NHS Estates Report: where are we now?

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NHS Estates Report: where are we now?

Published 18 November 2019

The NHS estate is in a parlous state. Years of austerity, selling off assets and diverting capital funding to balance day-to-day spending has created a £6 billion maintenance backlog.

At the end of September 2019, Health Secretary Matt Hancock allocated £2.7 billion of new money to enable six NHS trusts to undertake major rebuilding work. Some 21 other schemes will also share £100 million seed funding to develop business cases for rebuilding schemes.

Seven weeks prior to this, Prime Minister Boris Johnson announced a £1.8 billion investment, including £850 million to upgrade 20 hospitals across England and a £110 million investment in primary care premises. However, Paul Price, Head of Commercial at Northumbria Healthcare NHS Foundation Trust, was quick to point out that much of the latter announcement was not new money – rather, trusts were being allowed access to capital funds that were limited under Capital Departmental Expenditure Limits (CDEL).

Mark Bagnall, former Director of Estates, Facilities and Capital at University Hospital Southampton NHS Foundation Trust, welcomed the new investment. He says NHS Improvement (NHSI) is “very aware” of the challenges trusts face and has been “lobbying hard at a senior level to raise the profile of the needs of the NHS estate.”

“The £6 billion backlog estimate is a large amount,” he continues, “but despite the extra funding going in, it may be even higher as we come to a better understanding of the real extent of the issues we are facing.”

Sir Robert Naylor, the influential former Chief Executive of University College London Hospitals NHS Foundation Trust, said that allowing trusts to spend on local maintenance or other priorities does address immediate problems. But he feels it does not address the £6 billion backlog, which he says stems from “a lack of capital investment from the last two decades, no PFI start-ups in the last five years, and an absence of cross-party political consensus – each blames the other for no progress.”

His figures show that NHS capital spend has plummeted since 2007 from nearly 7% to around 3% of total healthcare expenditure. Average spend in Organisation for Economic Co-operation and Development (OECD) countries, by comparison, has maintained a relatively steady rate of 4-5% since 2000.

LACK OF AUTONOMY STIFLES INNOVATION

The purpose of creating Foundation Trusts, according to Price, was to give them autonomy in order to be answerable to their local community and deliver healthcare appropriate to their locale. But over the past five or six years “there has been a systematic clawing back of control to the centre,” he says.

NHSI now requires any investment in a new corporate entity, including a joint venture company, regardless of the amount of investment, to be subject to their approvals process. Any change to existing arrangements or new “material” risks are also required to be reported, even by Foundation Trusts with an established track record in setting up and managing subsidiary entities.

Price says: “If we want to make an investment in a joint venture, say with a private company, and set up a new entity, we have to go through a whole raft of processes. Even by taking a 1% stake in that new entity, we are creating a subsidiary company that needs NHS Improvement vetting and approval.”

Tony Spotswood was Chief Executive of the Royal Bournemouth and Christchurch Hospitals NHS Trust for 19 years. Earlier this year he became the Director of Health and Community Development at the Affordable Housing and Healthcare Group (AHH), which works with NHS and local authorities to provide affordable homes for key workers, first-time buyers and last-time buyers.
Spotswood feels that the current CDEL “discourages innovation and the potential to partner with outside organisations – particularly where trusts would be concerned that they could secure capital and then not be able to use it, so their efforts are not rewarded.”

And he wants less bureaucracy: “Provided that trusts are developing their cases and satisfying their boards that the relevant arrangements are put in place to spend money effectively, boards should be vested with the authority to agree those schemes without the whole process having to go back to the Treasury.”

In 2016 Sir Robert produced an independent report which called for the NHS to consider how it could utilise its unwanted and unused capital assets, with many in the community entering into joint ventures with investors and developers. Echoing AHH he advocates building affordable, conveniently located accommodation for key workers. The report generated much interest at the time and the Government’s response to it appeared to encourage such innovation. And although there are some interesting initiatives that have emerged, particularly on redevelopment for retirement housing, there seem to be fewer schemes for key worker accommodation.

CAPITAL ASSET SELL-OFFS

Sadly, many trusts are using capital receipts for running costs, or to meet spending targets. According to the same Health Foundation report cited above, sales of NHS capital assets have risen significantly since 2015/16, with over £400 million in sales in 2017/18 (compared with £175 million in 2010/11). Nigel Edwards, the Nuffield Trust’s Chief Executive, comments: “I am concerned by the way that land sales are not being used as strategically as they might. Where possible you should be turning land and property into revenue streams.”

Rebuilding the crumbling primary care estate should be easier, says Edwards, because there are fewer constraints on borrowing money. “There are lots of private investors who like to lend here. But the government is not prepared to underwrite the borrowing, which means the rates they can get are not so attractive.

Significantly, Edwards says GP practices themselves cannot afford to service the capital debt. “There is the capital available, but it’s the revenue consequences of that capital spend that are the issue – capital assets cause a capital charge and depreciation costs, so there may not necessarily be the revenue to support these added charges and costs.”

Guidance was produced in 2019 to enable trusts to request transfer of local assets, transferred to NHSPS in 2012, back into their control. Some trusts see this as a real opportunity to develop community assets in a way that can help deliver the changes necessary to meet the aims of the Long Term Plan. In essence, the guidance envisages properties transferring back to NHS trusts on much the same basis as historic NHS statutory transfers; in other words, the property is acquired with responsibility for all historic rental arrears or backlog maintenance transferring to the acquiring trusts. This can be off-putting for some potential acquirers.

Richard Darch, Chief Executive at Archus, an advisory, investment and development company specialising in health and social care, says a few trusts are making the case to take properties on. “Much of the NHSPS estate is poor quality and not in great areas. As many properties do not have leases or licences in place, then any buyer would discount the property heavily and it is unlikely that the NHS will get value whether sold outright, or sold and leased back.”

However, for those trusts with the appetite to manage the legacy issues, and to find the right development opportunities and partners, this new approach may enable some STPs to use these assets in a more agile way.

Click here to download ‘NHS Estates: Innovation and a sustainable future’ in full.

Authors

Anne Crofts

Anne Crofts

London - Walbrook

+44 (0)20 7894 6531

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