Select Committee on Health Minutes of Evidence

Examination of Witnesses (Questions 40-59)



  40. Would it be your estimate that all acute trusts should aspire to this status?
  (Mr Milburn) As we said in the NHS Plan, what I personally believe is that performance is improving and will continue to go on improving and the deal on offer in the NHS Plan is the better you do, the more you get, the more freedom you get. Earned autonomy will take hold across the National Health Service. Foundation trusts are never going to be mandatory, they are always going to be voluntary; it will be a matter of discretion for trusts and their local primary care trusts in the surrounding area to decide whether or not they want to go to foundation trust status. I do not know how many will, I genuinely do not know how many will. It depends on overall performance. There has to be an entry threshold and the threshold, crucially, is that for any NHS trust to become an NHS foundation trust they have to get a three-star rating in the annual star rating which we are going to be doing again next month. That is the first point of entry and then there are other criteria. I personally think it will be unlikely to be all, because there will be some who do not want to do it. Just as a point of information, we know that quite a few of the existing three-star hospital trusts do want to become a foundation trust but a number do not. That is fair enough. I cannot force them to and I do not want to force them to.


  41. Jim talked about the degree of public misunderstanding of this concept and perhaps I reflect that misunderstanding. I made my reservations clear when you spoke in the House some time ago. I see echoes and parallels with the previous Conservative Government's arguments about trust status when that was first put forward with the internal market in respect of fund holding. We saw a clear two-tier system emerge from that. I am not alone with this concern. Frank Dobson recently wrote in The Guardian—and he is a very loyal supporter of the Government, your predecessor.
  (Mr Milburn) A good friend of mine.

  42. He wrote that this proposal will help the best get better while the less successful fall further behind. He goes on to say, "To them that hath shall be given". It is causing some concern that we are departing from the position of moving away from the internal market. We seem to be going back to a view of the market that predominated under the previous administration. The one example which concerns me in particular in my area relates to this freedom to negotiate pay bonuses at a local level within the foundation. I can certainly see in an area like mine, in a conurbation like West Yorkshire, that if we have a foundation hospital which can offer rewards over and above the other NHS hospitals in the same area those NHS hospitals will be detrimentally affected in terms of their staffing, just as this Committee has seen in looking at the private sector. The private sector can offer deals in a certain way that draw staff from the NHS. It is very obvious; you know that. The other area which I shall throw in at the same time is the issue of land disposal. We have certain foundation hospitals in areas where land prices are higher than others, who will be very advantaged compared with areas like my own with this ability to dispose of land. I certainly see the point about two tiers. I certainly see two tiers emerging from this concept and I should be interested in your reassurances on the points I have raised.
  (Mr Milburn) Let me respond to that. The assertion that this was somehow a return to some sort of internal market or whatever would be a reasonable assertion if it were not for everything we have done over the last five years. Basically the internal market operated on the rather bizarre idea that the only way of raising standards of the National Health Service was to unleash naked competition between hospitals. I do not know about your area, but in mine there is one hospital and the idea that it is going to compete with itself is pretty strange really, or the idea that there is going to be competition around emergency services, for example. It is just a bizarre idea. All the patients care about when they are in the back of an ambulance is getting to the nearest A&E department I would guess rather than weighing up the pros and cons of going to your hospital or to mine. What is completely different about this approach from anything that has gone before is that we have a combination—back to the point I was making earlier—of levers. If we posit the idea that the only way of raising standards is by having national standards, against the only way of raising standards is local autonomy, that does not take us any further forward. What every other industry and in actual fact most other healthcare systems in Europe have found is that in order to improve performance you have to have both. You have to be able to raise standards nationally and you have to have buy-in locally in order to make change happen. That is what foundation trusts are all about: buy-in locally so the people who are responsible for managing the hospitals—I do not manage them, I do not treat any patients, I do not run a GP surgery, I do not run a hospital, the people who do are out there—have the ability to manage against the national standards we set. Where the critics about this are wrong is to say that what we are doing is liberating the best and we are simply allowing the rest to fail. That is complete rubbish. What do people think NHS franchising is all about? What do people think an NHS inspectorate is all about? What do people think the national service framework, national standards are all about? What they are all about is ensuring that standards should rise everywhere. That is what they are about. The idea that this is sink or swim, the devil take the hindmost and all of that, is just wrong. On the pay point you raised, what has been interesting from my point of view about the negotiations that we have had, for example around Agenda for Change, which was referred to earlier in relation to nurses and the new pay system on which we shall hopefully make progress, is that nowadays there is a recognition that what you need is two things in a pay system: you need a national framework for pay overall, so that there is basically some fairness in it. You have to make sure that it is protected against equal pay for work of equal value claims in the courts, for example, and there are quite a lot of those knocking about in the National Health Service. There also has to be some local flexibility as well. At the most obvious and sublime you and I both spend two thirds of our week in the South East of the country.

