Financial Transactions Capital Business Case for GP infrastructure scheme 2014/15

Transcription

1 Financial Transactions Capital Business Case for GP infrastructure scheme 2014/15 Primary Care Infrastructure Development Programme

2 INDEX 1 Introduction and Strategic Context Needs Assessment Objectives and Constraints Identification of Options Quantitative Economic Appraisal Assessment of Risk Non-Monetary Costs and Benefits Net Present Costs and Uncertainties Financial Analysis Application, Management, Monitoring & Evaluation Appendix A - Proposed Administrative Owner Appendix B Contractors Borrowing Costs Reimbursement Appendix C Overview of GMS Premises Improvement Assessment Process Appendix D Estimate of Scheme Administration Costs Appendix E Risk Log Appendix F Net Present Cost Spreadsheets Appendix G Financial Analysis Spreadsheets Appendix H Departmental Capital Budgetary Impact Appendix I Letter of support from HSCB Appendix J Departmental Revenue Budgetary Impact Appendix K FTC Briefing Pack Appendix L Proforma Case for Investment Appendix M Description of GP Infrastructure Scheme Selection Criteria Appendix N Standard Loan Agreement Key Commercial Principles Appendix O Review of FCA Requirements Appendix P Overview of Soft Market Testing with Local Banks Appendix Q Draft Benefits Realisation Plan

3 Acronyms BoE BSO CDEL CLOG DETI DFP DHSSPS DLS DSO EAG FCA FTC GMS GPs HIB HEIG HSCB HSCT LCG NIGEAE OBC PCCI PCID SIB SIP SOC TYC VfM Bank of England Business Services Organisation Conventional Capital DEL Capital Loans Oversight Group Department of Enterprise, Trade and Investment Department of Finance and Personnel Department of Health, Social Services and Public Safety Directorate of Legal Services Departmental Solicitor's Office Economic Advisory Group Financial Conduct Authority Financial Transactions Capital General Medical Services General Practitioners Health Infrastructure Board DHSSPS Health Estates Investment Group Health and Social Care Board Health and Social Care Trust Local Commissioning Group Northern Ireland Guide to Expenditure, Appraisal and Evaluation Outline Business Case Primary and Community Care Infrastructure Primary Care Infrastructure Development Strategic Investment Board Strategic Implementation Plan Strategic Outline Case Transforming Your Care Value for Money 2

4 1 Introduction and Strategic Context 1.1 Introduction This Business Case seeks to obtain approval from the Department of Finance and Personnel (DFP) for the Department of Health Social Services and Public Safety (DHSSPS) to draw down the 2.5m of Financial Transactions Capital (FTC) which has been allocated for General Practitioner (GP) schemes in FY 2014/15. It is proposed that the Health and Social Care Board (HSCB) will be allocated the FTC funds to provide loans to GPs for investment in GP-owned premises in accordance with the FTC loans application and administration process set out in this Business Case. This approval is sought following the success of DHSSPS in its application for FY 2014/15 FTC funding, 2.5m of which was allocated for GP premises improvements during the October 2013 Monitoring Round. 1.2 Primary Care Infrastructure Development Programme Background Primary and community care services are a key element in the delivery of health and social care in Northern Ireland. They provide approximately 85-90% of all health and social care treatments. There has been significant change in Health and Social Care provision over recent years, with various policies recommending a need to reconsider the way in which we provide primary care services. The Programme for Government identified the following as one of its top five commitments based on consultation with the public: Reform and modernise the delivery of Health and Social care The Investment Strategy for Northern Ireland (ISNI) states: Almost two thirds of the [Health and Social Care] estate needs investment to bring it up to modern day standards, to address infrastructural risks, to meet sustainability and energy efficiency targets, to address health and safety concerns and to provide an environment in which a modern, efficient health service can be delivered. The following reviews have all significantly contributed to the vision of transforming our health care system to meet the changing needs of the people of Northern Ireland: Developing Better Services; Review of Public Administration; Integrated Clinical Assessment and Treatment Services; Bamford Review; and Transforming Your Care (TYC). A service model, based on the co-location of Trust and GP-led primary care services, was developed to support the direction of travel as set out in the TYC report of December 2011 which proposes a shift-left of the delivery of services from secondary care closer to people s homes and in the community, where appropriate. The implementation of TYC is also linked to protecting and 3

