PropCo, the Naylor Review and the loss 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 NHS Property Services (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). This fire sale of NHS assets is 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.

  1. 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 judged to be 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 a market rate, or renting it to other (i.e. non-NHS) users.

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/).

In April 2016, PropCo – some of whose Board members have declared interests in real estate, property management and facilities management companies – changed the way it calculated rents on freehold properties. As a result, many tenants saw higher rental charges (£60 million a year of additional bills, with some GP practices facing rent increases of as much as 400%).

This change was supposedly “to improve utilisation and value for money in property occupancy” (http://www.property.nhs.uk), although others say it was to prop up PropCo prior to it being floated on the open market. Rent increases were initially reimbursed by the Department of Health, but eventually tenants will be expected to cover the full cost while also facing increases in associated and non-refundable costs, like management fees (in some cases charged at higher than commercial rates). Money raised from higher rents was apparently to be earmarked for improving the NHS estate.

All this means significant increases for many taxpayer-funded providers, such as GP practices and community hospitals, especially in areas like London and the South East where commercial rents are high.

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 one of the ways of implementing NHS England’s goals behind the  Five Year Forward View (5YFV) and the disorganisation of the NHS as a national system into 44 new local health systems, currently called Sustainability and Transformation Partnerships (STPs).

The report notes that the NHS money currently available to fund new buildings and facilities  (i.e capital investment) is not enough  to maintain existing buildings, provide new facilities and generally 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 will come from property disposals, private capital (i.e. private investors), and the Treasury. (‘Well-evidenced’ is in quotes because many STPs are notoriously based on flimsy evidence produced by private consultancy firms with vested interests.)

The Review suggests a new strategy for the NHS estate (the land and buildings owned by NHS organisations like NHS Trusts). This centres on a  formula developed, not by staff within the NHS but by  Deloitte (a multinational consultancy firm), to calculate which NHS assets can be decided as ‘surplus’. The aim is to raise  £2 billion, ear-marked for the NHS, while making land available for developers to build 26,000 new homes. Property is to  be sold at a discount where it entails ‘risk’ for  purchasers – e.g. the buildings may contain asbestos, or there may be problems with planning approve.

In addition, the Review claims that selling NHS assets may be the best option as there is no traditional business case that can justify 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.” It is thought that Charing Cross Hospital, for example, may be reduced to just 14% of its current area, after its assets have been sold off to developers.

The Review’s recommendations include:

  • Rapidly establishing  a powerful NHS Property Board, aligned to NHS England and NHS Improvement, at arms length from the Department of Health, and set up in a way that ensures speedy executive action.
  • Reviewing the business case process, often seen as cumbersome and a block to estates development.

In other words, it appears that 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. (Naylor has subsequently produces another review but this has not been published on grounds of “commercial confidentiality”).

Despite the huge debts that NHS Trusts have clocked up on capital projects (like new hospital buildings) through the Private Finance Initiative (PFI), it seems that the Naylor Review wants to see 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.”

The reference to ‘short-term recourse to public funds’ skips over the long-term costs PFI.  For example, in the absence of capital funding from the Department of Health, Barts Health NHS Trust used PFI to commission a new hospital (the Royal London). The building cost £1.5 billion to provide, but will cost the Trust  £7 billion pounds in repayments over a 35 year contract.

The Review also says nothing about the fact that NHS assets include land and investment in buildings like hospitals that’s been donated for the public good by charitable and other benefactors over hundreds of years.

The Naylor Review suggests there will be incentives for NHS bodies to sell assets quickly, and penalties if they do not:

  • Money for the sale of locally owned assets will no longer have to be sent to the Treasury – at least “provided the disposal is in agreement with STP plans”. Instead, the Treasury will match the money raised, but only for an unspecified but limited period.
  • STPs and their providers failing to develop ‘sufficiently stretching plans’ (presumably not conforming closely enough to the 5YFV or failing to sell enough assets defined as ‘surplus’ by Deloitte’s formula) will not be granted access to other sources of 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 for those Trusts that don’t sell ‘surplus’ assets.

In a move that seems designed to reduce objections from the public, the Review says that land ‘vacated’ by the NHS should be prioritised for housing, notably the development of residential homes for NHS staff  ‘where there is a need’. It implies that the current housing crisis arises from a shortage of available land. However, recent estimates suggest that the maximum amount of housing that might be built on land released from the public sector would be about 160,000 homes, while private sector developers already own enough land between them to build some 600,000 new homes.

The Review raises a potential problem – that NHS providers (like NHS Trusts) tend to hold on to assets like property to fund their own plans or needs. Sustainability and Transformation Partnerships need access to the assets held by the all providers across their local health system – yet it’s unlikely a provider will willingly give up property assets in order to support other organisations, even if they come under the same STP umbrella.

The Review also raises another problem, that STPs have no statutory authority to control these assets (STPs are described in some of the NHS England documents simply as ‘discussion forums’) and they cannot legally impose their plans on other bodies like Foundation Trusts, CCGs or local authorities that, in contrast, do have statutory authority.

To overcome these problems, the Naylor Review wants to see providers given incentives 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. They are also expected to share financial gains and losses. 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

http://publicmatters.org.uk/2017/10/18/211/

July  2017

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