Thought leadership

As the healthcare sector continues to grapple with the ongoing economic crisis, one of the biggest issues that healthcare providers are facing is the increase in lease values for their portfolio of third-party facilities – particularly in primary care. 
Rising costs of capital developments present a significant challenge to the NHS and the wider health sector, both in terms of affordability of existing leases and for predicting future project values. High inflation and rising interest rates are leading developers to drive up costs. Consequently, the NHS is struggling with cost increases which are unlikely to be matched by commensurate rises in funding allocations from the hard-pressed public purse. <h4>Which factors are exacerbating the problem?</h4>
Undoubtedly the current economic pressures faced by the UK are exacerbating the situation. Inflation rates have hit their highest levels since 2008, having risen to an unprecedented 11% in October 2022. Given that the government’s funding settlement, agreed back in September 2021, promises a cash value rise of <a href="https://www.kingsfund.org.uk/projects/positions/nhs-funding">3.8% in budget on average each year until 2024/25</a>, the NHS is woefully underprepared to mitigate the double-whammy of soaring interest rates and the associated cost increases driven by inflation. 
Another pressure on the budget is the issue of staff salaries and the need for higher wages. A pay deal made in 2022 between unions and local authorities to increase the lowest salaries by 10%, will seriously exacerbate constraints placed on funding, and further reinforces the case for higher salaries in the NHS - placing further pressure on revenue budgets. <h4>Which areas will suffer?</h4>
The consequences of the rapid rise in costs of capital over recent months will soon filter through to lease values. Furthermore, with NHS trusts already allocating large proportions of their funding to staff salaries <a href="https://www.kingsfund.org.uk/projects/positions/nhs-funding">(44% of the NHS day-to-day spending budget in 2020/2021)</a>, and upcoming planned industrial actions looking to increase these salaries further, funding for future NHS capital projects and capital spending growth within the wider health sector will be heavily limited. 
Another potential victim may be the government’s New Hospitals Program (NHP), which promised 40 ‘new’ hospitals by 2030 and was a key component of the Conservative Party’s 2019 manifesto. This will quite possibly suffer from the impact of reduced real values of funding. 
And it’s not just new projects that are being affected. Patient care is also adversely impacted by the lack of investment in buildings and estate in the NHS, <a href="https://www.nhsconfed.org/articles/crumbling-buildings-and-creaking-systems-nhs-capital-investment">with 5,348 clinical service incidents caused by estates or infrastructure failure in 2021/22</a>. Strain on discretionary funding will see trusts unable to invest in necessary equipment and medical supplies, crucial in delivering the best possible standard of patient care. <h4>Is there a solution?</h4>
Considering the current failings of the system, whilst simultaneously recognising the wider economic pressures with which the government has to grapple, we find ourselves at something of an impasse. The public will not accept the NHS providing less than it already does. But it is clear that discussion around what the NHS does and doesn’t provide for the UK needs to take place. 
So, what can those involved in the NHS and wider health care sector do to mitigate these issues? Is there a new way of funding capital? 
When the concept of Foundation Trusts was first mooted, there was talk of them being able to raise their own funds, to borrow against future cash flows – to speculate and invest. Could we see the NHS selling capital bonds – selling its debt to the public, rather than the government? Would this be privatization by stealth, or public ownership in its truest form?
Or as we recall Dickens’ words, do we just ask “Please, sir, I want some more”? It seems the nurses have public support. People clapped for the NHS in 2020 - can we now ask them to stop putting their hands together, and into their pockets instead?

This article was published on Open Access Government

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