5 improving the quality of health and social care delivery as articulated in the November 2011 Quality 2020 Strategy (Quality 2020). TYC recognises that there is an absolute requirement to change the way in which health and social care services are delivered and to do so requires the provision of appropriate physical infrastructure in primary care. The need for improved capacity and access to primary and community care services is further supported by the historic and projected changes in population/demographics. The proposed service model for the Primary Care Infrastructure Development (PCID) programme is based on a hub and spoke approach, with hubs providing core services for its range of spokes. Each spoke would have a defined level of services, depending on economies of scale, and would draw on the services of the hub as required. The hubs will essentially encompass those services which do not require a hospital bed but which are too complex or specialised to be provided in a local GP surgery (a spoke). In the main, hubs will include the capacity to deliver GP and Trust-led primary care services and those services which will shift-left from secondary care under TYC. The spokes will be local GP surgeries and health centres which include practitioners such as GPs, practice nurses and Trust services where there is localised demand. Analysis of the existing primary care infrastructure has identified a need for significant investment in facilities, many of which are no longer fit-for-purpose. A relative lack of capital investment in primary and community care infrastructure in recent years significantly limits the ability to develop and implement changes in service delivery. Investment in GP premises is vital in order to enable the implementation of TYC and transform Northern Ireland s health care services PCID Strategic Implementation Plan, March 2014 In 2011 the current Minister for DHSSPS indicated that he wanted to see investment in the development of primary and community care infrastructure as part of the strategy for improving the overall health and well-being of the community and for improving the delivery of integrated primary, community and secondary care services. This resulted in the establishment of the Health Infrastructure Board (HIB) and the development of the PCID programme. The key task for the HIB is to oversee the development and implementation of investment in primary care infrastructure. The Minister directed that a Strategic Implementation Plan (SIP) for investment in primary care infrastructure be developed to support the programme. The SIP was completed in March 2014 and sets out the outcomes of the identification and prioritisation of hub and spoke schemes undertaken by the Local Commissioning Groups (LCGs), and collates these priorities into a regional programme plan. It proceeds to recommend a funding proposal for taking forward implementation of the programme at a regional level, which recommends a mixture of conventional capital schemes, revenue funded schemes with an injection of FTC (FTC 3PD), revenue funded third party operating leases, and FTC loans to GP-led schemes. The SIP was presented to the HSCB Senior Management Team, the HSCB Board and HIB in March 2014 and received approval to progress. DHSSPS have since reviewed the SIP and have presented it to the Minister for approval as part of the wider DHSSPS capital priority review exercise. It is now necessary that the PCID programme team obtain the necessary approvals for each funding stream to progress with the programme. This Business Case focuses on the approvals for the 2.5m of ringfenced FTC funding for GP-led schemes in 2014/15. 4

6 1.3 Financial Transactions Capital Background to FTC In April 2013 Mr Michael Brennan, Head of Central Expenditure Division at the DFP wrote to all Finance Directors advising them of the availability of ring-fenced FTC funding, and inviting departmental proposals for utilising this FTC funding. Subsequently, an Overview Paper on FTC was circulated by DFP in March 2014 setting out additional detail regarding the deployment of FTC. FTC is ring-fenced by HM Treasury for use by the NI Executive. It differs from Conventional Capital DEL (CDEL) in that it can only be used in very specific circumstances, namely: The funds can only be deployed by the public sector as a loan or equity investment in a private sector entity The entity will then use the funding to invest in related infrastructure The investment must be consistent with and supportive of the Executive s overall strategic aims and objectives It is similar to CDEL in that it is a ring-fenced budget that is controlled by HM Treasury. However, where the government makes a loan to, or takes an equity stake in a private sector entity, they do not strictly add to capital expenditure per se, as they are not regarded by HM Treasury as spending transactions. The DFP Overview Paper (March 2014) highlights that there are a number of key elements to be considered with regards to deployment of FTC and ensuring that there is an appropriate route to market. In developing proposals for the use of FTC it is necessary to identify: 1. Private sector entities to lend to or invest in; 2. Capital projects that will deliver policy and are suitable for delivery by the private sector; and 3. Ensuring that sponsor bodies have the requisite legal vires to enter into such transactions. There is considerable flexibility in the terms of the loan/equity investment in that the participating Departments can define the repayment terms and the applicable interest rate. From Michael Brennan s letter of April 2013 it is understood it is up to individual Departments to decide whether interest is charged on any loans made (subject to State Aid considerations). Where interest is charged, the participating Department will be entitled to keep the interest receipts arising. Furthermore, the letter stated that the ring-fenced FTC funding will be repayable to HM Treasury, however the amount to be repaid will be less than 100% of the original allocation. In order to provide Departments with an incentive to apply for and use FTC, DFP stated that participating Departments will be entitled to keep half of the net benefit. The working assumption is that 80% of the original FTC loan will be repayable to HM Treasury, with 10% being retained by each of DFP and the participating Department. The total amount of FTC funding available as part of the budget allocations is as follows: 2013/ m 2014/ m 2015/ m DFP have advised that it is probable that FTC funding will form a greater part of the Executive s capital budget going forward. 5

