The Labour government had been steeling itself for an autumn of discontent with the unions. Its private finance initiative and public private partnership plans were set to take centre stage during both the Trades Union Congress conference and its own in Brighton – an open debate that would surely have been seized upon by both the opposition and the media as evidence of rifts and discord within the party.
And then the events of 11 September re-ordered priorities and the ‘privatisation’ of the public sector debate was relegated, if not totally dropped. This debate is slowly coming back to life, but will remain on the inside pages while the western world stays on a war footing.
But the initials PFI and PPP remain dirty abbreviations in the minds of a significant section of the public. They are seen simplistically as privatisation, and when combined with the British treasure that is the National Health Service, they are widely regarded as bad things.
But this has not deterred the likes of chartered accountant Harry Hyman, managing director of Primary Health Properties. While the arguments have raged over PFI deals with hospitals, there has been a quiet revolution in primary healthcare.
PHP is the largest property owner in a particularly safe, yet growing, real estate niche – modern, purpose-built doctors’ practices. The company has just released its preliminary results for 2001, which Hyman, with no sense of irony, describes as ‘very healthy’.
‘Around 99% of our revenue comes directly or indirectly from the NHS and pharmacy operations, which means that our income is absolutely rock solid,’ Hyman claims. PHP declared a pre-tax profit of #1.6m on a property portfolio valued at #63.5m, giving a yield of 6%.
General practitioners’ premises make up 70% of the portfolio, an area where Hyman sees huge potential. ‘We are operating in a sector where there is a huge requirement for capital,’ he says. ‘There are 35,000 GPs in 11,000 practices, of which at least half are sub-standard and in need of modernisation.’
The theory is simple. GPs traditionally bought their own premises which were used as surgeries. Now, for a number of reasons, these premises are in need of refurbishment and modernisation, but the capital requirements are enormous – Hyman estimates this figure to be in the region of #2.5bn – and clearly doctors cannot afford this investment themselves.
And the government is reluctant to take on the burden itself. ‘The state, and we as taxpayers, would rather pay on an as-you-go basis,’ says Hyman.
Which is where companies like PHP come in – they build the new premises and lease them back to the GPs.
‘What we are doing is accessing private sector capital and helping the government modernise the NHS estate,’ he says.
One initiative that is of particular interest to Hyman is the government’s Local Improvement Financing Trust project, which could prove, if the finer details are ironed out, beneficial to both the public and private sector.
LIFT is an attempt to bring private capital more quickly into areas of the country that normally cannot attract such money. So far there are six designated areas – Barnsley, Newcastle, Camden & Islington, Sandwell, Manchester and the City & East London. These areas are some of the most deprived, in healthcare terms, in the country.
LIFT companies will form joint ventures with the private sector to develop primary healthcare facilities in areas where rent levels would not normally justify building costs. Experts believe success will depend upon competitive tendering, government determination – including PFI-type cash incentives – and undertakings that the ultimate real estate does not revert to the government.
As Hyman says: ‘LIFT will accelerate the flow of capital and speed up the pace of deals, and we can do larger deals of between #25m and #30m.’ But there is a drawback, a degree of uncertainty. ‘LIFT is shrouded in mystery,’ argues Hyman. ‘It has been announced, a prospectus was published, but the arrangements suggested are remarkably complex for what are still quite small transactions.’ The timescale of the project also appears ambitious. It will be a tall order for deals to come through by 2003 – the target date set by the NHS – when you consider the work involved in finding a site and negotiating with all interested parties. But politically there will have to be movement. And politics will inevitably have a role to play in this business. ‘This is not about the privatisation of the NHS – it is a fantastic institution, free at the point of delivery for patients, and does a fantastic job,’ says Hyman. ‘But we already have services that are delivered within the NHS by the private sector.’ The unions’ concerns are based primarily on what has taken place in secondary healthcare. Hyman believes some of the early PFI projects were very complex and ended up costing more than a state-funded alternative. There is also a huge question mark hanging over the controversial public sector comparator. ‘It is one of those wonderful things which is impossible to say one way or another what it is,’ Hyman says. He sees other opportunities for PHP – the advent of Primary Care Trusts, which are replacing primary care groups, means that all doctors must co-operate with PCT planning. Many PCTs are currently reviewing their estates strategy and are able for the first time to make decisions for a multiple number of practices. It is possible, within the next 12 months, that PHP can take advantage of this by bidding for whole PCT estates. ‘This is part of getting more joined-up thinking in healthcare,’ says Hyman. Key-worker accommodation is also high on the agenda. Hyman says it would be possible to provide affordable housing for teachers, nurses and emergency service workers when developing new premises. ‘We think this is a really big area and will have major benefits for staff and the taxpayer,’ says Hyman. More on Primary Health Properties at www.nexusgroup.co.uk HARRY’S OTHER GAME The complex world of public sector finance is not Harry Hyman’s only interest. He has successfully combined business with pleasure by becoming the senior non-executive director at Groupe Chez Gerard, owner of well-known eateries such as Livebait (left) and Bertorelli’s. The company has recently had a run-in with the Financial Reporting Review Panel, and has also had to recognise the impact of the September terrorist attacks. The attacks in part vindicate Hyman’s pursuit of NHS property. ‘It’s a very defensive stock to hold,’ he says. At times like these that is perhaps not a particularly bad idea. Accounts hiccup at Chez Gerard www.accountancyage.com/Business/1125409.
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