Austerity and Hospitals in Deficit: Is PPP Termination the Answer?

Abstract

While austerity is commonly presented as a necessary, although undesirable, reduction in public expenditure, this framing may disguise a re‐imagining of the state whereby governments seize the opportunity of economic difficulties to shrink the state. This paper offers a critical examination of the nature of austerity by exploring the case of the UK's National Health Service (NHS), which according to political rhetoric is protected from austerity cuts. However, in the context of eight years of historically low funding growth coupled with increasing demand pressures from a growing and ageing population, the NHS has for several consecutive years faced substantial overspending by NHS provider organizations. With the Government intent on continuing its deficit and debt reduction path within a framework of ‘austerity’ focused almost exclusively on the expenditure side, NHS organizations have begun to explore radical solutions for reducing their costs. Following reported savings obtained by the early termination of a PPP contract at the Hexham General Hospital, politicians and some NHS managers have considered whether this experience might be repeated elsewhere. Our aims in this paper are to examine the financial feasibility of responding to the pressures created by austerity in this particular way, and to challenge the notion that the NHS has been protected from austerity. We extend the evidence base on PPP contract termination and analyze statistical information and financial statements in the public domain to highlight the legal and financial realities of early PPP termination.