Step One: Create an Internal Market

The suspicion must remain that the Department of Health does not want the full story to be revealed. Health Select Committee, 2010

The 1980s saw the outsourcing of non-clinical hospital services such as catering, cleaning and laundry. Under John Major, most NHS bodies were made into trusts. NHS hospital trusts - or providers - run by boards of governors and chief executives 'sold' their services to purchasers, i.e. Primary Care Trusts. This became known as the purchaser-provider split. This means that hospitals have to compete against each other to get business. Except the NHS is not the City of London; what you really need in healthcare is collaboration rather than competition.

The internal market was introduced on the premise that the NHS is a monolithic bureaucracy, encased in red tape and stifled by centralisation. In other words, the public sector is inefficient and the private sector brings innovation. In fact, as a direct result of these reforms, NHS costs rose substantially. This is largely due to increased numbers of administrative and managerial staff.

A 2005 study by a team at York University demonstrated this. Administrative costs rose from 5 per cent in the mid-1970s to 14 per cent in 2003 mainly due to internal market operations.

In fact, this study was commissioned by the Department of Health but hushed up, leading Parliament's Health Select Committee to state that they were 'dismayed' and 'appalled':

'The suspicion must remain that the DoH [Department of Health] does not want the full story to be revealed.'

The cost of running an internal NHS market has been estimated at between £4.5 to £10 billion a year.

Recent reforms have added to these costs. The HSCA could push these administrative costs to 30 per cent. This would be similar to the US, where approximately 1 in 3 healthcare dollars are spent on administrative costs.

This experience of market-based reforms has been borne out in other countries. A minority report from an NHS working group highlighted evidence from international experts of soaring administrative costs in New Zealand, Canada, Australia and Germany. In the case of Germany, these costs have soared by 63 per cent from 1992 to 2003 now accounting for 20 per cent of the health budget.

Step Two: Introduce Public-Private Partnerships

The Private Finance Initiative (PFI) has been a fraud on the people.

Sir Howard Davies, chairman of RBS Bank

When Thatcher was asked what her greatest achievement had been, what was her answer?

a) Falklands War

b) Smashing the miners' strike and deunionisation

c) Privatisation of public utilities

d) The big bang deregulation of the City of London

None of these. It was ... NEW LABOUR!

Ken Clarke, ever the good sport, was gracious enough to acknowledge the debt owed to New Labour for perpetuating the marketisation doctrines of Thatcherism. In fact, New Labour had pledged to abolish the internal market but then went full throttle in the opposite direction. New Labour's NHS Plan (2000) and NHS Improvement Plan (2004) resulted in the internal market expanding into an extensive market. This was again based on the premise that the private sector would introduce choice and competition as well as cutting costs.

In 2000, a 'concordat' between the NHS and private health firms paved the way for the provision of elective care and diagnostic tests, paid for by the NHS. This concordat facilitated private companies becoming permanent providers of treatment to NHS patients.

For example, when your GP requests an ultrasound or MRI scan, there is a good chance that a private company is being paid by the NHS to carry this out. Again, when your GP refers you to an outpatient clinic to see a specialist, this may be run by a private company. In theory, this sounds like a good idea.

Tim Evans, who negotiated the concordat on behalf of the private sector, looked forward 'to a time when the NHS would simply be a kitemark attached to the institutions and activities of a system of purely private providers'.

These public-private partnerships would take many shapes, the first of which were Independent Sector Treatment Centres (ISTCs). ISTCs served as the entry point for the private sector and were intended to 'unbundle' the high-volume, low-risk, lucrative NHS work, such as cataracts and knee and hip replacements. In so doing, they would reduce waiting times. The concept may have been simple enough but the reality was messy.

As the British Medical Association (BMA) has shown, ISTC contracts were paid an average of 12 per cent more for each patient than the NHS tariff cost. These sweeteners are often used in the outsourcing of public services to attract the private sector. They were also paid for a pre-determined number of cases - in bulk regardless of whether procedures were carried out or not. To take one example, 'Netcare did not perform nearly 40% of the work it had been contracted to do,' receiving £35 million for patients it never treated.

As of 2010, an overall average of just 85 per cent of contracted activity was delivered. This ended up costing £5.6 billion over 5 years yet by 2008 barely exceeded 2 per cent of 8.6 million elective procedures.

Bringing in the private sector did not cut costs. It increased costs to the detriment of the NHS and patients, with only the private sector benefiting.

On top of this, clinical complications and legal costs were covered by the NHS. Yet more sugar-coating. There have also been repeated concerns about quality of care. Nevertheless, ISTCs were widened into the Extended Choice Network, which comprised 149 privately-run facilities by 2009.

