Investing in the NHS: empowering the sector to drive productivity, renewal and growth
There is significant potential to increase investment in the NHS
Commit to an investment-led strategy
The 10YHP aims to bring about a significant transformation in how care is provided to patients, and the outcomes that it will drive. Identifying clear capital priorities and allocations to enable this transformation will be essential.
This has worked well in the past, for example in supporting the shift to net-zero – the Department for Energy Security and Net Zero has used a criteria-led approach to deploy over £2.3bn capital investment in support of public sector decarbonisation via its delivery body, Salix Finance Ltd. Of this, the NHS has secured £1.4bn.
There is a successful track record of this in the NHS: starting in the 2000s, the Local Improvement Finance Trust (LIFT) programme secured c.£2.5bn investment into the NHS, including a significant private sector contribution, delivering over 350 healthcare buildings focused on the primary care and community sectors.
More recently, specific priorities on elective recovery and community diagnostics have driven capital investment at pace across the NHS. Although these programmes have largely been constrained to smaller schemes (typically worth under £25m), they demonstrate that with an investment led-strategy, substantial transformation can be delivered across the NHS, at pace.
Set an ambition to grow capital's share of health spending towards 10% of NHS budget
Currently, capital spending accounts for around 6.5% of the DHSC budget.
A reasonable medium to long-term aspiration would be to increase this to 10%of total departmental expenditure. This would bring NHS investment into line with many international peers, enable regular investment in major new infrastructure (e.g., digitisation, neighbourhood healthcare), and improve the productivity of the NHS workforce.
Under HM Treasury budget rules, DHSC may convert non-ringfenced RDEL budget to CDEL without HM Treasury approval.
Because capital budgets only represent a small proportion of the overall DHSC budget, a relatively minor rebalancing of capital and revenue funding would have a dramatic impact on the amount of capital available. For example, in 2025/26 the total DHSC budget is over £214bn. To enable 10% of the total to be spent on capital, it would be necessary to move around £8bn from revenue to capital to enable 10% of the total to be spent on capital (£21bn). This would have resulted in a revenue budget 3.7% smaller, while CDEL would have been 56% more.
However immediate revenue pressures mean we cannot achieve this goal quickly. However NHSE/DHSC, together with HM Treasury, can set a trajectory to increase the capital share annually, starting now, and achieve this goal by 2035. While this adjustment is taking place, it will be necessary to set realistic expectations for what can be delivered within a constrained revenue budget.
Given the fourfold return on investment, if 10% of health spending could be devoted to capital, the additional £8bn of investment being made each year by 2035 (in today’s prices) could produce £32bn worth of health, social and economic benefit over the lifespan of the assets. By targeting annual incremental growth in overall DHSC spending towards capital, rather than revenue, no additional funding would be needed, and the overall DHSC funding settlement would not need to be reopened. What such an approach would enable is for the potential of existing funding to be maximised, and using this to drive productivity improvements.
Develop a national investment strategy, aligned to a national clinical strategy, to set priorities for national investments
Currently, investments are either locally determined or ringfenced nationally for discrete programmes. This means opportunities for national reorganisation or redesign are not always realised. For example, the New Hospital Programme identified 40 priority hospitals but has not been accompanied by a national vision for how services should be configured between different types of hospital and other settings, or how to organise services optimally across regions. Trust leaders are concerned that this programme, while essential for the organisations that urgently need new buildings, may miss an opportunity to deliver an estate that is configured to support a reformed and transformed model of care.
Overall there is a consensus among trust leaders that the current capital approval process is complex, slow, and risk-averse, and this stifles innovation and breaks momentum. There is a need for a more streamlined, criteria-led approach to the capital approvals process that enables decisions to be made faster and ensures alignment with regional and national objectives.
To enable this, providers would welcome the introduction of a national clinical strategy and supporting investment strategy, to provide a framework for local decision making and prioritisation. Together, they would support national configuration choices to be made – for example, about the future models for district general hospitals, larger teaching hospitals and community facilities. They would also enable complex dependencies to be managed between regions/systems (such as the scale of rural and coastal hospitals) and provide a basis for budget setting discussions within the NHS and with HM Treasury. This would be a natural evolution of the 10YHP.
A national clinical strategy could build on the 10YHP to articulate priorities for major service lines (such as access and outcomes for populations), priorities for site and service configuration, partnership and collaboration opportunities, and implementation plans.
