Members present:

Mr David Hinchliffe, in the Chair
Mr David Amess
John Austin
Andy Burnham
Mr Simon Burns
Jim Dowd
Julia Drown
Sandra Gidley
Siobhain McDonagh
Dr Doug Naysmith
Dr Richard Taylor


RT HON ALAN MILBURN, a Member of the House, Secretary of State for Health, MR ANDY McKEON, Head, Medicines, Pharmacy and Industry Group, MR PETER COATES, Head, Private Finance and Capital, MR ANDREW FOSTER, Director, Human Resources, Department of Health and MR NICHOLAS MACPHERSON, Managing Director, Public Services Directorate, HM Treasury, examined.


  1. I apologise to colleagues who cannot get a seat. Can I bid Members welcome and as it is the first meeting of the New Year wish everybody a Happy New Year and include the Government in that.
  2. (Mr Milburn) That is very generous, Chairman.

  3. Can I thank you, Secretary of State, for coming once again and thank your officials particularly for the additional memorandum that was sent on to us subsequent to your last appearance. Could I ask you each briefly to introduce yourselves to the Committee before we commence.
  4. (Mr Milburn) Alan Milburn, Secretary of State for Health.

    (Mr Coates) Peter Coates, Head of Private Finance in the Department of Health.

    (Mr Foster) Andrew Foster, Director of Human Resources, Department of Health.

    (Mr McKeon) Andrew McKeon, Head of the Private Sector Projects Team.

    (Mr Macpherson) Nick Macpherson, Managing Director of Public Services, HM Treasury.

  5. Can I begin by one or two points on the issue of the Concordat. Obviously this inquiry covers a number of areas, including the Concordat. Secretary of State, you will remember when we met last time I asked you a number of questions about the issue of the use of the consultant workforce and raised some concerns about my worry over the conflict between the work in the private sector and within the NHS. Some of your answers related to the issue of the need for private sector capacity. Can I be explicit. Obviously I am concerned at this point with the consultant workforce as opposed to the issue of capacity, operating theatres or whatever. You were reminded of the fact when we met last time when we undertook our inquiry into NHS consultants' contracts we had some evidence suggesting a correlation between lengthy waiting lists and private practice in some areas. I do not know whether you have had the opportunity to look at the evidence we received shortly before Christmas from a witness by the name of Karen Bryson, who is the Director of Cancer Services Collaborative for the South East Region Regional Office. If I can quote it. I was interested in what she had to say. In talking about the Concordat she talked about the fact that they had, and I quote, "...encountered difficulties with consultants and some blockages to transferring these patients into the private sector, to quote some of them, because it would affect their private list." She went on to say "Some were particularly obstructive with it and we had quite a lot of difficulty circumventing that". My comment was "You were saying there was some obstruction by NHS consultants about moving people from their waiting list into the private sector because that would impact upon their private lists?" and Ms Bryson said "Yes". Is this an issue that you are aware of?
  6. (Mr Milburn) I have not seen that particular evidence, Chairman. As far as issues of capacity are concerned ---

  7. Can we come to capacity later on.
  8. (Mr Milburn) No, no.

  9. I am specifically interested in workforce.
  10. (Mr Milburn) I am just going to say I think the workforce is a capacity issue, with respect. Our big capacity constraint is the workforce issue. We have problems on operating theatres and beds in hospitals and all the things the Committee knows about but the biggest rate limiting factor that we have as far as growth in care for NHS patients is concerned is staff, whether that is medical staff, whether it is nursing staff or so-called clinical support staff by medical scientists and so on and so forth. Now, as far as these issues are concerned about the relationship between private practice that NHS consultants undertake, and have undertaken as you know since 1948, and their NHS work, there are some issues to resolve there, as you know. There are a number of ways that we can do that. We have a particular proposal, as you know, which we are negotiating on at present with the British Medical Association, trying to form a new consultant contract. We have dealt with many issues in those negotiations. The negotiations which Andrew has been leading for us I think are going well so far but there are some very tricky issues. Undoubtedly the issue of private practice will be such a tricky issue. It has been unreformed as an issue and as a contract for over 50 years. We have got a particular proposal which, as you know, is that for a period of up to perhaps seven years we would suggest that once a doctor has qualified and become a fully fledged NHS consultant then they should work exclusively for the National Health Service. There are other options and other options which can be looked at but I think the options that could be posited as an alternative to the one that we have on the negotiating table are either unfeasible or, frankly, unaffordable.

  11. You do not see any inconsistency between what I believe is a very laudable aim in attempting to get this seven year commitment and increasing, in a sense, the demand for the private work of consultants by sending additional numbers of patients into the private sector?
  12. (Mr Milburn) No because I think ---

  13. How can you square it? It does not seem logical.
  14. (Mr Milburn) I think you missed the differentiation that really counts then. I think the differentiation is that under the Concordat what we are doing is treating more NHS patients and hopefully getting them treated more quickly. It just so happens that some of that treatment under the Concordat and an increasing proportion of the treatment under the Concordat is going to be in private sector hospitals but, as I have explained to this Committee in the past, the patient remains an NHS patient. They are treated according to NHS principles, the care is free, they do not pay for it, the state pays for it. It is as if they are a fully fledged NHS patient because they are a fully fledged patient.

  15. I fully understand that.
  16. (Mr Milburn) There is a differentiation between the time that consultants have. You see what I want, I want two things. First of all, I think what we need is a bigger relationship not a smaller relationship between the National Health Service and the private sector in general. I think there should be a long term relationship and not a one night stand. I think we want to see improved capacity, more services being made available to more NHS patients and if, as we all accept, there is a problem with capacity as far as health care is concerned, and if we have spare capacity, whether those are resources, infrastructure or expertise, and we can harness that for the benefit of NHS patients, then that is precisely what we should do. Indeed, today we are announcing further expansions in the relationship between the NHS and the private sector as far as pathology services and primary care services are concerned. So that is the first thing that I think we need to see: an expansion and not a retraction.

  17. If this expansion is the way forward why are we proposing to have a seven year commitment for new consultants?
  18. (Mr Milburn) Because of the commitment to have exclusive use of NHS consultants' time and expertise and talents, after all we have trained them at considerable expense to the taxpayer and I want them for the benefit of NHS patients. Consultants' time falls into two periods generally. Actually the majority of consultants, around 57 per cent of NHS consultants work on a whole time basis for the National Health Service. A minority work on a maximum part-time contract - I think it is around 27 per cent - and some of them work a large proportion of their spare time, so to speak, in the private sector, others do not, but the differentiation in the time that is available that a consultant has is between work on NHS patients (and, frankly, for me that can be work that is undertaken in a NHS hospital or, for that matter, in a BUPA hospital or a GHCG hospital, provided the care is for free and it is treating NHS patients as NHS patients) and the privately paid for work that consultants do. What our proposals are all about as far as the new consultant contract is concerned, is trying to get a bigger share of NHS consultants' time for the benefit of NHS patients. Where that care and treatment takes place, whether it is in a private sector hospital or a NHS hospital is, frankly, a secondary consideration. A primary consideration for me - and this is what we are seeking to negotiate, difficult though it is - is that when consultants first qualify, we want to get a bigger slug of their time for the benefit of NHS patients, and what we are proposing is an exclusive use of their time for perhaps up to seven years. That has to be negotiated, and I know you will have heard from the British Medical Association and I know that the proposal is deeply controversial, and I have got no doubt that it will be opposed in many quarters, but I think it is the right thing to do. There is a deal on offer which is pretty straightforward. We are prepared to pay NHS consultants more in order to get more of their time to treat more NHS patients more quickly.

  19. Can I put to you a question that I put to colleagues from the private sector who gave evidence before Christmas. They indicated that over 70,000 patients had been treated under the Concordat and these were people treated in the private sector under the Concordat. I asked what the impact had been on the NHS waiting lists if those NHS consultants who were working part time in the private sector were working whole time in the NHS, and they could not answer that point. There was some discussion at the Committee of Public Accounts recently and some suggestion from one member that that would be the equivalent of 2,000 additional consultants in the NHS. I notice that your memorandum since the last meeting suggests that 1,500 whole time equivalent consultants would come into the NHS as a consequence of that. Why would the Government take that approach as opposed to, as I see it, pushing more doctors into the private sector?
  20. (Mr Milburn) Because it is not feasible, it may not be legal, and it certainly is not affordable. There are a number of options. What we could do - and I am not saying we are going to do this or that we have even considered it or are considering it but these suggestions have been put to me by you amongst others - is go for a total legal ban. We could say that NHS consultants are only going to be allowed to work inside the National Health Service and we could try to enforce that legally. I think the end product of that in behavioural terms would be very simple. You would have a whole host of NHS consultants that we need to treat NHS patients upping lock, stock and barrel. Remember, there is a constrained labour market. We do not have too many NHS consultants, we have got too few, and they will up and leave and go and work in the private sector. Why would they do that? Because, quite simply, some of them, not all, can earn a lot more money. Certainly if you are a surgeon you can earn a lot more money. I do not think that is feasible, point one. Point two, you could try to compensate them for a total and utter ban on doing any private work. I think that is unaffordable and we have done some back-of-the-envelope calculations looking at what it would cost. If you were to do that either what you could do is simply compensate the people who are currently earning quite a lot of money from working in the private sector. There are some people who earn 50,000, 100,000, some well in excess of 100,000, and you could compensate them and give them a bigger NHS pay packet. I think that is a pretty perverse thing to do. You would be paying the people who had done more private work and less NHS work more than the people who had been doing a lot of NHS work - geriatricians, psychiatrists, physicians, A&E consultants who, by and large, work in the specialties where there is not a lot of private practice. That seems to me to be an illogical and unfair thing to do. Or the alternative is that you would have to compensate every consultant, every single one, for the potential loss of private sector earnings even though a majority of consultants probably do not have private sector earning power. We reckon that if you assume that consultants, if they are working in the private sector, might earn between 50,000 and 100,000 as a matter of normality, given the fact that we have got 26,000 NHS consultants, that would cost us a cool 1 billion before we had even started and I do not think that is a sensible use of NHS resources because, in effect, what we would be doing is paying huge dead weight costs at public expense for very little benefit. In other words, we would be paying people a lot more money for compensation when, in fact, they were not even working in the private sector. There is a final option which is that we continue with the current confusion and mess because I think it is confused and I think it needs sorting out. Our conclusion is that our best option is the sensible compromise option that we put forward in the NHS Plan which is trying to get NHS consultants when they are newly qualified for a period of up to seven years to work exclusively for the National Health Service. As you know, that has got to be negotiated with the British Medical Association and we shall see how that goes.

