Pictured above: Jonathan Turner

Legislation introduced in the Health and Social Care Bill will mean NHS Trusts could save up to 40 per cent of their annual property costs by acquiring properties and refinancing PFI and lease commitments, according to global real estate services firm DTZ.

The Health and Social Care Bill 2011, which completed the Committee Stage of its passage through Parliament on 31 March, makes sweeping changes to the Prudential Borrowing Code for Trusts. It removes statutory borrowing limits imposed under the National Health Service Act 2006, enabling NHS Foundation Trusts to borrow freely.

The new range of freedoms will allow Foundation Trusts to self-determine affordable borrowing limits for investment in capital projects. Health sector lending is available at low-cost rates of 3.5 per cent, based on gilt yields. The resulting imbalance between a Trust's cost of borrowing and the cost of current property and PFI obligations means it could be far more cost-effective for NHS Trusts to acquire the properties and buy themselves out of PFI and lease contracts.

Jonathan Turner, Head of DTZ's Public Sector Practice Group in the Midlands, comments: "We have advised local authorities who have had access to similar cost-efficient prudential borrowing since 2004 and have made savings of typically 30-40 per cent.

"NHS Trusts are now in a position to apply the same model, which could deliver annual savings of £3-4 million for a Trust with yearly PFI or lease costs of £10 million."

Richard Shield, Head of the Healthcare Practice Group at DTZ, comments: "The Health Bill's overhaul of the Prudential Borrowing Code means that Trusts can exploit their access to cheap debt to buy such assets from the providers, significantly reducing annual repayments year on year. 

"It is clear that public funding for significant capital projects is unlikely to be forthcoming, so private finance is likely to remain a necessity where there is a clearly identified need for investment, in a new hospital for example. However, DTZ estimates that, if all NHS Trusts were in a position to buy out PFI contracts, this could deliver savings in excess of £300 million in the first year, rising in every subsequent year of the contracts.

"Whilst over the lifetime of the contracts this could equate to savings in the region of £15 to £20 billion, it is likely that, in the first instance, only smaller PFI contracts will offer real opportunity for immediate savings.

"The case is most persuasive where the Trust is tied in to a lease or PFI commitment in excess of ten years. However, we believe that all Trusts now have the opportunity to review their commitments and could realise some serious savings on public expenditure."