WEDNESDAY 12 JUNE 2002

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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 Dough Naysmith
Dr Richard Taylor

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THE RT HON ALAN MILBURN, a Member of the House, Secretary of State for Health, MR ANDY McKEON, Head, Pharmacy and Industry Group, MR RICHARD DOUGLAS, Head, Finance Directorate and MR ANDREW FOSTER, Head, Human Resources, Department of Health, examined.

Chairman

May I welcome you Secretary of State to this session of the Health Committee and your colleagues and ask you each to introduce yourselves briefly to the Committee?

(Mr Milburn) Alan Milburn, Secretary of State for Health.

(Mr McKeon) Andy McKeon, Director of Policy and Planning.

(Mr Douglas) Richard Douglas, Director of Finance.

(Mr Wilson) Andrew Foster, Director of Human Resources.

We are grateful for your co-operation with this inquiry. It probably would be appropriate for us to spend a moment or two on today's announcement on the consultant contract. I have some difficulties in that I have seen two releases, one from the Department of Health and one from the BMA and to try to square up the two is rather difficult. Would you like briefly to summarise your understanding of what has been agreed?

(Mr Milburn) You would like me to tell you the truth.

Briefly; yes.

(Mr Milburn) I shall do my best, Chairman. I read the BMA press release this morning and I did not think, to tell you the truth, that there was a huge amount of variance between what we were saying and what the BMA were saying. It has been a long negotiation and probably long overdue. The consultant contract has been essentially unchanged since 1948. We have 26,000 consultants today working effectively on the 1948 contract and there is a whole host of issues which we have had to deal with in the contract. There has been a variety of concerns about how consultants are employed, how they are rewarded and, crucially, how they are managed. The fact is that very often there has not been the sort of management for this one group of key employees that we would expect to see for other groups of key employees. Many of those issues have been addressed in the contract. If you want I can run through the main measures but there might be specific questions which you want to ask.

The seven-year issue is important. The BMA appear to be crowing about the fact that they have not given in on private practice. The last time you were with us you made clear to the Committee that your conclusion was that the best option was the sensible compromise option put forward in the NHS Plan, which is trying to get NHS consultants, when they are newly qualified, to work exclusively for the NHS for a period of up to seven years. Have you achieved that?

(Mr Milburn) Yes, I think we have. The issue of private practice has been a vexed issue since 1948 and has been at best a grey area. It has fuelled a great deal of suspicion, some justified; frankly quite a lot unjustified, about the motives of NHS consultants. For the record I should say what I believe, which is that overwhelmingly NHS consultants do a very good job of work for the National Health Service and actually over-fulfil their contractual obligations. However, the sense of actual or perceived conflicts of interests has been very debilitating for NHS consultants and for the National Health Service. What we set out in the NHS Plan was a very simple objective and we have realised that objective and I believe that we have more than fulfilled that objective as a result of these negotiations. The objective is extremely straightforward. What we wanted was to get more of an NHS consultant's time and pay more in order to do that so that we could get the benefit of the NHS consultant's considerable skill and expertise for more NHS patients. That is what we have got and we have got it essentially through four mechanisms. First of all what we have done is extended the direct clinical time, the direct face-to-face time that individual NHS consultants will spend with NHS patients. That is a big plus for us.

Can you be clear about what that actually means? How many sessions are you talking about? How many hours are you talking about?

(Mr Milburn) What we have at the moment is a contract which works on the basis of eleven sessions of three and a half hours each. What we are moving to is a ten-session contract of four hours each, of which eight in the first instance and then seven have to be direct clinical care for NHS patients, treating and seeing patients.

Over and above that, can they do private practice?