7 1.3.2 Outcome of DHSSPS FTC Application DHSSPS submitted a total of three applications for 2014/15 FTC funding, two of which were successful in attracting an allocation of FTC funding in parallel with the October 2013 Monitoring round, namely: 2.5m for improving GP premises in 2014/15; and 2.5m for improving Dental Practice premises and equipment in 2014/15. In order to draw down these indicative allocations from DFP, DHSSPS are now required to submit Business Cases which set out the case for using FTC in the proposed schemes in greater detail. The Business Cases will assess the need, objectives and options for the use of FTC in each scheme, identify the preferred option for each scheme, show the impact of the preferred option on DHSSPS budgets, and will set out the proposed approach for the allocation and administration of the FTC funding to the eligible private sector entities. This Business Case covers the case for FTC funding in 2014/15 for the GP premises scheme, with the case for the 2014/15 Dental FTC scheme being covered in separate Business Case. As outlined above, DFP have advised that it is probable that FTC funding will continue to be available for allocation in future financial years. Therefore, whilst there is an initial allocation of 2.5m for investment in GP premises and 2.5m for Dental premises and equipment in 2014/15, it is expected that there will be an opportunity to bid for additional funds for GPs and Dentists should a demonstrable need be identified. Bids for additional funding in 2014/15 and funding in future financial years will be subject to separate applications and associated Business Cases to DFP Potential use of FTC for GP premises In developing proposals for the use of FTC under the GP premises scheme, DHSSPS and the HSCB have jointly examined the three stated criteria set out by DFP above. The assessment of each is set out below: 1. Is there a private sector entity to lend to or invest in? Yes: GPs are independent contractors and as such they fall within the definition of private sector entities for the purposes of the FTC funding eligibility requirements. An opportunity therefore exists to utilise ring-fenced FTC funding in the form of a loan or equity investment to GPs. 2. Is the FTC funding to be used for capital projects that will deliver policy and are suitable for delivery by the private sector? Yes: Details on the critical need for investment in GP premises are set out in Section 2: Needs Assessment. Such investment is in line with the Programme for Government targets and the Investment Strategy for Northern Ireland (as outlined above), and is also a key enabler for the delivery of the health care reforms set out in a number of recent health care strategy documents (as referenced above). In particular, the availability of FTC funding will significantly enhance the HSCB s ability to ensure that there is suitable infrastructure across the region to successfully implement TYC, hence contributing to the Programme for Government s key commitment to Reform and modernise the delivery of Health and Social Care. Furthermore capital investment in GP-owned premises is suitable for delivery by GPs, who themselves are private sector entities. The GPs will typically engage private sector building 6

8 contractors to undertake the necessary capital build / improvement work required, which will also contribute to the stimulation of the local construction industry. 3. Do the sponsoring bodies have the requisite legal vires to enter into such transactions? Yes: In answering this question, it is necessary to understand which DHSSPS related body will be responsible for the individual FTC allocation and administration process. This was considered by the DHSSPS chaired Capital Loans Oversight Group (CLOG) which was established to develop this Business Case, along with the practical arrangements for the FTC allocation and administration process. The proposed approach, which was agreed by CLOG, is that the HSCB is best placed to take responsibility for the FTC allocation and administration process for the proposed GPs scheme. The rationale for this recommendation is set out in Appendix A of this Business Case. Following the agreement of this recommendation an assessment of the legal vires of the HSCB to enter into loan or equity investment transactions with GPs was examined. Initial review by the Departmental Solicitor's Office (DSO) and the Directorate of Legal Services (DLS) has identified that the General Medical Practitioner Loans Order (Northern Ireland) 1973 ( the 1973 Order ), made under powers contained in Article 59 and Schedule 9 to the Health and Personal Social Services (Northern Ireland) Order 1972 ( the 1972 Order ), enables the HSCB to make loans to GPs providing primary medical services for the purposes defined in Article 3 of the 1973 Order and in accordance with a scheme to be made by the Department and any Directions given by the Department thereunder. The purposes set out within Article 3 of the 1973 Order includes loans to GPs for the purpose of enabling them to provide or improve premises, which is in line with the proposals set out within this Business Case. Following discussions with DLS and the DSO it has been agreed that it would be prudent for the DHSSPS to issue a new Direction under the 1973 Order to ensure that the specific provisions of the proposed FTC loan to GPs are clearly set out. The specifics of this new Direction are currently being drafted to reflect the proposed allocation approach and governance / administrative arrangements for the FTC loan scheme to GPs as set out in Section 10: Application, Management, Monitoring, & Evaluation. Following the approval of this Business Case, DHSSPS will arrange for this draft Direction to be put in place. On the basis of the above, it is concluded that the sponsoring bodies do have the requisite legal vires to enter into FTC loan transactions to GPs. There is no express provision set out within current legislation regarding the ability of the HSCB to make an equity investment in GP related projects, however as outlined in Section 4: Identification of Options, the use of equity within the GP scheme has not been shortlisted as a viable option. As such it is not considered necessary for legal vires enabling equity investment in GPs to be in place for this FTC proposal. 1.4 Summary In conclusion, the proposals for the use of FTC funding in a scheme for GPs to facilitate improvement in GP-owned premises is in line with regional Government and DHSSPS strategic aims and policy objectives. Furthermore, the nature of the GP scheme proposed is considered to be an appropriate route to market for FTC in line with the three key criteria set out by DFP in their March 2014 FTC Overview Paper, i.e. that it is for an eligible private sector entity for use against a strategically aligned capital project, and is to be undertaken by a sponsoring body (namely the HSCB) which has been confirmed to have the requisite legal vires in place to undertake the FTC transaction proposed. 7

