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July 9, 2010 8:43 pm

NHS trusts lose access to government loans

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The government’s flagship NHS hospitals are being pushed further towards becoming fully private sector entities as Andrew Lansley, the health secretary, has ruled that they should no longer have access to public sector cash for big capital projects.

The decision “raises the question of whether this is a step towards privatisation”, said Sue Slipman, director of the hospitals’ collective organisation, the Foundation Trust Network.

The move comes as NHS Foundation Trusts are showing signs of financial strain – some are recording significant losses, even ahead of the big squeeze on NHS spending that starts next year.

Foundation trusts are meant to be the best performing NHS hospitals, having earned the right to become self-governing institutions by demonstrating sound financial management and good governance. As public benefit corporations, they sit part way between the public and private sectors. They are able to borrow privately and make profits and losses, but profits are recycled into the hospital.

Up to now, the trusts have been able to acquire cash from the Department of Health for big capital developments. But in scrapping plans for a £400m rebuild of the North Tees and Hartlepool foundation trust a fortnight ago that relied on such cash, the government has decided that such borrowing is “not consistent with [their] financial independence,” Simon Burns, the health minister, told MPs.

That leaves foundation trusts reliant on either generating surpluses for capital developments, or borrowing against their revenue streams – for example, through the private finance initiative.

“We are still trying to work out the full implications,” Ms Slipman said. “But people are asking if this is a step towards privatisation.”

Aside from the capital rules, Mr Lansley wants to go further in his NHS white paper due on Monday and move foundation trusts off the public sector balance sheet entirely. That would mean their borrowing and spending would no longer count against the health department’s expenditure, giving them a status more akin to that of universities or housing associations.

The moves, however, come as their regulator, Monitor, is warning that several foundation trusts “are facing significant financial challenges”.

Fifteen of the 129 have recorded a technical deficit in the financial year just ended. And a small number have significant losses and are struggling with their cash flow, according to Monitor. Across the sector, efficiency programmes have delivered less than planned, earnings are below expectation, and the hospitals’ attempts to trade their way out of difficulty by doing more work will be difficult as NHS spending tightens, Monitor is warning.

John Appleby, chief economist at the King’s Fund think-tank, said: “Given that these are meant to be the best performing NHS hospitals, it is worrying that, even ahead of the spending squeeze, some are struggling financially.”

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