Raising NHS capital funds: options for government

Introduction

Why is capital so important?

Capital investment pays for all the elements – such as buildings, machines and computers – that allow healthcare workers to be as productive as possible. Yet the UK has invested poorly in health capital compared to peer nations for decades. The Darzi review highlighted Health Foundation research showing that the UK has spent £37 billion less between 2010 and 2024 than comparable OECD countries. Lord Darzi notes that:

“The NHS has been starved of capital and the capital budget was repeatedly raided to plug holes in day-to-day spending. The result has been crumbling buildings that hit productivity – services were disrupted at 13 hospitals a day in 2022-23. The backlog maintenance bill now stands at more than £11.6 billion and a lack of capital means that there are too many outdated scanners.”

Poor investment means a less efficient service. NHS England’s analysis shows that degraded estate contributes significantly to current productivity challenges and that 12,000 recent estate failures stopped clinical services in the past two years alone. Healthwatch England has also found that the poor estate is worsening patients’ experience of NHS services, while the Institute for Government argues that: 

“Crumbling buildings, creaking IT and a lack of equipment will continue to seriously hamper public service performance unless the next government takes a new approach to capital spending.” 

How have we got here and what do we need?

Capital investment is too often unattractive to politicians as it frontloads costs today for gains later, often beyond the current parliamentary term. When money is short, as it is today, cutting revenue spending is felt by voters immediately, whereas the impact of cutting capital spending may not be felt for several years. It is perhaps no surprise then that successive governments have repeatedly raided NHS capital budgets to cover shortfalls in revenue. ¹  Integrated care systems (ICSs) are currently developing ten-year local infrastructure strategies, prioritising their investment needs across estate, digital and equipment. But these will struggle to deliver with the limited pot of capital funding currently available.

In November 2023, the NHS Confederation published Invest to Save: The Capital Requirement for the NHS in England, arguing that the NHS needs at least £14.1 billion capital funding each year over the next three-year Spending Review period, a £6.4 billion annual increase (or £19.2 billion extra collectively over the three years). This is what ICS leaders say they need to increase productivity to 2 per cent annually. Boosting productivity is crucial to the financial sustainability of the NHS in the face of rising demand for services and to deliver best value from the £161.1 billion annual NHS revenue budget.

At the same time, NHS leaders recognise the tight financial situation the country is in, and that the NHS has had higher spending increases than other public service in recent years. While taxation is the government’s main route for raising money, there is limited political appetite for higher taxes. Borrowing to invest in infrastructure is a common approach in the public and private sectors. The government must think innovatively about how we as a country might fund capital, while also ensuring value for money for taxpayers and efficient clinical use. 

The discussion paper, developed through engagement with integrated care board (ICB), trust and primary care leaders as well as government and investors, sets out options for raising funding to invest in NHS capital. None of the options are considered the only way to increase the NHS budget and are presented as a non-exhaustive menu of options for the government and arm’s-length bodies. 
 

Options for raising capital funds

Government borrowing

Treasury borrowing

Government capital spending – 11 per cent of all UK public sector spending – is primarily through government departments (70 per cent). These departmental budgets must fit within multi-year capital departmental expenditure limits (CDEL), so that HM Treasury can control and monitor overall public sector spending. Nearly all NHS capital investment currently comes from the Department of Health and Social Care’s (DHSC) capital allocation. Where tax receipts are insufficient to cover spending, the Treasury borrows money to fund departmental expenditure (through selling bonds and gilts to investors).

Recently, the extent of projects included within CDEL has grown, with rule changes meaning spending on services such as temporary facilities have been reallocated from revenue to capital, without a corresponding lift in CDEL. Capital budgets are therefore stretched more thinly than ever before. Government borrowing must be compliant with the government’s fiscal rules, limiting how much it spends relative to income. These rules are intended to give investors confidence in the government’s ability to repay debt. 

