Tomorrow (26th November 2025), the chancellor Rachel Reeves is expected to confirm, in her Autumn budget statement, that the government will fund the new NHS Neighbourhood Rebuild programme through deals with the private sector. An announcement has been released today that the Treasury has agreed to approve private partnerships as part of this new plan.
The decision effectively revives the use of public-private partnerships just seven years after a similar scheme, the private finance initiative (PFI), was scrapped over its high cost to taxpayers.
As the government seems determined to ignore the lessons of the past, and once again rely on private capital for its proposed “neighbourhood health centres”, here’s a reminder of why PFI was abandoned.
Cost
The first PFI contracts were signed by New Labour in the late 1990s at a time when the newly elected government was similarly keen to demonstrate financial prudence to voters. Then, as now, the Treasury was reluctant to commit to public borrowing to fund new hospitals, so it turned to a relatively novel idea – public-private partnerships.
Until then, new hospitals were built with money borrowed by the government and then handed over to the NHS after construction. But under PFI, private companies were not only contracted to build the hospitals – but also to finance their construction and maintain them. In return, NHS trusts would have to pay the companies back over 30 years.
In the 1990s and 2000s, both Conservative and Labour governments argued that PFI, rather than public borrowing, would be better value for money because the private sector was more efficient.
But from the very beginning, there were warning signs that this was wishful thinking. As early as 1999, one study found that the costs of PFI projects were vastly higher than their initial estimates – in some cases costs were double or treble their outline business case.
Over the next decade, as dozens more hospitals were delivered through PFI, scrutiny grew. In 2010, MPs sitting on the Public Accounts Committee “found no clear and explicit justification and evaluation for the use of PFI in terms of its value for money”.
Instead, the contracts had saddled the NHS with higher than normal maintenance costs that trusts had no choice but to pay, the committee said. One hospital was reportedly charged £333 just to change a lightbulb, another more than £5,000 for a new sink.
Faced with this criticism, the Conservative-Liberal Democrat coalition attempted to reform PFI in 2012. However, the revamped scheme largely failed to take off.
It took a further six years before several damning verdicts on PFI finally brought the scheme to halt altogether. In 2018, MPs complained that “after more than 25 years the Treasury still has no data on benefits to show whether the PFI model provides value for money”. That same year, the National Audit Office concluded that “overall cash spending on PFI and PFI2 projects is higher than publicly financed alternatives”.
It wasn’t just the costs of financing PFI projects, which were up to 5% higher than government borrowing, that the NAO identified as a problem. Private companies were also charging the NHS for insurance, external advisors, management fees, and even just for holding large cash reserves to satisfy their lenders.
It was no wonder then that in 2018, the then chancellor Philip Hammond announced the end of PFI, noting that the scheme had left the nation with a bill of £200bn to pay off.
Yet despite the damning appraisals, Hammond left the door open for new private-public partnerships, saying he was not against them if they could demonstrate value for money.
Quality
Another argument used to justify PFI in the early days of the scheme was that the private sector would deliver better quality buildings if it was responsible for maintaining them.
But reports from the time paint a different picture. The health campaigner John Lister interviewed staff in nine PFI hospital schemes in England, Scotland and Wales in 2003 and found that all the buildings had design and structural problems.
By far the most significant was that the new hospitals were too small. On average, they had around a quarter fewer beds than those they were built to replace. The private companies managing PFI projects believed that efficiency improvements would offset the loss of beds – an assumption that proved badly wrong.
Lister documented several other examples that staff gave of problems including kitchens without sufficient ventilation that would reach unbearable temperatures in the summer and corridors so narrow that one-way systems had to be introduced. There was so little space for storage that some hospitals kept records in storage units.
Some of the flaws uncovered in PFI hospitals were life-threatening. In 2014, an NHS trust in Peterborough was shocked to find that a fire-safety report found hundreds of gaps in walls that should have been sealed to prevent smoke and flames spreading.
Following the Peterborough case, the Chief Fire Officers Association (CFOA) circulated a national alert to all fire services and local authorities. At least 10 other PFI hospitals were found to have similar issues, according to the BBC.
Risk
In the 1990s, ministers argued that a benefit of PFI was that the private sector takes on some of the risks that come with building and operating hospital buildings.
In practice, however, this proved to be largely illusory. Risks were effectively ‘priced in’ to PFI contracts by advantageous terms that the NHS was forced to pay every year to the holders. When things went wrong penalties were rarely imposed because the NHS could ill afford to shut or close hospitals.
The notion that the initial construction risks were taken on by the private companies was shattered in 2018 by the collapse of Carillion. The construction company had been contracted to build two new state-of-the-art hospitals in Liverpool and the Midlands but the projects overran and costs ballooned after serious defects were uncovered.
After years of debt-fuelled expansion and creative accounting, Carillion imploded leaving the hospitals and dozens of other PFI projects for prisons, schools, and defence facilities without an operator.
In the end, it was the state that stepped in to rescue the PFI projects managed by Carillion at an additional estimated cost of more than £148m. The hospitals eventually opened five and six years later than originally planned, leaving the public stuck using outdated facilities during the delay.
Just seven years on, the government is now considering launching a new public-private partnership scheme to fund NHS projects. Its advocates have called for lessons to be learned from PFI.
The last government similarly attempted to reform PFI, launching a new PF2 scheme in 2012, though the same issues persisted. The NAO found that contract holders for a project to widen sections of the M25 made annual returns of over 31% after selling their stake just eight years after construction. If Reeves gives her assent to a new PPP scheme in November’s budget it will be the third time that the UK has tried to make it work.
Since the NHS 10-Year Plan landed in the Summer, EveryDoctor has been raising serious concerns about a quiet return to private finance. After months spent scrutinising the evidence, it’s clear those concerns weren’t misplaced. The history of PFI shows exactly what happens when the NHS is tied to long-term deals driven by profit rather than public need. As the Chancellor weighs up new proposals, we will continue to stand with NHS staff and patients, making sure the lessons of the past are not ignored.