  21. Before I bring some of my colleagues in, can I pick up one other point Miss Bryson made to the Committee. Her argument was that waiting lists would be sustained in her area. She said that the consultants concerned were not wanting their own private lists to be affected so even though these people were moving to the private sector under the Concordat, the consultants were unhappy about losing patients from their private lists. She suggested that there was a need to look at the management of the waiting lists. That is an area that you have looked at. Can you tell us where the Government is on the question of removing it from the actual consultants?
  22. (Mr Milburn) Let me say, first of all, that it is very, very important when we highlight these problems that we do not forget the context for this which is that the overwhelming majority of NHS consultants are doing a brilliant job for the National Health Service and are probably over-fulfilling their contractual obligations rather than under-fulfilling them and working pretty damned long, hard hours to treat a lot of NHS patients. I would not want anybody to get the impression that somehow or other we have a whole host of NHS consultants who are not pulling their weight because that simply is not true. As far as issues about how best waiting lists are managed, I think that is directly related to how best we manage NHS consultants' time. At the moment, as you know, there are within the NHS consultants' contracts a whole host of so-called flexible sessions. We have as a negotiating brief in these negotiations with the BMA an objective to ensure that there is better planning of NHS consultants' time, so that we get better and more treatment to more NHS patients. That is something that we have got to hammer out in negotiations and I do not want to get into the detail of what we have been talking about in the negotiations for obvious reasons, I do not want the negotiations to be compromised, but so far I think Andrew would say they have gone pretty well and we have got to continue and hopefully reach a conclusion before too long.

    Mr Burns

  23. Secretary of State, I must say there was a certain irony listening to your comments at the beginning of this session because, of course, when the last Government paid for NHS patients to be treated in private hospitals that Government was accused by some of your colleagues of creeping privatisation of the National Health Service and yet you are now doing it with a vengeance. What I wonder is you have opened up a Pandora's Box in recent weeks with other areas of what has been accused by colleagues of your's in the past as privatisation of the health service. For example, hotel charges, something that even Margaret Thatcher in the height of her powers ruled out. We have seen you floating the idea that maybe the health service is open to privatisation in certain areas like hotel charges and I would like to just press you for a short time on those. Would you rule out charging hotel charges for things like food in hospitals?
  24. (Mr Milburn) I do not think we should charge for food, no.

  25. At all?
  26. (Mr Milburn) No.

  27. So why float it?
  28. (Mr Milburn) I have not floated it. Where have I floated it?

  29. The Independent on Sunday.
  30. (Mr Milburn) Well, do not believe everything you read in the newspapers. You will be sorely disappointed in life, Mr Burns. I am day in and day out --- I do not read the damn things.

  31. I am sure you are. I am sure you do not believe anything which has not been spun by Millbank but one does come to believe that -
  32. (Mr Milburn) Shocking, shocking allegation and I hope that you can substantiate it.

  33. Let us go on to another thing. You have ruled out charges for food in any shape or form in our hospitals. Let us go to another one. Would you rule out charging for the actual bed in a hospital, not the treatment, the bed? Would you rule that out?
  34. (Mr Milburn) No.

  35. You will not rule that out?
  36. (Mr Milburn) Sorry?

  37. You will not rule out charging for the actual bed in a hospital?
  38. (Mr Milburn) I do not thing we should charge for a bed. However, as you know, the National Health Service, and I think it might have been the previous party when they were in government who introduced this policy, introduced a policy of amenity beds in hospitals and certainly we have cases, for example in maternity services, where if people want access to a single room as distinct from, say, a four bedded bay or an eight bedded bay, providing that room is not occupied already according to clinical need, a patient is being treated, then if they want that they should be able to have it. We have not changed that policy.

  39. I am not talking about amenity beds. What I am talking about is will you consider charging for non amenity beds?
  40. (Mr Milburn) No.

  41. Not at all?
  42. (Mr Milburn) Absolutely not. Let me tell you why.

  43. I think we can take your no.
  44. (Mr Milburn) No, no, no, I think it is quite important because otherwise unless there is a clear differentiation between the reasons why we should not charge for those sorts of things and the reasons why we might contemplate charging for other sorts of things people will be unclear.

  45. What are the "other sorts of things"?
  46. (Mr Milburn) Well, for example, in the NHS plan we have said that if people want to have a telephone at their bedside or a television at their bedside then they can have that if they want to pay for it. Remember there is already a telephone at the end of the ward and very often in the ward itself. There is certainly a television both in the ward generally and very often in the amenity room at the end of the ward. If people want the further convenience of having a bedside television or telephone then I see absolutely no reason why an NHS patient should not pay for that. Just as, as I understand it, since the inception of the National Health Service in 1948, if people have wanted a newspaper, the National Health Service has not paid for it, the patient has paid for it. Suddenly I can think of, as technology advances, for example if people go into hospital and they take their laptop with them, because they want to get access to something on the internet or whatever, I do not see why the National Health Service should have to pay for that, that seems to me to be perfectly reasonable that the patient should pay for that. However, the differentiation is this, that in the end people do not actually need to have access to the internet when they are in hospital, they do need a bed and they do need good food and, therefore, it seems to me they should be provided for free as part of the service that the National Health Service provides, not just to some patients but to every patient.

  47. Are there any other areas where you might consider charging patients? For example, for them to have a greater choice of the services of a doctor or a consultant?
  48. (Mr Milburn) No.

  49. Not at all?
  50. (Mr Milburn) No.

  51. Not at all?
  52. (Mr Milburn) No, because I think that basically when people are treated in the National Health Service, and incidentally when I say the National Health Service I mean both NHS hospitals and private sector hospitals which are treating NHS patients, they should be treated according to the right principles, which is according to their need and not their ability to pay. I thought that at least until very recently had been a matter of broad consensus in British politics.

  53. Right. Yes. Any other areas of charging that you envisage or are considering? Are you discussing with any organisation or anyone other areas of potential charges?
  54. (Mr Milburn) Not even The Independent on Sunday, no.

  55. Right. Fine. Let me ask you somewhere nearer to home. Are you having any discussions with the Number 10 Policy Unit on charging in any shape or form in the health service or are any of your special advisers doing so or any of your junior ministers?
  56. (Mr Milburn) Not that I know of.

    Mr Burns: Not that you know of.

    Jim Dowd: That is what he said.

    Mr Burns

  57. Right.
  58. (Mr Milburn) That is what I say, yes.

  59. Secretary of State, we understand what you said -
  60. (Mr Milburn) I do not listen in to all their telephone calls. I do not know whether that was practice when you were a minister or not, Simon, but we try to avoid that sort of Stalinist approach in the New Labour National Health Service.

    Andy Burnham

  61. Secretary of State, an issue arose from the additional memorandum which the Department sent to the Committee following your earlier appearance. In particular there is an issue about how the Concordat is working in practice and on the ground. We asked a question about the funding that had been allocated to the Concordat, 20 million, how that had been distributed and whether it was according to available capacity or according to need and length of waiting list. Reading the figures that your Department prepared for us, I note that the North West had the fewest number of cases, 444 cases, and this compares fairly unfavourably, to my view, with the South East 3,294, South West 1,624.
  62. (Mr Milburn) Yes.

  63. I think it is fair to say from the figures you have given that the Concordat seems to be benefiting some parts of the country more than others and I would go on to say the South more than the North.
  64. (Mr Milburn) Yes.

  65. I am not against the principle, I think patients do not care where they are treated, they want their treatment as soon as possible and as quickly as possible.
  66. (Mr Milburn) Sure.

  67. Can you give me some assurances that the funding will benefit all parts of the country more as it progresses?
  68. (Mr Milburn) I think what is important is that I would be personally pretty disappointed if the National Health Service in all parts of the country simply used the small chunk of money that we are making available specifically for extra private sector activity as the sole pot of cash available for purchasing that activity. Okay. We put 40 million out, which you remember I announced at the last Committee, but I would be surprised if the National Health Service does not spend more than that but that really is a matter for the National Health Service on the ground. As I said at the last Committee, what I really want to see, but I want to encourage this rather than, if you like, force it to happen, is I want the local health service in different parts of the country to decide on the nature of the relationship that it wants to have with the local private sector in those parts of the country. Now, as you know, the way we allocated the money was largely according to the pressures in the system actually rather than according to the sustainability of the relationships between the NHS and the private sector. I think as most Members of the Committee would recognise, indeed Simon has been making this point continually, the pressures in the service tend to be different in certain parts of the South for perfectly understandable labour market reasons than from parts of the North. I do not say there are not pressures in the service all round, there are, but where you have got bigger staff shortages for labour market reasons, full employment, etc, higher housing costs, then it is clear that those are the parts of the country where we need to take account of those factors and try to get some resource. 998. Can I follow on and say that it does seem that it is the availability of capacity which does seem to be driving the development of the Concordat from the figures that you have given. To me that would suggest that over time you might begin to see more regional disparities within the waiting lists because the South East and the South West clearly have more private capacity available to them. If so, am I right to be slightly concerned about that? Is there a case for giving people in the North West and and the North East a chance to travel to receive treatment?

    (Mr Milburn) I am all for giving people in the North East as many possibilities, options and choices as possible. I think the broad point that you make about the geographical spread of private sector capacity being differentiated is obviously right, and the further south you travel the more private sector capacity there is. It is a simple fact of life. Whether that will remain the case in perpetuity is, frankly, doubtful. You took evidence, I notice, from Mr Auld from the General Health Care Group who I think was making a generous offer to the Committee, as indeed he made a generous offer in a recent speech, which is that he would seek to build through his group a new diagnostic and treatment centre in a part of the country where waiting times and waiting lists were long and where private sector capacity, potentially, was few and far between. So I think what you will see is that you will get some new entrants to the market. I think there will be new entrants to the market, whether from this country or from abroad. You may well see the regional spread of the private sector capacity beginning to change and if, for example, there is a shortage of private sector capacity in the North West (and I do not know if there is or not) then that potentially could be plugged over time as the private sector capacity in this country grows as a consequence of more contracting with the National Health Service. That is one option, first of all. The second option, which you know we are making some progress on, is that we want to get to a position over the next few years where rather than patients being stuck in a ghetto of having to wait a long time for the hospital operation because the waiting times at their local hospital are very long, that increasingly they should be able to exercise choice and, as you know, later this year we are going to begin the roll out of that new initiative which will involve patients who have been waiting for heart surgery for more than six months being offered a choice of either sticking with their local hospital, in which case they may well have to wait a little bit longer or, alternatively, travelling and being treated potentially in a private sector hospital or, alternatively, in an NHS hospital, or maybe even for a few travel abroad, if it is appropriate for them to do so, and in that way try to get waiting times down for those particular patients and hopefully in the process save some lives. We are beginning it with heart surgery because we think that is probably the most serious clinical condition and although waiting times are falling overall people are still waiting too long. In time we want to develop that principle of the patient being able to choose the hospital rather than the local hospital just inevitably choosing the patient as something which runs right through the National Health Service. The answer to your question is that we need to get capacity in the right places both for the National Health Service and private sector capacity, and we want to open up more options around choice.

  69. Just one final point which is linked to the variable capacity and that is the cost per case differential which emerges I think from the figures you have provided to us. It seems to suggest that the cost of an episode in the North West costs 2,000 on average and costs the North and Yorkshire 3,000. Is there a concern that what the NHS is paying for episodes is varying quite markedly?
  70. (Mr Milburn) I think I said at the Committee last time in answer to questions from Julia Drown that I am concerned about the fact that there is diffentiation in the prices that the National Health Service is getting from the private sector, and I think there are some real issues that we have got to bottom there because with all of this stuff, frankly, there is no blank cheque. We have always made it clear that a growing relationship with the private sector depends upon patients being assured of the highest clinical standards and taxpayers being assured of good value for money. What the figures throw up in pretty sharp relief is that there are differential prices being negotiated in different parts of the country and indeed, I suspect, within the same parts of the country. Some hospitals will be negotiating better deals than others. As I said at the Committee last time, the way through that is not to abandon the whole thing (actually I want to expand the whole thing in order that we can get more people treated on the National Health Service) but the way through it is to try to bring some standardisation to the process. As you know, we want to have a framework within which these individual deals can be located. As it happens, we are getting some good prices in some parts of the country where there has been a real tough negotiation.