While public borrowing is often much cheaper than commercial/private borrowing, it is all ‘on the books’ (subject to the CDEL spending cap) and so must be compliant with these fiscal rules. The new government has set out fiscal rules to manage the level of government debt, ensuring that (a) debt must be falling as a share of the economy by the fifth year of the forecast and (b) revenue budget is in balance. In the current fiscal context, these rules should permit additional borrowing to fund capital investment within a three-year spending review period. 

While Treasury borrowing is by far the easiest technical option and the cheapest in terms of borrowing costs, government must ensure such borrowing is politically feasible. Additionally, while initially appearing cheaper than private investment, cost overruns are the norm. Project overruns average 66 per cent of original budget – although there are many, highly publicised experiences of much higher overruns, particularly on major public infrastructure projects. Such overspends are not unique to the UK, but some of the reasons may be particular to the UK.

The recent experience of the New Hospitals Programme shows there are significant opportunities to decrease overspend through faster decision-making, devolving more decision-making locally and a lighter-touch approach to central oversight. Costs in the UK are much higher than comparable construction in the US and Western Europe. Much of the escalating costs arise from delays in approval and allocation of budgets, which could be significantly mitigated by streamlining and accelerating planning and approval processes, with appropriate authority devolved to more local bodies, such as ICBs. ²

Public Works Loan Board

Another option for public borrowing is through the Public Works Loan Board (PWLB), which lends money to local government at a favourable interest rate of the gilt rate plus 0.8 per cent for public works loans (PWL). Unlike CDEL, which is set firmly by the Treasury, the limit on PWL borrowing (currently £115 billion) usually rises to match demand. ³  There is no limit for local government capital expenditure as the Code is designed to allow capital to be managed at a local level. Local authority investments, unlike those of the NHS, can also be VAT-exempt, lowering the cost of health capital projects. However, PWLB funding is available to local authorities, not NHS organisations. 

Using PWLB for NHS estate investment would require local NHS organisations to work with local government and raise money for capital investment, ensuring mutual benefit. It effectively removes the CDEL constraint, subject to meeting certain criteria and developing good relationships between NHS partners and councils. 

Despite no CDEL limit, there are still prudential rules in place to ensure good governance. Local authorities must ‘have regard’ to the Chartered Institute of Public Finance and Accountancy’s (CIPFA) Prudential Code for Capital Finance in Local Authorities (‘the Code’) when developing capital plans. The Code allows local authorities to borrow for capital investment over the medium term and ensures that capital plans are prudent, affordable and sustainable. PWLB regulations state that projects must be assigned to certain agreed categories. Borrowing for ‘investments bought primarily for yield’ is not permitted – so local authorities cannot use PWLB to invest in NHS estate at a profit; investment must be tied to local authorities’ duties. It is likely that only borrowing to invest in shared local authority-NHS estate would meet the PWLB criteria, meaning changes would be needed for any further use for NHS investment

However, this option is at best a work around and therefore not the best policy approach. Local government is under deep financial pressure and taking this approach would mean councils carrying additional risk on behalf of the NHS. There have been several local authority bankruptcies in recent years.

Ultimately, the favourable interest rates available (relatively to private borrowing) are because PWLB funding is raised by Treasury. This is merely a more complicated and slightly more expensive route than simply raising CDEL, financed by the same borrowing, but one which undermines the Treasury’s control over public spending. While it may appear an attractive work around to capital-poor NHS leaders, it is not a proper solution for capital investment.

Leveraging existing assets

Using existing NHS ‘cash’

The national capital spending constraint of CDEL is divided up across local systems, with each ICS then given a system capital spending limit which applies to all NHS organisations within the ICS footprint. To avoid situations where a single trust could ‘use up’ an unfair proportion a system’s capital envelope, the Health and Care Act 2022 sets strict limits on how individual trusts can spend their own capital funding. Foundation trusts’ ability to raise their own capital was constrained so that any capital scheme does not inadvertently push the system over the capital envelope, with one trust’s spending thereby preventing other trusts and/or primary care team making capital investment. (This applies to capital spending but not revenue). 

