The Darzi Review in the context of the UK’s social infrastructure challenge
The recently published review of the NHS by Lord Darzi has confirmed the dire situation faced by the public estate. The declining position of the NHS and broader public estate has already been apparent for some time, as we have previously written about. The NHS ‘Estates Return Information Report (ERIC) 2021-22’ stated that the total NHS backlog maintenance rose from £9.2bn to £10.2bn, an 11% increase over the past year and representing around 5% of total NHS budget. Of this amount, works estimated to cost £1.8bn are categorised as ‘high risk’. £3.8bn is seen as posing a ‘significant risk’. The UK lagged behind the OECD more widely in the 2010s, recording a significantly lower level of gross fixed capital formation in healthcare (as a % of GDP). Such is the level of underinvestment that two NHS hospitals used coal fired boilers until at least 2021.
Lord Darzi’s observation of the primary cause of this largely chimes with the consensus. Namely, this is the continuation of the ‘lost decade’ of investment following the 2008 Global Financial Crisis, which has resulted in a capital-starved public estate. Whilst the NHS did receive an increase of just over 1% in funding per annum during this period, once adjusted for changes in population size and demographic structure, ‘such increases have essentially left funding flatlining’.
This has been further compounded by a ‘dysfunctional’ capital regime with a ‘byzantine approvals’ process. All of this has resulted in capital spending necessarily being employed to fund the desperate operational challenges faced by the NHS. The report estimates that c. £4.3bn was diverted from capital budgets between 2014-2015 and 2018-19 to cover in-year deficits. This would be damaging enough in isolation. When examined in context, though, it leads us to perhaps the most damning paragraph of the entire document.
‘On top of that, there is a shortfall of £37 billion of capital investment…. These missing billions are what would have been invested if the NHS had matched peer countries’ level of capital investment in the 2010s. That sum could have prevented the backlog maintenance, modernised technology and equipment, and paid for the 40 new hospitals that were promised but which have yet to materialise. It could have rebuilt or refurbished every GP Practice in the country’.
Indeed, this figure of £37 billion is estimated by the report to be as high as £46bn if compared with ‘English-speaking’ countries.
Clearly, the NHS is in need of a large commitment on capital spend. This need will only increase further, when considering the demographic challenges confronting the UK and broader commitments in support of Net Zero Obligations.
PPP and the NHS
PPP is part of the solution. Under current fiscal constraints, repeatedly referenced by the Chancellor, and in light of the radical solution needed, the government could turn to a new model to rebuild the NHS, revitalise the working population and support overall growth goals. As noted by the Future Governance Forum recently, ‘the time is right to introduce a new, progressive form of PPP into the Westminster government’s policy toolkit’.
The recently published AIIP report further expands on this. As noted, this situation is endemic across the wider public estate. Long-maligned as a source of NHS expense, another viewpoint could argue that PFI has actually served to protect NHS capital spending. This has been achieved through the effective "ring-fencing" of lifecycle replacement and maintenance spending throughout the contract term. The AIIP report finds that:
‘The result [of cuts] is that maintenance spend is often diverted to more immediately critical, and conspicuous, front-line needs, like more clinicians in hospitals or teachers and teaching resources, rather than lifecycling of built assets and building fabric. The long term implications of public sector maintenance underspend are asset degradation, higher whole life asset maintenance and replacement cost, and life-safety risk in non-PFI assets.’
This is supported by Lord Darzi’s review. PFI has played a role in limiting the damage done by the cuts of the 2010s, enabling the construction and maintenance of key health assets and ring-fencing the funds required.
Whilst it is clear that the original PFI model has its flaws, as also covered by the AIIP report, it is also important to recognise that there is real value in PPP as a delivery model, as demonstrated by the number of countries around the world that continue to use it. With the right design, PPP can be an important tool through which the new government can seek to rebuild the NHS, and, by extension, Britain.