(Mr Milburn) Let me come to that but first let me come to the other elements of this. The other thing we have been able to do is back this up, as the Committee and others have been calling for and the BMA have recognised all along, with a more stringent system of job planning. For the first time what the NHS as an employer can do is actually plan and timetable the work of NHS consultants in a way that is most conducive to the benefit of NHS patients. That is the first thing. The second thing we have managed to achieve is to extend the NHS working week beyond the traditional nine to five. The NHS working week now for NHS consultants and the time in which their activities will be programmed will run from eight o'clock in the morning to ten o'clock in the evening, Monday to Friday, and from nine o'clock in the morning to one o'clock in the afternoon on a weekend. The reason that is important is that it actually fits with the way people live their lives nowadays. In my view what it provides for is much better use of NHS facilities at precisely the time many of us can access them: at weekends, twilights, first thing in the morning, etcetera. Otherwise there are operating theatres and facilities which simply lie dormant and that is an enormous waste of NHS capacity. That is the second big gain we have got, backed by the fact that because we can programme within that new NHS working week and pay at NHS rates, we will avoid some of the exorbitant sort of rates which this Committee and others have been concerned about in the past, to do with waiting list initiatives. The third big gain is around exclusivity. What we have here is an agreement that for the first seven years of a newly qualified consultant's career the NHS will have exclusive first call on the first 48 hours of a consultant's working week, which is the maximum we can demand under the Working Time Directive. I cannot demand any more than they can legally give and that is what we got. Actually that is the NHS Plan commitment and the NHS Plan commitment is therefore honoured, but we have gone beyond that. What we have also agreed with the BMA is that in future existing consultants who transfer to the new contract or consultants who after seven years want to practise privately, in order to do so, will have to give the NHS an extra four hours of their time, an extra session, at NHS rates as a condition of getting access to private practice. What all of that amounts to is that we in the National Health Service are getting more of the valuable time and skills of NHS consultants. We are paying more for it, but what I want to stress for you is this. It is a something for something deal. NHS consultants get something. They get an increase in starting salary, they get an increase in finishing salary, over the lifetime of a consultant's career their pay will increase by around 7.5 per cent. They will go through various pay thresholds. Getting access to the pay thresholds is dependent upon them fulfilling their obligation under the job plan, their specified timetabled sessions and of course they have to adhere to the new set of rules we have laid down about private practice. That is a good deal and it is a good deal for all concerned. It is a good deal for NHS consultants and it is a good deal for NHS patients.

My question was, arising from what you said last time about exclusivity. You have said 48 hours. Are you saying that above those 48 hours they will not be permitted to work in private practice?

(Mr Milburn) That would be a matter for them to determine.

So what you are saying is that yes, they could work in private practice.

(Mr Milburn) All I can do as the NHS employer is to extract from the NHS consultant the maximum that they can give us under the Working Time Directive, which is a maximum of 48 hours.

I understand that; I understand that fully. There is nothing to stop the consultant starting at five o'clock in the morning at a private hospital and doing ward rounds in the NHS at eight o'clock.

(Mr Milburn) That would be a matter for them. For me, it will not happen. What I get is the maximum that I could possibly get under the Working Time Directive, which is 48 hours.

I understand that. Where will the job plan come in? In some instances I have met doctors, and I am not knocking the fact that they are not working very hard, whom I have seen are working unsafely by the hours they are working for both the NHS and the private sector. What is to stop that continuing to happen now with this new consultant's contract? Does the job plan address that? Certainly on this Committee I have heard talk about job plans for the best part of a decade and we are still seeing examples of areas where frankly this does not operate. We need a degree of confidence, more than we do at the moment, in that being an effective mechanism and tool for monitoring this new contract.

(Mr Milburn) The job plan is absolutely critical. Inevitably most of the attention is going to be on the private practice thing, it is bound to be. I am extremely satisfied that what we have is a deal which honours the commitments we set out and in some ways gets us more than the objectives we originally set out in the NHS plan. However, I think the biggest gain of all is better management grip on how NHS consultants spend their time. The rather bizarre thing is that most NHS consultants are perfectly amenable and do what is necessary. It is true that has not been the case in all instances. You will be aware of the problems of job planning and you referred to that. What we now have as a matter of contractual obligation is that in order to get access to extra pay - under the existing contract you get automatic pay increases - you as a consultant will have to demonstrate that the objectives, the responsibilities, the timetabled undertakings that you have given as an NHS employee, are actually honoured. If they are not honoured, you do not get access to the extra pay. If you like, your pay is increasingly dependent upon your performance. That is a big change. It is a big change for NHS consultants in particular because, if you like, they have been the one group of directly employed NHS employees, unlike GPs for example as independent contractors, who have stood outside the normal contract of employment relationships. The job plan is absolutely central to that.