  71. Trent seems to be getting cases for 500.
  72. (Mr Milburn) Yes and Andy was telling me in East Surrey, for example, the local health authority (rather than the local trusts) negotiated a deal last year which got NHS patients treated at NHS prices rather than at private sector prices. I think that shows that you can get the deal done and you can get good value for money for the taxpayer as well as getting more treatment located more quickly with patients. Certainly we have got some figures which indicate that, for example, the average cost of a hip replacement on the National Health Service is around 4,100-4,200. The best prices that we have been getting from the private and independent sector have been 3,500. Knee replacements cost 4,600 in an NHS hospital. The best prices we have been getting in the private sector have been 4,200. So rather than just assuming that always we are going to get ripped off or we are going to get poor value for money for the taxpayer, which I know is not what you are saying but what some of the critics say, it depends upon the negotiations.

  73. With the problem of alleged lack of capacity and higher prices in the North West and the North East, it is harder to see the problem changing immediately.
  74. (Mr Milburn) That must be true if there is more of a monopoly position in some parts of the country than others and there is less competition, and that probably means that the NHS is not getting quite as good a deal as it should do. One thing I am absolutely convinced about (and I think we are beginning to see the start of this) is that we have not been optimising our purchasing muscle. As I said at the last Committee, it is not as if relationships between the National Health Service and the private sector have never existed. We all know from our own constituencies that they have existed for very many years but, by and large, the relationships have been ad hoc and sporadic and as far as elective surgery is concerned, by and large, those relationships have only kicked in towards the end of a financial year, around this time of year, January, February and March, when NHS trusts want to hit their waiting lists and waiting times' targets and therefore they buy a bit of extra capacity on a spot purchase basis from the local private sector hospital. That is the worst possible way to get good value for money. The best possible way to get good value for money is by developing a longer term relationship between the local National Health Service and the local private sector. That is what we want to see developing in all parts of the country.


  75. We have discussed comparative prices, presumably we are talking also about equivalent quality?
  76. (Mr Milburn) We have got to make sure that is the case. As you know, from April this year the National Care Standards Commission kicks in, and part of its function is precisely to inspect in a way that has not been done as rigorously as it should have been. This Committee has had concerns about various issues - cosmetic surgery or other forms of surgery, the sort of services that are offered in the private sector. That is not to say that there are not standards in the private sector because the best and, by and large, the largest organisations do have high standards that they try to meet, but I do think that it is very, very important that if we are going to have a good relationship between the National Health Service and the private sector, particularly when it comes to issues of surgery and the outcomes that we need and patients need from surgery, there has got to be an independent assurance that the standards are high wherever the patient is treated, whether it be in an NHS hospital or elsewhere.

    Dr Taylor

  77. Secretary of State, I have a serious of points, and the first one is I was very disappointed to see in the written evidences that we had just yesterday from the Department of Health that still too many consultants do not have job plans. Considering job plans came in at least in 1994, that is a real condemnation of management or something. Can I assume that in the new contract a job plan will be mandatory?
  78. (Mr Milburn) Yes.

  79. Thank you. That was quick and easy.
  80. (Mr Milburn) It is quick and easy on paper. As you rightly say, that is supposed to have been the position since 1994. It is important that what we have got to get - and this is what I have been saying to Andrew and his team of negotiators - a new consultant contract that looks good on paper; it has got to work in practice.


  81. The next thing, you have mentioned the total ban of private practice would be impossible. Compensation would be unaffordable.
  82. (Mr Milburn) Yes.

  83. I thought from reading again this same letter that we had yesterday that the seven year ban had perhaps been put on the backburner a bit, and I would have thought that there was yet another way of coping with this.
  84. (Mr Milburn) Okay. Go on.

    Dr Taylor: I am drifting further to the left rapidly.

    Chairman: Good to hear that, Richard.

    Dr Taylor

  85. One of our Chairman's main problems with consultants in private practice is that there appear to be two different waiting lists. One of the things you can buy in getting your private treatment is a much shorter waiting time. Would it be feasible, have you thought of, and I have not thought through the details, literally a common waiting list for consultants who do NHS and private practice so that it would be strictly by clinical need, whether they were private or NHS? I am only throwing that out as a thought. Had you thought also about resurrecting amenity beds which now we are getting new hospitals with more single rooms would be much more practicable than it was?
  86. (Mr Milburn) Yes.

  87. So those are just some general points. If I may pause and then come back to some specific points.
  88. (Mr Milburn) Yes. Let me think about the proposal rather than just giving you a snap answer, so to speak. I think on the shorter waiting times thing, you see what I think will change all of this is as we get NHS waiting times down. I know that the Chairman says that it does not sound coherent but actually I think if you have a combination of more NHS capacity going in and a better way of working, I think, than the National Health Service do, better relationships with social services, all the things that are going on, firstly, secondly taking advantage of growing private sector capacity and a more mature and sensible relationship than has been the case in the past between the NHS and the private sector and then thirdly being able to harness more of the time, commitment and expertise of NHS consultants to treat NHS patients, then those seem to me to be three of the building blocks that you need in place in order to get waiting times down for the NHS patient. Actually I think that progress is under way there. I know that already many, many trusts, for example, including my own trust in Darlington, I think at present it does not have anybody waiting for 12 months for an operation, now that is not true everywhere. By March next every trust should be in a position where nobody is waiting for 15 months for an operation. Fifteen months is far too long, appallingly long, everybody knows that, but the National Health Service has never achieved a maximum waiting time of 18 months never mind 15 months or, as it will be from the end of March this year, 12 months for people waiting for a heart operation. All still too long but I think the fact that the waiting times are falling is evidence of the fact that both the capacity is kicking in, including the use of private sector capacity, and some of the changes are beginning to kick in too. I will give you a more considered response to the proposal that you have made but I am not going to do it off the top of my head.

  89. Thank you. Certainly we are watching for the achievements of the promises. If I can just go on to a little bit of detail. Picking up the BUPA centre in Surrey, the diagnostic and treatment centre in Surrey, we would love to know a little bit about the contract, obviously not details, but how is staff pay going to be worked out? What is the sort of scale of operations? Will patients just be taken off NHS lists? Will private patients use this facility at all? Can you just give us some comments about how you see the contract for a private diagnostic and treatment centre going?
  90. (Mr Milburn) Shall I say at the outset, Richard, that we are in negotiations, first of all.

  91. Yes, I realise you cannot give us detail.
  92. (Mr Milburn) I do not want to compromise the negotiations. All I can say for now is the negotiations are going well. I expect the negotiations will be concluded over the course of the next two months and then we will be in a position to move forward. Our objective is this: at the moment the BUPA hospital there effectively treats private patients, privately paid for patients. If we can get a successful negotiation concluded, as I hope we can, then by the end of this year it will be a facility that is turned over 100 per cent to NHS patients. That will expand the capacity available to the National Health Service in that part of the world. I think it will mean that we will be doing around 12,000 procedures a year there, 12,000 operations a year, which should help get waiting times down, get more people treated more quickly. We are in discussion about precisely some of the nitty gritty issues. Essentially there will be two groups of staff who will be employed at the BUPA facility. There are the existing BUPA staff, largely nurses and other clinical and non clinical staff there, and then in addition to that we will have some NHS staff who are currently working in an NHS day surgery unit who will also be working in the BUPA unit. These two staff will be jointly managed.

  93. Can you say whether they will be paid the same?
  94. (Mr Milburn) The NHS staff will be paid at NHS rates of pay. The BUPA staff will be paid at BUPA rates of pay, I would guess.

  95. Next question, still on this specific hospital really. We have had a little bit of talk already about how you negotiate costs.
  96. (Mr Milburn) Yes.

  97. One of the problems was alluded to by Mr Auld himself, whom you have quoted already, because he gave us examples within the NHS where a hip replacement could be as much as 10,000 or as little as 800.
  98. (Mr Milburn) Yes.

  99. What are you doing to standardise costs throughout the NHS which would seem to be absolutely crucial before you can request the private sector to tender at all really?
  100. (Mr Milburn) On the upper and lower range of the particular procedure that you described there, I find it impossible to believe that an NHS hospital is carrying out a hip replacement operation for 800, that sounds to me to be bargain basement stuff. That is the sort of poundstretcher hospital, is it not?

  101. Yes. That is the figure he gave us.
  102. (Mr Milburn) I know. There are figures which make me slightly concerned. We publish every year the reference costs for different procedures in the NHS and I think there are some problems about, frankly, the way different hospitals are counting different activities and ascribing different costs. We also have an inter-quartile range where the range of costs is much narrower. So for a hip replacement operation, for example, the inter-quartile range in 1999-2000, for a hip replacement, was anywhere between 3,650 and 4,680, a much narrower range of costs which I think, frankly, is probably more believable. How are we trying to get the differentiation in costs narrower which we want to achieve? I think when the Committee sees the next range of reference costs published, and I hope that we will be able to do that before too long because I have been looking at it recently, I think you will see there is improvement in that regard, first of all. How has the improvement come about? In part it has come about simply by making that information available to the National Health Service and allowing my trust to compare with your trust and ask some simple questions about why it is cheaper in Darlington than it is in Kidderminster, they cannot get their costs down, get their costs right and so on. I think the thing that will really drive it, however, is more active commissioning between more active primary care trusts, which will be coming on line, and NHS trusts. If primary care trusts are smart what they will be doing is using the reference cost publication as a bit of a commissioning bible and saying "Well, actually I can get these operations done for my patients more cheaply elsewhere" rather than just sending them necessarily to the local NHS hospital. That will provide some pressure on the NHS hospital to offer good quality, of course, but also to do with issues of affordability and value for money.

  103. The last on this section. I gather this diagnostic and treatment centre is very close to the relevant NHS hospital. Is it going to attract staff away from the NHS? Is it going to detract from the NHS hospital? Have you any comments on that?
  104. (Mr Milburn) Do you want to come in? I will get Andy, who has been dealing with it, to comment.

    (Mr McKeon) We do not really envisage that it will detract from the NHS hospital. The BUPA element of the unit is fully staffed up. The day surgery unit of the staff we will transfer is fully staffed. We will also be seeking assurances in the course of the negotiations to see the staff recruited will not be to the detriment of the NHS.

  105. On the other hand, is it a positive advantage to have the facilities of a full scale hospital very close?
  106. (Mr McKeon) Some facilities are and some facilities - There can be advantages in having the facilities on the same site, yes.

  107. Is it on the same site?
  108. (Mr McKeon) It is on the same site. It has a linking corridor with the main DGH so it is almost an integral part of the hospital.

