This week’s Queens Speech formally outlined the planned construction of “40 new NHS hospitals”. Boris Johnson, in his introduction to the speech, told us he was “proud to be the midwife to the biggest hospital building programme in a generation”. It’s naked electioneering, of course. But there are other reasons to be concerned about what Johnson is actually delivering.

The death of PFI has been greatly exaggerated

The last time we heard such grandiose promises for the NHS was in 1997, when Tony Blair’s New Labour swept to victory promising new hospitals and reduced waiting times – and to do so without increasing the UK public debt. It sounded too good to be true, and Pretty F*cking Inevitably, it was.

The Private Finance Initiative (PFI) was set up in 1991 under John Major & Norman Lamont - with a young David Cameron as his adviser. From transport and prisons, New Labour quickly expanded it into schools, NHS hospitals, housing, defence, and other key parts of the public sector, aided by the Institute for Public Policy Research (IPPR)’s ‘Building Better Partnerships’ Commission and backed by the City of London, already warmed to Blair’s New Labour project via the infamous ‘prawn cocktail offensive’. What we got as a result was an enormously expensive ‘buy now, pay later’ credit card for building public infrastructure.

Writing in the Guardian, Antony Barnett observed the “high-profile project on the future of Public Private Partnerships was funded by KPMG, Serco, Norwich Union, Nomura & British Telecom (BT)".

So, given the ongoing costly disaster of PFI – highlighted in the recent “Under the Knife” film – not to mention recent high profile PFI failures including Carillion & Interserve – the obvious question is how the next generation of new hospitals promised by Johnson and Hancock should be funded.

Boris Johnson previously compared PFI to “looting” and Sajid Javid’s predecessor - Philip Hammond promised to scrap “PFI”.

But in fact, Hammond said he remained committed to Public Private Partnerships (for all intents and purposes, PPP is the same thing as PFI). And according to NHS campaigners, local NHS “Sustainability and Transformation Plans” on which current moves are based, were filled with holes in capital budgets and vague mentions of “third party finance”.

After some fact-checking of Johnson’s new hospital claims by Jon Ashworth on the Labour front bench, the Prime Minister later clarified: initially £2.7bn would be made available for six trusts to start building work, and "seed funding" for a further 34 hospitals would be "forthcoming".

Essentially, to deliver on their promises, the Tories have four options:

1. Come up with a genuinely new financial model for financing public infrastructure, or
2. Hike public borrowing to fund capital works and/or increase taxation to pay for it
3. Continue the subterfuge of George Osborne (and indeed, the SNP) in coming up for a new acronym for PFI (think PF2, NPD, PPP) - smearing lipstick on the PFI pig.
4. Allow hedge funds & private equity firms to finance NHS hospitals.

It seems likely Johnson and Javid will plump for (3) and (4).

The role of ‘hedge funds’

Back in 2017, Health campaigners labelled a plan to borrow up to £10bn from hedge funds “desperate” while Shadow Health Secretary Jon Ashworth said it was “shocking” NHS leaders were in negotiations with hedge fund bosses.

As the head of NHS Providers Chris Hopson told the FT, questions remain about how the government was going to fund its largesse, and the extent to which there is genuinely new money on the table. “We would want the government to be really clear about where the money for a capital injection is coming from,” Hopson commented.

Despite public declarations of the end of austerity, the era of Tory penny pinching still rumbles on in the NHS. Austerity cuts have meant that NHS hospitals have for several years been forced to transfer their capital budgets (meant for long term investment) into revenue spending on day to day staff costs & delivering services in order to stay afloat.

But the signals are worrying. Jim Mackey, head of the NHS regulator “NHS Improvement” has said: “interest rates are currently at a record low, making it a good time for the NHS to use private cash to help boost funding for infrastructure projects” – despite the fact public finance is always a cheaper and safer alternative.

And the latest variant, hedge funds bankrolling a new generation of NHS hospitals, is perhaps even more worrying than the old version of PFI.

If we think about the cost of borrowing, we should bear in mind that hedge funds are typically much smaller organisations than banks which funded PFI schemes, with lower credit ratings, demanding even higher interest rates and fees for investment.

As New York Times Dealbook explain: “Hedge funds are sophisticated entities prone to using creative lending structures, and they are not afraid of taking risk. Hedge funds are willing to lend when other aren’t — a valuable service, to be sure. But hedge funds expect higher returns. The desire to take risk and earn higher returns has led to complaints that hedge funds take advantage of companies and charge exorbitant interest rates”.

The Mirror reported on the fact 12 of the 21 largest Tory political donors are from UK hedge funds, raising serious questions as to why high cost, high risk hedge fund finance is being promoted in the NHS?

Byline Times revealed that between 10 May and 23 July 2019, Boris Johnson received £655,500 in donations. Of this, two thirds – £432,500 (65%) – came from hedge funds, City traders or the very wealthy.

So could it be that ‘hedgies’ are having an oversized role in influencing views and shaping policy at the very top of the Tory party? And that some of the effects of this are already visible?

Hedge funds have already begun moving into providing care homes, Gill Plimmer reported for the FT last month. US hedge fund H2 Capital took over Four Seasons (the UK’s 2nd largest care home provider), in a £400m deal, after fears local authorities would need to step in. The justification – as also made explicit in NHS investments by Cheyne Capital, a £15bn hedge fund – has been to tackle so-called "bed-blocking”, in other words, bed shortages.

And even as questions swirl about how future hospital provision will be funded, let’s not lose sight of the related question – which I will cover in a forthcoming article – of how the existing PFI mess should be addressed.