PropCo, the Naylor Review and the selling of NHS land and buildings

One of the ways in which the NHS is being privatised is through the transfer of NHS assets, such as land and buildings, into private hands. Already, a good proportion of the assets owned in the past by Primary Care Trusts has been transferred to PropCo, a largely unaccountable body currently owned by the government.  More recently, the Naylor Review is calling for a carrot and stick approach to induce NHS Trusts to sell off as much as 30% or more of the buildings and land they own (primarily associated with acute services) to provide the capital for implementing the Five Year Forward View (5YFV)and its Sustainability and Transformation Plans (STPs).

Once any NHS land or property is sold it passes outside the provisions of the NHS Act, so that any future government will not be able to transfer these properties back into state ownership. Land that, until now, has been available to the NHS at minimal cost for the expansion of hospitals or other health provisions will have gone forever.  Future development will therefore only be possible either at increased cost to the taxpayer, or by reducing spending on existing health services.

PropCo (or NHS Property Services Ltd)

Following the Health and Social Care Act (HSC Act) of 2012, land or property previously owned by NHS bodies (like Primary Care Trusts) and used primarily for healthcare services was transferred to the ownership of the new Clinical Commissioning Groups (CCGs) set up to plan and buy health services in their area. However, from April 2013, other property (including where 51% or more of the work carried out was administrative rather than clinical in nature) became classified as ‘surplus’ and transferred without charge to a new, unaccountable company, PropCo (also known as NHS Property Services Ltd).

PropCo was set up to manage NHS property and facilities (mostly for GP surgeries, health centres and community hospitals) and dispose of property surplus to NHS requirements. Its Annual Stewardship Report for 2014/15 says that PropCo would also work closely with NHS England “to support the delivery of the property components contained in the NHS Five Year Forward View” (http://www.property.nhs.uk/what-we-do/).

PropCo receives no government funding and has been expected to generate its income from either selling off ‘surplus’ property, renting its property back to the NHS at market rate, or renting it to other (e.g. non-NHS) users.

Should a CCG or hospital Trust wish to continue to use a building that has been transferred to PropCo, it has to pay rent to PropCo or seek alternative accommodation. In either case, the CCG or Trust is forced to pay rent at market rates, and so costs for non-clinical accommodation have increased.

By July 2014, PropCo owned and managed at least 3,500 properties across England (or about 11% of total NHS estate in England), valued at between £3 to 5 billion. The biggest transfer of properties so far took place in December 2016, when the Department of Health decided to transfer the freeholds of 12 community hospitals in Devon to PropCo (http://www.property.nhs.uk/biggest-transfer-of-properties-to-nhs-property-services/).

By August 2015, PropCo had disposed of 145 sites, receiving a total of £97 million (“for the benefit of the NHS”) and released land for over 2,000 new homes (http://www.property.nhs.uk/what-we-do/).

In April 2016, PropCo – some of whose Board members have considerable interests in real estate, property management and facilities management companies – changed the way it calculated rents on freehold properties, with many occupiers seeing higher rental charges. This was supposedly “to improve utilisation and value for money in property occupancy” (http://www.property.nhs.uk), although others say it was in order to prop up PropCo prior to it being floated on the open market. One reported result has been that around 900 GP practices have received rent increases, in some cases as high as 400%. While the cost of rent is currently reimbursed by the Department of Health,  practices still face increases in associated and non-reimbursable costs like management fees (in some cases charged at higher than commercial rates), and have to find the money for increased rental charges until they are reimbursed.

PropCo is currently owned entirely by the government. However, it can at any point sell off up to all but one of its shares to private investors. As PropCo was set up with just one share valued at £1.00, the government could issue another 99 shares at £1.00 each and, by selling these to private investors, transfer almost complete ownership, and total control, of huge NHS assets to private owners at almost no cost.

The Naylor Review

The Naylor Review, published in March 2017, is essentially concerned with facilitating implementation of the  Five Year Forward View (5YFV) and STPs. It notes that current NHS capital investment is insufficient to maintain existing buildings or fund NHS England’s transformation agenda, estimating

“that STP capital requirements might total around £10bn, with a conservative estimate of backlog maintenance at £5bn and a similar sum likely to be required to deliver the 5YFV.”

