The “landmark Covid-19 response” hospitals’ debt write-off that isn’t

Yesterday Matt Hancock announced £13bn so-called debt relief for NHS hospitals

This “debt” write-off is something ck999 has been calling for since last September.

The government are not proposing to wipe out the Private Finance Initiative debt – just the “debt” to the Dept of Health that’s been caused by the chronic underfunding of hospitals. In order to cover their running costs, such as paying staff and suppliers, hospitals have had to borrow emergency loans from DHSC since 2014-15. (When the government imposed harshly cost-cutting Sustainability and Transformation Plans on the NHS.)

Info here: Fund Calderdale and Huddersfield hospitals properly and write off all deficits and debts

As usual, things are not what they seem

The proposal isn’t even really to write off these “debts” – but to convert them into Public Dividend Capital (PDC) equity. So that they appear on hospitals accounts as assets not liabilities.

But Public Dividend Capital carries a 3.5% interest charge. This compares to a 1.6% rate of interest on Calderdale and Huddersfield hospitals trust’s DHSC “debt”, if my arithmetic is right.

The trust’s “debt” was £144.9m as of April 2019. The Trust paid the Dept of Health and Social Care £2.3m interest in 2018-19.

So Matt Hancock’s proposal seems basically to be an accounting trick. It also seems it would increase trusts’ revenue costs, unless the Dept of Health has some further measures up its sleeve.

Maybe it does – in a year’s time. The Health Service Journal reports that a Department of Health and Social Care letter sent to local leaders yesterday said:

“D[epartment of] H[ealth and] S[social] C[are] and NHSE[ngland]I[improvement] will carry out a review of the PDC rate as it applies across the NHS financial architecture in FY20/21. This review will consider the impact of lowering the PDC rate against the benefits of doing so with the intention of making any appropriate changes for FY21/22.”

This is not a new plan and most of the money was committed in January

At the Daily Lies briefing yesterday, Matt Hancock presented the debt write off as “a landmark step” in the government’s response to Covid 19, but it’s mostly not new money and it’s not a new plan.

NHS England/NHS Improvement decided in January this year to convert around 100 hospital trust debts to Public Dividend Capital, to the tune of around £10bn, from 1 April 2020.

At the time the Health Service Journal reported that David Williams, NHS Providers’ senior policy advisor, said:

“However, the problem that remains is that if you give trusts P[ublic] D[ividend] C[apital], there is still the charge attached to that, which trusts will likely have to cover through reducing their costs. That might be fine if the trust is able to address inefficiencies on their own, but often that’s not the case.

“Trusts whose loans are being converted to PDC will often need support to address the structural issues that are driving their deficits: they may have workforce challenges they cannot fix on their own, and may need substantial capital investment to unlock efficiencies or reconfigure.”

The Health Service Journal also reported in January that the amount of hospital trusts debts to the Dept of Health that would be converted would be the closing balance recorded at the end of 2018-19. Of the trusts’ £14bn total debts to the DHSC at this date, £10bn related to the emergency loans, known formally as “interim revenue loans”.

There would be no change to capital and “normal course of business loans”, which make up a smaller proportion of trusts’ total liabilities to the DHSC.

The debt “write off” announced by Matt Hancock at the Daily Lies briefing on 2 April, to be written off at 31 March 2020, consists of a combination of interim revenue debt, which includes working capital loans and interim capital debt. The final principal is subject to validation by providers and audit but stands at £13.4 billion

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.