The NHS has a maintenance backlog amounting to at least £5bn and it’s getting worse by the day as funds from the capital budget are raided to keep the health service running. Will a new programme of public-private partnerships deliver the primary care facilities that some say is the solution to the crisis? David Blackman reports


Roofs that leak when it rains heavily, a ward where the heating and power keep failing and operating theatres that have had to be shut down due to electrical faults. It sounds like a hospital in the developing world. But this was the picture that greeted inspectors from the Care Quality Commission (CQC) when they visited St George’s teaching hospital in south London last year.

Overall the inspectors found several parts of the hospital were in a state of disrepair, nearly a third of operating theatres needed refurbishment and the fire detection systems were poor. Maintenance had been neglected since it was last visited in 2014, according to the CQC. While the inspectors acknowledged that the staff at the hospital were caring, they judged that the hospital’s state of disrepair meant that its safety had to be rated as “inadequate”, the lowest score it can dish out.

St George’s has had a management shake-up since the CQC’s damning verdict, including a new chief executive. Management failings may have contributed to the poor state of St George’s but disrepair is an increasing headache across the NHS’s vast estate.

And it’s an issue that is likely to be under the spotlight over the next month of general election campaigning as Labour seeks to switch attention from Brexit onto the state of the NHS. The party’s leader Jeremy Corbyn made the cash-strapped health service the subject of the final prime minister’s question time of this parliament.

One construction health consultant says that a golf partner friend, who is an NHS estates director, is constantly anxious about the state of his hospital. “When he goes to bed at night, he worries about whether the power will fail.”

A review published last month by Sir Robert Naylor, the former chief executive of University College of London Hospital, estimates that the backlog of repairs across the NHS estate amounts to £5bn, a figure highlighted by Labour’s health spokesman Jonathan Ashworth in a speech to health workers last week. But Sir Robert hasn’t just come up with a diagnosis, he has also produced a plan for treating the NHS’s disrepair crisis. So how likely is it that Naylor’s plan will succeed in taking the health service estate off the critical list? While investigating this question, we have been told about Project Phoenix, a new – and not widely publicised – public-private partnership that is being set up to deliver the NHS’ primary care revolution. But will this initiative to inject private money into the system come on stream fast enough to counter the effects of a chronic lack of capital investment in the NHS?

Raiding capital budgets

The root of the disrepair crisis is the wider funding squeeze on the NHS. Capital spending across the health service is projected to remain flat until 2020, which means a “decrease in real terms”, according to the NHS Confederation, which represents care trusts. An already tight situation has been compounded by repeated raids on the NHS capital budget to plug shortfalls in day to day expenditure.

In 2014–15, the Department of Health (DoH) transferred £640m out of the capital budget, and since then the annual raids have escalated. A total of £950m was switched from the NHS’ £4.5bn capital to revenue budgets in 2015-16. In the following year, a quarter of the health service’s £4.8bn capital works budget was diverted into propping up day to day services. And senior officials admitted that they would have to keep dipping into the capital budget again to balance the NHS books when they appeared before the House of Commons Public Accounts Committee (PAC) in February.

The quality of existing stock has been adversely affected [by the maintenance backlog]

Roger Pulham, Gleeds

Without wheezes like the capital budget raids, the NHS deficit would have reached £3.5bn by the end of 2015-16, according to one estimate presented to the PAC.

Lord Kerslake, chair of the King’s College Hospital Trust and former Homes and Communities Agency boss, doesn’t like this practice but sees little alternative given the immediate funding pressures facing the NHS. “We are having to raid capital budgets in an unhealthily short-term way in order to keep the revenue afloat. My heart says we shouldn’t because it’s so debilitating,” he says.

As an accountant by training, Lord Kerslake understands that continued under-investment is not a good way to run an organisation. “It’s very retrograde. If you were running this as a business, you wouldn’t put that little into reinvesting in the assets.” Even the DoH has recognised the problem, with David Williams, director general of finance and group operations, telling the PAC that the capital budget raids are not “a sustainable or desirable approach for the long term”.

Sir Robert Naylor

Sir Robert Naylor, the man with the plan

The main result of the raids has been a rise in health trusts’ maintenance backlog, according to Roger Pulham, a director at Gleeds. “The quality of existing stock has been adversely affected,” he says. No surprise there. Jonathan Puddle, head of healthcare at Aecom, says that trusts are tending to respond to urgent repairs rather than carrying out the planned maintenance programmes that will keep the estate in a good condition.

Dean Sheehy, the director who oversees the healthcare sector for Rider Levett Bucknall, believes that the true level of disrepair is even bigger than Naylor’s £5bn estimate. He describes the additional £325m for capital investment announced in last month’s Budget, which will have to be spread over three years, as a “sticking plaster to cover a gaping wound”.

The Naylor review

For a more long-term answer, step forward the Naylor review, which was published at the end of March alongside the loudly trumpeted update of the NHS five-year plan. In the forward, Naylor says his aims are to support the delivery of the five-year plan’s clinical goals, release £2bn worth of assets for reinvestment and deliver land for 26,000 new homes.

By sweating the NHS’ assets in high value London, Naylor believes that up to £5bn worth of property receipts could be generated. In addition, upgrading the NHS estate could deliver around £500m worth of efficiency savings per year, the review estimates. “There are efficiencies to be had there. When you look at the amount of under-utilised space in the estate, it makes sense,” says Lewis Parker, healthcare director of Kier.