Outsourced services are allowed to use the NHS logo meaning that patients are in the dark about who exactly provides their care. It was win-win for ISTC contractors and lose-lose for the NHS and patients. So if you are having an elective procedure or operation in the future, find out if it is being performed by a private company.

ISTCs were small fry compared to Private Finance Initiatives (PFIs). New Labour expanded PFIs, originally dreamt up under John Major, to build and run infrastructure projects. PFI schemes were used to build roads, schools, prisons and hospitals. PFI hospitals made up the biggest chunk. These projects were put out to tender to PFI consortia of bankers, construction firms and facilities management companies. The argument went that Labour had inherited public services in a diabolical state of neglect. The mantra from on high was that there was no alternative to the private financing of whole swathes of infrastructure. This kept the money off the Treasury's books and was supposed to reduce the costs of government borrowing. As Alan Milburn - a former Labour health secretary described by Private Eye as an 'almost maniacal convert to PFI' - put it, 'It's PFI or bust.'

It was a persuasive argument and there were many seduced and dazzled by its lustre. The Blairite Third Way would somehow square the circle by delivering new schools, hospitals, roads, railways and prisons without the debt or inefficiency of the public sector. It seemed too good to be true. Yet at the time, very few seriously interrogated the small print of the contracts. Those who dared to question the orthodoxy du jour were conveniently swatted away.

As early as 1999, Richard Smith, then editor of the British Medical Journal (BMJ), denounced it as PFI: Perfidious Financial Idiocy in an editorial revealing that the repayments would be exorbitant. In the same year, Professor Allyson Pollock and colleagues had published a paper sounding the alarm over the potential disastrous consequences of PFI debt and financialisation of public services. In a classic 2004 long read for Private Eye titled P.F.Eye - An Idiot's guide to the Private Finance Initiative - the late Paul Foot exposed the seedy underbelly of its history.

It later transpired that the process of bringing in PFI had not exactly been transparent. As researcher and campaigner Joel Benjamin of The People versus PFI (full declaration I have made Joel's acquaintance in recent years) has written: 'Politicians did not simply wake up one morning and declare that banks should finance and own schools and hospitals, off-balance-sheet, via offshore tax havens, they were lobbied by City interests, prior to the implementation of PFI.'

A PFI panel was set up by Chancellor Ken Clarke in 1993. It mutated into a taskforce inside HM Treasury and was eventually rebranded as Partnerships UK. Partnerships UK employed a revolving door with secondments of various executives from big banks parachuted in. It was later privatised with the shares sold off to financial institutions including Barclays, HSBC and RBS. Public-private partnerships were also exported as a global model.

Now the unheeded prophesies of the Cassandras have come true. The completed PFI projects have been leased back to the government (or in the case of PFI hospitals, to NHS trusts) with repayments, usually over 25 to 30 years, at high interest rates (as high as 14 per cent). Repayments are indexed so that they increase every year, even when the income of NHS trusts is falling. The Conservatives are fond of drawing analogies between the economy and a household budget; so think of PFI as a mortgage ... a hideously expensive mortgage, which ends up bankrupting the family!

The bill for hospitals alone is projected to rise above £79 billion. This exceeds the original capital cost (i.e. actual value) of £11.4 billion seven-fold.

PFIs came with strings attached in which 'facilities maintenance' was also subcontracted out. For example, if you need to change a plug socket or a light bulb, only a specific contractor is allowed to do this. A Daily Telegraph investigation flagged up several examples for the edification of the general public but this one really stands out:

One hospital was charged £52,000 for a job which should have cost £750.

If you wanted to think up a way to bleed the NHS dry then you would struggle to do better than PFI. Is it any wonder then that more than half of NHS hospitals are now in deficit and potentially in danger of going bust?

One of the main factors behind this is PFI, although this is not usually mentioned.

The total PFI tab for the taxpayer stands at over £300 billion for infrastructure projects with a capital worth of £54.7 billion.

That's a difference of approaching £250 billion.

Just think what you could do with this money?

Well it would pay for all the nurses (there are just under 350,000) in the NHS for 10 years.

Plus all 40,000 consultants for 10 years.

Plus all 40,000 GPs for 10 years.

Still tens of billions to burn.

Well there are 18,000 surgeons in England. It costs around £400,000 to train a surgeon (surgeons and fighter pilots are the two most expensive professions to train so I'm told). So the next generation or two of surgeons, i.e. another 18,000, would cost around £7 billion.

Plus 80 state of the art hospitals (based on the estimated cost of the new Papworth hospital - the national heart and lung transplant centre - at £165 million).

And pay for chemotherapy and radiotherapy for a million cancer patients (at £35,000 each).

If you wanted to keep it simple then the PFI drain would cover the entire NHS budget for over 2 years.

