The government’s recently unveiled 10-Year Health Plan wants to set up to 300 “neighbourhood health hubs.” – local one-stop centres to offer diagnostics, outpatient treatment, mental health support, and preventive services, to relieve pressure on hospitals. To fund the plan, the government is turning to the private sector, but what does history teach us about the impact of this approach and what other options for public borrowing could be considered?
Inside the new UK Infrastructure 10-Year Strategy, the direction is clear:
‘Government will rapidly explore the potential to use Public Private Partnerships to deliver certain types of primary and community health infrastructure, taking a decision by Autumn Budget 2025.’
In government terminology, PFI and its successor, PF2, are both forms of private-public partnerships. Surely, we are not returning to those days? Don’t worry, say officials, we will not be repeating the “mistakes of the past.”
Trapped by their own borrowing rules, though, ministers do appear to be revisiting these much-criticised and very costly forms of finance, reviewing the options to see if anything can be salvaged from a policy abandoned back in 2018.
Just as a reminder, the National Audit Office concluded that PF2 (the revised version of PFI) is two to three times more expensive than public finance. Parliamentary reports had already reported that there were serious problems with PFI from as far back as 2008, with mounting pressure from academics and public campaigns about the schemes, as more was learned about the burden of PFI deals on the hospital trusts that were tied into them.
“PFI costs drive service closures, bed and staff reductions due to the high cost of debt servicing and enormous transfers of resources from patient care to bankers, shareholders and financiers.”
Prof Allyson Pollock and David Price
The final blow to the PFI policy came after the collapse of Carillion, a company involved in over 60 major PFI projects, including hospitals, schools, prisons, and defence facilities. It left projects exposed, including hospitals being built in Liverpool and the Midlands, and the public sector had to step back in. Overall, the collapse cost the taxpayer £148 million and disproved the claim that significant risk was transferred to private companies and that they could reliably protect the public interest.
Chair of the Parliamentary Accounts Committee, Meg Hillier MP, concluded:
“The Carillion disaster is the ultimate warning of what happens when profit is put before public interest.”
Cost of finance under PFI
The National Audit Office provided a final conclusion about the higher costs of PFI schemes, after a whole series of academic reports on the costs of individual schemes and the substantial profits that were being passed on to investors
“The cost of capital for a typical PFI project is significantly higher than for government borrowing. A government department can currently borrow at a rate of around 1.5%–2.5%, whereas the cost of capital for a typical PFI project is between 6% and 7%.”
— NAO, “PFI and PF2” (2018), para 1.2)
Why do governments opt for private finance?
The main motivation appears to be avoiding visible debt. For Starmer’s government, the same seems true; therefore, leaseback deals, joint ventures, and Public-private partnerships (PPPs) are all likely to be considered in the effort to make their neighbourhood hubs a reality — even if they cost more in the long term and reduce public control. PFI, LIFT, and recent lease-based NHS hubs follow this logic. They seem politically attractive even if economically inefficient.
The Office of Budgetary Responsibility has repeatedly warned that structuring deals to appear off‑balance sheet – keeping liabilities out of headline debt metrics, creates a “fiscal illusion”.
What could they do instead?
Some economists challenge the UK’s fiscal rules altogether, arguing that they unnecessarily constrain investment. While the UK government has taken some steps towards greater flexibility in borrowing for investment, critics argue it is not enough to tackle the investment needed in sectors like health and social care
In its report A New Fiscal Lock, Institute for Public Policy Research (IPPR) argues that the UK’s fiscal rules still treat borrowing too conservatively, with an excessive focus on total debt rather than the long-term value or affordability of investment. It calls for a rewrite of the fiscal framework to shift attention to the sustainability of debt interest payments rather than the debt stock — enabling the government to commit to multi-decade capital programmes in areas like health and care.
A different way of thinking about the problem, associated with Modern Monetary Theory (MMT), goes further by questioning whether public borrowing is even the correct constraint to focus on. Economists like Ann Pettifor and Stephanie Kelton argue that sovereign, currency-issuing governments like the UK can never “run out of money” in the same way households can. They suggest the true limits on public investment are inflation, workforce availability, and physical capacity — not headline debt levels.
From this perspective, the government should fund public infrastructure, including hospitals, based on need and economic impact, not debt targets. MMT attempts to shift the conversation away from austerity-like approaches and towards the idea that investment in public services is a form of nation-building
Dear Reader,
If you like our content please support our campaigning journalism to protect health care for all.
Our goal is to inform people, hold our politicians to account and help to build change through evidence based ideas.
Everyone should have access to comprehensive healthcare, but our NHS needs support. You can help us to continue to counter bad policy, battle neglect of the NHS and correct dangerous mis-infomation.
Supporters of the NHS are crucial in sustaining our health service and with your help we will be able to engage more people in securing its future.
Please donate to help support our campaigning NHS research and journalism.