    John Austin

  109. Can I follow on with two points. In response to the Chairman, the Secretary of State said that the availability of consultants was clearly a capacity issue. Picking up on Dr Taylor's point about nursing and whether there will be a draining of resources, at the moment we are talking about using spare capacity that is in the private sector in order to speed up the process of treatment, yet in evidence at the last session one of the private sector providers said they are quite happy to speculatively build a new hospital, absolutely confident that the NHS will fill it. If that is going to be a pattern, the private sector creating spare capacity, clearly at the end of the day there must be a drain on the resources of, say, nursing staff and making the situation worse in the NHS?
  110. (Mr Milburn) I think that is why, John, there has to be some planning of resources. If somebody wants to go off and build a private hospital, and they get planning permission and so on and so forth for it, there is nothing I can do about that, that is up to them. The National Health Service can do something about it in terms of giving them a contract. Now the issues are for us what conditionality is applied to the contract that the local NHS holds with the local private sector hospital. One of the conditions that I think we would look to ensure is that if there is additional private sector capacity coming on line in a particular area then that is not to the detriment of local NHS hospital capacity. For example, if we were entering into a contract for a DTC or elective surgery or whatever it is, we may well say that a condition of us contracting, the National Health Service contract, the local NHS doing a contract over a period of years with the local private sector provider and the new one coming in to the market, is they should not poach, they should not recruit from the local hospital and, indeed, perhaps what they want to do is go and recruit from abroad, we recruit from abroad. I think in general terms the idea that there is a huge exodus from the National Health Service in terms of nursing to the private sector is just not borne out by the figures I have seen. The Office of Manpower Economics, as you know, every year as part of the review body process ---

  111. There are only a limited number of nurses available at the end of the time and if there is a massive expansion of the private sector in providing for NHS patients,, unless they come from abroad, they must be competing with the NHS.
  112. (Mr Milburn) Or they could come from nurses who have left the National Health Service. As it happens, we have recruited around 10,000 nurses back who have left. The private sector needs to be on its mettle too. The idea we have got this huge flow between the NHS as an organisation and the private sector is just wrong. The figures, which I will very happily share with the Committee, show that that is the case and actually the figures for the last year show that the flow of NHS nurses into non-NHS employment, including into private sector hospitals, has fallen rather than risen at a time when there is an expansion in the National Health Service contracting with the private sector.

  113. If the NHS is short of capacity, why does it not stop the current practice of providing private care within the NHS and release that capacity for NHS care by NHS staff in NHS hospitals?
  114. (Mr Milburn) Largely because the private patient units and the pay beds in the NHS - I think there are around 3,000 of them or something of that order - generate 300 million quids' worth of income for local NHS trusts.

  115. Taking into account the hidden subsidies?
  116. (Mr Milburn) That is the amount of income that they generate. If we were simply to remove those from the National Health Service, then somebody somewhere would have to find 300 million worth of income. If, for example, a local NHS trust said, "We have got a private patient unit and maybe it is not particularly well used because we cannot generate demand or whatever, and what we would like to do is to convert it into extra capacity purely for NHS patients", then that would be perfectly reasonable. I know of at least one case where that has happened in Warrington where the local private sector had a private orthopaedic unit on site at Warrington hospital called the Daresbury Unit. It effectively went bankrupt and the local (pretty enterprising) Chief Executive of the NHS trust bought it at a knock-down rate, similar to the way we bought the Heart Hospital in London last year. He has now left the trust and on gone on to another trust in Manchester, but he bought it and it is now providing orthopaedic surgery purely for NHS patients. I actually opened it as a NHS unit six or nine months ago. That is not a problem if that is what they want to do but the trust has got to balance its books, it has got to decide whether or not it is going to forego the income that is coming in as a consequence of having a private patient unit. If that is what it wants to do by turning the private patient unit over to treating more NHS patients, that is absolutely fine, and it is a matter for it and not really for me.

    Mr Amess

  117. I have to say that as the evidence session progresses I am getting more and more confused, but anyway! As you know, our Chairman hates the private sector. I am sure I am not being unfair. He hates everything to do with the private sector. I thought that view was shared by the Prime Minister because he told the House of Commons on 12 January in the year 2000: "We accept that there are fundamental capacity constraints in the National Health Service. We are working to tackle them. However, the way to tackle them is not what is being urged on us by the Opposition who say that private health care will take the strain; it simply will not." You yourself seem to hate the private sector because you told a group of NHS executives on 26 March 1998 that you would come down "like a ton of bricks on anyone who has anything to do with the private sector". So what on earth is this Concordat all about?
  118. (Mr Milburn) Does that sound like me, Mr Amess, "coming down like a ton of bricks"?

    Mr Burns

  119. You were old Labour.
  120. (Mr Milburn) I was what? I was old Labour? I do not know what the charge is, Chairman. I am now completely confused. I am sorry that Mr Amess is confused but that is a permanent state of affairs!

    Mr Amess

  121. Straightforwardly, all the language that the Government used was totally against the private sector. Now, all of a sudden, because the Government is in a mess on the Health Service, you are sending people abroad, you are using hospitals overseas, you are going to charge; in fact, you are privatising the service. We have been running now for 57 minutes with all this soft soap stuff as if it is all so nicely done and we are not privatising the service. Has the Government changed its view or not?
  122. (Mr Milburn) No and when the Prime Minister talked about the Opposition's policy, which is the question which you asked me, perhaps I can expand on that -

    Mr Burns

  123. You do not know the policy, it is not for you. We come to question you, not you us.
  124. (Mr Milburn) I got a question, in all fairness Chairman, not about your attitude but about our attitude about the Opposition's policy and I can expand at length on our views about the Opposition's policy, but just to keep it crisp, I think the differentiation is pretty straightforward. I think there are some in this country who say that the way forward for health care is that we should have more and more people paying for their care through private health care. I think that is profoundly wrong. I do not think that is the right way forward for Britain. In countries where that sort of approach applies you have more regressive health services, you have less fairness in the health service, and you have less trust in the health care system. The most notable example of that is probably the United States of America who manage to spend 14 per cent of GDP on their health care and yet have 40 or 50 million Americans who have no insurance whatsoever with all the consequences that that brings. On the one side there are those who say that what we should do is force more and more people to pay for their health care. Our position is that the best way of providing health care is through a National Health Service that treats people according to the scale of their need and not the size of their wallets. Where they are treated, where those principles and values are applied is a quite different matter and, as far as I am concerned, what we do want to see in this country is not the old definition of the National Health Service as some sort of monopoly provider of health care, but instead what we should have is a set of NHS values about need, not ability to pay, free services, comprehensive services, which will be provided in a variety of settings. Some will be public, some will be private, but in all cases the patient will be treated as an NHS patient for free according to clinical need, and that is the difference I think. 1027. There has been no change between Frank Dobson's policy and your policy?

    (Mr Milburn) I cannot speak for previous Secretaries of State.

  125. He came before the Committee.
  126. (Mr Milburn) In that case have him back, I am sure he would be delighted to come.

  127. Right.
  128. (Mr Milburn) You know, after all you invite me every few weeks, I do not see why you should not have Frank, I am sure he would be delighted.

  129. Are you aware that following your remarks to this Committee on 17th October about private agencies supplying staff, a number of private health care providers were horrified by your statement. This is what you told the Committee "The National Health Service has private agencies over a barrel". That is what you said. You will be aware your ministers are getting letters at this moment from these private agencies contacting local Members of Parliament because the statement you made said that "The National Health Service has private agencies over a barrel". Now, given the problems that we have in recruiting and retaining staff in the National Health Service at the moment, do you not think that your remark about the private agencies was inappropriate?
  130. (Mr Milburn) No. I think what I was saying was that I think this Committee, of which you are a Member, has expressed concern about the issue of agency nurse costs in the past, as I recall it, because agency nurse costs were rising rather than falling. I do not know whether you signed up to that report or not, Mr Amess. The point I was making was this. At the moment the National Health Service treats the relationship as if the private nursing agencies have the National Health Service over a barrel. What I am saying is that it is very important for the National Health Service to remember that it is the monopoly purchaser and the monopoly provider here and as in London now, where for the first time you have got NHS trusts co-operating with each other rather than competing against each other to get the services of nurses from private sector agencies, we are beginning to get better prices as a consequence. The simple point I was making was that given the constraints in the labour market and the fact that in some parts of the country, more in the South than the North, there has probably been over-reliance on private sector nursing agencies - there will always be some reliance to cover for sickness and absences and so on and so forth - I do not think we really want to be in a position where NHS wards, to the tune of a third of the staff are coming in and going out again, night after night, different staff treating exactly the same patients, then the NHS should get its act together. Actually I think the NHS is getting its act together by working together and also through the new NHS professionals organisation which is, if you like, an in-house NHS agency, ensuring that NHS nurses can be located on a temporary basis in different places according to their own circumstances.

  131. My final point is about the private sector in achieving GDP targets. Is it true that you were given a contract ---
  132. (Mr Milburn) According to what?

  133. The private sector in achieving GDP targets?
  134. (Mr Milburn) What is that?

  135. GDP, gross domestic product.
  136. (Mr Milburn) I thought you said GTDP.

  137. No. Is it true you were given a contract by the Number 10 Policy Unit to achieve 50 targets?
  138. (Mr Milburn) We have a delivery contract with Number 10 and the Cabinet Office. The number of targets in it frankly I cannot remember.

  139. You see to me, and you are saying it is true, that is a complete contradiction to the five key priorities in the NHS own winter planning document.
  140. (Mr Milburn) There are certain priorities for winter because winter is a particular time of year. The key document that you should focus on - if the Committee has not got it I am very happy for the Committee to have it, it is a perfectly public document - is the National Priorities Guidance that we issue once a year which sets out what the priorities should be for the National Health Service. The priorities, certainly as we see them, for the forthcoming year, for 2002-03, the financial year, are pretty straight forward. The National Health Service should concentrate on improving emergency services to patients, because emergency patients should always come first. Secondly, getting the waiting times down for treatments because that is the biggest concern, I think, that both staff and the public have about the National Health Service today. Thirdly, we have certain clinical priorities that I think the Committee agrees with around cancer, coronary heart disease, mental health and care of the elderly, and those three areas should be the things that people get on with and deliver some improvements in services on. If you have not seen that I am very happy for you to do so.

  141. What percentage of gross domestic product does the Government believe the target to be?
  142. (Mr Milburn) Which target?

  143. Of health?
  144. (Mr Milburn) How much we are spending now or how much we will spend in the future?

  145. What is the target in the future?
  146. (Mr Milburn) Are you talking about the EU GDP target?

  147. No, the Government's, what is the percentage?
  148. (Mr Milburn) Which target are you talking about?

    Mr Amess: The Government's target.

    Dr Naysmith: What is it to be spent on?

    Mr Amess

  149. On health care, which we debate all the time. I just want to get on the record what is the correct figure?
  150. (Mr Milburn) Our commitment is that we will have health expenditure in this country at the EU level. That is precisely what we will do.

  151. Which is what?
  152. (Mr Milburn) At the moment I think it is 7.9 per cent across the EU. By the end of this spending review period, the current spending review period, expenditure on health care in this country will be between 7.6 and 7.7 per cent of GDP. So we will be within a hair's breadth, within shouting distance, of the EU GDP average.

