We can't afford not to borrow

There was a piece on Dragon's Eye last night about what had happened to the new specialist care hospital proposed for Gwent.


I thought, "I can write something about that" and started marshalling my argument, only to realize that I'd already written about it six months ago. Well at least I can say that my suspicions back then seem to have been vindicated now.


But let me first take one step back and start by saying that I was immensely impressed with the Clinical Futures Gwent programme from the moment I first heard about it and looked at the plans in detail. As Mike German said on the video, it is one of those projects that is so obviously right that no-one in their right mind could seriously object to it. It was a model for good hospital design and good strategic planning, especially the idea of smaller community hospitals providing the everyday services close to where people live clustered around a central hospital providing specialist care.

So, back in January, I was delighted to be able to write this post on the Syniadau Forums about the groundbreaking ceremony for Ysbyty Ystrad Fawr. But that was followed only a couple of days later by news that the specialist central hospital had been put on hold, so I followed it up with this post. You're welcome to read the whole thing, but this is an extract from it that is particularly relevant to yesterday's news that a primary reason for delay was the inability to afford it.

£292m new hospital plan on hold

Health officials have been asked to look again at a planned £292m critical care hospital in south east Wales. The specialist hospital in Newport or Torfaen was part of Gwent NHS Trust's Clinical Futures strategy, which includes six local hospitals. But Health Minister Edwina Hart wants more work to show the plans are "ambitious, right and deliverable".

BBC, 19 January 2009

I don't know what others might think. But when you come up with not only a state-of-the-art proposal, but one that has received almost universal support from health professionals and the public alike, it is hard to avoid the conclusion that "look again" is thinly disguised code for "we can't quite afford it". If the programme really is as wonderful as Rhodri Morgan claimed only this week, then Edwina Hart's problem can't be with "ambitious" or "right", but only with the dreaded word "deliverable".

So it's well worth asking the question why we can't afford it.

The answer is this. The One Wales Government made a policy commitment not to use PFI as a funding mechanism for new NHS capital projects. I think this is a good thing, but in order to be able to make infrastructure improvements an alternative model is needed. In the absence of such a model, the projects have been funded out of the Block Grant we get from the Treasury. This is not so illogical. We get some £15bn each year, so a hospital or two like Ysbyty Ystrad Fawr or Ysbyty Aneurin Bevan can be funded from it. But there is a limit to how many projects can be funded this way.

In any normal situation we would borrow money to pay for such infrastructure investment, and spread the cost over ten or twenty years. But the Assembly doesn't have powers to borrow. Moreover the UK Treasury has shown no great signs of wanting to show any flexibility. If we look at a parallel situation, the Scottish Government wants to build a new Forth Bridge at a cost of roughly £2bn. The situation is reported here:

Bridge cash row set to continue - BBC, 9 Jan 2009

The Scottish Government's position is:

Mr Swinney [the Scottish Finance Minister] said: "We have the money to pay for this crossing through our traditional capital budgets. We have £3.5bn of a capital expenditure programme every year and the Forth replacement crossing will cost us about £1.7bn over a five to six-year period."

But he added: "The cost of doing that is that there would be, unfortunately, delays to other projects. That's why we're trying to get the Treasury to give us the type of flexibility that any other normal administration would have by being able to borrow to pay for a once-in-a-generation project like the Forth replacement crossing and spread those payments over a period of years."

Mr Swinney went on to say the Scottish Futures Trust worked in relation to projects such as healthcare developments and school buildings, rather than a single, "generational" build, such as the new Forth crossing.

"The Scottish Futures Trust is there to essentially bring about collaboration between different projects of a smaller scale to deliver value for money," he said.

Now, I'm not entirely sure whether I believe the line that the Scottish Futures Trust was not designed for larger projects of this nature. I think it is much more a case of them having extraordinary difficultly in getting it off the ground when it is being so vehemently opposed by the UK Government. Westminster wants to see it funded by a PFI/PPP arrangement ... quite simply because that's how Labour and the Conservatives prefer to do things, and they want to embarrass the SNP into a U-turn. Of course the chances of that happening are nil.

Which brings us neatly to the Holtham Commission. To put it at its bluntest, Labour have got to find some way of honouring their commitment not to use PFI in Wales. They have to find an alternative mechanism for infrastructure funding, and this can only be by allowing some form of borrowing. That's what the Holtham Commission is for. But if they agree it for Wales, then they surely must allow the same sort of thing for Scotland too.

OK, back to real time, 3 July. Things have moved on in two important respects, the first is that Calman has now reported and recommended that Scotland does get the ability to borrow. Westminster will almost certainly say yes. These borrowing powers will in all probability not be as extensive as the Scottish Government would like. But they will, at a minimum, be on at least the same basis that applies to other Whitehall departments.

The second is that I would now put money on Wales being given the same borrowing powers as Scotland when Holtham reports.

In essence that borrowing will only be allowed for capital projects such as schools, hospitals, bridges, railways and the like. But that is all we need to get over this particular crisis. Therefore I am quite sure that the new Ysbyty Llanfrechfa will go ahead. I don't, for example, share the pessimism of Marcus Longley in the video. His view seems to be based on the current model of projects like this being paid for from public spending ... since, up until now, the block grant we get has always contained an element for capital spending. The difference is that this sort of project will be financed by borrowing. Of course we will still have to use public spending to service the debt, but it is spread over a longer period and therefore affordable.


The big problem is that the UK government has dug itself into a massive hole over borrowing. It has vastly over-borrowed and is over-exposed. So much so that there are some doubts about whether the UK's credit worthiness is going to suffer.

But we need to remember that there is "good" and "bad" borrowing. Good borrowing is to invest in infrastructure and capital projects. A perfect example of bad borrowing was when Gordon Brown gave everybody a tax break in order to make up for abolishing the 10p starter rate of Income Tax. He did it by borrowing £2.7bn. It was acts like that which show that Prudence had long since left the building.

All borrowing is probably going to have to be done by the Treasury, but we need to devise some sort of ring-fence to divide the good borrowing we want to do in Wales from the mountain of bad borrowing that was used to pay for tax cuts at a time when Labour thought they could "buy" the next election.

In an ideal world I'd much prefer that Wales is free to go directly to places such as the European Investment Bank, rather than to have to go through the UK Treasury. But that might be asking too much ... for now.


So in conclusion I want to note that it doesn't so much matter that the UK is in dire financial straights. We are still going to have to build our hospitals, school and transport links for no other reason than that so much of what we have needs replacing ... and that it eventually costs more to do the patching, squeezing and temporary extensions than it would cost to build something new.

And as for Clinical Futures Gwent, I would urge our politicians not to mess with the concept too much. I have been involved in too many building projects where the message has come down from on high to cut costs ... without thinking about the cost in terms of functionality. We have come up with an excellent, world-leading concept. It is worth paying what it costs to get it right.

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