(Mr Foster) You rightly criticise the current job plan. The vast majority of consultants get a job plan on their appointment and then they are never revisited; a very small number of consultants have meaningful annual job plan reviews. Under the new system that will be the currency of planning a consultant's work. So there will be an annual job plan, an annual job plan review and we shall not have this woozy fixed/flexible distinction within a job plan which led to so much of the perception that some of the consultant's working life was out of control. Under the new job plan, the entire 40-hour working week will be fully timetabled. We shall know what the consultant is doing and where.

Have you been able to do any calculation as to the proportionate increase in NHS consultant time which will arise from this contract? What impact will this have on the use of the private sector through the concordat?

(Mr Milburn) In terms of the first, for example, at the moment there are three sorts of contracts: part-time, maximum part-time, full-time contracts. The concerns about the relationship between the private sector and the NHS have largely focused around the maximum part-time contracts. The maximum part-time contract goes under this. It disappears. What we would expect to see would be that consultants who would otherwise have gone to a maximum part-time contract would go onto a full-time contract. Rather than working ten out of eleven sessions, they will work the full set of sessions. We think that equates to an increase in time in percentage terms of 14 per cent.

(Mr Foster) Because a session is four hours rather than three and a half.

Over what period of time? Annually?

(Mr Foster) Immediately.

(Mr Milburn) Immediately. As from the time the new consultant contract kicks in. The deal is straightforward. What you cannot say to NHS consultants is "By the way, we want to work you 14 per cent harder and not give you a pay rise". It is important that there is an understanding about what we are doing and what we have always set out to do, because I have heard many misinformed views about this over the course of the last couple of hours. It is very, very important that people understand that what this has always been about is paying more to get more of a NHS consultant's time for the benefit of more NHS patients and that is precisely what the contract has achieved.

Dr Taylor

How is the on-call commitment going to be taken into account?

(Mr Milburn) We have had extensive negotiations with the BMA about this. From their point of view this has been a burning issue. We have found a way of recognising the position of those doctors who face the most onerous on-call duties. On-call is part and parcel of a doctor's life. It is. That is how things are and how things will always be in any healthcare system. Most normal on-call duties should be programmed as part of the consultant's working week.

As part of the eight direct clinical care sessions.

(Mr Milburn) Yes, that will be programmed as part of the eight direct clinical care sessions. However, for those with the most onerous duties, perhaps in a shortage specialty or whatever, they suffer immense disruption to their personal lives and their family lives and there should be some compensation for it. To recognise that we have found a graduated system of payment for them over and beyond the payment they would get as of right under the new contract. If you want more detail ...?

Dr Taylor: No, that is fine.

Dr Naysmith

What sort of onerous specialties are we talking about?

(Mr Foster) There are two ways of defining onerousness. One is the frequency with which you are on call; the more frequently you are on call the more onerous it is. Second, the type of behaviour that arises from being on call. In some specialties you will get a telephone call at home and you can give advice, put the phone down and it is over. In other specialties you have to put everything down, rush into the hospital and do something. That is a higher degree of onerousness. Taking those two factors, we have contrived a table which will give a salary supplement up to eight per cent for the most onerous frequency rotas and the most onerous behaviour arising from being on call.

This is not just that some specialties are considered to be onerous and others are not.

(Mr Milburn) No; sorry if I gave that impression. It is not that.

So any consultant could be in an onerous position.

(Mr Milburn) Yes; absolutely. It is largely about the frequency. If you are doing one in three it is clearly a problem for you and we have had to find some way of recompensing consultants for that. I think that is fair.

(Mr Foster) Up to one in four is the most frequent; up to one in eight is the maximum.

Dr Taylor

It strikes me that there is one big snag, which I am sure you have faced, but I should love to know how.

(Mr Milburn) Just one?

At the moment we have consultants who are not using all their NHS time, because of a shortage of nurses, staffed beds, staffed theatres. You are very commendably making a lot more NHS time, but how are they actually going to use it unless you can put nurses, staffed beds, staffed theatres on the go immediately.