System partners are expected to make capital spending decisions collectively as a system to prioritise need, a process underway as each ICSs develops their infrastructure strategies. Given the collaborative philosophy underpinning ICSs and the severe infrastructure needs in primary care, there is a strong case to maintain this approach. As Invest to Save sets out, the primary care capital need is significant and can represent excellent value for money given the return on preventative investment. It also aligns with the government’s intention to shift more care from hospital to community settings. 

A by-product of system capital spending limits is that many trusts have built up significant financial reserves which they are not allowed to spend. Most of this money sits in the Government Banking Services accounts. NHS England’s Consolidated NHS Provider Accounts 2022 to 2023 (the latest published data) show £12.8 billion is currently held in ‘working capital’ reserves. In theory, a portion of this money should be used to fund additional capital investment by raising the CDEL cap. Ideally any additional funding would be pooled at a system level to allow prioritisation of capital projects across acute, community and primary care within an expanded CDEL envelope. ⁴

However, these reserves effectively sit on government accounts as an ‘IOU’ to trusts as underspend from previous years. For NHS organisations to spend this cash would still require Treasury to raise funds through additional borrowing. It still requires the government to raise money through conventional means, which are subject to fiscal rules, and does not offer an alternative to further government taxation or borrowing or cutting spending elsewhere. 

Unlocking ‘cash’ from existing NHS assets

A further source of funding could be the sale of English land which the NHS owns but may be surplus to requirements or put to better use. The Naylor report suggested £2.7 billion in inefficiently used land in 2017 might reasonably be used to fund other assets, with a total potential financial opportunity of up to £5.5 billion. Some of these savings may already have been achieved in the seven years since Naylor’s report, but there undoubtedly remains an opportunity to unlock value from inefficient assets, particularly in metropolitan areas. (This means there will also be geographical variation in existing assets between different ICSs.) Underused existing estate can provide opportunities to develop key worker housing, supporting the workforce, while contributing to economic development and creating a source of rental income. 

Doing so would require flexibility within financial rules and potentially difficult local decision-making, particularly over local service reconfigurations. New ‘call in’ powers for the Secretary of State to intervene in local service reconfigurations combined with public pressure over potentially unpopular closures is likely to make this difficult, as resultant service changes are delayed or blocked. 

Importantly, ICSs need the capacity to deliver the work that leads to these savings: identifying inefficient assets, sale of sites, relocating services and infrastructure to elsewhere before being able to recycle the funding back into present needs. ICSs often do not have the capacity to do this. Some capacity for managing existing estate was reorganised from primary care trusts (PCTs) to NHS Property Services and Community Health Partnerships in the Health and Care Act 2012. This was because clinical commissioning groups (CCGs) were too small scale to house this function and, as the Darzi review describes, overall managerial capacity reduced. This was unchanged the 2022 Health and Care Act. Operating at the larger scale of ICSs may offer the opportunity to review where capacity sits to achieve best value from existing assets.

Private investment

Private finance initiatives (PFI) and private finance 2 (PF2)

Private finance was used within the last 25 years to enable investment in NHS capital projects, until the use of new schemes was abolished by the then Chancellor in 2018. The Department of Health (now DHSC) procured 140 projects under two sequential frameworks: private finance initiatives (PFI) and successor PF2. They are funded by a combination of debt and equity.

Public-private partnerships (PPP) enable private finance to help create new assets as an alternative to public sector procurement. Historically, these have enabled the project to be kept off the public balance sheet, thus building without incurring the requisite public debt. The public sector leases assets from a private funder over the course of 25-30 years.

Broadly, the potential benefits include:

• transferring risk from the public to private sector
• delivering assets that the public sector bodies would struggle to get HMT/government financing for (partly as these investments have historically been ‘off the books’ and not registered as government borrowing/liabilities)
• encouraging ongoing maintenance with whole-of-life contracts
• lowering the country’s debt thus reducing government borrowing rates
• greater efficiencies and delivery to time and price as the private sector is not paid until they deliver the asset – this is particularly beneficial compared to average 66 per cent cost overrun for capital projects funded by public investment in the UK. 