9 2 Needs Assessment 2.1 Introduction This section sets out the need for the proposed FTC GP scheme, which is two-fold in terms of identifying the need for: 1. Investment in Primary Care Infrastructure, with a particular focus on investment in GP-owned premises; and 2. The rationale for use of FTC as an intervention to fund this required infrastructure investment. Both elements are considered within this Needs Assessment. 2.2 Need for investment in Primary Care Infrastructure This section provides an overview of the need for investment in Primary Care Infrastructure across the region, with a particular focus on investment in GP-owned premises. In this context, it is important to note that the purpose of this Business Case is to obtain approval for the proposed GP scheme that will enable DHSSPS to draw down the 2.5m FTC funds that have been indicatively allocated by DFP for investment in GP premises in FY 2014/15. As such, the appraisal of the need and options for investment in each of the individual GP-owned premises projects that will ultimately be facilitated through the allocation of the FTC funding falls outside of the scope of this Business Case. This will however be appraised and managed by the HSCB in line with its proposed FTC application and assessment process, which is set out in further detail in Section 10: Application, Management, Monitoring & Evaluation Drivers for change As set out in Section 1: Introduction and Strategic Context, primary and community care services are a key element in the delivery of health and social care in Northern Ireland, providing 85-90% of all health and social care treatments. The recommendations of TYC proposed that a new service delivery model be developed which supports the movement of services from secondary care to primary care to allow patients to access services closer to their homes. However, existing infrastructure is not adequate at present to support this move. There are already spatial constraints in offering existing services and this will be further exacerbated with the provision of additional services under TYC within these facilities. The need for improved capacity and access to primary and community care services is further supported by the historic and projected changes in population/demographics across the five LCG areas 1. As illustrated in the table overleaf, each region has specific demographic characteristics which may alter the optimal configuration of primary care services required to deal with the projected demands over the next 10 to 15 years. 1 Population statistics sourced from NISRA 8

10 Table 2.0: Population, demographic and deprivation data across the five LCG areas Northern Ireland Population Growth Population Growth Southern <20 years 481,427-3% 2% <20 years 102,285 4% 12% 80+ years 69,933 26% 46% 80+ years 11,990 34% 56% Total 1,823,634 7% 6% Total 363,145 15% 14% Belfast Deprivation* 14% South Eastern <20 years 85,608-9% -3% <20 years 89,611-2% 1% 80+ years 15,520 16% 16% 80+ years 14,351 22% 51% Total 348,253 1% 2% Total 350,097 8% 5% Deprivation* 41% Deprivation* 10% Northern Western <20 years 121,388-1% 1% <20 years 82,535-9% -3% 80+ years 18,403 32% 53% 80+ years 9,669 30% 56% Total 465,529 8% 6% Total 296,610 5% 5% Deprivation* 13% Deprivation* 23% Source: Population statistics sourced from NISRA *Deprivation denotes the percentage of Northern Ireland s top 20% Super Output Areas (SOAs) that fall within the respective Trust area (NISRA NIMDM 2010). There has been a significant increase in the 80+year old population over the past 10 years and this is expected to increase at an even greater rate over the next 10 years. This has, and will continue to, put significant pressure on the local primary care providers as it is this age group that will require most frequent access to primary care services. Analysis of the existing infrastructure has identified a need for significant investment in facilities, many of which are no longer fit-for-purpose. A relative lack of capital investment in primary and community care infrastructure in recent years significantly limits the ability to develop and implement changes in service delivery. The key strategic drivers for change are summarised below: Poor existing infrastructure; Relative lack of capital investment over the last years; Increased demand for services; Growing and ageing population putting increased pressure on primary care; Management of more chronic conditions within the community; The impact of potential reconfiguration of secondary care and local hospital provision; Need to support the Public Health Agency s drive to promote health and wellbeing; Need for the physical capacity required to deliver more services in primary care; and Need to promote efficiency in the delivery of services through the integration of care Historical investment in primary care infrastructure Plans were developed in 2007 for the Primary and Community Care Infrastructure (PCCI) programme which proposed to implement an integrated strategy for the planning, prioritisation and delivery of 9

