| LeasingWorld | Feature |
| Asset Finance and the NHS – a dissection by the FLA |
By Craig Pickering |
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Financing the NHS has been a growing market for asset finance
providers in recent years, fuelled by the expansion of NHS
funding, increased marketing by the industry and a growing
positive image among many NHS Trusts. Reflecting that, the
FLA’s NHS Forum has been one of its most active groups since its
inception. The NHS Purchasing and Supplies Agency estimates
that around half a billion pounds of asset finance a year is taken
out by the NHS. So I would like to write an article explaining that the outlook is brilliant and the future looks benign. But you would probably rather that I tried to be realistic, so here goes. First, we need to look at the financial outlook. It is quite clear that despite, and to an extent because of, the massive growth in NHS funding since 2001, there is a financial crisis in the NHS. Its roots seem to lie much more in management and political failures than lack of funds, but it is causing changes in behaviour that often cause difficulties for finance providers: late payment on transactions, concerns about the financial viability of Trusts, and other problems. This crisis looks set to get worse before it gets better. Some time this year, possibly in July as in previous reviews, whoever is Chancellor of the Exchequer at the time will announce the results of the government’s review of its spending priorities for the next three years. These have previously been the occasions for announcing massive boosts in NHS spending. The Treasury has been putting out none too subtle signals for months that, despite Gordon Brown’s undoubted attachment to the NHS, the 2007 Comprehensive Spending Review (CSR), as it’s known, will be different. The rate of growth in NHS spending will slow dramatically. In current political language that will be described as a cut, though spending will probably continue to grow in real terms. But the deceleration will feel to many in the NHS like a cut. That could impact on the demand for asset finance in different ways. To the extent that spending for NHS activities is curtailed, the associated demand for equipment to be financed will also fall. On the other hand, Trusts may also look for alternative sources of finance in the absence of grant funding, and asset finance is well placed to fill the gap. So the CSR is something to think about when you’re reviewing your marketing strategy. Second, the NHS continues to convert NHS Trusts into Foundation Hospital Trusts (FHT). There are now 58 and Monitor, the regulator of FHTs, is currently considering applications from a further 28. And the government continues to say that its goal is that all Trusts will achieve FHT status. As everyone in this market knows, one novel aspect of FHTs, compared with traditional Trusts, is that they can borrow in their own name and are not backed by a government guarantee. |
It’s more like lending to the private sector but sadly not identical.
FHTs can be wound up but we have been asking since 2004 for
the secondary legislation that will set out what would happen if
that happened to a FHT. The FLA met the then Minister of Health
in November 2006 and he promised legislation in 2007. We’re now talking to the Department of Health about its plans. We have two major concerns. It is not clear that the financial obligations of a traditional Trust are carried over when it becomes a FHT. And it isn’t clear that financial obligations will be honoured if a FHT is wound up, and if they are, how that will be organised. It’s worth remembering that winding up doesn’t necessarily mean the Trust, is, in the vernacular, going bust. It may be done as an NHS reorganisation. We do know that there is one major complicating factor you don’t encounter in lending to the private sector. Understandably the government wants to guarantee that healthcare will not suffer if a FHT is wound up. So equipment needed in meeting that pledge has to stay in place, if it is vital for the purpose. How that interacts with honouring asset finance contracts is yet to be made clear. Nor has the department yet signalled that it understands our concerns and has solutions. But we will continue to press for the legislation to be clear on our concerns. One bright part of this picture is that Monitor is doing an excellent job. It has set up a very clear and transparent financial regime which seems to be supplying finance providers with the information they need about Trusts’ finances, and it is paying close attention to the Trusts that are in difficulties. And it has demonstrated a will to take firm action when it’s needed. The last point I want to make about the NHS market concerns the coming change of tenant at 10 Downing Street. Since Gordon Brown appears to be headed for a coronation as Labour leader, it’s worth thinking about what this implies for the NHS. He has made it very clear that he is a strong supporter of the NHS and that he does not believe that the market can substitute for the public sector in health provision for the nation. FHTs may not be his favourite part of the NHS, given that that is his view. Reportedly, the Treasury fought hard to limit FHTs’ borrowing powers back in 2003. So could we be in for yet another large-scale reorganisation? Slightly oddly, the Conservatives are saying they would retain FHTs, so there may be more change if Labour continues in power than if the Conservatives regain control! All in all, we are in for an interesting time in the NHS market. Enjoy! CRAIG PICKERING PRINCIPAL CONSULTANT FLA WWW.FLA.ORG.UK |
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