NHS Capital: are the recent announcements the start of something?

06 September 2019

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by Zoë Watters Public Sector Corporate Finance Partner

Email +44 (0) 7715 486621

The Government’s announcement of an £853m investment in new capital NHS projects is welcome but what’s really needed is a new approach to how the NHS can finance capital investment.

With the right approach politically, the NHS can be a vote winner. Announcements around capital can make the biggest headlines because of the numbers involved and so new investment on this scale would seemingly be a dream initiative for the new Prime Minister. For sure, the 20 organisations who are receiving the funds will be delighted - around £675m will be spent building new hospitals, wards and investing in mental health and primary care. However, the NHS estate is in a pretty bad way and is worsening. That means £853m is a drop in the ocean of what’s really needed. To illustrate - the amount would only cover the cost of two large acute schemes at best.

There is also the problem of Capital Departmental Expenditure Limit (CDEL).  The Department for Health and Social Care’s (DHSC) CDEL is maxed out and  remains the single biggest obstacle in solving the capital conundrum. There is also no  ‘CDEL-proof’ government anointed financing model now that the Treasury announced the abandonment of PFI and PF2 in last year’s Budget. It wasn’t a great loss but the previous Chancellor’s  subsequent announcement to halt the procurement of off-balance sheet Design, Build, Finance and Maintain, Operate (DBFOM) contracting structures, has resulted in a distinct lack of options. Cue multiple trusts, understandably, going it alone, searching for the holy grail of a capital financing solution that does not score against CDEL. Local authorities are keen to be involved, and rightly so given the move towards a system response to estates, but it’s hard to see how this will work with the grim reaper-esque CDEL looming over every solution.

But what will change going forward, whether that be more money or new policy? Whilst the Infrastructure Financing Review (IFR) is yet to report, the consultation document was distinctly silent on solutions for financing NHS infrastructure. The question is will the penny have dropped by the time it reports later this year? Let’s not forget the IFR was commissioned by the previous Chancellor but will need to reflect the views of the current one.

With Community Health Partnerships’s flagship Regional Health Infrastructure Companies (RHIC) scheme now formally shelved, what will be the new off-balance sheet phoenix that rises from the ashes? Difficult to say, but the much needed private sector estate expertise that RHIC would have brought with it will be very much missed.

If a new ‘CDEL-proof’ model does emerge, it will take time to develop and implement. In the meantime, backlog maintenance will increase and capital schemes will become even more imperative. Sadly, most schemes cannot wait that long.

Increase DHSC’s CDEL? Well that would be a vote winner…

by Zoë Watters Public Sector Corporate Finance Partner

Email +44 (0) 7715 486621