11 primary and community care projects over a year period. This plan included investment in facilities that were owned by GPs and those under the ownership of local Trusts, including services for mental health, learning disability, physical and sensory disability and services for older people. However, due to a shortfall in the necessary capital funding available there was only limited implementation of the programme in primary care Condition of existing premises The table below provides a summary of GP practice numbers, along with the number of separate facilities in each LCG area 2. It gives a sense of the scale of the potential works under the PCID programme, not only for the larger hub projects but also for the smaller scale spoke projects. LCG area Table 2.1: GP practice and facility numbers across the 5 LCG areas No. of GP practices No. of GPowned facilities No. of Trustowned facilities accommodating GPs No. of Third party leased facilities Southern South Eastern Western Northern No. of additional branch facilities 3 Belfast Total Of particular importance in relation to this Business Case is the large number of GP-owned facilities, as the ownership nature of the facility has a fundamental impact on the potential funding sources for investment (see paragraph that follows). As shown in the table, there are c.178 GP-owned premises plus GP-owned branch surgeries across Northern Ireland which may potentially require investment. It is estimated that a significant number of these GP-owned premises will either require additional space, substantial refurbishment or new buildings in order to provide GMS services from a facility which is fit-for-purpose for the future needs of the population and meets the Health Estate Investment Group (HEIG) recommended Schedule of Accommodation. In order to ascertain potential investment requirements in spoke premises, initial consultations have been undertaken with the spokes attached to the six hubs which are currently either: complete (Downe Hospital); under construction (Ballymena, Banbridge and Omagh); or in procurement (Lisburn and Newry). These initial consultations have identified a need for further detailed examination of investment options for a large number of spoke facilities, many of which relate to GP-owned premises. 2 The number of GP practices is larger than the total number of facilities as in many cases one facility accommodates a number of GP practices, particularly in relation to the Trust-owned facilities. 3 Some practices have branch surgeries in addition to their main surgery. These are largely GP-owned and generally only open on a part-time basis and serviced by the same GPs as the main surgery. The number of branch facilities relates to the number of branch surgeries operating in standalone buildings i.e. excludes branch surgeries run from a building in which another main practice operates. 10

12 To date, high level costing analysis has been carried out for the GP-owned premises at the Ballymena, Banbridge, Lisburn and Newry spokes. For the premises for which high level costings have been able to be estimated at this stage, it is indicated that potential FTC funds required to fund the investment in these spokes would be in the region of 12-17m 4. Such investment would address the current condition and accommodation shortfall issues in these facilities (either through new build, extension or refurbishment). High level survey work was carried out in the Northern LCG area and the Belfast LCG area a number of years ago regarding the condition of GP-owned premises. The results give an indication with regards to the overall condition of the estate in these two areas: Table 2.3: Summary of GP premises condition surveys in the Northern and Belfast LCG areas Survey Score Belfast LCG area Northern LCG area A 11% 39% B 25% 44% C 25% 13% D 38% 3% Dx 1% 0% Total 100% 100% Survey Score key is as follows: A. Premises which are excellent or first class B. Premises which are very good but not meeting all relevant standards C. Premises which are fair but needing improvement D. Premises in need of significant or substantial improvements Dx. Premises which are very poor, not capable of improvement and needing replacement While the analysis would suggest that the condition of the GP-owned premises in the Northern LCG region is generally satisfactory, it indicates a clear need for investment in GP-owned premises in the Belfast LCG area, where almost 40% of all GP-owned premises were rated as being in D or Dx condition. No equivalent surveys are available for the West, South and South Eastern LCG areas, however through discussions with the HSCB Business Support Managers who work closely with GPs in these areas it is understood that there are variances in condition across the GP-owned practices within each LCG area. 2.3 The way forward for primary care infrastructure As detailed in Section 1.2.2, the Minister for DHSSPS made his intention clear that there was a significant need to invest in Primary Care Infrastructure. The Minister said in September 2011: It is my intention to establish a Strategic Implementation Plan, including the appropriate use of both public and private capital, whereby a combination of capital and revenue budgetary funding can be utilised to ensure successful delivery of critical infrastructure developments so new facilities can be developed as quickly as possible, which will enable the department to deliver state of the art health and social care facilities. 4 Note that this analysis is based only on those premises for which sufficient information is currently available i.e. analysis is based on 17 of the 25 GP-owned facilities in these areas. Costing does not take account of any required site acquisition costs or site disposal receipts associated with any individual project. 11

13 Approval of the SIP by the HSCB Senior Management Team, the Board of HSCB and HIB has confirmed agreement on: The prioritised list of hub and spoke scheme configurations proposed across the region; The proposed funding approach (including on-going revenue); and The proposed actions and timescales. Of particular relevance to this Business Case is the fact that one of the key commitments under the SIP relates to spoke premises investment. A key principle of the SIP is that investment in spokes will be undertaken at the same time as investment in hubs, so as to ensure that the full benefits of the new integrated service model can be realised from the operational start date of the new hubs. While improvements in Trust facilities can be funded through a variety of funding options, such as the use of conventional capital or the use of revenue funding (in the likes of a third party development lease arrangement such as the 3PD Pathfinder projects currently in procurement for new facilities in Lisburn & Newry), GPs seeking funding for GP-owned or third party leased spoke premises developments or improvements cannot avail of such funding streams Funding Options for Investment in GP-Owned Premises To date, the only funding available for GPs (who either own their own premises or lease from a third party) to make improvements to their premises has been: 1. Non-recurring GMS Improvement Grant - GPs can make an application to the HSCB for a non-recurrent GMS Improvement Grant (Improvement Grant) for a maximum of 66% of the expected cost of the improvement works, with the remaining 34% financed by the GPs themselves. 2. Privately financed development, reimbursed via Contractor s Borrowing Costs Scheme where a GP practice wishes to develop new privately owned premises or considerably modify an existing building they may choose to finance the development themselves through a commercial loan from a financial institution (such as a bank) and then seek reimbursement via the Contractor s Borrowing Costs Scheme. Details of the practical application of this HSCB reimbursement scheme and a depiction of the relevant cash flows are set out in Appendix B. There is however an issue with the availability of both of these options. Funding available under the GMS Improvement Grant scheme is extremely limited, and in recent years only relatively small scale Improvement Grants have been able to be facilitated by the HSCB through year-end GMS slippage funding, as outlined in the table below: Table 2.4 Details of GMS Improvement Grants awarded in FY 2012/13 and 2013/14 FY 2012/13 FY 2013/14 Number of Improvement Grants issued Total value of Improvement Grants issued ( k) 389k 700k Average value of Improvement Grants issued ( ) 13k 9k Maximum value of Improvement Grant issued ( ) 63k 120k 12