PFI and PF2 schemes have significant drawbacks. Limitations generally include:

• higher lifetime cost of financing as government can raise debt at lower rates through selling bonds compared to the cost of financing PFI deals – there is typically a 7 per cent interest rate on a 25-30 year loan
• inflexible long-term contracts which local NHS trusts and foundation trusts are stuck with for around 25 years 
• poor resourcing for public sector bodies to manage PFI contracts, as highlighted in the White-Fraser report 
• some financial risk still lies with the public sector as HM Treasury must ultimately be the back stop to any government procurement
• inflexibility for use change of an asset given it will need landlord approval 
• risk of costly legal dispute over maintenance costs.

The rising cost of PFI schemes has been well documented. However, they appear to offer better value for money than the recent New Hospitals Programme (NHP), once delays and overspend costs are accounted for.  ⁵  If the drawbacks could be mitigated, private finance could still be an option available to policymakers. The government could look to develop a new generation of private finance models which mitigate drawbacks of the first two generations. Options to improve upon previous models could include the following:

• Standardising the cost of capital calculated on a single assumed cost of capital, given all projects generate tariff or block income. This would level the playing field between NHS providers. This would be a complex task given that the cost of capital relates to the market conditions at the time of each project and the relative risks involved. 
• Widening available contracting techniques to better reflect the current commercial environment, such as contract alliances. 
• Improve public sector management of long-term contracts by better professionalising public sector contract management and by giving the public sector a seat on the board of the project company. The public sector has often been too passive in managing and enforcing PFI contracts, with evidence that insufficient data is collected to assess performance and too few specialist staff tasked with holding the private sector to account under the PFI contract.
• Borrowing could be shared at an ICS level (although there would need to be sufficient risk transfer to the private sector). This enhanced local autonomy offers ICS a way to make decisions and accelerate projects and the shared risk with the private sector.

Importantly, following advice from the Office of National Statistics (ONS), the Treasury changed accounting rules so that revenue costs of funding PFI and PF2 projects are considered capital expenditure. This puts PFI debt on balance and under CDEL restrictions. PFI and PF2 schemes could therefore not be off balance sheet as they were during PFI’s heyday.

Any alternative approach to use private investment outside of CDEL constraints needs sufficient risk transfer to private sector while still being (a) attractive to private investments, (b) value for public money and (c) politically acceptable. 

Third-Party Development and buy back

Primary care is already exploring ways to use private investment in shared investment in estate projects through a variant on existing Third-Party Development (3PD). This ‘3PD and buy back’ model (distinct from classic 3PD) sees investors take complete ownership of an asset to lease back to an NHS provider or ICB for a minimum period of 15 years, with the option to buy back total ownership for £1 at the expiry of the least. Unlike a PFI deal, the care provider has full operational control of the estate and flexibility to modify, sub-let and alter. Rental costs are set by district valuers, as per typical 3PD models, but the ability to return the asset to public ownership separate it from traditional 3PD (see third party ownership section below).

As with 3PD, 3PD and buy back requires investments of £15 million or more to attract investment, with primary care investments potentially amalgamated to achieve an attractive scale. This model gives care providers full operational and clinical control of buildings without needing upfront capital or personal guarantees and avoids complex contract management. While aimed at primary care, there may be an opportunity to upscale this model to larger community and secondary care providers.

Mutual investment model

Similarly, since 2017 and 2019 respectively both the Welsh and Scottish governments have deployed a mutual investment model (MIM), another version of public-private partnership. Unlike previous schemes, the public sector can take on 20 per cent of the initial capital – higher than PF2 equity stakes. The public sector also retains the right to appoint a director to the special purpose vehicle (SPV). 

Under MIM schemes, private partners build and maintain public assets, in return for a fee from the public sector to help cover the cost of construction and financing the project. The contract excludes ‘soft services’, including facilities management services and equipment, which will still have to be paid for from revenue. Alternative capital funding is needed for technology and equipment outside the scope of MIMs. MIM can support economically active people back into work by procuring from local small and medium-sized enterprises (although this requirement can increase project costs). 

