Half-baked privatisations?


The government has announced that Circle, an operator of private hospitals, has won the 10-year franchise to run the 359-bed Hinchingbrooke Hospital, an outside candidate to secure foundation status due to its stretched finances. Whilst any sensible privatisation within the NHS should be welcomed, this deal is far from the purest form of privatisation. The NHS will still own the assets, whilst employees will operate under NHS terms. Circle seeks to pay off Hinchingbrooke’s current c£40 million debt over the next decade – a real challenge given its lack of managerial elbow-room. It will also seek to make a financial return on its investment.

Perhaps Hinchingbrooke will provide a much-needed model for under-performing hospitals. If so, the private sector will become more interested – encouragingly, FTSE-100 company, Serco, was the under-bidder for Hinchingbrooke. Nevertheless, the private heath sector remains profoundly unhappy at the very modest level of PCT ‘provider arms’ services being offered for tender by the NHS. The vast majority – worth almost £10 billion – are frustratingly being retained in-house. Why?

Half-baked privatisation is also being suggested for Britain’s schools. It is still unclear whether any investor in new schools – a totem policy for the current Government - can expect a decent return. Without it, few believe that – apart from a handful of philanthropists and the odd wild card – there will be the necessary investment. One of the enduring lessons of privatisation is either do it – or don’t. Of course, in some cases, small-scale trials are prudent.

Importantly, privatisation has really prospered when the financial incentives are sound. If so, investors appear and the sector benefits. Think the water sector – the recipient of £85 billion of investment since 1989. Furthermore, the telecoms, gas and electricity industries – despite the nuclear new-build problem – have all benefited from a market-orientated approach. The half-baked approach to NHS and schools privatisation might be fundamentally flawed, and fail to deliver the promise of privatization.