14 It is important to note that the table above only shows those improvement grants that were actually released by the HSCB. There were a small number of instances where larger Improvement Grants had been approved in principle by the HSCB for the likes of major refurbishment or extensions, however these were not released by the HSCB as the practices were unable to obtain finance to meet the remaining 34% of the cost of the schemes proposed within the required timescales or were unable to achieve relevant planning permissions for the proposals within the required timescales. To provide further context as to the nature of works that are typically supported via GMS Improvement Grants, the table below provides a short description of the works funded in the last two financial years. Table 2.5 Description of works supported via GMS Improvement Grants in FY12/13 and 13/14 Classification of works Description of works Approximate %age of applications supported Security Improvements Major Renovations/ Extensions to existing property Minor renovations Installation of shutters, security lighting, security screens at reception, CCTV, panic buttons etc. One/two story extensions, installation of lift, create additional consulting rooms, extend waiting area/clinical area. Conversion of attic space to facilitate additional filing/storage, conversion of storage rooms to consulting rooms. Telephone systems Upgrades to telephone systems. 12% Improvements to infection control Upgrades to heating and lighting Replace carpets with hard flooring, installation of fixed plastic seating, hand towels/soap dispensers in consulting rooms etc. Conversion to gas heating, installation of solar panels, air conditioning, loft insulation, replacement of boilers/water heaters. Car parking Resurfacing/reconfiguration of layout. 7% Improvement to disabled access Installation of ramps/electric sliding doors. 3% Professional and legal fees Lease negotiation. 5% Other/Miscellaneous E.g. unexpected costs associated with original application and additional Improvement Grant applications submitted to cover shortfall VAT not included in original application resulting in further application Maintenance costs for EMIS Clinical System etc. 9% 5% 19% 3% 11% 25% As highlighted in table 2.5 above, on the whole the GMS Improvement Grants issued in recent years have assisted practices in facilitating the likes of essential remediation and security works. Only a small number of applications (c. 5%) have been used to assist practices to enhance their capacity via 13

15 major renovations or extensions to meet current or future demands associated with population / demographic changes and the impact of service reforms under TYC. In relation to the privately financed development option outlined above, the impact of the recent economic downturn has significantly reduced the availability of commercial finance in the market, which has included availability for GPs. It has been more challenging to access finance and the risk appetite of individuals to take on debt has been reduced. This can be evidenced through the trend in the number of privately financed GP development applications received by the HSCB under the Contractor s Borrowing Costs Scheme in recent years. There have been no applications put forward to develop GP premises in the Northern, Western, Belfast or South Eastern Trust areas under the Contractor s Borrowing Costs Scheme in the last four to five financial years, which correlates with the timing of the global financial crisis. Four practices in the Southern Trust area expressed interest in developing their premises, however these were not approved for support at that time due to shortages in the GMS budget to support the additional revenue consequences of the schemes. The lack of available debt financing to support GP-led developments in recent years is further evidenced in the analysis and trends in bank lending to the small business sector, as outlined further in the section below Issues with access to commercial finance Accessing finance has been challenging in the wake of the longest and deepest recession in UK history. The ability to access finance has been particularly difficult for Small and Medium Sized Enterprises (SMEs), such as GP Practices. A Review of access to finance for NI businesses was carried out by the DETI-established Economic Advisory Group (EAG) in March 2013 and the key findings of this review, which corroborates a number of issues raised by GPs regarding access to commercial finance, is summarised below: Summary of EAG Review of access to finance for NI businesses The Review identified that the high level of property-based lending in Northern Ireland during the boom period is a significant factor in the return to normal business lending. Lenders are focussed on strengthening their balance sheet and reducing their exposure to bad debt, whilst many businesses are focussing on paying down existing debt rather than seeking new loans. A further limiting factor for Northern Ireland is the structure of bank ownership, with three of the four main banks owned outside the UK. Local banks have not had the same access to national schemes intended to boost lending (such as the Funding for Lending Scheme) and given that the NI Executive does not have devolved power regarding banking regulation, it is limited on the action it can take to address problems regarding access to finance. The Review summarised the issue of access to finance as being one of a lack of supply (viewed by businesses as an unwillingness of banks to lend and to do so at reasonable rates), coupled also with weak demand (poor market confidence means that applications for finance are relatively low). The key issues noted in terms of supply are as follows: Availability of finance the Review experienced difficulty in establishing NI specific data regarding supply of finance. However, on a qualitative basis it reported that credit is 14