Ownership of assets returns to the public sector at the end of the contract. As sufficient risk sits with the public sector, but the debt is considered ‘off balance sheet’ for public accounting purposes, not counting towards the government’s debt liabilities and therefore not subject to public spending limits. However, use and evaluation of the model in the UK is still limited and accounting rules could change in future. 

Infrastructure investment partnerships

The Future Governance Forum has proposed building on MIM by evolving it into infrastructure and investment partnerships (IIP). IIP could offer a next generation of public-private partnerships with a greater share of risk sitting with the private sector than predecessor schemes. 

Crucially, annual payment levels are agreed prior to construction, so risk of cost overrun sit with investors and not taxpayers. Higher borrowing costs (relative to government borrowing) offset the risk of cost overrun, a common problem in public infrastructure procurement. The IIP proposal also includes a range of changes to the public sector’s approach, including improved contract and relationship management, skills development, as well as enhanced transparency and oversight of all such projects to improve value and efficiency.

IIPs also seek to use infrastructure projects as an anchor for investment and regeneration in a wider area, a ‘precinct’ approach taken Victoria in Australia. ⁶  The precinct approach offers a means for ICSs to deliver on their fourth core purpose “to help the NHS support broader social and economic development”. 

Given the clear role over large NHS providers as ‘anchor institutions’ – major employers and procures, particularly relative to the size of large towns and small cities – there may certainly be opportunities here. Particularly if considered as part of wider economic growth strategies in devolved authorities. As the NHS Confederation and the Local Government Association have argued, combined authorities and ICSs have a genuine and shared interest in geography, place, role, purpose and outcomes. 

A new generation of shared investment?

New investment models can create opportunities for patient capital. The 86 local government pension schemes (LGPS) across England (which operate separately from local authorities although local authorities are liable for meeting any shortfall in pensions obligations) currently hold £350 billion which could be invested in IIPs if the risk is managed. 

To be attractive as a new investment market – particularly to risk-averse pension funds – central government would have to make limited guarantees which both de-risk the investment proposition but are limited enough to not be accounted for on government borrowing books and risk breaking fiscal rules. This tightrope walk should be achievable and will require collective engagement with the investment community and HM Treasury.

Given fund managers want to manage their own investments, such models would have to be used on a project-by-project basis, rather than providing funds into ICSs’ collective capital pools for system partners to allocate and prioritise. Therefore, to ensure best value, ICSs should consider which projects might be best suited to a shared ownership model when they develop their infrastructure strategies. Projects which include mixed-use developments with their own revenue streams, such as key worker accommodation, car parking and/or retail facilities, would be more attractive for investment and reduce longer-term cost for the public sector. 

The new National Wealth Fund Taskforce may offer a blueprint for unlocking investment in the NHS. In this model, the government helps put NHS assets into a ring-fenced vehicle and a pre-agreed selection of investment companies could work with each project on a case-by-case basis. Using established, well-capitalised investment firms would allow a greater level of market certainty that projects are not going to collapse – thus ensuring HMT is more likely to be able to keep these projects off-book. This is in part because the investment proposition, a hospital that will be in a region for decades, will allow sufficient risk sharing for an investment company, while big investment managers have little desire to go into the business of managing a hospital and its leasehold. Smaller projects, for instance primary care estate, may need to be combined into larger contracts to develop an investable proposition. 

This process could take time and local NHS organisations will need to work with government and private sector investors to develop a case study process that could be scaled across the country. While this approach may be well suited to estate, it may be impractical for digital investments and new equipment, where there is a greater depreciation in the value of assets. 

Third-party ownership

An alternative option for investment is for this infrastructure not to be owned or wholly owned by the NHS, but instead owned or shared with private investors. Funding for investment comes from the private sector, which also takes on the risk and liability. This can either be permanent or the public sector can agree a buy-back option after a defined period. 