The solution proposed by the Review suggests that funding for ‘well-evidenced’ STPs (in quotes because STPs are notoriously based on the flimsiest evidence) will come from property disposals, private capital (specifically for primary care), and the Treasury.

It sets out a new NHS estate strategy based on analysis from the private consultancy firm Deloitte. This strategy aims to meet Department of Health targets to release £2 billion of NHS assets for re-investment while making land available for 26,000 new homes. It claims that there is no traditional business case that justifies dealing with the backlog of maintenance that some NHS buildings require.

According to Deloitte, the NHS assets that would fetch the most money are heavily concentrated in a small number of STPs: “the top five STPs by value are all in London and represent over 50% of the financial opportunity.”

The Review’s recommendations include:

  • Rapidly establishing  a powerful NHS Property Board, aligned to NHS England and NHS Improvement, to provide leadership to the centre and expertise and support to STPs – at arms length from the Department of Health, and set up in a way that ensures speedy executive action.
  • This Board sets up a new unit to support major projects.
  • The Board should also review the business case process, often seen as cumbersome and a block to estates development.

In other words, the sell-off of NHS estate is to be rapid, with sales going through ‘on the nod’, with little accountability, and little to no opportunity for public consultation or objection.

Despite the huge debts that NHS Trusts have clocked up through the Private Finance Initiative (PFI) and despite the ineffectiveness of the Local Investment Finance Trust (LIFT) to attract private finance for building primary care premises, it seems that the Naylor Review leaves open the possibility of similar private finance deals  in future:

“Private finance offers the opportunity to deliver facilities without short term recourse to public funds. Some providers have had mixed experiences of the cost and inflexibility of PFI and LIFT. However, the current low rates of return and the low risk profile of NHS investments means that there is likely to be no shortage of private capital finance available to the NHS.”

There will be incentives for NHS bodies to sell land, and penalties if they do not.

  • Money for the sale of locally owned assets will not, as has been the case, have to be sent to the Treasury – that is, “provided the disposal is in agreement with STP plans”. Instead, the Treasury will match the money raised, at least for a limited period.
  • But STPs and their providers failing to develop sufficiently stretching plans (presumably not selling off enough assets) should not be granted access to capital funding – either through grants, loans or private finance.
  • The Review seemed to suggest that the capital charge that Trusts currently pay to the Treasury (3.5% on the value of their land and buildings) might be increased.

Land ‘vacated’ by the NHS should be prioritised for housing, notably the development of residential homes for NHS staff  ‘where there is a need’.

The Review raises a potential problem – that NHS providers (like NHS Trusts) tend to hold on to property assets to fund their own plans or needs. And it alludes to another – that STPs have no statutory authority (they are described in some of the NHS England documents as ‘discussion forums’) but want to impose their plans on bodies like CCGs and local authorities that do have statutory authority. The 5YFV and STP process need the assets held by providers to be made available more widely but it’s unlikely a provider will willingly give up property assets to support others, including those with different statutory responsibilities. So the Naylor Review wants to see providers incentivised to support integration between primary, community and secondary care through the creation of accountable care organisations (ACOs). ACOs, the model of care that the 5YFV most wants to see adopted) are formed by groups of health service providers who work together to manage and deliver services for a defined population over a set period of time and according to a fixed budget, irrespective of how much care their registered patients need. Some see this particular model of care as ripe for take over by insurance companies if the NHS moves further towards the US model of healthcare.  The Naylor Review argues that providers could invest the money they receive from selling off their assets into ACOs that combine primary, community and other services,  as a way of overcoming “the conflict of interests that currently exist between the “advisory” role of STPs and the statutory responsibilities of NHS provider trusts.”

Sources

PropCo

https://skwalker1964.wordpress.com/2012/09/09/propco-and-the-health-act-the-great-nhs-property-scam/

https://www.opendemocracy.net/ournhs/deborah-harrington/going-going-gone-great-hospital-selloff

The Naylor Review

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/607725/Naylor_review.pdf

June  2017

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