16 constrained and whilst banks are lending, there are now more onerous conditions in place. This is due to banks strengthening their balance sheets, dealing with impairment of historic loans and restrictions in terms of their ability to fund new loans. Consultations with banks and other stakeholders indicated that conditionality of loans is tougher and lending terms are shorter than they would have been prior to the financial crisis. Cost of finance the Review indicated that the cost of finance appears to be increasing both nationally and locally, reflecting the increased return required by banks to manage their risk. Evidence indicates that the margin on business loans in Northern Ireland during the boom period was lower than the UK average. National schemes to improve access to finance there have been a number of national schemes brought in by HM Treasury, the Department for Business, Innovation and Skills in England (BIS) and the Bank of England to stimulate the financing market, however the Review indicates that these schemes have not been so successful in Northern Ireland. This is due to a different business market in NI which is affected by access, scale, awareness, relevance and commitment. The key issues highlighted in terms of demand are as follows: Discouraged borrowers the Review identified that almost a third of SMEs had considered applying for a loan however did not do so as they did not think they would be successful. 22% did not apply due to the expected high cost of borrowing and 23% did not apply due to uncertainty about the economy. The Review also noted that there is a perception by businesses that banks are not lending, with almost 50% of SMEs believing this to be the case. A further fifth are not sure if banks are lending. Reduced success in applications Of those SMEs applying for bank loans, the rate of success reduced significantly from 92% in 2007 to 65% in Success rates have been more stable between 2010 and 2012, albeit at the lower 2010 level with 66% of loan applications having a successful outcome. Over 55% of the unsuccessful applicants were declined due to business reasons (e.g. poor credit rating, risk profile of business) whilst the remainder were unsuccessful due to changes in the banks lending policy (e.g. no longer lending in the sector or the rates were too high). Historic high reliance on external finance 58% of SMEs in NI have external finance in place compared to 40% in the UK. This may have an impact on the recovery on demand to borrow in NI as more SMEs in this region have existing loans to repay prior to seeking new lending. The Review concluded that there have been a number of structural market failures in respect of the supply of finance. This is driven by imperfect information in the form of perceptions of supply and demand by both borrowers and lenders, and the situation has been exacerbated by lenders taking a more risk-based approach which drives up the cost of borrowing and imposes more stringent conditions on loans. Whilst there has been a degree of market correction over the past 5 years, with a focus now on a business s ability to repay as opposed to a property-based lending approach, further collaboration is required between businesses, banks and government bodies to fully correct the market to ensure future growth is not constrained as the economy recovers. 5 Northern Ireland Access to Finance 2007 and 2010, October

17 National Trends in lending Whilst NI specific data is not available, the Bank of England s Trends in Lending, April 2014 report illustrates that on a UK basis there has been a sustained decrease in lending to SMEs between 2012 and 2014, however the quantum of the quarterly decrease is reducing 6. The report also provides an analysis of loan pricing over the past five years in the UK. The graph illustrates that there has been a steady upward trend in margins over the past five years 7. Northern Ireland s Access to Finance Strategy A new strategy has been developed in Northern Ireland to provide alternative funding options for SMEs seeking access to finance to develop their businesses, named Northern Ireland s Access to Finance Strategy. This strategy includes funds managed by Co-funds NI, Whiterock Capital, NI Small Business Loan Fund and two Equity Development Funds. In general these funds are focussed on providing assistance to pre-start, start-up and fledgling companies, and those in high growth industries. A number of specific conditions have also been / will be attached to the various funds meaning that they will not necessarily be accessible by all eligible SMEs, e.g. some schemes require match funding by equity investors, for some schemes the quantum of loan/equity may be restricted, and the interest rate on loans may be higher than traditional bank debt. Given the focus and nature of these funds, they are not an accessible form of alternative finance for GPs who wish to further develop their premises. Impact of access to funding for development in GP premises GPs have been impacted by the same issues of availability and access to finance as other small businesses in Northern Ireland in recent years and this has, and continues to, negatively impact GPs 6 BOE SMEs illustrates lending by UK monetary financial institutions to UK SMEs with annual debit account turnover on the main business account less than 25 million. 7 Smaller SMEs are those with annual debit account turnover on the main business account less than 1 million. Medium SMEs are those with annual debit account turnover on the main business account between 1 million and 25 million. 16