  153. This does not take into account that GDP will increase in Europe.
  154. (Mr Milburn) Well, GDP may increase in Europe, health expenditure may well fall. For example, I know that the Germans are overall, as I understand it at the moment, reducing the percentage of health care as a percentage of GDP, that is what is happening there. We are increasing it as you know and actually we have got, I think, the fastest growing health service of any major country in Europe right now. Pretty simple in terms of the numbers, the numbers are right now, the average expenditure on health care in Europe is 7.9 per cent, or thereabouts, by the end of this spending review period, which will be the 31st March 2004, we will be spending here between 7.6 and 7.7 per cent of GDP on health.

    Mr Burns

  155. Just so it is absolutely straight. What you are saying is your target is to come within a hair's breadth.
  156. (Mr Milburn) No, no, no.

  157. You said 7.6 per cent.
  158. (Mr Milburn) No, no, no. I said our commitment is to get to the EU average and then I said that at the end of this spending review period we will be within shouting distance of that. Our commitment is that we will get to the EU average.

  159. Right. The EU average, but the EU average as it is now, not what it might be because no-one knows what the EU average might be in March 2004.
  160. (Mr Milburn) Our commitment is to get to the EU average.

    Mr Burns: As it is now.

    Chairman: Can I say we are getting slightly off the ball here.

    Mr Amess

  161. Chairman, can I finally ask what is the source of your figure for the average EU spend?
  162. (Mr Milburn) The OECD.

    Chairman: We have had a hour on the Concordat, we have other issues to discuss. Are there any colleagues who have a brief final question?

    John Austin

  163. To come back on the private beds issue, and perhaps rather than dealing with this now our Clerk can deal with this in correspondence, albeit we will need the information fairly quickly. It seems to me that the Department of Health evidence we have had suggests that if you take away the amount of extra care that could be purchased by income which is derived from the private beds in NHS hospitals, that you might get better value for money by having the provision of the care available within the NHS hospital.
  164. (Mr Milburn) Remember that if we were to do that, then we would have to provide the resource for the NHS consultants, for example, leaving aside the NHS nurses, to staff the NHS bed that became available.

  165. On the figures available it would appear -
  166. (Mr Milburn) Remember, that at the moment the NHS is not paying the NHS consultant to staff the private patient unit bed, the private sector is paying for that and, frankly, at prices that are well ahead of the prices that the NHS pays.

    John Austin: It might be worth looking at the figures on that.

    Dr Naysmith

  167. Would that be true if the consultant were already paid by the National Health Service? Are you suggesting that if they go and do something in a private unit they will be paid again?
  168. (Mr Milburn) By and large, that is not the case for a private patient wing as distinct from the pay beds that are scattered around, and remember the occupancy in the pay beds not in the private patient unit is very, very low as far as privately paying patients are concerned, it averages around ten per cent so, in other words, if you have got an odd pay bed on an NHS ward somewhere for only ten per cent of the time is it occupied by a patient that is paying for it and 90 per cent of the time it is occupied by an NHS patient that the NHS is paying for to occupy it. That is a different category. In the private patient unit, or separate wings as they usually are (often, incidentally, run by a private sector operator) the consultant is not staffing the private patient unit in their NHS time. Usually it is being staffed in the private sector's time. I think that is right.

  169. What would your opinion be - and I want to preface my remarks by repeating what you said as well that most of the consultants I know work extremely hard in the National Health Service and often above their National Health Service contract - of a consultant employed by the National Health Service who because of the position of a hospital or because there was a lack of capacity due to lack of nurses or a theatre has closed down or something like that, did private work in a private unit, even National Health Service work in a private unit, and was being paid again because he or she was unable to operate within the National Health Service because of failings on behalf of the National Health Service?
  170. (Mr Milburn) On the face of it that does not sound particularly appropriate.

    Chairman: Can we move to the PFI.

    Sandra Gidley

  171. We have had a whole host of what has often been very contradictory evidence during the inquiry, people starting from quite entrenched positions, from the the Unions' and Allyson Pollock's position, which seems to be "public good/private bad" at any cost, to on the other end of the scale organisations like KPMG, where they are arguing that we are not going far enough, as it were. Mr Stone has argued for the removal of "artificial boundaries" from PFIs. He believes that "whole service" PFIs maximise the scope for innovation and value for money. They are also suggesting that the Department of Health oversee some pilot projects which will involve clinical and neo- clinical services to see what further benefits could be provided by the private sector. I believe you looked at a similar scheme when you went to Spain run in a very similar way, owned by the public sector hospital managed by the private sector. Do you have any plans to establish any such schemes in Britain in the near future?
  172. (Mr Milburn) It depends what you mean by "any such schemes" really. Certainly the one that I visited in Spain was interesting, it is what they call foundation hospitals and I think that there are only three of them that they have at the moment. Essentially it is part of the public health care system and they have a national health service broadly equivalent to ours, although it has greater regional control over it than we have in this country, and it is privately managed and, if you like, the organisation that privately manages it gets a fee for managing it. That is effectively how it works. It is a very modern hospital - very, very new. It has a more very severe case mix, interestingly, than the corresponding group of Spanish health service hospitals but has shorter waiting times. The staff are better paid, although they told me that they worked harder than in the equivalent public sector Spanish hospital. There are some interesting lessons to be learned there. I suppose the closest we have come to that sort of model thus far is the DTC arrangement that we have been negotiating with BUPA that Richard was asking about in Surrey where, effectively, what we are doing, I suppose, is taking a BUPA hospital, and it is going to continue to be managed by BUPA but it is going to be part of the National Health Service. That is what we are doing with it because it is going to be exclusively treating NHS patients and it means, in crude terms, as I was indicating earlier, that we can get more NHS patients treated and hopefully get them treated more quickly. I do not have a problem with that. If you are asking what we are contemplating, that is the only model we have contemplated thus far and it so happens that this came along as an opportunity, rather like the London Heart Hospital, and we decided to take advantage of it.

  173. One of the controversial aspects that a lot of different agencies face is the staffing aspect and there are a lot of people who are very worried about the fact of where do clinical staff fit into this picture, should they remain part of the NHS. What is your view on that?
  174. (Mr Milburn) I think, by and large, they should. As I think our first memorandum indicated that we submitted to the Committee before I came before you last time, clearly in the large-scale projects, whether it is through PFI or some other form of PPP that we are seeking to develop, it is probably preferable that you keep doctors and nurses as part of the NHS with NHS terms and and conditions and so on and so forth. I think that is, by and large, what they want. As you know, we are about to trial the retention of employment option in three or four parts of the country to see whether we can apply precisely the same sort of approach to so-called non clinical staff as well. I think that is largely for cultural reasons and people want to remain part of this thing called the National Health Service.

  175. What would you describe as clinical staff and what as non-clinical staff? In one of the hospitals, I forget which now, the support staff were classed as very much part of the ward team and almost regarded themselves as clinical staff even though on paper it looked as though domestic staff would be a more accurate description. Where would you draw the line between clinical staff and non-clinical staff?
  176. (Mr Milburn) As you know, we published back in 1998 precisely that differentiation and I am very happy for you to have it, and I think the Committee has had it, which listed where the divide lay between clinical and non-clinical services. However, I also have to say that there are some grey areas between what is clinical and what is not clinical. As you know, part of the purpose behind the retention of employment option has really been to try to reintegrate the services that people have traditionally defined as completely non-clinical, the cleaning services in particular, that are not part of the clinical team, and try to re-integrate those back into the heart of the NHS - for obvious reasons that people nowadays are very worried about - which is where you have had the absolute hard separation between some services being in-house and some services being out-of-house. That has not always contributed to the best standards, certainly as far as cleanliness is concerned. Personally I do not think it is so much the fact that those services were tendered out as the fact that there was not a common management grip on the services. Part of what the retention of employment option is about is to try and get relationships right at ward level between the matron, the ward sister, doctors, the cleaners and the other support staff, so we have some of the basic functions carried out in hospital wards that should always have been carried out in hospital wards which is to keep the standards of cleanliness at a high level.

    Jim Dowd

  177. I do not know if you remember last time when I asked you questions about the PFI, a division bell went and that was the end of the matter. We have had some responses to the outstanding questions so I will not go over that again, but I wanted to look at the question that PFI now is almost a gateway to capital development in the NHS. Certainly everything has to pass through it before it is decided whether they can proceed, even if the decision subsequently is then to revert to the more traditional route. Is that an objective part of its function or is that just de facto what happens these days? Secondly, this time last spring, not quite a year ago, you announced a batch, I cannot remember the number, around about 30 ----
  178. (Mr Milburn) Twenty-nine.

  179. Now there will be different schemes of different range, different volume, different scale, but assuming they are all progressing at around about the same pace, how do you recognise the problem of the capacity of the sector to actually deal with those? Lewisham was one of the schemes last year and I think they have got an excellent case to carry forward but they are now worried that they are going to get caught in the constriction of the system as we utilise it.
  180. (Mr Milburn) On the first point about the PFI being a gateway, as you put it, I do not think that is a bad thing at all because what it allows us to do is to test, certainly for the big capital projects as distinct from the smaller ones where public sector capital is a perfectly quick and easy way to get the odd ward built and so on and so forth, for decent value for money for the taxpayer. As you are aware, many that have gone through the gateway have passed their value for money test and have gone off as PFI. Some that have gone through the gateway we found do not represent good value for money or affordability and, therefore, we have gone down the public sector route. I think on the stocks we have got 64 PFI projects, major hospital projects, and we have got four non-PFI projects in places like Rochdale and Hull and elsewhere. I do not think that is a bad thing if it brings some discipline to the value for money test in the National Health Service on the capital side. That is point one. I think we will want to continue to do that. There are concerns, which I am sure the Committee has heard and that I am concerned about too, about the time that it takes to get a PFI hospital built from me taking a decision, or even earlier I suppose from the strategic outline case, outline business case, full business case, final sign off, building work beginning, completion and so on and so forth. We are looking, Peter is looking, and I think we will need to look at this jointly with colleagues in Treasury, at how we can take some of the time out of the current PFI process in order to get these new hospitals built as quickly as possible. That brings me to the second and related point that you raise, which is one of the rate limiting factors that we experience in terms of being able to translate announcements about new hospitals into bulldozers and then wards actually happening is the capacity both on our side of the fence and on the industry's side of the fence. At the moment there are very few players in the PFI market. Essentially there are how many?

    (Mr Coates) About a dozen I would say.

    (Mr Milburn) About a dozen players who compete regularly for NHS contracts. Although there are some new entrants coming into the market, and potentially there may be more entrants coming into the market, that limits the management capability of being able to translate very difficult building schemes from paper into practice. As a consequence of that, that is sometimes why you get the delay. I think what your people in Lewisham are probably expressing concern about, although I have to say there have been no decisions taken on the next wave of the ones that are actually going to go ahead, is probably lack of private sector management capacity could limit the number of hospitals that can be built quickly. That is something I think we have got to address very seriously indeed with the industry. In the end I think the way that we will answer that problem is probably by getting more entrants into the market. That might not be comfortable for the current entrants in the market because it will bring more competition to bear, but if it means that we can get more hospitals built and introduces more competition in terms of building more hospitals then we would probably get a better deal for the taxpayer as well.