(Mr Milburn) Would that I could immediately, but I cannot and you know I cannot. You are quite right. The NHS consultant is a valuable resource, an immensely valuable resource, key resource within the NHS with unrivalled skills and expertise, but they cannot use those skills and expertise unless there is support, and not just from nurses. A heart surgeon cannot operate without the perfusionist. They cannot operate without the backup in diagnostics. They cannot operate without the cleaners and porters and everybody else around the service. They cannot operate without the beds and support facilities, including discharge arrangements and so on. Yes, you are right, but what this provides us with an opportunity of doing is growing the two crucial elements which count for patients at one and the same time: the infrastructure, the other staff, the beds, the hospitals, the equipment and growing the amount of NHS consultants' time we can buy for the benefit of NHS patients. It has been that latter element that we have never had a means of doing effectively. It has been complicated frankly by lack of definition for perfectly understandable reasons which have been there between NHS consultants' private practice and NHS consultants' NHS work since 1948. Somebody said to me today that the one great virtue of this, however complex all of this is, is that for the first time it is understandable. I believe it is. I believe there are some very straightforward deals on offer here for consultants which means that there are good deals on offer for patients.

Dr Taylor: Thank you. I am glad you recognised the difficulties.

Mr Amess

I have been carefully listening to all these changes which will be effected in terms of consultants and their future contracts. I understand that a huge amount of work will have gone into this because these must have been very, very delicate negotiations. Has any assessment been done so far at all as to the likely impact of these changes on recruitment? It is said that youngsters coming into this profession now might be put off staying in this country. I wondered whether any work had been done so far. Also, will there be any opportunity for the way this is being dealt with to be reported to Parliament so it could be monitored? It just seems to me that consultants generally are absolutely crucial to the National Health Service and if these new plans go wrong, how are we going to change it?

(Mr Milburn) Let me deal with the second question first and then come back to the first one. What we have is a framework agreement with the BMA, behind which lies a huge amount of detail because we have been in negotiation for 16 months and it feels longer. There is a copious amount of detail and there is more work to do on some of the detail, of course there is. The BMA will want to determine how best they get endorsement from the consultant body for framework agreements and the further detail that we have. Implementation will not begin until April 2003, because it is going to take some time to work through some of these issues and make sure the funding is right for them and so on. In terms of monitoring, we shall want to monitor very, very carefully. One of the discussions we have been having with our colleagues in the BMA is how best we can get the implementation put in in such a way that it does not destabilise the system. It is a big change, as the Committee is recognising, when put alongside the other changes we are going to introduce. This is one of three big pay reform negotiations which have been ongoing: we have the GPs one, where again there is a framework agreement and it is out to ballot at the moment and then there is further work to do; finally there is Agenda for Change, which is the other element of pay reform for nurses, porters, cleaners and everybody else. We have to get it right in terms of the implementation. However difficult it has been to get agreement over the last 16 months, this has been the easy bit. The difficult bit is the implementation. If you are asking whether the Committee can have sight of our monitoring of how it is going, that is not a problem. I do not know what you would want to have, but if that is what you want to have, that sort of thing is fine. What was the first question?

I asked whether there had been any assessment done of the likely impact of losing all the talent abroad.

(Mr Milburn) I think the reverse of that. The first thing to say is that the number of applications to medical schools is up, which is really good and that is going in the right direction and is extremely welcome.

Are the numbers up before this contract?

(Mr Milburn) Yes, because it has not been implemented yet. This has always been the argument that people have been putting to us that one of the best ways, not perhaps the exclusive way, of facilitating better recruitment and retention is to offer better rewards for people, particularly those who are doing well and that is what this does. It offers better rewards for people, provided they hit the job plan, abide by the new rules, demonstrate that they are giving the NHS and NHS patients what they need. So there is something in this for NHS consultants, really something in it for NHS consultants and that is why the BMA - I do not know whether they have been crowing or not - will be pleased about it, just as I am pleased about it. It is a good deal for NHS patients and NHS consultants. We have probably done further modelling work.