18 ability to invest in GP-owned premises. Whilst a new strategy has been developed in Northern Ireland to provide alternative funding options for SMEs seeking access to finance to develop their businesses, the various funds that have been / are being established are generally not considered to be suitable for GPs who wish to access finance to further develop their premises. It is therefore essential that an alternative funding source is identified for GPs to enable them to undertake necessary developments to GP-owned premises. Without such an alternative funding source it will be extremely challenging to fully implement the objectives of the PCID programme in respect to GP-owned premises as set out in the SIP. 2.4 Utilisation of FTC to fund investment in primary care infrastructure FTC funding has been identified as a potential solution for investment in GP-owned premises. Given the nature of this ring-fenced FTC funding, which is only allowed to be used for making loans or equity investment to private sector entities for infrastructure development, it is an alternative Government funding option which is highly suitable for access by GPs. The provision of FTC funding would provide an alternative to the need for the GPs to access commercial finance for the development of new facilities, or to rely on the limited availability of GMS Improvement Grants. As such, it was recommended within the SIP that a mixture of FTC and GMS Improvement Grants (when available) should be utilised to fund the required investment in GPowned/third party leased premises and this is now subject to appraisal and approval as part of this Business Case. 2.5 Summary There is a clearly identified need for change in the way primary care services are delivered in Northern Ireland and it is recognised that there is a critical need for investment in primary care infrastructure to facilitate this change and enable the implementation of TYC. In particular, analysis in respect to GP-owned premises has shown that current sources of funding are inadequate to support the level of investment required in such premises. The availability of FTC funding provides a unique opportunity to provide this funding to GPs that will enable investment in GP-owned premises which DHSSPS/ HSCB and GPs would otherwise not have the funds to facilitate. 17

19 3 Objectives and Constraints 3.1 Overarching objective of the scheme The overarching objective of this scheme is: To establish a funding mechanism that will facilitate essential investment in GP-owned premises, with such funding being available for allocation in 2014/ Sub-objectives of the scheme The sub-objectives of this scheme are as follows: To establish a scheme that will maximise strategic investment in GP-owned primary care facilities from the initial allocation of 2.5m of FTC funding, as determined by the number of square metres (sqm) of primary care facilities that have been refurbished / developed by the end of 2015/16 as a result of the implementation of the new funding mechanism in 2014/15. Whilst the nature of the investment will only be known following the application and assessment process, the target would be in the region of 1,324m 2 of refurbished accommodation 8, or 936m 2 of new build accommodation 9, or some combination of the two estimates. To establish a scheme that is attractive to GPs to enable investment in primary care facilities measured by whether the number of eligible applications received for the new funding mechanism is equal to or exceeds the initial allocation of 2.5m of FTC funding in 2014/15. To establish a scheme that has a robust and practical set of terms and conditions, as measured by: a) the approval of the scheme by the HSCB Audit Committee, the HSCB Senior Management Team, the HSCB Board, and the DHSSPS-led CLOG; and b) the formal acceptance of the terms and conditions by all GPs who are allocated funds under the scheme in 2014/15. To establish a scheme in 2014/15 that is compatible with the EU State Aid rules, as measured by a positive review of the proposed State Aid consequences of the scheme by the DETI State Aid specialist, and zero instances of challenge to the scheme on the basis of non-compliance with the State Aid rules upheld. To fully drawdown and issue the 2.5m of FTC funds allocated by DFP for investment in GP premises (as identified in the October 2013 monitoring round) in 2014/15. 8 Based on assumption provided by HEIG that refurbishment works will cost in the region of 1,888/m 2 (inclusive of allowance for fees, works cost, equipment, contingencies and VAT (as VAT is an eligible cost for GPs under the Premises Cost Directions)) 9 Based on assumption provided by HEIG that new build will cost in the region of 2,671/m 2 (inclusive of allowance for fees, works cost, equipment, contingencies and VAT (as VAT is an eligible cost for GPs under the Premises Cost Directions)) 18

20 3.3 Constraints of the scheme The use of FTC in the form of loans or equity investment on the scale proposed by the NI Executive is a novel concept in a regional context. With this there will inevitably be unique challenges which will need to be worked through and processes put in place to overcome such challenges. The following items will be considered for this scheme: 1. Limited availability of FTC funding At present only 2.5m of FTC has been allocated by DFP to the GP scheme. These funds will need to be allocated based on applications from individual GP practices given the current understanding of the level of need for investment in GP-owned premises across the region it is expected that applications for FTC funds are likely to be oversubscribed. The full potential of what can be achieved by FTC is unlikely to be satisfied by the 2.5m alone and further bids to DFP for FTC funds may be required to enable further applications in future years. 2. Timing of governance structures Adequate governance arrangements will need to be put in place. Given that FTC is a new type of funding, it will require sufficient time to work through the appropriate structures. 3. Timing of administrative process A process will need to be put in place to administer the issue of the FTC funds. Similar to governance structure, sufficient time will be required to ensure that the necessary structures are in place. 4. Resource constraints Need to ensure that there are sufficient resources available and allocated within the required timescales to manage the governance and administrative processes. 5. State of readiness of proposed projects Need to ensure that potential projects are at an adequate state of readiness to allow drawdown and issue of the FTC funds to GPs in FY2014/ State Aid Appropriate analysis will need to be carried out to ensure that the allocation of FTC funding does not create any State Aid issues. Whilst these factors are noted as constraints, it is not envisaged at this time that any of these items will impede the ability to utilise the 2.5m FTC allocation in FY2014/15. 19