Private investment, public good: improving the primary care estate

25 October 2017

The Chancellor is facing calls to borrow more at next month’s budget – to spend on housing and other capital projects.

This is difficult at the best of times. Today, it is especially hard. Despite being at its lowest since the financial crisis, the deficit is forecast to be £58 billion this fiscal year. Brexit consequences are unknown and the OBR this year labelled public service spending ‘unsustainable’.

The OBR’s finding speaks to an important paradox: public services need reforming to bring down costs (through prevention, for example), but government does not have the capital to spend on wholesale change. Different thinking is needed.

In the NHS, some of this has been provided by Sir Robert Naylor, who was commissioned by Jeremy Hunt to understand how to use its estate to deliver better care at a lower cost. Naylor’s conclusion was to take ‘advantage of private sector investment’. Despite a capital spend of £4.8 billion a year, Naylor believed that £10 billion is needed to provide modern services – such as integrated community care hubs – and at least further £5 billion to pay for maintenance, such as bringing outdated stock up to modern care standards.

Such investment, through public-private partnerships (PPPs) and Public Finance Initiatives (PFIs) have been under scrutiny lately. John McDonnell pledged last month to bring PFI deals in house, at a potential cost of £40 billion. He argued: “The scandal of the Private Finance Initiative, launched by John Major, has resulted in huge, long-term costs for tax payers, whilst handing out enormous profits for some companies. Profits which are coming out of the budgets of our public services.” The NHS spent £2 billion on 105 projects in 2016-17 alone. Though, recent evidence of public-private partnerships suggests they play a role in attracting private investment into public infrastructure.

PPPs are collaborative joint-ventures that seek to align the interests of both sectors. Such schemes have seen £2.5 billion of investment into creating integrated care facilities for communities in the most deprived areas.

One such PPP, Community Health Partnerships (CHP), oversees 49 Local Improvement Finance Trusts- 60-40 private-public companies. They target the most deprived areas and have two public sector officials sitting on their boards to protect taxpayer interests. One project in Widnes is set to deliver £150,000 savings per year to the local health economy and cut A&E attendances by a quarter. This is achieved through utilising existing space and moving diagnostic facilities in-house. With the scheme due to expand nationwide, CHP and other schemes will have important lessons to share on how to align the interests of both sectors to deliver value for money.

With the OBR identifying rising healthcare costs as a particular obstacle to deficit reduction, the design of our estate can deliver savings into the future. Investment in community providers, such as the Widnes example, provide longer-run savings as they lower demand on A&E. These providers have cut A&E attendances for minor illness by 15 per cent. This has huge fiscal implications, as intervening early in the community costs the NHS £21 per GP consultation, whereas non-urgent A&E visits are six times the cost to the taxpayer.

The Chancellor should resist calls for cash injections in next month’s budget. There are opportunities for the private sector to help ensure viable long-term funding for public services and address this paradox. Already, early success stories show that the private sector should play a role in delivering value for money in estate regeneration. These, and other ways to deliver value for money in the primary care estate, will be the topic of a forthcoming Reform paper due out in January 2018.

Daniel El-Gamry, Research Assistant, Reform

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