  181. Taking it a little bit further, your assessment then is that it is the management capacity. It is not the scale, the volume, the gross amount of money that is involved, it is literally the management capacity and you need similar capacity regardless of the spend?
  182. (Mr Milburn) The problem is not the money from our side of the fence in terms of the revenue commitments that we make against the PFI projects, because as you know from the figures that the Committee has seen although the revenue commitments of PFI are rising year by year as the number of PFI projects rise year by year, actually in terms of the overall NHS budget it is not a huge proportion, around one per cent of the revenue HCHS budget at present. Nor is it a problem with the cash that the private sector has available to it because, in theory at least, they have unlimited access to cash from the markets and so on and so forth. The problem is the sheer managerial capacity that you have in managing what are very complex projects. UCLH, a couple of miles from here, is a hugely complex inner city hospital replacement and it is going to cost us somewhere between 400 million and 500 million quid. It is vast and difficult, difficult to manage, and there are only a limited number of project managers, leaving aside architects and so on and so forth. It is the project management function where we lack the capacity probably more than anywhere else. I think that can probably only change with time. I do not know whether Peter has anything to add. Maybe as the market matures. Remember, there is lots of criticism about PFI, but the thing to remember about it is that it is a relatively new market. Although a lot of money was spent on PFI prior to 1997, not a single new hospital was built. Now we are getting the hospitals built but it has only just begun.

    (Mr Coates) It is not the capacity in the building market that is the problem, once they have been signed and they start building there is capacity there. It is the skilled teams in negotiating, designing and taking the schemes through to signing that is the problem. That is where the capacity constraint is, both to some extent in the NHS and to a greater extent in the private sector. The major players can only take forward two PFI schemes at any one time in terms of design and negotiation and, given that, that implies you can only actually have six schemes out in the market at any one time because you need at least two bidders for each scheme and there are 12 players in total in the market. That gives you the size of the area of the capacity constraint, I think.

  183. Is it not misleading to say to all those who were approved in the initial stages last year that they are all off and running? Is it not a bit like the London Marathon, they all start off but it takes them hours to get through Greenwich Park gates before they can actually get on with what they are doing?
  184. (Mr Milburn) No, because if you remember when I made the statement what I said was that these different schemes, all 29 of them, will come in different waves. This is three, four and five, is it?

    (Mr Coates) Four, five and six.

    (Mr Milburn) The fourth, fifth and sixth waves. I actually said which one was going to be in which wave. What we were quiet about was when those waves would happen. Clearly I want them built as quickly as possible. We have made the announcement, the money is there, both from our side of the fence and I guess the capital is there from the private sector side of the fence, certainly the skills and expertise are there in the building market. Our problem is the logjam, the bottleneck, if you like, around the project management issue. I think that is something that we need to try to jointly resolve between Government, including the Office of Government Commerce, ourselves and the private sector because it would just be anomalous for me if we have a situation where we can build the hospitals but we have got a specific skills shortage that means that you cannot do it immediately, we should be getting on with it as quickly as possible. We are looking at that issue and as far as the local issues are concerned I will come back to you in due course.

    Dr Taylor

  185. Can I move on to risk transfer, probably to Mr Coates to allow you to finish your tea. It has become clear that it is the risk transfer figures that make PFI into value for money. How do we answer critics who say that the risk transfer is uncertainty, unprobability and it is not a science? That is the first question. The second one is risk transfer is only beneficial if it is actually enforceable. How can it be enforced? At the worst scenario, what happens if the same happens as happened in Railtrack?
  186. (Mr Coates) It is true that the only way to test an assessment about whether it is right to build a PFI or with public funds is to build two together and then work out which one is the cheapest. What we do is we analyse how costs escalate and there are time overruns on publicly funded projects. We do know that almost inevitably there are cost and time overruns in public schemes. It seems to me that it is not a probability, it is a definite occurrence. The larger the scheme, the greater the likelihood that it will be at greater cost and take greater time.

  187. So some of the risk is not a risk, it is a certainty?
  188. (Mr Coates) Yes, it is not all simply probability.

  189. How do you enforce it?
  190. (Mr Coates) This may be linked to two areas. One is what happens during the construction phase and the thing does not get built or it is not done as we like it, and that would be much more of a major catastrophe.

  191. I think it actually came from our visits to Durham and Carlisle where it appeared that people were reluctant to enforce things.
  192. (Mr Coates) The operation of the contract on a day to day basis for the 25 years is clearly a trust level decision, but it does seem to me that there would be very good reasons why they would want to try to negotiate a good working partnership with the private sector rather than one based on adversary over contract conditions. I can see very good reasons why they would want to say to the private sector "There is a bit of give and take here. We would want you to give some if we give some and we end up working together as a partnership". Indeed, one of the outcomes from the recent NAO Report into PFI was that they felt it was a much more successful relationship if there was this give and take relationship and it is more of a partnership than one based on adversary over the contract itself. I can see very good reasons why a trust would want to try to work in partnership rather than enforce every letter of the contract. Having said that, I think if there is a major breach of the contract we would expect the trust to act on that breach and enforce the contract.

  193. So there is an iron glove behind it?
  194. (Mr Coates) We have got plenty of examples where we have enforced these contracts. The best example in terms of construction was at the Mayday where we seized the assets and terminated the contract. It is not all pretend.

    (Mr Milburn) We have exerted the fining power of the NHS - I think we answered a Parliamentary Question on this last year at some point - in a number of cases for more minor breaches of contract where the private sector had not delivered various things that had been promised. There is the capacity to do that and, where it is appropriate, that is what the NHS trust should do.

    John Austin

  195. Can I get down to the really sexy issue of discount of cash flow analysis.
  196. (Mr Milburn) I think another cup of tea is called for.

  197. In assessing value for money it was said that the discount rate is very crucial and Mr Macpherson told us in evidence before that the six per cent figure was set as long ago as 1991 and that it was likely to be revised and the general feeling was that it was likely to come down. I would like to know what assessment you have made of the likely value of PFI if a lower discount rate is applied? Professor Pollock said to us that if the public sector discount had gone down by even one per cent then the Carlisle Hospital cost would have been lower under the public sector comparator than under the PFI. Is that so?
  198. (Mr Macpherson) I think it is worth putting the issue of the discount rate into context. What is going on at the moment is a review of the whole capital appraisal process. The discount rate is one part of that, and it is an important part, but part of the review is also looking at issues like the treatment of risk and uncertainty, both in terms of time and cost overruns. It is also looking at issues such as tax. At the moment the Green Book, which is the definitive document, does not actually take into account possible flow backs to the Exchequer from private operators.

  199. You are suggesting that the current one is not robust in terms of assessing value for money?
  200. (Mr Macpherson) What the Government said when it announced the review about 15 months ago was that it wanted to bring the appraisal guidance into line with best practice, so we are looking at appraisal across the board. Having said all that, if you were to change the discount rate in isolation that is bound to affect the balance between different investment options. In the case of a classic PFI project and a classic public sector financed project on balance a lower discount rate would make the public sector variant more attractive, but that assumes everything else is equal and, as I say, the capital appraisal review is looking at a whole lot of issues across the board and I certainly would not conclude at this stage that the review will change necessarily the balance between the public sector comparator and PFI projects.

  201. Because it will change other factors as well?
  202. (Mr Macpherson) We are looking at other factors. No decisions have been taken but when the analysis is complete I hope that we will have some guidance which is in line with best practice.

  203. Would you dismiss those sceptics who say that the only real attraction of PFI is that it is the only game in town?
  204. (Mr Macpherson) I would certainly dismiss it. What the Treasury wants, and I am absolutely certain the Secretary of State wants, is good value for money for the taxpayer.

    Dr Naysmith

  205. Leading on from that, the impression has been given - I do not want to blame any of our witnesses in particular - of this idea of it being the only game in town. Lots of people have put that idea forward and have put it forward in other ways, such as if we are going to get hospitals built quickly then it will be the PFI programme and will not be any other way. Can I put it to you, Secretary of State, is the central aspect of value for money provided by the PFI process its ability to deliver the Government's hospital building programme almost at once rather than in stages, bearing in mind what you said to us five minutes ago about building up and it is not happening quite as quickly as perhaps you might have wanted it?
  206. (Mr Milburn) There are two answers to that. The first is that it simply is not true that PFI is the only game in town because there have been other games in at least four cases and then there are more minor projects.

  207. There have been four out of about 30.
  208. (Mr Milburn) No, there are four out of 68, in fact. The figures, as I remember, are 64 PFI projects worth about 7.3 billion, four publicly funded projects worth about 170 million. As I said earlier in answer to Mr Burnham, where value for money does not prove to be concluded in favour of the PFI then we will build through the Exchequer route. However, I also think there has to be some degree of realism about this. What I do not want to do by saying this is give succour to the cynics or, indeed, to the ideologues who are completely opposed to PFI purely for ideological reasons actually, to tell you the truth, because in each of these cases there is an unanswerable case, whether it be about value for money, the number of beds, clinical staff or whatever. I think it is important to recognise that in the case of UCLH, for example, I could not say tomorrow that there is 500 million worth of public sector capital available in the London NHS region; I could not say that. However, in order for UCLH to be built as a PFI hospital it has to go through a very tough and objective process, which we described at the last hearing. There is a proper public sector comparator. The public sector comparator, and I think you heard from the private sector, is secret to the private sector and the private sector do not like that for a whole variety of reasons. We keep it secret, in part at least, because we think that induces more competition and potentially gets us a better deal for the taxpayer, so the process is a real one. It just so happens when you put these hospitals through this procurement process most have turned out to be better value for money through the PFI route than through the Exchequer route, some have not.

  209. Is it just coincidence then that we can get hospitals built more quickly?
  210. (Mr Milburn) No. Despite the fact that there is quite a lot more money going into capital budgets in the NHS and they have grown by around 50 per cent to date, and remember in the past they tended to be cut rather than grown, there is always a limited amount of public sector capital that is available. In theory, at least, there is an infinite amount of private sector capital that is available because the private sector can borrow on the markets and so on and so forth to make cash available for the NHS. I think in the end we can have a huge load of arguments about the Private Finance Initiative and whether it is good, bad or indifferent, whether it is good value for money, bad value for money, and all these different things, but in the end its compelling attraction as far as the National Health Service is concerned is that we can get more hospitals built more quickly. If we can do that and we can get good value for the taxpayer then that is precisely what we should do.

  211. This may be a question for Mr Macpherson, if it were possible for the public sector to deal with the 30 year payment profile that we have for PFI would this make value for money better? I realise that would breach Treasury rules, and all sorts of things?
  212. (Mr Macpherson) The reason why PFI is usually better value for money is all to do with where the risk resides. In theory lots of public sector projects look very nice at the start, but the history is, be it in relation to Parliamentary buildings or the Jubilee line, that you get these long overruns in terms of time. Okay, some PFI projects may take time to get going but a lot of public ones get started and go on forever. Also in terms of cost, in theory you are right and in practice in some cases you are right. It happens that hospital projects seem pretty good candidates for PFI but the fact is that 85 per cent of the investment into the public sector is still exchequer funded, classical public sector investment. Certainly from a Treasury perspective, and I am certain from the Department of Health perspective, what we are trying to do is find out what works. There are some things, prisons for example, which are very good PFI material, other things are not.