An NHS investment strategy could then set out:
- the need for investment, over a medium to long term horizon (5–10 years), covering both replacement and transformation;
- a clear vision for how this need will be addressed and the approach to doing so (including clear investment objectives);
- the benefits of major capital investment;
- opportunities for innovation and social impact;
- the funding sources and commercial models available that can be utilised;
- a clear set of investment priorities and NHS investment pipeline (aligned to the national Infrastructure Pipeline);
- approval routes (including roles of NHSE/DHSC, HMT, Cabinet Office, and the National Infrastructure and Service Transformation Authority (NISTA)) and appropriate value for money thresholds; and
- the support available to trusts to deliver investment efficiently and at scale that both maximises productivity and value for money to the UK and drives positive outcomes for patients.
This would align to the UK 10-year infrastructure strategy, and build on local infrastructure plans.
These changes can be delivered by NHS/DHSC. Trusts are calling out for more clarity and greater certainty. This can be provided, within the current budget settlement. Providing greater certainty and standardisation will help accelerate investment.
Enable trusts to unlock value from existing resources
DHSC and the NHS hold significant levers which could be used to improve their capital mix, particularly in rebalancing the revenue and capital budgets. Providing more flexibility to providers can help unlock this value.
Enable local revenue to capital transfers
There are also no current established mechanisms giving ICBs or trusts flexibility to convert their own revenue to capital – or the incentives to do so. There are also sometimes challenges associated with, and limited understanding of, the accounting classifications that need to be considered in deciding whether to repurpose revenue as capital.
At a local level, it is worth exploring how flexibility could be given to ICBs and trusts to convert allocated revenue to capital, in-year and across years – and have this reflected in departmental expenditure limits (to provide sufficient CDEL cover). For example, this could allow providers which operate at a surplus to redeploy funding to invest this back into NHS infrastructure as they see fit.
DHSC could consider whether these flexibilities could form part of a package of increased financial autonomy for foundation trusts, as outlined in the 10YHP.
Reform PDC to enhance capital spending
In addition, DHSC could convert the public dividend capital (PDC) charge from revenue to capital. Trusts which have received investment under PDC are required to pay an annual charge to the DHSC. In 2023/24 these payments totalled £1.1bn. This is a DHSC policy and at present, charges are recycled into the overall revenue budget. But these could in future be reserved for capital investment. This would represent a reduction to the revenue budget of just 0.6%, while adding 9% to the capital allocation.
This would need to be considered in the context of the long-term ambition to rebalance capital and revenue spending: it could not be done overnight without effectively removing £1.1bn from the overall NHS revenue budget, which is under severe pressure.
Making greater use of existing capital funding without impacting trust revenue budgets in the short term can drive the productivity improvements that enable the NHS to make additional revenue savings to drive more capital investment in the medium term.
Release value through land sales
The NHS currently owns over 751 hectares of land that is not currently delivering services, primarily owned by NHS trusts and foundation trusts. Using government land value estimates published in 2019 (the most recent available), the value of this land can be conservatively calculated at between £1.6bn-£9.6bn.
Currently, trusts do not have a clear incentive to sell unused land to generate cash receipts that can be invested as capital. This is because trusts are usually unable to spend large amounts of cash on capital investments without permission from the centre, which needs to ensure the system does not exceed the national annual capital spending limit. As a result, potentially valuable land and property assets remain tied up on trust balance sheets as unused property.
Changing incentives for trusts to release or utilise this land would help release this value for investment. The 10YHP offers an opportunity to make this a reality, as it sets an ambition to reverse the curtailment of foundation trust freedoms which has taken place in recent years. Instead, it envisages a return to provider autonomy, including to retain surpluses and reinvest them. The plan states that, by 2035, this will be the case for all providers. For these freedoms to be workable in practice it would be necessary to rebalance capital and revenue allocations over the same period, as recommended in the section above, to provide sufficient CDEL headroom.
These changes can be delivered partially within NHS powers (in the case of land sales) and fully within DHSC powers. Used as part of a wider strategy to rebalance capital and revenue allocations, they have the potential to unlock new investment that could be utilised by the NHS.
Change investment policy to support the NHS
The measures outlined above will only get so far in increasing capital investment in the NHS. Further actions can be taken to drive further investment.
Given the higher cost of capital these models entail, they should only be considered for the most transformational investments.
Enable local authorities to invest in NHS infrastructure
Local authorities have access to wider finance and debt raising than the NHS, for example via the Public Works Loan Board, and the Municipal Bonds Agency. This has enabled local authority funding to be used in a relatively small number of cases to successfully drive investment in the NHS.
For example in Sunderland, a deal was agreed between South Tyneside and Sunderland NHS Foundation Trust and Sunderland City Council to provide an eye hospital on the outskirts of the city. As a key part of the Riverside Sunderland regeneration scheme, Sunderland City Council secured the borrowing through the Public Works Loan Board, enabling the scheme to progress and be built with a scheduled completion of Spring 2026.
