NHS capital expenditure and the private finance initiative—expansion or contraction?

This is the first of four articles on Britain's public-private partnership in health care

Before 1948, building the hospital and community health service was primarily a local government responsibility and new investment depended on local authorities' ability to meet the cost of borrowing. The “depressed areas,” which had the worst health status, were inevitably disadvantaged. Investment patterns during the interwar years contributed to the inequitable distribution of the infrastructure, which was, according the official historian of the NHS, a “ramshackle and largely bankrupt edifice.”1 The 1946 act led to the nationalisation of the inherited hospital infrastructure and the centralisation of the responsibility for financing its improvement within the ministry of health. NHS hospital building was to be financed by central government grants and funded out of general taxation and national insurance contributions.

The NHS initially made little impact on its inherited infrastructure problems because public sector investment in the postwar years was concentrated on education and housing. Aneurin Bevan, among others, suggested that spending controls could be evaded if hospital boards were allowed to borrow from the market, as they had before the war. But with funding now ultimately paid for out of general taxation, no rationale could be found for allowing boards to borrow at interest rates that would necessarily be higher than those incurred by central government (J Mohan, personal communication). Not until the mid-1950s did a gradual release of funding allow new hospital building in some areas that had a legacy of prewar planning inequities. Even so, the scale of investment fell a long way short of “complete replacement.”2

The principle of major hospital investment was finally adopted in the 1962 hospital plan. The plan was the first attempt to modernise the hospital infrastructure as a whole. But it remains unfulfilled, with only a third …