    (Mr Milburn) The other answer to your question is that we tried that. I do not know if you remember, we were looking at alternatives to PFI, whether there were different forms of procurement we could model and test out there. If you remember there were two, one in Hull and Gloucester was the other one, where we looked at different models which could potentially be applied, one of which was to try and apply the discipline of PFI to traditional public procurement by trying to stage the payments to the building contractor in the way that we do through PFI. As you know, in a traditional procurement by the time the hospital has gone up the contractor who has built it has had 99 per cent of the payment more or less up front, that does not provide a lot of incentive once the tape has been cut and the bulldozers have been removed for the private sector to have any on-going commitment as far as that new hospital is concerned. That shows precisely the maintenance and repair problems that have been dealt with by the National Health Service for very many years. We tried a different form of procurement at Hull which involved looking to see whether we could stage payments in the way that we did through PFI over a number of years and it proved to be catastrophic value for money. Not surprising because all, I guess, that the private sector would do in that situation is if they are not being paid the money that they would otherwise get all they do is bid up the price. As far as I know, with one exception, there are only two major forms of procurement, one is the PFI route, where essentially the risk is lodged with the private sector and we pay a unitary fee over a period of years, 30 or 60 years, in compensation for the private sector building a new building up front at its risk, or we have the traditional public sector procurement, whereby you end up not transferring any risk at all, in fact assuming risk. I think from the public sectors' point of view, from the NHS's point of view and from the staff and patient point of view that does not make sense, it has not given good value for money for the taxpayers in the past. If you look at the ups and downs of the economic cycle as far as building is concerned, when it has purely been through public procurement there has been this horrendous stop goal. Guy's Hospital was the worst, Guy's phase three, which the NAO and the PSC quite rightly took a very hard look at because of the substantial delays where public sector capital was not being made available for a whole variety of reasons not out there at the time. That does not happen with the PFI. The only other alternative that we know about, that we looked at is what the Ministry of Defence are doing through prime contracting, where they are trying a slightly different form of procurement which involves not paying up front but staging some payments over a period of time. Their period of time, as we understand it, is a maximum of three years. Since we are going to have these NHS hospitals in Swindon and elsewhere hopefully for 30, 40, 50, 60 or 100 years I do not think that really answers the problem.

  213. What you said, and what Mr Macpherson said, does emphasise the importance of Richard's point, that being able to enforce penalties is important to the benefits the private sector is supposed to bring to the whole process?
  214. (Mr Milburn) Absolutely. I agree with that. The beauty about PFI is what it does is impose legal and, more importantly, on-going commitment on the private sector. I think I said at the last committee or at a previous committee, when I was Chief Secretary to the Treasury, when I opened the first PFI school in the country and I spoke to the head teacher there and asked him about the benefits of PFI what he said to me was that he did not need to worry any more about the fact that he would come in on a Monday morning and there were vandalised windows and doors that needed repairing, that was somebody else's legal and contractual responsibility. The same is true in the NHS. PFI hospitals mean that we need not worry about repair and maintenance. We get a good asset on day one and it has to be maintained as new for 20, 30 or 40, or 60 years at the private sectors' expense and at the private sectors' risk. Anybody who knows NHS buildings and what has happened to them in the past, beautiful on day one and a disaster by year five. That seems to me to be a huge step forward.

  215. That is a point that came over in our evidence round the country. Something else that has been a factor that we have kept hearing about is this pressure on bed numbers and the pressure to reduce bed numbers, and various witnesses have asserted that has happened. Can I ask you, (a) if you think there is any truth in that allegations, particularly in the early years? That may not apply now but did apply early on. (b) How can you be absolutely certain pressure to reduce costs does not result in reducing bed numbers?
  216. (Mr Milburn) I do not think the reduction in bed numbers in the National Health Service, which occurred over very, very, many decades had anything do with the Private Finance Initiative. Indeed the reduction in bed numbers over a period of 30 or 40 years predates the introduction of the PFI by very, very many years indeed. Indeed in the 29 new schemes that I did announce in February last year they will contain in total 2,900 extra beds on top of the current provision. The idea that PFI equals bed cuts is simply wrong and it is not borne out by the evidence. If this Committee has visited Durham and Carlisle you will have seen pressure on beds there, there is no doubt about that. It is worth remembering that those PFI hospitals were built before we did the National Beds Inquiry and before we assumed the big increase, both in resources and elective activity, that is now going into the National Health Service. The situation is turning round. Last year was the first year in 30 years where there were more general and acute beds in hospitals rather than fewer. The tide is turning and PFI is going to make a contribution to increase the number of beds in the NHS rather than reducing them.


    Dr Taylor

  217. As you have said, Secretary of State, it was the National Beds Inquiry that alerted you to the fact that those PFIs that were planned before were desperately short of beds. What puzzles me is where you have PFIs that were started before this and you are putting on extra beds, because you are funding those extra beds from the public sector rather than from the PFI, does that not askew the advantages of the PFI?
  218. (Mr Milburn) No, because it is important to remember that the decisions about both bed numbers and staff numbers predates any decision about the former procurement. Basically the National Health Service in an area sits down and decides before it is decided how the new hospital is going to be built how many staff it needs and how many beds it needs. It then goes through a process of deciding which is the best way of procuring the beds, the assets and the number of staff. The relationship between the bed numbers and PFI is completely unrelated. As far as the extra beds that are coming on-line - certainly at Norfolk and Norwich, where we have put an extra 144 beds into an existing PFI hospital that is being built as part of a PFI scheme.

    (Mr Coates) It is being funded by the private sector.

    (Mr Milburn) The accusation that Professor Pollock, amongst others, erroneously makes, that PFI both cuts bed numbers and does not have enough flexibility in order to be able to cope with changes in demand is patently wrong. There you have a contract that is signed, a hospital that is actually built and now is being added to to the tune of 144 beds, through a revised PFI contract.

  219. In Worcestershire it is being funded under the public sector.
  220. (Mr Milburn) That may be so.

  221. One great disappointment to us was when we went to Carlisle we learned from the staff there that they were going to have a public sector alternative at the cost of 35 million and they were actually at the stage of signing the contract when on virtually the day that PFI came in and they were prevented from doing that and the PFI alternative they are getting costs a great deal more than the 35 million that it was going to cost. It is obviously a complete new build but there are less beds than there would have been under the 35 million one.
  222. (Mr Milburn) You are not comparing like with like.

  223. I know I am not.
  224. (Mr Milburn) It is an apples and pears question. I know a little bit about Carlisle because it is my part of the world, near enough, that was not for a new hospital, was it?

  225. It was for refurbishment. It was at a stage when the staff there would have been happy with it and would have got more beds.
  226. (Mr Milburn) Talk to the medical director.

  227. It was medical staff who told us this.
  228. (Mr Milburn) Talk to the medical director about the quality of the care there, for example, that mothers are receiving in the new maternity unit at the new hospital as distinct from the conditions they had to put up with in the old, not just hospital, but hospitals, because it was a split site and I think there is no argument. Although there are problems, of course there are, capacity issues, and so on and so forth, nonetheless the new PFI in Carlisle is a good thing and not a bad thing.

    Julia Drown

  229. There are still some public concerns round PFI projects even though people are seeing hospitals built through. The business case, which runs to thousands of pages, does not help the public to understand what the difference might be between the two options. You mentioned previously how you are keeping confidential the public sector comparator, I assume that is only until you get the bids in. What steps are you taking to try and make the process more transparent so that people can understand the difference in terms of risk transfer and understand what risk has been transferred so that they can understand the differences between the different options and so they can see what is being offered to them as future patients of their local hospital?
  230. (Mr Milburn) I think two separate things are necessary. First of all, I think it is already true to say that when a hospital is built through the PFI there is more openness and more transparency than there is as if the hospital were built through the exchequer route, more publication and more information, some of it, as you say, running into many hundreds of pages. Remember the SOC, the Strategic Outline Case, the OBC, the FBC, all of these, have to be made available, they are all placed in the local library, they are all given to the local health council, they are all given to the House of Commons library, and so on and so forth. Point one, transparency there is. Point two, understanding, probably there is not. I think it would be hard to sustain an argument that somehow the PFI is a secretive process. I think it is far from secretive, it is tremendously open actually and there is a lot of information published. When we came into office we insisted that a lot more information be published than had been the case in the past. The issue is much more about what the public understand about PFI. There, I think, there is a real job of work to do. Frankly I think we have been at fault in government in allowing arguments to go by default and allowing some of the ideologues under the pretence of objectivity frankly to adhere pretty subjective an erroneous view as to what the PFI means. I think we should engage in the argument, as we are now, and win the argument with the public about this. That should happen not just at a national level but at a local level too.

  231. I have asked a number of witnesses who have said that it should be perfectly possible to put on a page of A4 some of the basic arguments. Would it not be helpful for the public to see that if you were transferring risk the public sector comparator would most often be cheaper? That admission is true in most of the House of Commons' documents that we see, that is the case. Then the public would see what they know to be true, that borrowing through the private sector is more expensive than borrowing through the public sector. It is only when the other things come in that the real advantages come through. Being honest and open and more transparent about that might get through some of the muddy waters that we have seen in our inquiry.
  232. (Mr Milburn) Peter will correct me if I am wrong about this, but I do not think there has been any lack of transparency about the fact that obviously Government can borrow more cheaply than the private sector, can we not, Nick?

    (Mr Macpherson) We certainly can.

    (Mr Milburn) But there are compensatory factors and the risk transfer and some of the issues that we have been discussing around maintenance and time overruns and cost overruns and so on and so forth make the PFI a better deal. I think it has not been the lack of transparency. We have allowed ourselves and allowed the whole PFI process to be transparent, and by "we" I include the private sector because I think the private sector has got to get involved in this too because it does not do the private sector any good to have various organisations erroneously publishing, frankly, rubbish in newspapers and elsewhere about new hospitals in Carlisle and Durham and so on and so forth. I think there is a real argument to be engaged in and all I would say at this stage is that is something certainly I will be doing and I think more generally we will be doing in conjunction with our private sector colleagues.

    (Mr Coates) We did try this process once at Norfolk and Norwich where we produced a summary of the contract rather than the contract itself with in layman's terms what each clause meant and we were unfortunately accused of being secretive because we did not release the contract, we released just a summary. Whatever you do you seem to upset somebody.

  233. You could release both.
  234. (Mr Coates) Yes, perhaps we could release both.

    Chairman: We have got a vote at some point in the future, I hope we can cover a few more areas before then.

    Siobhain McDonagh

  235. Looking at staff transfer, it seems to me from our visits that the biggest controversy, and we can all talk about financial policies and we can get justification for our view about PFI from those, but at the heart of it for large numbers of people in the public is the distrust about transferring into the private sector of some support services. It was those elements that I think caused an awful lot of trouble for Carlisle and Durham in their local press and all the rest of it. I want to ask about progress that has been made on three pilot schemes on the Retention of the Employment Model at Mandeville, Roehampton and Havering. How is it going?
  236. (Mr Milburn) Well, it has started. It is incredibly difficult. I think I said to the Committee last time that this was not an easy process, which has been going on for some months now, for six months or more. Where we have got to is the union representing most of the support staff, UNISON, agreed in principle with the Retention of Employment option back in November in outline. We are going to apply it to five groups of staff, to portering staff, cleaning staff, catering staff, laundry staff and security staff. I think there are different views about it. I do not think necessarily the private sector, and you will have heard from Norman Rose and others, is wholly comfortable with it, nonetheless they are prepared to engage with us on it and we are doing it as a tripartite process between Government, the unions and the private sector to try to make the thing work. Peter has been leading it and so far, so good, but it is pretty difficult.