This model demonstrates the potential offered by NHS investments in the community (such as neighbourhood health centres), and how they can support local growth and development plans such as high street regeneration. Key worker housing developments, which can benefit NHS staff as well as the wider community through regeneration, can also be supported using some of the innovative financing options explored in 3.4 below.
A collaborative, place-based approach, with a shared commitment to funding through alternative models could unlock further investment while bringing services to people’s doorsteps, and driving significant benefit to high streets through mixed use developments.
However, to maximise this opportunity, the government will need to address the current policy challenges associated with IFRS 16 and CDEL allocations, as trust leaders find this currently constrains its use and potential. Options could include appropriate risk transfer to local authorities, combined funding and commissioning of integrated services delivered in shared assets, and/or pricing leases to reflect the impact of NHS services on local footfall and economic regeneration.
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Supporting high street regeneration By providing services on high streets, the NHS can help increase footfall, integrate services with social care, and improve access for patients. This could help revitalise Britain’s high streets by:
For example, in the Living Well Hub in Warrington offers a range of NHS services from a central location. In Poole, L&G supported investment to provide NHS services in the Dolphin Shopping Centre – significantly increasing footfall in the centre. |
Consider an ‘NHS investment bank’ for transformational investment
It has been difficult to carry out long term capital planning due to single-year budgeting, which largely prevents capital funding being carried over into a following year if timescales slip. This is driven by cross-public sector accounting practices and is a longstanding concern and frustration for trust leaders.
The government could enable the NHS to establish its own investment bank, which could support trusts to carry invest and realise benefits over multiple years.
A bank could be capitalised by government (see below), with the bank providing a return on capital at a rate anchored to PDC or Gilts. Upfront capital investment could be provided by the NHS bank to trusts as lending, with the loan then repaid at an agreed rate based on the risk of the investment (for example, 1-2 percentage points above the deposit rate).
Investments would need to be affordable, deliver net cash benefits to the trust/system (for example, 4%+ annual net cashable return on investment), and would be subject to a rigorous business case, which the bank would assure alongside DHSC regulators. This is critical to ensuring the bank provides long-term benefit to Government and the NHS.
Repayments could be a cash commitment and would need to be binding in the same way as private financing is.
Funding could be single source or part of a blended financing model, alongside NHS and/or alternative sources. Funds could also be used as security for wider financing to reduce the cost of capital.
Policymakers would need to make a choice about how capital could be accessed. One option would be to limit the bank’s use to only providers that have been allowed increased financial freedoms under the new operating model proposed in the 10YHP. Alternatively, they could choose to use the bank to allocate capital based on need. Either way, lending would only be provided where the bank is confident in the ability of the trust to manage cash repayments.
Illustratively, to deploy c.£100m p.a. (likely to be a suitable scale to test the structure), capitalisation of c.£2bn may be needed; growing the bank to an aspiration of c.£1bn p.a. (to make a significant contribution) may require c.£20bn. Development will require careful consideration of key design choices and implications, including:
- Organisational form and control: A decision will be needed on whether the bank is part of the NHS, a separate arms-length-body with its own board, or a separate publicly-owned entity. The governance and control of the bank will be critical.
- Permission for multi-year budgeting: Part of the bank’s function is to help move money across years. Though settlements are now multi-year, accounting remains largely in-year – meaning specific provisions will need to be made for the bank to perform its function.
- Form of lending and accounting treatment: In particular, the CDEL requirements for any loan provided by the bank would need to be accounted for. This is a complex question and will depend on the specifics (including structure and form of the lending). Options could include structuring lending as a financial transaction (if the bank is outside the DHSC accounting boundary, e.g., as a policy bank), extending the scope of the bank to include ownership/control of assets as a PropCo (similar to Community Health Partnerships), and/or deferred/phased capital recognition.
- Capitalisation source: For example, initial capitalisation could be provided from the National Wealth Fund, which funds social infrastructure including health facilities; trust cash reserves (currently valued at around £11bn); and/or a bequest from HM Treasury (potentially with appropriate CDEL cover).
- Revenue affordability: Assurance that trusts can afford bank lending, given the cash requirements of repayments.
Engage HMT on expanding parameters in the UK 10 Year Infrastructure Strategy, including revised PPP models
The government’s Infrastructure Strategy and 10YHP have both already indicated that alternative finance models for primary and community care are under consideration for larger, transformational schemes that the NHS also must deliver.
There remains interest among trust leaders in extending this model beyond smaller schemes within primary and community care – in particular the mutual investment model used in Wales, which has been used to affordably provide infrastructure while supporting enhanced provision of education and training to boost local economic development as part of infrastructure delivery.
For larger schemes, there may also be potential to attract additional investment to the site (e.g., via a development company) that can further enhance the benefits of investment. For example, a major NHS
development could anchor a health and science campus, attracting life science, academic and/or medtech partners to invest alongside NHS facilities.