And with the leftover change, you could cover Alexis Sanchez's £600,000 a week salary should Manchester United ever require a government bail-out!

PFIs and ISTCs are just two examples of how the private sector and really a few high-net-worth individuals have siphoned off public money.

I was born at the Queen Elizabeth Hospital in Birmingham. My father has been under their excellent care for many years. It has been rebuilt as a PFI hospital with the original cost at £627 million but repayments will reach £2.58 billion. This begs the question: how many other patients could receive fantastic NHS care for this money?

I did my GP training at the Royal London Hospital, which is part of Barts Health Trust. This is the largest trust in the country and accordingly has the most expensive PFI scheme, which is one of Innisfree's flagship projects. Innisfree - a fund management company in the City of London - is one of the biggest players in the PFI market.

As one comes out of Whitechapel tube station, the new Royal London Hospital certainly looks impressive. Its glistening blue tower is emblematic of an ultra-modern twenty-first century NHS. It looms over the ruins of the crumbling Victorian hospital made famous in David Lynch's film The Elephant Man. Up and down the country, this is the slick, corporate sheen of PFI hospitals. Inside, the first impression is that it is state of the art. Yet there is also an aesthetic and functional brutalism with labyrinthine corridors and sunless, windowless rooms. There are fewer junior doctor offices and overnight rooms. Intriguingly, PFI hospitals have been designed with significant numbers of individual rooms as opposed to conventional wards. This is clearly beneficial for patients and reduces the risk of transmission of infections. However, it suggests that privately financed hospitals are potentially anticipating something else - the expansion of private healthcare.

The original capital cost (i.e. actual value) of the Barts Health PFI was £1.1 billion (around £1 million per bed) but will end up costing £7.1 billion by 2049. A total of £6 billion will go to the PFI consortium Skanska Innisfree and partners. Chairman of Imperial College Healthcare Sir Richard Sykes has previously pointed out that Barts Health are paying £100 million a year in interest before they even see a patient. That's £3 billion, just in interest, over 30 years. Imagine what you could do for healthcare in East London with this money.

So it's not exactly surprising that Barts Health has declared that it is in dire financial straits. It was put into special measures by the Care Quality Commission in 2015. Its restructuring entailed redundancies for hundreds of staff and down-banding of others. Since I completed my GP training in Tower Hamlets, services have disappeared at an alarming rate. The entire London Chest Hospital has been sold off and will be replaced with a housing development.

The view from the Royal London cafeteria is direct on to the City of London. The irony of this vista is not lost on me. You could say it's a somewhat dyspeptic perspective for diners. At night, if you stand outside the hospital and crane your neck to the top floors, you will notice that they are permanently dark. These wards have been mothballed because the funding ran out.

The majority shareholder in Innisfree is Jersey-based Coutts & Co, which in turn is part of the RBS group. RBS was the biggest bank in the world by assets when it failed in 2008. The combined cost of the government bail-out and losses incurred since is over £100 billion or close to the NHS budget for one year. As campaigners see it, banks and other financial companies have used extortionate interest rates to boost their revenue from captive public services.

Banking leviathan HSBC also has a stake in PFI hospitals. It has even been described as owning outright three NHS hospitals. A provocative documentary titled HSBC: Gangsters of Finance pointed out that the bank has been caught red-handed laundering money for Mexican and Colombian drug cartels, Russian gangsters and organisations linked to Al Qaeda. Campaigners argue that, with this unedifying track record, such corporate and financial interests should not be entrusted with hospitals and schools.

The Princess Royal Hospital in Bromley was another Innisfree gift to the taxpayer. It will cost the NHS ten times what it is worth - that's £1.2 billion. It's the main reason why South London Healthcare Trust went bust in 2012. Norfolk and Norwich University Hospital is another PFI part-owned by Innisfree. A few years into the contract, the PFI owners refinanced it, raising their annual rate of return from 16 to 60 per cent.

There are many more Innisfree PFI time-bombs detonating up and down the country - 19 in total. The healthcare of people in all these areas is jeopardised just so that chief executive David Metter and his total of 28 employees - yes that's right 28 - can make a killing! The Daily Telegraph describes him as 'the man, who owns 28 hospitals and a motorway'. At the last count, one might add.

Apparently there's no money left. Unless you are someone like Metter, who took home £8.6 million in pay and dividends in 2010.

Money that could have been used to treat patients, pay for more NHS staff and build more hospitals instead of cuts, sacking staff and closing hospitals. This is why Conservative MP Edward Leigh, chair of a Treasury Committee report on PFI, described it as the unacceptable face of capitalism.

The insidious encroachment of the private sector into the NHS had thus far been a salubrious warning of the unchartered waters that lay ahead. Or so you might have thought ...