Third-party development

Rather than buy and own estates and technology, the NHS can rent it from the private sector. This model is common within primary care and is often referred to as the third-party developer model or ‘3PD’. Private investors agree to develop and maintain modern, purpose-built estates for GP practices, which lease them from them. As the private sector owns the estate, it raises the capital, manages construction, and can manage the estate at scale, reducing administrative costs and pressures on GPs. GP partners avoid the personal financial liability of estate redevelopment and mortgage costs, with risk sitting with the private developer. Nevertheless, they are liable for lengthy lease agreements that still present financial challenges and liability on individual GPs. As they are outside of NHS accounting practice, primary care is outside the IFRS 16 CDEL requirements. Rent is set and reviewed by the district valuer (DV), part of the Valuation Office Agency (VOA), considering how much a building is worth or should have cost to construct and what yield is appropriate to apply. This limits excessive profits and therefore cost for primary care.

Given the changing nature of demand for healthcare services, the flexibility afforded by a rental model could enable healthcare providers to change and adapt their estate and technology more quickly. The third-party developer model presents significant benefits, such as its agility, reliability and ability to raise capital from external sources. However, with construction, energy and maintenance costs rising, this model is becoming a more costly and less attractive proposition to investors. Current revenue budgets and district valuer valuations determine the rent paid to cover the cost of leases, considering market rents and value for money. Currently, there is a misalignment between the valuation of third-party developers and the scope of current budgets. If the percentage of the primary and community estate owned by third-party developers grows significantly over 20-30 years, this could present significant cost pressures regarding long-term revenue costs. As with any privately funded option, removing maintenance from contracts is key to making these attractive for the NHS. 

Countries like Italy have invested heavily in national programmes to support new community health centres owned and managed by regional health authorities. This has coincided with a growing desire among newly qualified GPs to reduce their personal level of financial risk associated with premises. The Republic of Ireland has made growing use of 3PD to invest in new estate and appears as a more attractive market to investors given the smaller scale enables more rapid and streamlined decision-making, particularly compared to the approval process in England.

Premises owned by NHS bodies, such as trusts or integrated care boards, present greater challenges regarding significant upfront accounting of costs but better opportunities for long-term integration and financial planning. IRFS16 accounting rules mean that the leases count towards capital, rather than revenue, spending limits and the cost is counted up front – with the full term of the contract counting against the spending limit of the year in which it was signed. If it is too short, it may not provide the stability and investment return to make it attractive to private investors. Where this approach has been used in primary care, private GP partners take on liability, so this has not been an obstacle. However, this may make such an approach unviable in practice at a large scale in the public sector.

Shared ownership

A half-way house between shared investment and third-party ownership is a shared ownership model. This model sees investors and NHS partners (with providers or an ICB) share ownership of a special purpose vehicle (SPV), with the NHS owning 50 per cent +1 of the asset, leased to an NHS providers (or several providers, potentially include third parties) for a minimum 25-year period. 

As with 3PD, rents are set by district valuers and no upfront capital investment is required from the public sector. It also provides flexibility over sub-letting and maintenance. This model has already been used in primary care, allowing local government pensions funds to invest with social purpose in healthcare. While it has been used with GP partnerships, the model may count towards CDEL and IRFS16 may frontload the cost of a lease in a single year, making this unattractive for larger-scale use by NHS trusts. ⁷

Pay-per-use model

Equipment and mobile, modular buildings can be leased from external suppliers without counting against CDEL by using a pay-per-use model. NHS providers can rent the equipment and modular estate from suppliers but pay only as and when it is required. No fixed contract means expenditure counts against revenue. Specialist third-party investors pay for the estate and equipment and recoup this as it is used. Investors take on the financial risk as income is subject to variable usage of the assets. Maintenance can be added as part of such a service, but with fixed costs this would count against CDEL. 

