Hospital budgets face 40% cut

The department of health has announced sweeping changes in today's White paper that could sound the death knell for several big PFI schemes.

The DoH wants to reduce the current £12bn hospital building programme to between £7-9bn, a decrease of as much as 40%.

The target will mean that Trusts with substantial deficits - which is currently almost a quarter - will come under intense scrutiny.

The DoH said: "It should be clear that any trust with significant deficits will not be allowed to proceed to market with large capital investment schemes without agreed plans to deal with those deficits before financial close."

"PFI will remain the major vehicle for delivering capital investment in acute services in the NHS. Even after completion of this reappraisal, we expect that the NHS will remain the largest single user of PFI in government, with a programme valued at an estimated £7-9 billion."

The department said that trusts should know by the end of February the future for their scheme.

It said: "The Department will shortly be writing to all SHAs with practical guidance on applying the experience of previous procurements, both in the NHS and in wider government. The guidance will take the form of a range of questions which will provide firm indications as to the likelihood of the scheme being viable, and which will assist boards in discharging their governance obligations.

"In light of these indicators, trusts will need to consider whether their investment plans are likely to be financially robust, affordable and sustainable or not.

"Guidance will cover levels of affordability in relation to size of capital investment against income, assumptions on efficiency gains and income growth, liquidity, activity shift and reference cost. As part of this process, trusts will also need to consider longer-term affordability carefully."

"Working with their SHAs, PCTs and trusts are required to reconfirm their investment plans. Hospitals procuring or planning a major capital development, including PFI schemes, will be expected to take account of the current reforms to the NHS, specifically choice, a movement of services into primary and community settings, and the current and new financial regime. Business cases should be assessed in the light of the reform programme."

Initial indications on the impact of the more developed schemes are expected by the end of February, with final details being confirmed thereafter.

But there was better news for the £1.2bn Barts and Royal London PFI scheme, with the North East London Strategic Health Authority report on its future expected to back the project as it stands.

However, Barts will be subject to the government's February review like all other hospital PFI's.