Trusts are keen that any further use of private finance for large projects learns the lessons from previous PFI and its successor PF2, to ensure investments are affordable to providers and represent good value to the taxpayer, both now and in the future. We understand there to be significant appetite among investors to support building the next generation of NHS infrastructure, quickly.
However the financial pressures impacting both national capital and revenue budgets are likely to remain a limiting factor for the foreseeable future, and any new models must be affordable to trusts, which have been tasked delivering higher than ever cost savings in 2025/26 and face many years of budget constraint. For this to work, any future private finance deal would therefore need to fund transformational infrastructure which could quickly create a revenue benefit to the trust, to offset borrowing costs or other charges.
Any change in approach would need cross-government support: the suggestions in this chapter would require DHSC and HM Treasury to jointly agree, supported by MHCLG, NISTA and local authorities.
These models have the potential to move infrastructure forward at pace, with delivery prior to the next general election. Government departments therefore need to therefore understand the opportunities they offer, mitigate the risks, and demonstrate how they will ensure value for money and be delivered.
Scale tested third-party models
Although no new public-private partnerships have been permitted for building projects since 2018, other models exist to make use of third-party funding for NHS investments. However they are used only sporadically across the NHS, and there is no common approach. Significant investment funding could be unlocked with a clear and consistent approach for trusts to follow.
Options available include:
- Sale and leaseback: Trust sells land (or property) to developer to build new facilities that are leased back to the trust. Examples include clinical facilities (including hospitals), and office accommodation.
- Service concessions: A third party builds and owns facility (while paying a ground lease to the trust). A concessionaire runs service and has right to income (e.g., parking charges). Examples include retail, front entrances, car parking, office accommodation and key worker housing.
- Managed services: Third party builds and owns facility (while paying a ground lease to the trust). A managed services organisation is responsible for operating specific services on behalf of NHS (typically clinical services). Examples include pathology, imaging, day surgery and cardiac catheterisation laboratories.
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For example, Spencer Court in Oxford included housing for 440 staff, and Chiswick Health Centre in Hounslow combined key worker housing with a new health centre development. |
Encourage trusts to use appropriate risk-sharing models
Trust leaders would welcome support to use these approaches where they offer an affordable source of investment that would not otherwise be possible.
Currently, there is no central guidance on third party models and their appropriate application to the NHS. Trusts are learning independently and some may be unaware of some of the benefits of third party models, which includes risk transfer from the NHS to third parties (including operational, demand and delivery risks), leveraging alternative sources of funding, and utilising operational expertise from outside the NHS for these type of facilities (especially non-NHS services).
Central guidance on a range of appropriate models would encourage trusts to consider all options as part of their financing plans - and help promote economic growth by encouraging new entrants in the market to offer such services.
This guidance would need to support trusts to manage third party investment within well established accounting rules, particularly the international accounting standard IFRS 16. Under IFRS 16, trusts must record leases on their balance sheets, with consequences for CDEL, and this has been a barrier to widespread adoption of the options described above. Trusts would welcome being supported to manage and enter into these kinds of arrangements in a way that is both affordable within existing capital and revenue funding, and consistent with accounting rules to reflect risk transfer.
Standardise commercial approaches and build capability across the NHS
As these models are not regularly used, trusts’ experience and capability to manage them varies significantly.
There are several common issues and considerations that trusts could be supported to manage consistently to maximise value for money. Standardisation of approaches and contractual frameworks would also help the market provide appropriate financing and delivery support. NHSE/DHSC should consider:
- Confirming acceptable models and use cases.
- Developing standard contracts for third party developments (e.g., ground leases, service concessions, managed services, etc.).
- Appropriate commercial structures to support delivery (e.g., subsidiaries or joint ventures).
- Developing standard terms for commercial deals (e.g., deal term, inflation indexation).
- Establishing a framework for third party development partners offering financing and/or delivery support.
- Setting due diligence requirements for suppliers, particularly where risk is transferred.
- Approved business case parameters for rapid approval (e.g., commercial route, affordability, etc.).
- Collating best practice examples and lessons learned.
It is important to be clear that these approaches will largely impact on the revenue budget, which is under significant and sustained pressure. Wider adoption of these models would therefore have to be carefully implemented to ensure the overall impact can be managed within the allocations of both trusts and the sector overall. To deliver value for money, these models must demonstrate incremental benefit compared with an affordable comparator (such as, an alternative option utilising available CDEL). They must also demonstrate a significant risk transfer to the private sector, so as not to count against CDEL.
These changes can be delivered by NHS/DHSC. Third party models are already permitted and used across the NHS – this would standardise them.