(Mr Foster) May I give you a slightly dry and dusty answer to your question. There are workforce economists who study motivation factors in relation to what they call participation, by which they mean not just recruitment but also retention and indeed return of people who have left to have families or whatever. There is a series of motivating factors here which we have been able to build into our calculations as to how this will help with expanding the NHS workforce. For example, there are some technical figures which say that for every one per cent you put into salary, there is typically an effect on the workforce participation of 0.25 per cent. These are not NHS specific figures, these are general workforce modelling figures which have enabled us to make certain assumptions. The two other key things of course are that the new step series of salaries means there is a motivation for 20 years to pass through each of those thresholds, to continue to increase your earnings and of course increase your pensionable earnings. So there is a very powerful motivating factor through the salary thresholds. Thirdly, through the annual job plan review, some of this will be specific to a consultant's age. We shall be seeing a series of phases of careers where older consultants will be encouraged in the later phases to remove some of their more onerous on-call duties for example, change the balance of their clinical commitments into things like teaching and research; a series of measures will happen now.

If it did not turn out as you had hoped, is there some sort of mechanism for fine tuning it?

(Mr Milburn) It is called renegotiation. Maybe you can get somebody else to do that - that is not an offer. We have negotiated the contract.

Jim Dowd

If I have understood what you said, this should all be implemented by April next year.

(Mr Milburn) We shall start implementation in April 2003.

What is the transition or migration process?

(Mr Milburn) Some elements of the contract, because they are difficult, will not be implemented fully until 2006, other elements will be implemented straightaway. Remember that there are two classes of consultants. First of all we have the existing consultants on their existing contract, they have legal entitlements on their existing contracts. As it happens, I think that a lot of existing consultants will want to come over to the new contract because it is better for them. In the end that has to be a matter of choice for them. We cannot make it mandatory; it has to be voluntary, of course it does because that is their legal entitlement. The second group are newly qualified consultants and as they start coming through they will go automatically, presuming that all of this is finally agreed and endorsed, onto the new contract of employment. It is absolutely true that there is some phasing of it. We want to begin the implementation as soon as we can and the most sensible date that we came up with was the start of the next financial year, given where we are in this financial year.

Andy Burnham

From what I hear, you say the agreement sounds better than you expected it to be. If that is the case, would you be revising any other targets in the NHS Plan on the back of that?

(Mr Milburn) No. I shall be very happy when we hit the targets in the NHS Plan and we are making good progress towards them. I think this will help us achieve what the NHS Plan sets out to do. It is just self-evident. If as a consequence of this we can get more, for example, of a surgeon's time, for NHS patients, then that means we can get more operations done. People will say that is all about targets. Forget the target. The last thing which is in the mind of the patient is the target. What is in the mind of the patient is getting the operation. That is what they want. It will help us deliver that and that is why for me it has always been an important part of the NHS plan, all of these pay reforms are. People say pay is a waste of money and all of this nonsense. It is not. Unless you can get the incentives right for people and the contracts of employment right for people within the NHS you are not going to deliver the improvement. The NHS is a people service, it is all about how 1.2 million behave. Unless we can get our key groups of employees behaving in the right way and their energies focused on what really counts, we do not get the result that counts with the patient. No, I do not think we shall be revising it. In terms of whether it is better than I thought it would be, in all candour this has been a big negotiation and it has been a very long negotiation and at times it has been quite a difficult negotiation; it is bound to have been given the scale of what we have been doing and the fact that it has not been revised for over 50 years. This is dealing with the legacy of the creation of the National Health Service in 1948 by Nye Bevan and there are some bits of that legacy which needed revising and this is one of them. I think it has gone very, very well indeed. I think it has gone well from both points of view. What would be wrong in my view would be for anybody to go around crowing victory and this is a fantastic result and so on. It is a good result for the National Health Service and in order for it to be a good result for the National Health Service, it has to be a good result for the patient and for the consultant.

Is it possible to quantify what it means in terms of extra time to the NHS, in terms of whole-time equivalents?

(Mr Milburn) Fourteen per cent for maximum part-time consultants. There are some other figures. Of course at the moment NHS consultants work more than their formal schedules and under the new arrangements nobody is going to expect to see an NHS consultant watching the clock, downing tools in the middle of treating or operating on an NHS patient. That is not how NHS consultants work now, nor will it be in the future. At the moment they are contracted for 381/2 hours: in future they will be contracted for 40 hours, the maximum part-time. Because they will convert effectively into full-time employees, we shall see an increase of 14 per cent in the time available. Overall I think the incentives are now in the right place. The incentives are to get more by doing more and that has to be right.

