Norman Lamb: A PFI timebomb is ticking beneath the NHS

PFI involves an agreement between the public sector and private groups of investors and companies. It has been used heavily in the NHS as a mechanism for building new hospitals. Typically, the NHS enters a contract for the construction of the hospital and the provision of accommodation with services such as cleaning, catering and maintenance thrown in. The whole thing is paid for over the period of the contract –typically 30 years.

PFI was seized upon by Gordon Brown, following Labour's election in 1997, as a clever way of hiding the true extent of Labour's spending ambitions. The full financial burden was kept off the public-sector balance sheet.

While nobody can deny that the NHS needed a huge injection of cash, Labour's sleight-of-hand a decade ago is going to cost us billions. As the credit crunch has shown, if things appear to be too good to be true, then the likelihood is that they are.

Right from the start, everyone was saying PFI schemes were a lousy way to do business. In typical fashion, Gordon Brown ploughed on regardless. There was never any proper budgeting of the full extent of the future financial impact. For the NHS, this stubborn refusal to behave responsibly is going to cause real headaches.

Over the next 30 years, the NHS will have to pay back nearly 60bn. Instead of investing in new drugs or paying for more doctors and nurses, our money will be lining the pockets of the same bankers and other investors who held us to ransom when their financial scheming

was exposed.

For the speculators, financial wizards and consultants who designed this ruse, PFI is the gift that keeps on giving. For taxpayers, Gordon Brown's short-sighted reliance on PFI is likely to have a very damaging impact across the NHS and the rest of the public sector.

Take Wythenshawe Hospital, in Manchester. The taxpayer is going to end up paying more than 1.06bn. The hospital buildings are worth 67m.

Even when you take in to account that the total cost does include maintenance, cleaning and operating costs, this is still a staggering amount of money.

In Leeds, a contract to provide new facilities to a mental health trust at an initial cost of 47m before inflation, is going to end up costing more than 360m.

In my own county of Norfolk, the new Norfolk and Norwich hospital was constructed using PFI. Some years after construction, the private investors refinanced the deal – a bit like re-mortgaging. This delivered a windfall payment of more than 110m. The NHS got just 29 per cent of that gain.

I took the case to the National Audit Office and asked them to investigate the deal. The Public Accounts Committee subsequently concluded that the extent of benefit to the private partners was too high and the chairman described it as "the unacceptable face of capitalism".

There are times when complexity can be a virtue, but the last few years have taught us that when it comes to the public finances, simplicity really is the way forward.

PFI is hopelessly complicated and inflexible. Hospitals are locked in to contracts which last for up to 30 years and don't take into account changes in the way we use the health service. Hospitals will be forced to pay for buildings they may not even need

any more.

Labour has built a system which is stuck in the past. The real problem is that most of the costs lie in the future.

Despite the enormous amounts we owe for these hospitals, one of the real scandals is that many of them will never end up in public ownership. Our hospitals are mortgaged to the hilt and the unnecessary expense of PFI projects is going to make it much harder to protect front-line services.

The Liberal Democrats believe that we need a new approach to funding investment in vital infrastructure. Vince Cable has proposed setting up an infrastructure bank to supply the funding for the key projects we need to revitalise our economy. This has the benefit of ensuring that the public maintains ownership of the assets and it will provide a more transparent and accountable system.

The full extent of the PFI timebomb is only just starting to emerge, but when you look at the books, even a trainee accountant could tell you that things look pretty terrifying.

Our money has been squandered on these bizarre schemes without anyone stopping to consider the future. It is probably too late to do anything about those schemes which now exist, but we need to think long and hard before entering in to any new deals.

Gordon Brown's failed PFI experiment has certainly not delivered good value and is going to make it harder to deliver high quality services. This is one mistake that is going to cause trouble for many years to come.

Norman Lamb MP is the Liberal Democrat Shadow Secretary of State for Health.