Organisational Cultures and the NHS: PFI's Role Explained

Introduction: The PFI in the NHS

This paper analyses the United Kingdom's (UK's) National Health Service (NHS), revealing its origins and the key aspects of organisational culture in both the public and private sectors.

The Private Finance Initiative (PFI) in the UK is now one of the major ways in which public sector services have been created (Broadbent et al., 2002). However, it has been under public scrutiny regarding its operation within the NHS.

PFI calls upon the private sector to supply asset-based services to the public sector over a long period — up to 60 years — in exchange for monthly lease payments (Broadbent et al., 2002). PFI was officially created in 1992 under the Conservative Government but was furthered by the Labour Government when it came into power in 1997.

The Labour Government expanded the PFI into areas of the public sector that had historically been closed to private sector money, including the health services industry. Before 1997, despite many efforts to develop PFI in the health sector, nothing was approved or implemented. As soon as the Labour Party was sworn into office, it approved 14 proposals and started an additional 17. There are plans for another 29 over the next few years involving approximately £7 billion of private sector money (Broadbent et al., 2002).

The creation of PFI in the NHS has been criticised as being too expensive compared to the costs of similar services supplied by the public sector, and as detrimental to the quality of services provided. For example, one of the organisational changes associated with PFI implementation is a reduction in bed numbers. However, research reveals that this judgement cannot be supported without a more thorough evaluation of PFI and of all public-private partnerships (Broadbent et al., 2002).

The IPPR (2001) states that the "evidence on value for money is variable across sectors" but "seems to be offering significant gains in roads and prisons but not in hospitals and schools" (Broadbent et al., 2002, IPPR, 2001, p. 4). However, the IPPR (2001, p. 90) also states, "we will not know the actual outcomes for many years," making it difficult to settle the issue definitively at this point. The IPPR concludes that a "level playing field" is needed — one with a "transparent set of public finance rules that do not set up artificial barriers or incentives to benefit one type of provision over another" (IPPR, 2001, p. 95).

The Development of PFI in the NHS

The PFI enables private sector involvement in the public sector for what is known as "long-term asset-based services." In many ways, the PFI is a small part of the broader New Public Management (NPM) agenda (Broadbent et al., 2002; Hood, 1991, 1995) — a set of efforts to expand the efficiency of the public sector through the introduction of organisational change and private sector expertise.

Prior to the creation of PFI in the health services industry, the main focus of NPM concentrated on controlling current expenditure in the public sector rather than on infrastructure developments or finding new approaches to fund them (Broadbent et al., 2002).

Lack of capital expenditure does not present the immediate political and social impacts that result from failing to meet revenue commitments. However, the ultimate effect of under-investment in capital stock is bound to increase over the years. The accumulating effects of this under-investment had been an issue for the NHS estate for many years.

This pressure drew attention to the need for infrastructure investment and the need to keep public expenditure under control. These factors, combined with an ideological confidence in the efficiency of the private sector in delivering public services, led the Conservative Government to implement PFI in 1992.

Several years later, the New Labour Government furthered PFI initiatives, making several changes to the policies. This government supported PFI for several reasons: "First, the political imperative for partnership between the public and private sectors; second, that the quality of the public services can be improved by the private sector; and finally the possibility of investment in public services and infrastructure whilst maintaining a tight fiscal stance (Broadbent et al., 2002)."

Since the initial implementation of these new policies, the New Labour Government's justifications for PFI have become clearer to the public. However, many critics doubt the ability of PFI to yield value for money and benefit the public.

The Evolution and Emergence of PFI

Before PFI was initiated, the Ryrie Rules allowed private financing in the public sector. However, this system was developed to "create the possibility that government funding restrictions would not stop possible profitable schemes in the nationalised industries (Broadbent et al., 2002)."

For years, the Ryrie Rules were seen as relevant to the public sector as a whole. However, critics argued that they were too restrictive and that the Treasury was concerned that overly expensive schemes might be undertaken. The Ryrie Rules were abandoned in 1992 with the creation of the PFI.

PFI was initiated in 1992 by this statement by the Chancellor, Norman Lamont (Broadbent et al., 2002):

"Self-financing projects undertaken by the private sector would no longer need to be compared with the theoretical public sector alternatives; the Government would actively encourage the private sector to take the lead in joint ventures with the public sector; the public sector would have greater opportunity to use leasing where it involved significant transfer of risk to the private sector and offered good value for money (Private Finance Panel, 1995, para. 2.4, p. 7)."

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