Ringfencing or Ring-fencing occurs when a portion of a company’s assets or profits are financially separated without necessarily being operated as a separate entity.
This might be, for example, for regulatory reasons, creating asset protection schemes with respect to financing arrangements, or segregating into separate income streams for taxation purposes.
As an example, Royal Bank of Scotland has said it will not split itself into separate so-called “good” and “bad” banks. RBS will create an internal “bad bank”, ring-fencing £38bn of bad assets – such as loans it does not expect to have repaid. The bank remains 81%-owned by the government following a massive bailout at the height of the financial crisis.
The shares were among the heaviest fallers on the 100 share index in morning trading, falling almost 4% to 353p.
Whilst some people have argued against the validity of the separation between “good banks” and “bad or casino banks”, bad banks might be considered to be those with an excessive amount of risk.
Risk for a hospital could of course be a risk in the clinical setting, or risk in an economic setting (embracing financial risk and business risk.)
A political row has long erupted over the legacy of PFI for the health service as trusts face insolvency.
South London Healthcare, a merger of three hospital trusts, first began having problems spending 14% of its income on repayments to a private finance initiative (PFI).
The government said the financial problems are caused by a PFI scheme signed off under Labour, but Labour said that there are wider financial pressures in the NHS, and PFI also delivered many new hospitals.
Only recently the higher courts have ruled on the legal validity of the reconfigurations at Lewisham, but there are another 20 trusts that have declared themselves financially unsustainable in their current form. The current Care Bill amendment might see a mechanism come into play where NHS Trusts are legally allowed to conduct their reconfigurations.
The component of risk for a hospital which is clinical could in a sense be mitigated against through potentially simple steps.
Various hospitals, many of them busy district generals, have been issued with warnings by the Care Quality Commission after its latest inspections. Each was told it did not have enough staff “to keep people safe and meet their health and welfare needs” — the standard every part of the health service must meet.
Of course some argue that the real discussion is to consider whether the whole budget for the NHS should be ‘ringfenced’.
One traditional strategy for avoiding this discussion, as it is so politically totemic, has been to consider what components of the budget should still remain in scope.
Critics have argued that this has produced, willingly or not, an approach of ‘smoke and mirrors’. How, for example, would an incoming Labour government actually achieve safely combined health and social care funding monies which have come from the NHS and local government funding streams respectively?
Speaking to the Today programme’s Sarah Montague, former Labour health minister Lord Warner gave his view that ‘many elected politicians want to appear to protect the NHS’, but it is time to end the special treatment of the NHS. Warner argues that a 1% increase in “real terms”, to cover rising prices.
The problem with the ring-fence is that it “creates the illusion in the NHS that people don’t have to change the way they deliver services,” he explained.
John Appelby, chief economist of the King’s Fund, said that “pressure in certainly felt by hospitals and staff in the NHS”.
Back to the original issue, it might be possible to ringfence hospitals into ‘good’ and ‘bad’. Whilst the term has been bastardised by the NHS as a justification for closing hospitals in some quarters, part of the rationale for ringfencing has been traditionally to ring-fence liabilities.
For example, when financial entities ‘go bust’, they don’t take the rest of their empire with them.
Now that the privateers have got their way with the market, the public is left with a bundle of ‘economic activities’ comprising the so-called “NHS”.
Cumulatively, the Labour and Conservative Parties have made a mockery of the mantra, “no decision made about me without me.”