What were the problems with the NHS loans scheme?

What were the problems with the NHS loans scheme?

The government hoped that moving from PDC to a mainly loans-based scheme would increase financial discipline and reduce the likelihood of NHS providers overspending and incurring deficits. Instead, deficits in NHS providers have persisted and the amount of loans from the DHSC continued to increase.

Public dividend capital (PDC)

When NHS trusts were created in the 1990s, the government transferred ownership of land, buildings and equipment to them. The total value of these assets (over liabilities) can be considered the public’s equity stake in the new NHS trust and is called public dividend capital (PDC).

The government can issue new public dividend capital as a way of giving finance to NHS trusts, which in effect increases the public’s share of equity in the trust.

PDC does not count as debt in the same way as a loan does, but it does still come with its own financial conditions –- much like share capital in public companies, trusts pay a PDC ‘dividend’ to the Department of Health and Social Care.

This dividend is not a ‘repayment’ of debt to the Department (ie, it is not analogous to a loan being borrowed and then repaid). Instead the PDC dividend charge represents the notional cost of servicing debt and is intended to ensure the efficient management of surplus assets.

This dividend is calculated at a rate determined by HM Treasury – currently 3.5 per cent of the trust’s average net relevant assets. The Department of Health and Social Care and NHS England and NHS Improvement intend to carry out a review of the PDC dividend rate with the intention of making any changes in .

NHS trusts may also repay PDC where they have surplus cash (eg, money from land sales that is not reinvested in new capital assets).

Although the loans scheme helped NHS providers avoid cash-flow issues, the scheme was increasingly online payday LA criticised in recent years for several reasons. Very few interim support loans have been repaid, which harmed the overall credibility of the NHS financial regime. The debt regime created uncertainty and increased transaction costs in the NHS, because administering and applying for these loans was a time-consuming business. The debt regime may have also created some unintended behaviours, eg, delaying payments to creditors including companies supplying clinical products, medical equipment and agency staff. Historical debt has also been cited as a key factor that has delayed or prevented planned mergers between NHS organisations.

How will the debt write-off work?

In , the government announced it would write off some NHS provider debts that existed at the end of . This write-off only applied to debts due to interim support, which were frozen on when interest payments ceased. The principal on these loans and any outstanding interest will be extinguished from the balance sheets. This was accomplished by the affected NHS providers being issued PDC (see Box above) to repay the outstanding balance of their loans. In the future, interim financial support for NHS providers will be issued as PDC, rather than an interest-bearing loan.

The national bodies have said they will make related changes to the wider NHS financial regime because of the debt write-off. For example, where a provider might incur additional financing charges if they moved from holding a low-interest loan to an annual PDC charge.

Loans of around ?3 billion that were issued as ‘normal course of business’ will remain and providers are expected to repay them. This is because these loans – which are often for planned capital investments in buildings and equipment – are generally regarded as affordable and are more likely to be repaid.

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