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National Audit Office report shows first year progress

by Jeremy Peters

NHS Property Services today welcomes the publication of the National Audit Office’s (NAO) report into the way it was set up and its early operation.

The review highlights the way the company came into being under major national health reforms last year and its initial months of activity.

NHS Property Services was formed on 1 April 2013 as a result of the Health and Social Care Act 2012 and has responsibility for 4,000 buildings – worth more than £3 billion – which were previously owned, leased or managed by Primary Care Trusts and Strategic Health Authorities. It is a private limited company, which is 100 per cent owned by the Secretary of State for Health.

The NAO – also the company’s auditors – was asked by the Department of Health in December 2013 to look at the way the company was set up and aspects of its operation during its first year.

The review was asked to consider:

  • The setting up of NHS Property Services as a limited company
  • The shareholder function
  • The appointment of the Board
  • The cash receipts available to cover operational expenditure
  • The company’s record on achieving the best possible financial return from property disposals

The report concludes that:

  • The Department of Health incorporated the company in December 2011
  • The role of the shareholder representative is to ensure that NHS Property Services adheres to the priorities and policy direction set by the Secretary of State
  • The operation of the NHS Property Services Board is “transparent”
  • It is common for shareholders to inject equity into a new company – as the Department of Health did for NHS Property Services
  • All NHS Property Services’ disposals of property to date have been at or above the market value estimate and based on accurate and complete data

Martin West, who chairs NHS Property Services’ Audit and Governance Committee, said: “We were very keen for the National Audit Office to complete this piece of work as an expert and independent look at how our new company is working across the hugely-reformed NHS.

“The report addresses many of the challenges the company has faced and makes clear that it is achieving best value for the taxpayer and working efficiently across its brief.

“It clearly shows the company has good governance procedures and a well-functioning Board, and it outlines the excellent results we have achieved so far, on behalf of the taxpayer.

“It also shines a very clear light on our financial situation and how it has been handled over the past year. It outlines precisely why the company accepted a loan from the Department of Health and how the circumstances arose which necessitated it.

“It also shows the company in full control of its finances as we move into our second year of operation.

“We are clear that it is our role to reduce the operating costs of the NHS estate and to release land for much-needed local housing wherever possible and practical and we look forward to getting on with that task.”

The report makes clear that there was a strong rationale for the actions taken and that the operation of the company was appropriate.

In particular:

  • On the Board, it covers the appointment of its members and states that the operation of the Board is transparent, with minutes of its meetings published on the NHS Property Services website www.property.nhs.uk
  • On cash receipts and operational expenditure, the report notes that since NHS Property Services began operating, the cash it has paid to cover operational expenditure has exceeded the cash it has received from tenants and NHS commissioners.

It outlines that this is the result of four main factors:

  • Delays in billing commissioners – because this process was not agreed with the Department of Health and NHS England until June 2013
  • Delays in billing tenants – because the approach to charging VAT was not agreed with the Department of Health until August 2013
  • Unexpected costs and:
  • Non-payment of bills by a significant proportion of commissioners and tenants. This though is now reducing.

It says that among the challenges the company faced was compiling a complete list of properties and identifying existing tenants – up to 40 per cent of whom did not previously have a formal lease. Normally a property owner would charge its tenants enough to cover all operational expenses. However, to maintain stability in the NHS, NHS Property Services and the Department of Health decided in March 2013 to continue charging tenants in the same way that Primary Care Trusts and Strategic Health Authorities had. This meant NHS Property Services and the Department of Health would provide 60 per cent of the income needed for operational expenses and the remaining 40 per cent would come from NHS England and the Clinical Commissioning Groups.

The report clearly states it is common for shareholders to inject equity into a company as the Department of Health – the single shareholder – did in April 2013 with a loan of £190 million to cover operational expenditure until the service started receiving income to cover this.

The report also makes clear that it was the above cash flow issues which led the Department of Health to make a further loan of £100 million in August 2013, which NHS Property Services drew on in December 2013, and began to repay in January 2014.

The review states that NHS Property Services considers its cash flow is now more stable and forecasts that it will repay £130 million by March 31, 2014. The Department of Health is recorded as agreeing that the cash position is more sustainable and that NHS Property Services is unlikely to reach the limit of the flexible loan facility.

The report also notes that during the loan period, NHS Property Services’ expenditure was lower than expected and that it is currently taking steps to improve the timely payment of bills due to it.

On property disposals, the report makes clear that one of the company’s key functions is to dispose of property surplus to NHS requirements – and makes clear that only NHS commissioning organisations (NHS England or CCGs) can decide whether a property is surplus. It says that at the end of January 2014, NHS Property Services had disposed of 24 properties for a total of £20.4 million.These disposals were sold at or above the market value estimate for the property made by the District Valuer Services. The report states that the company aims to dispose of at least 172 further surplus properties by March 2015 to enable the building of 2,000 new homes.