Select Committee on Health Memoranda


MEMORANDUM

Memorandum by the Department of Health

Table 4.4.1

REVIEW BODY PAY SETTLEMENTS 1999


Group
Basic
Settlement
%
Additional
Payments
%
Total
%

Nursing & Midwifery
4.7
0.7
5.4
Professions Allied to Medicine
4.7
1.2
5.9
Doctors & Dentists Review Body—HCHS
3.5
0.3
3.8
Doctors & Dentists Review Body—FHS 1,2
3.5
0.5
4.0


Footnotes:

1. Recommeneded an increase of 3.5 per cent for the pay element of fees for GMPs. The additional payment reflects technical adjustment such as the GP balancing item.

2. This does not include the £51 million awarded to GPs last year's settlement but payable in 1999-2000.

Prices

  7.  The GDP deflator is used as a proxy for underlying non-pay inflation in the NHS. This needs to be adjusted for assumptions about the level of procurement and other efficiency savings that the NHS is expected to make. This could reduce non-pay inflation to around 1 per cent below GDP.

Capital Charges

  8.  At national level, the cost of capital charges paid by the NHS is a circular flow of funds. The total of the capital charges estimates made by NHS trusts forms part of the total cash resources available through health authority allocations.

  9.  Indices for land, buildings and equipment are produced for the Department each year by the Valuation Office, in order that the NHS may calculate capital charges in advance of the financial year.

  10.  The aggregate index used to uplift capital charges to 1999/2000 levels was 7.1 per cent.

4.4b  Could the Department provide a breakdown of the components of the health specific inflation indices for revenue spending on HCHS and FHS respectively, together with capital spending on HCHS for 1996-97 and 1997-98, together for estimates for 1998-99? The table for HCHS should show separate inflation indices for Review Body and non-Review Body staff pay, and whatever breakdown of staff are available.

HCHS PAY AND PRICES INFLATION

  1.  Increases in the cost of goods and services, ie the non-pay components of inflation are measured by the Health Service Cost Index (HSCI). The HSCI weights together price increases for a broad range of items used by the health service—for example, drugs, medical equipment, fuel, telephone charges—using weights derived from expenditure on these various goods and services reported in financial returns.

  2.  Pay inflation is calculated using increases in expenditure across certain staff groups. Following the introduction of new occupation codes for NHS staff, in April 1995, it has not been possible to calculate robust inflation figures for review body and non-review body staff separately. However, for the first time since the introduction of the codes, figures are available for 1997-98.

  3.  Table 4.4.2 gives details of the pay and non-pay components used in calculating HCHS pay and price inflation.

  4.  The total staff pay (and Review Body) inflation figures are lower than the settlements given to staff within the HCHS for 1997-98. A major factor in this is the low pay inflation figure (ie below the settlement rate) for medical and dental staff. This is the result of a significant change in grade mix. The 1997 medical and dental workforce census reported an increase in staff of over 5 per cent in all grades, but with a 16 per cent increase in lower paid grades. Although all staff received their increases in pay according to their respective settlements, a shift in the balance toward the number of staff employed in the lower paid categories can reduce the overall pay inflation figure to below that of the settlement.

  5.  The price inflation figure presented in the evidence to the committee last year was incorrect. The correct figure has been included in this year's evidence.

Table 4.4.2

INFLATION FOR SPECIFIC ITEMS OF HCHS REVENUE EXPENDITURE


1996-97
1997-98
1998-99

%
%
%
Total staff pay
3.3
2.5
n/a
Review body staff
n/a
2.2
n/a
Non Review Body staff
n/a
3.4
n/a
Prices
1.5
0.4
2.4
HCHS Total
2.8
1.7
n/a


HCHS Capital Inflation Index

  6.  The inflation index for HCHS capital spending is shown in Table 4.4.3. It is a weighted average of construction prices across the public sector and the GDP deflator. The recent increase in inflation is partly attributable to the increased demand for construction in the economy.

Table 4.4.3

INFLATION FOR HCHS CAPITAL SPENDING


1996-97 %
1997-98 %
1998-99 %

Inflation on HCHS capital
3.2
4.2
4.7


Components of the FHS Inflation Index

  7.  The components of the Family Health Service (FHS) inflation index are set out in Table 4.4.4. For General Medical Service (GMS) and General Dental Service (GDS), service specific inflation is calculated as the increase year on year in the average cost per practitioner. For both services the changes in unit costs include volume and quality effects (eg Increased practice staff numbers or the provision of a changing range of services) as well as pure price effects. For the Pharmaceutical Service (PhS) and General Ophthalmic Service (GOS), service inflation is assumed equal to movements in the GDP deflator. GP fundholders" expenditure on drugs has been included in the calculations. GMS cash limited expenditure has not been included in the calculations.

Table 4.4.4

COMPONENTS OF THE FHS INFLATION INDEX


1996-97 %
1997-98 %
1998-99 % (provisional)

GMS
4.9
5.1
1.8
GDS
1.2
0.4
4.6
PhS
3.1
2.5
2.5
GOS
3.1
2.5
2.5
FHS TOTAL
3.2
2.8
2.6


Footnotes:

  1.  The small difference in service inflation figures for 1996-97 and 1997-98 from those included in last year's table is due to changes in the GDP deflator for these years.

  2.  Figures for 1998-99 are based on provisional outturn data.

4.5  HCHS ALLOCATIONS AND DISTANCE FROM TARGETS

  4.5a  Could the Department provide a table showing for each health authority:

    (i)  allocations for resident populations for 1998-99 (cash) and 1999-2000 (cash and at 1998-99 prices);

    (ii)  1999-2000 Distance From Targets (DFT) in cash and percentage terms;

    (iii)  growth for each HA in percentage terms;

    (iv)  net adjustment (cash) for Primary Care Groups;

    (v)  net adjustment for out of area treatments.

  4.5b  Could the Department include a commentary explaining the key factors that determined those percentage growth increases shown in the table?

  1.  Table 4.5 shows for each Health Authority:

  (a)  1998-99 hospital and community health services allocation;

  (b)  1999-2000 unified allocation in cash and at 1998-99 prices;

  (c)  1999-2000 distances from targets in cash and percentage terms;

  (d)  1999-2000 total cash increase and real terms increase in percentage terms;

  (e)  primary care group cross boundary adjustment;

  (f)  non-recurrent out of area treatment adjustment.


 
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Prepared 18 October 1999