We are having to raid capital budgets in an unhealthily short-term way in order to keep the revenue afloat

Lord Kerslake, King’s College Hospital Trust

But playing the property market won’t cover the refurbishment of the NHS estate. On top of the £5bn maintenance backlog, the Naylor review estimates that it will cost around the same amount for the capital programme to deliver the NHS five-year plan.

Naylor’s answer to this cash conundrum is a cocktail of direct Treasury support, sums from property disposals and more private finance for primary care facilities. This will all be overseen by a NHS Property Board, which has already been given the green light by ministers.

The package outlined in the five-year plan and the Naylor review is a genuine attempt to tackle the NHS’ long-standing capital spending problems, says Kier’s Parker: “It recognises that there needs to be some investment in the system to be able to implement some of these outcomes around bed blocking.”

The dream underpinning the five-year plan is to push services out of hospitals and into smaller primary care facilities embedded in their local communities. The idea is that more diagnoses and procedures will be carried out in 800 new primary care facilities, eventually meaning that up to 3,000 fewer hospital beds will be needed, Naylor reckons. A new programme of public-private partnerships, known at the moment as Project Phoenix, will deliver much of the upgraded and new build primary care facilities that will be required (see “Project Phoenix – The new PPP”, above). Gleeds’ Pulham says: “When they are freed up, that will release beds and there will almost certainly be a rationalisation of the way that resources and assets are deployed.

“Everything suggests there will be a lot of transformation programmes and re-use of existing space. There will be a lot of activity, which bodes well for the construction industry.”

Working across trusts

Lord Kerslake is not so confident though. Pointing out that his own trust’s beds are occupied 98% of the time, he says: “We’re on an escalator here. We are not talking about reductions in the number of hospitals, we are talking about avoiding a growth in the number of hospitals to match increasing demand. In some parts of the country there will be falling demand but in a large number of areas, the issue is how do we avoid building another hospital not how you close what you have got.”

This shows how things, as always in the NHS, get more complicated at the local level, where vexed issues like whether to shut down a local accident and emergency department will bite.

When you look at the amount of under-utilised space in the estate, [upgrading the estate] makes sense

Lewis Parker, Kier

Naylor calls on the NHS to draw up local capital programmes, based on 44 sustainability and transformation plans (STPs) which have been set up around the country to work out whether health services are in the right shape to meet local patients’ needs. These capital plans should receive government capital support but only “where a strong case has been made”, says the review. The problem is that, as Naylor diplomatically acknowledges, the STPs are at “different points in their development”. The STP process has become stalled in local political dogfights following the publication of the draft plans late last year.

Each of the 44 STPs consist of a number of health trusts with their own sets of management teams with their own entrenched interests who have little incentive to push through cuts. “My concern is that that collaboration is not consistent across the trusts. You have leaders who see the big picture and then everybody else is protecting their own interests,” says a consultant who did not wished to be named.

Hospital corridor

Naylor’s solution is to sweeten the pill by getting Whitehall to hand out £2 to the STP for each pound that it generates from property disposals. The downside of this proposal is that it will reinforce geographical disparities in spending. Naylor’s own figures show that around 57% of the receipts likely to be generated via NHS property will accrue in London. Rider Levett Bucknall’s Sheehy argues that going down this route will “exacerbate north/south divisions, running counter to the idea that the NHS provides a consistent standard of care across the country”.

There will be a lot of activity, which bodes well for the construction industry

Roger Pulham, Gleeds

While his own trust is one of those sitting on valuable London real estate, Kerslake recognises the problem: “It’s not an even picture. How you square that circle between local initiatives and fair allocations is one of the big challenges,” he says.

“There is clearly a natural instinct of trusts to reinvest back into its own institutions. On the other hand, this leaves the chips where they lie: it doesn’t allow you to redirect resources. Part of the role of the Department of Health and NHS England is to rebalance where needs exceed the resources available.”

And while he believes Naylor’s prescription is correct, Sheehy says that the government will have to get the ball rolling with upfront investment in new facilities that will allow existing estate to be rationalised. This could include relatively humdrum measures such as improving accident and emergency departments to improve the flow of patients.

The Communities Health Partnership has told Building that this autumn should see the delivery of Project Phoenix’s new breed of PPPs. Sheehy says they need to be delivered soon. “The medium-term solution might be property disposals but trusts are crying out for private money because buildings are falling down.”

Project Phoenix – the new PPP

A new public private partnership, operating under the codename Project Phoenix, is being lined up to deliver a long-promised shift in health services from hospitals to primary care facilities.

The PPP is being set up by the government’s Communities Health Partnership (CHP) to deliver enhanced decentralised facilities, such as surgeries and clinics, where more diagnosis and treatment will take place under the NHS plan.

PwC is understood to have been advising the CHP, which assists the delivery of local community health facilities, on the new PPP that is designed to deliver increased private capital for the primary care estate alongside an extension of the existing NHS LIFT programme.

The PPP will be worth £3bn-5bn, according to Roger Pulham, a director at Gleeds, who leads on the consultancy’s health work.

The programme will span the whole of England, and is set to be divided into eight regions, two of which will be Greater Manchester and London. While the invitation to tender will be carried out on a national basis, delivery of the PPP will be devolved to regional delivery companies that will be able to liquidate redundant assets, create new portfolios and secure borrowing.