This option can provide a short-term, flexible solution to enable revenue funding to be used for what would have been capital investment. It can be a useful addition given the need for extra diagnostic equipment to meet the new government’s manifesto commitments. However, in doing so this adds additional pressure to already stretched revenue budgets and does not add any net extra investment. It is a work-around, not an ideal solution. Additionally, in the long run and given the premium financiers will charge as they take on the risk, this option would be more expensive than buying equipment and permanent facilities. As such, it is most suitable for add-on facilities to address fluctuations in demand or to provide temporary estate during construction projects, rather than a long-term solution. It is a valuable tool for ICSs to have as they often need flexible solutions.

Conclusion and proposal

The NHS has a pressing need for capital investment in estate, digital and equipment for the NHS. This is not just for acute hospitals, but primary care, community care and mental health, enabling the government’s intention to shift more care from hospitals to communities. It is essential to the future financial sustainability of the health service. With public finances under severe pressure and the imperative to comply with fiscal rules, the question is how to raise this funding? This discussion paper has explored different options available to the government. It is not an exhaustive list and other options, including philanthropic donations and partnership with other public sector bodies (such as universities), can help. These are the key options available. 

Ultimately, there is no real alternative to either:

1. Public or private finance that counts against CDEL; or
2. Private finance where there is sufficient risk transfer not to score against CDEL.

The government is likely to need to use several options to fund capital investment in different projects: 

1. Government borrowing – Without increasing already high levels of taxation, the cheapest way to invest in NHS capital is additional Treasury borrowing. Given the scale of investment required, this may be unavoidable. Otherwise the NHS estate will deteriorate further to the detriment of patient experience and safety, as well as forgoing essential digital transformation and desperately needed equipment. This approach will likely need to be used for digital and equipment investments which other funding sources may be unsuited to. Average overrun and overspend cost for public infrastructure projects should be accounted for and ideally partially mitigated by accelerated decision-making and well-resourced management.
2. Leveraging existing NHS estate – Some further efficiencies in the existing NHS estate can likely be found, in the region of £2.7 billion according to the Naylor Review, but this will require greater local autonomy to make decisions and potentially politically unpopular service reconfigurations. There are also revenue costs associated with releasing and repurposing capital tied into surplus estate. Partnership with the private sector and rapid approval of service reconfigurations will be needed to divest unneeded assets, enabling released funds to be reinvested in priority projects. Managerial capacity for ICSs to dispose of and recycle existing assets will be crucial. 
3. Shared investment models – Use shared investment models to raise funding on a project-by-project basis from private capital. By identifying the most eligible and appropriate projects in each system’s infrastructure plans, particularly estate and mixed-use development, such funding could complement public funding. However, it is not a substitute for public funding and is less suitable to digital and equipment investment. There are a range of different models which have been used historically and internationally which the government should explore and make available to system leaders.

Collectively, these sources could help to provide at least an extra £6.4 billion per year over the next three-year Spending Review period needed to transform NHS estate, technology and IT and boost productivity across the NHS. Further work may be needed to develop more specific propositions within these options to take forward. Alongside raising the requisite funding, reforms will be needed to ensure funds are spent and distributed in the most effective and timely way – primarily through simplifying and devolving what are currently incredibly complex and hierarchical decision-making processes. The NHS Confederation will set out further proposals to on both these accounts shortly. 

The capital funding required may be large compared to the government’s fiscal headroom but is relatively small comparable to investment through capital markets. In recent years, England lagged behind Scotland and Wales in leveraging private capital investment in desperately needed public sector projects. There is great demand in private capital markets for secure investments with social purpose and there is also a need in the healthcare sector – but the means for connecting the two is currently limited. This position is unlikely to be sustainable.  Attracting investment will require a clear and stable policy framework and a streamlined, objective approvals process. Investment opportunities will also need to be at a sufficient scale to be attractive, something which system level and supra-system collaboration can facilitate. Investment in contract management skills, building trust and clarity on legal responsibilities could help to avoid some of the disputes of the past.

The Darzi review has laid out the cost of inaction. It is now time to address the NHS’s dire need for capital investment so it can deliver the value and care that patients and taxpayers expect.