  43. No.
  (Mr Milburn) Well, I do. Lucky old you. I shall speak for myself. I spend two thirds of the week in the South East and I spend one third of the week in the North East. They are different labour markets with different problems, completely different. What are we going to say? Are we going to say "By the way, we're going to have this national system which is so rigid that it does not recognise the differences between areas"? Of course we are not. Indeed in Agenda for Change there are freedoms, there are freedoms to pay enhanced retention and recruitment premia precisely because in Jim's area there are big problems with recruitment. There are big problems with the housing market in London and the South East. They are different from my area or even from yours. Even more locally, if I go to your area or round your area, in Leeds the labour market is different from the labour market in Barnsley. It is. You know it is. I know it is. Leeds has boomed, it is a financial centre, it is doing incredibly well. It is more difficult. I know it is just more difficult to recruit staff there than it is in some of the surrounding areas. Pay has an impact on some of that. I do not say it is the only answer. Childcare and all of these other things are important. There has to be some element of local flexibility. We recognise that already within the pay system and indeed within the pay system we are now negotiating. I just do not accept this idea that the only way to get fairness is by ensuring that there is a lowest common denominator which does not respect differences, because there are differences.

John Austin

  44. We would all accept that there are needs for recognition of different labour markets.
  (Mr Milburn) So what is the problem then about foundation trusts?

  45. There are some problems, even within geographical areas, when you come to the boundaries. If a nurse lives in Woolwich, they have a choice whether they go and work in Lewisham or in Bexley, which are equidistant, but if they go and work in Lewisham they get paid considerably more than if they go the other way and that is because they are on the borders of two different areas.
  (Mr Milburn) That occurs wherever you draw the line.

  46. If you are talking about hospitals within the same area, where one is under stress, is under-performing and a neighbouring hospital is one of your foundation hospitals and is able to offer bonuses, enhancements or whatever, is it not going to make it more difficult for the hospital which is struggling and under pressure to improve its performance?
  (Mr Milburn) Every hospital is going to be able to do that. Every NHS employer is going to be able to do that; every NHS employer.

  47. So why are the foundation hospitals said to have this new freedom?
  (Mr Milburn) Agenda for Change is not concluded, so I am very slightly cautious because we are in negotiation, unlike with the consultant contract where I can say what I want now. With Agenda for Change what I envisage is that every NHS employer will have some discretion to look at their labour market, look at their recruitment difficulties and, for example, one trust might have more problems recruiting radiographers and radiologists than somewhere else. We know there is a big problem generally in recruitment, but it is differential in terms of recruitment. The best option for that hospital might be to design a brand new job altogether which merges the radiographer and radiologist roles. That will be a matter for local discretion, not for me. They are going to have that within Agenda for Change. Every hospital is going to have that. What beyond that would you expect to get in an NHS foundation trust? It may well have additional freedoms over and beyond the Agenda for Change freedoms; that is something we have to talk through and think through. Not all of those are going to be about poaching or stealing or creating two-tierism. It is much more about how you can ensure that the local NHS employer, and every employer is different . . . What is so striking from where I sit is where you get two existing NHS trusts side by side in the same labour market who have completely different problems. They have different problems and they need different solutions and there has to be some local flexibility. If there is no local flexibility, what we shall end up doing, as we have tried to do for 50 years, is imposing the solution from Whitehall.