    (Mr Coates) We have drafted the contractual terms to enforce the change and it is envisaged that we will oblige the contractor to apply all NHS terms and conditions to all seconded staff on behalf of the trust as an agent of the NHS. We have had the initial comments back from the private sector in terms of what it means to them in terms of changing their risk profile and there is obviously going to have to be a bit of boxing and coxing now between what they say they would like and what we say is a reasonable claim. They will then go out to get price bids, I should think, by the end of January, beginning of February, and by the end of March we will know for sure that it is going to work in terms of value for money incentives to the NHS.

    (Mr Milburn) If it does work, if on the basis of the three, and there is another one we have added, Waldesgrave in Coventry, largely because its timetable for procurement comes hard up against the Retention of Employment pilots, so there are four rather than three, if we can make it work then our intention is to apply that as a matter of principle to all PFI deals in the future.

  237. Mr Rose came to the Committee and said that he was not involved in the negotiations on it and that his organisation had been excluded. I wonder, if that is true, why that was the case? How would you counter his argument that such a model would in itself be divisive in that people would have two sets of bosses: one who manages and one who pays?
  238. (Mr Coates) I cannot understand why Norman would say that he was not consulted. The day after the trade unions accepted the package I met with Norman and representatives of the trade from all the private sector bodies in a large meeting in London and Norman was able to put his views across to me very forcibly.

  239. I think he might have envisaged being in before the agreement between the Government and UNISON.
  240. (Mr Coates) I am not sure I accept that either. We consulted closely with the private sector on all forms and Norman may feel he was not at the centre setting policy but he was certainly consulted about the way we would implement policy.

    (Mr Milburn) I think the BSA had a rather different policy in mind, it just does not happen to be the policy that we decided to adopt. Nonetheless, I think the relationships are cordial and they are involved. Indeed, if the thing is going to work it has got to be on the basis of agreement with the private sector and the unions as well.

  241. What about his concern about the issue of divisiveness between the two sets of managers?
  242. (Mr Coates) There is that. I feel it is an area that is manageable within the contract. What we are saying to the private sector is we understand they have concerns about how they manage the risks in the contracts and one of the problems with UNISON, in fact, was about what is a manager because it is key to the whole process of who manages the risks in the contract. There is a difference of view between the private sector and UNISON as to what is a manager but essentially we have agreed with the private sector that to manage the risks in the contracts they must employ all those who manage those risks and that, generally speaking, means those of supervisory grade and above. They will then be transferred across to the private sector to be employed by them. It seems to me that they have to have a very clear understanding of who their boss is. As far as the staff are concerned, in reality there is no difference between what they were before the contract was signed and afterwards because the same manager they had before the contract was signed will be in place afterwards because all the staff are in effect staying doing the same contract. I see no insuperable obstacle to making it clear who managers who. I think the trick will be making sure when disciplinary action is being considered against any employee that both the private sector and the trust know exactly what is going on and the prognosis for that action so that nothing can go on and be a surprise to the trust if, for example, the worst case comes about and the decision is taken to dismiss an employee. That prognosis is a very important part of the relationship to be built up with the private sector in terms of what is happening in the disciplinary code, how the people are to be managed, are they being fairly managed and what are we doing about discipline and other written and verbal warnings.

    Chairman: Can we turn to LIFT and try and touch on one or two issues that we want to raise there.

    Sandra Gidley

  243. LIFT. Something obviously had to be done to improve the physical, as much as anything, stock of the surgery, particularly in inner city areas. There have been six pilot schemes. What I certainly found quite alarming when we were taking evidence was that there has been no evaluation, in effect, of those pilot schemes, indeed some of them were ended before the further LIFT projects were initiated. What is the point of a pilot scheme if you are not going to evaluate and improve for the future?
  244. (Mr Milburn) They are not pilots. In fact I have announced the second wave today of 12 further initiatives. We are just getting on and doing this. The reason is, as you quite rightly say, primary care in too many parts of the country, particularly the poorest parts of the country, is appalling. 40 per cent of GP surgeries are purpose built, virtually the remainder are either adapted houses, residential buildings, or adapted shops, and we expect modern primary care to be carried out in those circumstances. 80 per cent of the accommodation is too cramped to meet modern requirements now. There is a very simple option round this, what we can do is continue to dole out penny packets of public sector cash, which is rising year by year, big investments going in, or else we can do what we are doing through NHS LIFT, which is an attempt to lever through cooperation with the private sector enormous sums of cash into deprived inner city communities, like Newcastle and Bradford. The ones that I have announced today are places like Barking and Havering, Birmingham and Solihull, Bradford, Cornwall and the Isles of Scilly, there are huge problems there, Coventry, East Lanarkshire, Hull, Leicester, Liverpool, Sefton, West Kent, North Staffordshire, Redbridge and Waltham Forest. If that is the choice then we are going to go for the latter option. Already I know from my own visits in Newcastle the ground clearing work is producing results. There is quite a lot of enabling going into these schemes, allowing old surgeries to be knocked down and land to be acquired. In Newcastle and North Tyneside alone, which is a very small city of 300,000 to 500,000 people we are going to be spending somewhere in the region of 25 million to 30 million on new primary care infrastructure alone, that is a huge investment going into an area that frankly has not had the quality of primary care premises that it needs. That would not happen were it not for cooperation with the private sector. I am not saying that you are saying this at all, this sort of fallacy that one sometimes hears, and you will have heard during your hearing, about all things public being wonderful and all things private being dreadful is, I am afraid, not borne out by the facts. What we need is more of a relationship between the public and the private sector in order to get better care, improved premises and shorter waiting times available for more NHS patients.

  245. I cannot argue with the aims. Certainly I think we were all under the illusion they were pilots schemes. How are the schemes going to be evaluated so that if there is anything wrong we can quickly make sure? I am still slightly alarmed that we may not have got it right and we need a little bit of time to make sure we get it better.
  246. (Mr Coates) The first schemes will be slightly novel and contentious. The first step will be sharing those with our Treasury colleagues. The assessment will be a standard business case assessment that will look at both the numbers and the quality so that ultimately the prime test will be what numbers come out and are they providing value for money for the taxpayer. We will also look at the softer areas and the qualitative areas around how much money is levered in and how we improve if there is a step-change in the local quality of accommodation rather than gradual increase and does it increase and improve the mobility to attract GPs to the area. Obviously in inner city areas they do have problems attracting GPs. All of those factors are taken into consideration in looking at the business case.

  247. Some inner city areas find it difficult to attract GPs, how will schemes in these high costs or risky areas where you get your windows bashed in frequently - and we have to admit there are areas like that - be dealt with? Maybe there is a reluctance on the part of the private sector to take on the risk in those schemes and there is a balance between wanting to provide something and people there who are willing to provide it at the right price.
  248. (Mr Milburn) The evidence thus far is, certainly the enabling works I saw in Newcastle, which has its fair share of problems as an area, were in part at least about better security grills, and heaven knows what, around health centres and surgeries, and so forth. In terms of the relationship between NHS LIFT and PPP round improving primary care premises and primary care recruitment I think there is a very strong relationship indeed. If you are asking GPs to go and work in difficult areas in any case and then asking them to work in cramped, dirty, out of date accommodation then your chances of doing so are practically zilch. Very often through the current arrangements what we also do is compound the felony by asking GPs to then enter into very long leases with the current private sector owners of the premises. One of the beauties about NHS LIFT is we will able to offer, particularly younger GPs in inner city areas, more favourable and more short-term leases. As we discussed in the committee in the past there is a behavioural change that is affecting not just primary care doctors but I think it is happening in the whole of the public sector where people no longer want to make commitments for life, they want to change careers midway through their 30s, 40s, 50s, or whatever, and the idea that we can ask them to be bound into a contract for life, a lease for life, it just does not fit with what we need to achieve in terms of recruitment. One of the real benefits of NHS LIFT would be better leases, more flexible leases, more favourable leases precisely in order to attract GPs into the areas where they are needed most.

  249. What I am not really clear on is what is the criteria for deciding which areas have them. There are some affluent areas where there are pockets which are more deprived but they often seem to miss out. All of the areas you described are what I would describe as commonly thought of as being more deprived areas.
  250. (Mr Milburn) We have looked at the issues round deprivation, we have looked at the issues round GP coverage and the issues round the existence of the primary care premises and we basically came to decisions on that basis. The first six were Newcastle, Bradford, Manchester and Barnsley, Sandwell, Camden and Islington, East London and the City, which were very much the hard-core as far as the state of primary care premises were concerned looking at those sort of factors. The next 12 also have problems round recruitment and the current state of primary care. Then we will move on to further areas in due time. Overall we are hoping that the PPP will lever in about 1 billion of investment so that we can modernise 3,000 GP surgeries and build about 500 new health centres. I think in the latter category there will be an enormous gain for patients. What I hope we can do is that rather than having the optician in one place, the dentist in another, the social worker in a third place and finally the GP we will have them all under one roof. Remember, the patients who are going to take advantage of these services very often live in inner city derived communities and do not have their own means of transport, and making four or five bus journeys is the last thing we want them to do. I think this is a very important development. I also think it is a very important part of the argument about the modern relationship between the private sector and the National Health Service being for the benefit of NHS patients, and being precisely for the benefit of the poorest NHS patients.

    Andy Burnham

  251. Again I think there is a danger here that the private sector will gravitate towards the areas which Ms Gidley raises, the more prosperous areas and the areas where there is more deprivation they may not want to naturally locate. Will PCT have the freedom to be able to galvanise a catalyst to initiate a LIFT scheme so they can bring together different primary care providers on an individual site or do they need to work through the Department?
  252. (Mr Milburn) NHS LIFT is a national project which is precisely designed to address the inequalities in provision that we all know about. The existing way of providing primary care premises and providing primary care positions, GPs, has been to gravitate more and more resource crudely to the leafy suburbs and less to the inner cities. We know that the biggest health needs are in the latter rather than the former. The leafy suburbs do pretty well out of the existing arrangements, which are partly private sector led. What this is all about is trying to address the balance and making sure, again through innovative PPP arrangement, we get more resource and more capacity into those parts of the community which need the most.

  253. Can you envisage a situation where NHS capital would be made available to health park type schemes, where you are bringing in a different range of providers into a new range of premises? Will there be a budget available to PCTs.

(Mr Milburn) PCTs will have that. I know in my own local area the GP practice is building bang opposite my office in Darlington a new PFI health centre, surgery, and they are doing that in conjunction with the local health authority. Remember that PCTs are going to get direct access not just to revenue but to capital resources too and it will be for them to decide. If they want to develop a PPP to build new health centres and new GP surgeries then that is a matter for them. I do not think what we will be doing is providing penny packets of cash for particular areas in the way that maybe you are thinking about.

Andy Burnham: Just finally, I think the LIFT scheme is extremely important and I think it is a way of making new facilities available to the public very quickly given that they are far less complicated than hospital buildings.

Chairman: We will have to adjourn at that point. Can I thank you and your colleagues for a very helpful session. We have a series of questions we have not asked, perhaps we can write to you in due course. We are very grateful for your co-operation. Thank you very much.