John Austin

I welcome your comments about pay and morale and improved patient care, but they seem somewhat at variance with the messages which were going out at the time of the announcement about the increased spending and particularly the reaction of the Royal College of Nurses to some of the statements you made that money was available for front-line services and not for increases in pay.

(Mr Milburn) No, that is not why. I went to the RCN congress to try to correct the view which seemed to be abroad that somehow or other there were going to be bumper pay rises around for nothing. What I set out was what we called a series of acid tests for how money has to be spent. In order to spend this money wisely and well, what we have to get - and this applies to pay as to anything else - are improvements in productivity, improvements in performance and more patients being treated. This passes that test. It passes the test because by investing the money what we are doing is buying more of the consultant's time, crucially in those first seven years, having the exclusive first call on their 48 hours. As you know, the reason for that is that that is the time in an NHS consultant's career when they are new, when they are most energetic and I want them being energetic for the benefit of NHS patients. We will apply exactly the same tests to our other pay negotiations whether that is for GPs, for nurses, for porters, for cleaners or for anybody else.

Do you accept that if nurses in particular are dissatisfied with their pay and their conditions and the morale is low, productivity is not like to be as good as it could be if morale were higher?

(Mr Milburn) What we have to get, as we discussed extensively with the trade unions representing nurses and other members of staff, is a pay system which is fairer and encourages more recruitment and more retention of staff but which gets improvements in productivity as well because we know that we can gain improvements in productivity; we can with consultants and we can with other staff as well and that has to be the nature of the deal. The deal here is a something for something deal. It is not that we are just paying out money. We are not going to do that. If that had been the bargaining position of the British Medical Association, I would not have agreed the deal. I have agreed the deal because I am getting something back and exactly the same discipline has to apply to other groups of staff.

Dr Naysmith

Has this to be sold to the rank and file or is it something which is fairly well agreed?

(Mr Milburn) I do not think I am the best person to do the selling necessarily.

Chairman

It will presumably be voted on.

(Mr Milburn) I do not know what they are planning to do.

(Mr Foster) Over the next few months the BMA will be carrying out a consultation amongst their members before formally accepting the offer.

Mr Burns

I should like to make a general point before we get into some of the specifics of delivering the NHS Plan. As I am sure the Secretary of State would accept, there is a series of targets, 91 in fact, with completion dates which arise out of the NHS Plan of 2000 delivering the NHS Plan of 2002, the Labour Party Manifesto of last year and the NHS Cancer Plan. As you would expect from the timescale there the completion times go from four in particular in 2002 right through to 2010, which is not unreasonable. Would you care to comment about some of the targets which are coming up this year? For example, if one takes the 2002 target of 3,000 extra heart operations by 1 April 2002, the number of heart operations actually carried out was 2,400 extra operations. If one takes the target for 2002 of one third of GPs to be working PMS contracts by April, I should be very grateful if you could confirm that target has not been met, or otherwise as the case may be; the target for all GP practices connected to NHS net this year; the target of 100 rapid access chest pain clinics by April. What I am interested to know, if one is going to set targets to achieve, which I would not say was an unreasonable objective, if they are not being met, or have not been, the operations one in particular has not -

(Mr Milburn) The heart operations one has; it has been over-fulfilled.

As I understand it, the target was 3,000 extra and there have been 2,400.

(Mr Milburn) No, we have done more than that.

If that information is wrong, I should be grateful if you would let me know.

(Mr Milburn) Seriously and fundamentally wrong.

If you could provide the evidence, I should be grateful.

(Mr Milburn) I cannot remember the heart operation figure, but as it happens I can remember the chest pain clinics one.

Hang on, if you cannot remember the heart operation one, how can you tell me that my figures are wrong?