  48. I wanted to ask about the monitoring and review, which you mentioned earlier. You referred to the new role of the CHAI. At the moment trusts are subject to a CHAI review every three to four years. You referred to the new role for the new CHAI, a lighter monitoring regime. Do you have any vision of what that lighter monitoring regime means?
  (Mr Milburn) We said that for three-star trusts generally—this is the crucial big point really—if we all accept, as we do round the table, that there is differential performance, then logically what we have to do then is apply different solutions in different places. If an organisation is doing well, frankly I need to worry less about it. It does not mean it has not got to be accountable, but I have to worry less about it than the organisation which is in deep and sustained trouble, where I think I have a responsibility to try to do something about it, hence franchising and some of the other arrangements. For example, what we have been looking at—and we have not finally decided this, so do not hold me to this absolutely—for the star ratings we will do next month, the new star ratings for trusts—no foundation trusts but three stars, two, one and zero—is how we can get in place a lighter monitoring regime for some of the things we asked for.

  43. Will the foundation hospitals be subjected to the star rating system?
  (Mr Milburn) Yes.

  50. Where they were going to be red, amber and green, would they be going to an amber stage where they would be on a warning?
  (Mr Milburn) That is what we have to look at. Two points of view have been put to me. One is that what we should do is simply exempt: once NHS foundation trusts have been created as foundation trusts, they are so good that they should be exempt from the star rating system. I disagree with that because I think that what the start rating system, as much as anything else, is about, is the local hospital or trust, mental health service, PCT, reporting back to its local community about how it is doing in relation to other similar organisations. I think there has to be reporting and a level playing field as far as that is concerned. My view is that there should be star ratings of foundation trusts. Our assumption, which I think will be right, but let us assume for the moment that it is going to be wrong, is that because they are good, because they are going to get more freedom, they are going to be okay and they are going to do well and the commissioning route is going to deliver you the improvements in services that you want to see. So they will continue to be three stars or whatever. If there is a consistent problem, then that would be a job for the regulator to determine and the regulator will need to devise and we will need to talk to the regulator about measures, yellow card measures and so on, which can correct the problem. For example, we have a means of dealing with zero star NHS trusts which we have just started implementing, which is to franchise their management. It is perfectly feasible that CHAI could do some sort of franchising arrangement for NHS foundation trusts which were really deeply in serious trouble. What you surely have to assume is that you need to have those safeguards in place but the whole premise is built on the idea, certainly from elsewhere in Europe, that those who demonstrate that they are good and get some independence actually become better rather than become worse.

  51. Do you share the view of the NHS Confederation that if freedom is something which leads to an improvement in standards, why is the freedom not applied to all trusts?
  (Mr Milburn) That is where we can get to over time as performance improves but there is a conditional offer here. It is pretty straightforward. The ones I have to worry about most are the ones who are overspending, mismanaging, failing to recruit or retain staff, having long waits, not treating women with cancer quickly enough. Those are things I have to worry about because there is something wrong there. The idea that you say to them "Off you go —

  52. But you say you do not manage them, it is the management which manages them and the philosophy is that if they have greater freedom they will be better.
  (Mr Milburn) You might want to change the management. What I am saying is that there have to be different solutions in different places according to different levels of performance. I personally think it would be pretty perverse to say to the very small minority of consistently failing organisations "Off you go then. We're really not worried about you. Go off and become even worse". What sort of message does that send to the taxpayer? What the taxpayer would expect to see is us is Government taking some responsibility and sorting out the problems in those organisations, stepping in, if you like, but stepping back where there is decent performance. That seems to me to be a more reasonable deal and not the converse.

