexorably from the drive to cuts labour costs. While the government may represent this as an efficiency gain, it is hard to reconcile it with the notion of universal public healthcare provision, which has been the characteristic of the NHS thus far. From the wider perspective of population health, the logic of such a financially driven healthcare system reinforces the bias against preventative medicine and towards the use of acute remedial medicine. It encourages the standardisation of existing services as best practice. There are additional problems associated with PFI itself. While the payment mechanism is related to the quality of services provided, in practice this depends upon the contract clearly defining the level of services in ways that can be measured, the Trust having the staff to carry out the monitoring and the power relations between two partners, which may be very unequal in size. In practice, contracts have proved a difficult mechanism to enforce standards in the service sector as the privatised rail infrastructure company, Raitrack’s experience with its sub-contractors and its subsequent collapse, has demonstrated. PFI contracts result in a long-term commitment to a particular infrastructure and form of service delivery. The Building Futures Group (Worthington, 2002) has argued that the 70+ hospitals being built under the PFI could become obsolete long before the contracts expire; yet the NHS will have to continue paying for them; more immediately, if due to medical or technological advances or shifts in demand/need, changes in the infrastructure and services will be required. While change always has the potential to cause financial problems, PFI imposes particular constraints since it is only the SPV who can provide the new facilities. In effect as a monopoly provider, the SPV will be in a position to dictate terms. Arguably, it is on this so-called ‘change management’ that the private sector partners will really generate their profits. Already there have been cases where the Trusts failed to define the services carefully enough, they have found that their service charge has risen. But under conditions where clinical staff is the only variable cost, the increased tariff can only be met from the staff wage bill. Taken together, PFI has the potential to be financially destabilizing for the hospitals. But this in turn has implications for the NHS as a whole. The contracts between hospital Trusts and private corporations are legal binding. In cases where a Trust is unable to pay the annual tariff or deliver the necessary services, the NHS will have to step in—which means that funding will be diverted from other health services into these privately financed hospitals. In practice, given that Primary Care Trusts (PCTs) will soon hold 75% of the NHS budget, the PCTs will be forced to bail out the PFI hospitals at the expense of other hospitals, and primary and social care. Thus PFI has the potential to destabilize the wider healthcare system and force the public to seek private insurance to pay for medical care in the private sector that the public system can no longer provide. But given that the PCTs’ modernised surgeries will also be financed under the PFI through NHS LIFT, the PCTs may find that that the only way they can manage capped budgets is to embrace user fees and/or the concept of Health Management Organisations. Either way, it means a return to the conditions prevailing before the establishment of the NHS at ever-higher financial cost to the public as taxpayers, as the US system of healthcare demonstrates. Despite the fact that the US has a largely private sector delivery system and spends 14% of its GDP on health, the public sector spends a sum equal to 9% of GDP, among the highest in the world, while still leaving 44m people without access to healthcare. But this should come as no surprise. After all healthcare is publicly funded and provided precisely because it cannot be provided as a comprehensive and universal service on a commercial basis. The risks are simply too high for the private sector. If the corporations are prepared to move into healthcare now it is because the public sector and/or the public at large will carry the risks. While many of the former state owned infrastructure industries were brought into the public sector for a wide variety of pragmatic reasons, not least because they were hugely capital intensive, financially risky, crucial for the country’s economic development and required planning and coordination, public services have been publicly funded as a result of long political struggles that are deeply etched into popular consciousness. Their creeping privatisation via the PFI and similar policies, in contrast, is neither the result of a widespread movement among the public at large, nor popular. Their removal must set the scene for renewed political and social struggles. These policies of the New Right and now New Labour were and are presented as simply a policy shift that occurred during the 1970s (and could therefore be reversed by another policy change). But in fact, they reflected the response of business leaders to the objective changes that had taken place in the world economy (Beams, 1998). The downturn in the rate of return on capital employed in the 1960s and 1970s was the driving force for several inter-related processes: the globalisation of production in order to lower costs, and the development and application of new technologies of production: computers and telecommunications. Changes in technology enabled ever fewer productive units to supply a world market. Together these processes have been responsible for a transformation in the structure of the capitalist economy. The resulting global mobility of capital spelt the end of the program of Keynesian national regulation that formed the basis of the post-war welfare state, and the state owned enterprises and services. At the same time the enormous technological innovations in the production process, based on the computer chip have enormously intensified the crisis of the profit system. The cash surplus or surplus value—the basis of profit—represents in the final analysis the surplus labour extracted from the working class. But the essence of new technology and cost cutting is the replacement of value creating labour in the production process. Consequently, rather than alleviating the tendency of the rate of profit to fall, it has worked to exacerbate it, as Armstrong et al.’s analysis shows (1984). While this was and is largely invisible in the public debates, it was this that lay at the heart of the policy shift and the New Right Agenda. It is this falling rate of profit relative to the amount of capital employed (even though the absolute amount of profit may be rising) that lies behind the successive waves of mergers and cross-border mergers in the 1980s and 1990s: corporations sought to cut costs, sell off surplus assets—thereby reducing the amount of capital employed—and reduce the number of shareholders to whom dividends were payable. Under conditions where the overall mass of surplus value was expanding, capital was able to tolerate the welfare state and even welcome the nationalisation of basic industries. Such policies provided a means of containing and regulating the very bitter class struggles that arose in the aftermath of World War II that threatened to repeat the revolutionary struggles of the post-World War I period. The nationalisations shifted the cost of investment in capital intensive industries onto the taxpayers while enabling their former owners to reinvest the proceeds from compensation in more profitable ventures. At the same time the nationalised industries and services were run in ways that constituted a subsidy to industry. Indeed, the nationalisations in the 1940s were justified with claims of the increased efficiency that would flow from the restructuring and increased investment that only government could provide (Millward, 1999). The welfare state measures on the other hand, social protection, health, education, etc., paid for out of general taxation and social insurance, enabled the public provision of services that had never been provided by the corporate sector on a universal basis. But under conditions where the tendency is for the mass of available surplus value to decline, deductions in the form of corporate taxation to finance social welfare became increasingly intolerable. At the same time, the corporate sector demanded a reduction in income tax for the general population as a form of low wage subvention and a shift to indirect taxation that adversely affected the less well paid, the majority. The search for new sources of profit required the opening up of the 40% of so of GDP that did not provide a source of private profit via privatisation, PFI/PPP, outsourcing, and similar measures. Privatisation has spawned one quarter of the top 100 corporations on the London stock market. Outsourcing and PFI/PPPs have created a new business sector—facilities management—and corporations that are the stock market darlings. The World Trade Organisation seeks to open up health, education and social services as new sources of profit for the medico-pharmaceutical and facilities management corporations through its General Agreement on Trade and Services and Government Procurement Agreement (Pollock et al., 1999). Yet these corporations are and will be almost wholly dependent upon the very state that successive governments claimed they wanted to roll back. Such an analysis suggests that the conflicts between the claimants on the pool of surplus value will increase as business strives to meet the demands for ‘international competitiveness’ in the global economy. In conclusion, this study points to a new and important use of accounting: to evaluate public policy decisions in terms of the distribution of resources to different social groups as well as the narrow ostensible objectives set by government. In other words, accounting can also be used to provide accountability not just to the providers of finance, in whose interests these policies are devised, but to the stakeholders who provide the funding and for whose benefit these policies are supposedly framed. In this it can play a vital role in raising the consciousness and awareness of the need for a very definite social orientation and programme—international socialism—on which to base a political struggle to defend public services.