  53. It is suggested that one of the increased freedoms may be access to finance and capital resources. Could you tell us what that means? Does it mean that there will be freedom to borrow outside the Treasury rules? Does it mean that foundation hospitals will not be subjected to the PFI procedures?
  (Mr Milburn) There are crudely two options—there is a myriad of options but I will just give the Committee a sense of our thinking on this to date. One option is that NHS foundation trusts remain on the balance sheet and count against public borrowing, in which case what we suggested in delivering the NHS Plan is that we go for some sort of prudential borrowing regime along the lines of the one which is currently being discussed for local authorities between the Department and the Treasury. That is one option where there would be some power to borrow outside normal Treasury borrowing rules.

  54. As a former Treasury Minister, which way would you prefer to go?
  (Mr Milburn) I would prefer to go for the second option which is to get them off balance sheet and then allow them to borrow and then they have to account for their performance. If they do well, fine. With safeguards around them. That is why the vehicle we eventually choose in terms of the legal vehicle to establish this is so important and it is why we are very interested in the public interest company route. What it does, unlike an organisation which accounts to its shareholders, which is not what I want to see, this is not about privatising the assets, is provide a lock on the assets, it makes sure the assets remain within the public services, but the assets are used for the benefit exclusively of the public services and are protected against takeover by anywhere else. We do not have such a legal vehicle at the moment, as you are aware.

Andy Burnham

  55. An industrial provident society.
  (Mr Milburn) That is another option probably within the first rather than the second category. There are different options. There is the provident friendly society route, there is the housing association type of route, which we have at the moment, there are further education colleges which are non-incorporated, freestanding organisations, slightly anomalous in terms of public borrowing rules and so on. They stand outside. There are some accountabilities. I do not think that the accountabilities are quite what I would want to see in the National Health Service. There are different options for us here, but in truth, as you can hear, we have not decided and we need to have further discussions in government as much as with colleagues in the NHS because we are trying to formulate the policy with colleagues in the NHS. When I went to Spain a year ago on this recruitment drive for nurses, I went to visit this hospital outside Madrid, which is a freestanding organisation providing services exclusively to their NHS. I shall tell you what struck me about it. They had a more severe case mix of patients than the cohort of NHS hospitals in Spain, but they were freestanding, they had better outcomes and shorter waiting times. You have exactly the same evidence from the Scandinavian countries. Tax funded systems offering more diversity and more choice within their system. Why? Because they have the freedom to manage and get on and deliver against national standards. We have to decide what is the right vehicle for translating that thought, that objective, into concrete reality. There are several options for us and we have not decided as yet.
  (Mr Douglas) There are two drivers around this issue of access to capital. One is the control issue. Whilst we ration from the centre, whilst we control capital, the Secretary of State has control and we have control of the organisation. If our real aim in this is to free people up and give them the opportunity to perform better, then that is one freedom they really need to be able to do that. The second issue is that we need a non-bureaucratic way of getting access to capital. One of the biggest complaints you get in the service is the pace at which we move as an organisation, we and Treasury and the rest of Government move, in giving people quick access to capital. Those are the two things which are driving us in looking at the options.

  56. On this whole idea of mutual societies, is part of your thinking as well that you can enhance democracy within the NHS that way.
  (Mr Milburn) Yes; absolutely.

  57. That you would make the members of the local community, the population, members of the friendly society.
  (Mr Milburn) That is an option if we went for that model.

  58. They would have a vote on key issues.
  (Mr Milburn) That is an option if you go for that model.

  59. Is that partly what attracted you to it?
  (Mr Milburn) Yes. What really attracts me in truth is that I have learned that the idea of simply trying to run the NHS as an undifferentiated monolith when it is not, is a hopeless quest. It does not work, it cannot work, it has not worked, it never will and it does not work anywhere else in Europe. So there are some lessons to learn and our real motivation here is about getting a better set of performances amongst local health services for the benefit of NHS patients. There are just different ways of doing that. As a by-product of it, I personally feel very strongly that since the public in Kidderminster cares deeply about the hospital in Kidderminster, then we have to have a better means of connecting the local community to the hospital, or to the trust as it is, than the vehicle we have at the moment.


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