(Mr Milburn) I cannot remember the figure, but I know that it has been fulfilled. On the chest pain clinics, 167 have been set up. I think we said there were going to be 100. That is an over-fulfilment rather than an under-fulfilment on anybody's count. Let me answer the specific and then deal with the general point. On PMS for example, I think it is true that we did not reach one third. I think we got to around 27 per cent. If that is wrong I shall correct the record, but it is around that number. What hit that was the fact that we were in extended talks around the GP contract and not surprisingly there was some uncertainty. Your general point however in relation to targets and reporting and so on is right. Basically, most of the targets which people talk about, chiefly around waiting or cancer or coronary heart disease, are pretty medium or long-term in ambition because they have to be for reasons of growth and capacity, or else on health outcomes because it just takes a long time to get cancer death rates down or to narrow health inequalities and so on. When people talk about a lot of these targets, the so-called interim targets, what they are really talking about are milestones along the way and there is some of that in the NHS Plan, of course there is. We have means of reporting on that, not least the Chief Executive's report, which was produced fairly recently. You have probably seen that, or if you have not, I am quite happy for the Committee to have a report which indicates where we have got to on a lot of these things. We shall keep reporting. Personally I think we have got quite an opportunity, to tell you the truth, because now that we have a longer term settlement for the NHS over five or six years, at one level that is great for the Department of Health, I know how much money I have so that is fantastic. The problem is that the PCT out there does not know. What I am going to do later this year is allocate three years of money to primary care trusts in one fell swoop. In other words, when we do the allocations for 2003-04 which we shall do later in this financial year, it will be for 2004-05 and 2005-06. What they will have is the money for three years. The reason I think that is important is that sure, where there are milestones, we should hit them, but it also gives a bit of flexibility for the local health service as well to know that by 2005-06 they will have to have done X, Y and Z and how best they can plan to do that over a more sensible medium-term planning horizon. As you know, what has bedevilled the National Health Service is short-termism. There have been ups, downs: it used to be annual planning cycle, annual pay rounds, three-year deals and so on. We can move away from that. All I would say is that that does not mean we should not report, but what it does is create greater flexibility for the local NHS to plan for the medium term, which is where most of these changes are going to be.

Would you be kind enough to send me as soon as conveniently possible in connection with Chapter 14 of the NHS Plan, how many extra heart operations there were up to 31 March this year?

(Mr Milburn) Yes, we will.

Jim Dowd

Could we all have that information?

(Mr Milburn) Yes.

May I take you on to an area that needs a certain degree of clarification and that is the proposition for foundation hospitals. There is a certain degree of public misunderstanding and lack of appreciation of how they are going to operate. If they are going to be liberated from ministerial intervention, how are they still going to be held accountable to the public and to Parliament?

(Mr Milburn) In terms of accountability, they will be subject to regulation and what we are proposing, but you will appreciate that there is more work to do on this though I can give you an idea of the thinking, is that the new Commission for Healthcare Audit and Inspection (CHAI) should become the regulator and should have responsibility for overseeing the work of NHS foundation trusts. It will report and it will report amongst other things annually, independently to Parliament, including on the performance or otherwise of the individual NHS foundation trusts. In terms of accountability to Parliament, we thought a lot about this. Clearly what we cannot have is my powers of direction disappearing and with that accountability in terms of the overall performance of the system to Parliament. There are three locks there. The first lock is that I will have overall responsibility for the healthcare system in the country and I shall be held to account for it by this Committee and by Parliament as a whole and that is right and proper, including for the performance of foundation trusts if that is what people want to talk about. Second, the Committee, if it wanted to, could summon individual NHS foundation trusts to account for their performance and ask questions of them. Third, we would be proposing to give the National Audit Office access to NHS foundation trusts so that the proper accountabilities are in place, including to the Committee of Public Accounts as well as this Committee. I do not want the Committee to feel that somehow or other parliamentary accountability is going to be diminished, because it is not.

How do you respond to the charge that the establishment of foundation hospitals will lead to the perception of two-tier care in the acute sector?

(Mr Milburn) I just think that is wrong. Let us take a slight step back. What characterises the acute sector today, prior to any NHS foundation trust, is a huge variation in performance. You might want to call that two-tier care, you might want to call it 180-tier care, depending on the number of acute trusts. Everybody is acutely conscious of that and it is always the problem that most bedevils policymakers and decisionmakers: as Nye Bevan said 52 years ago, "How can you make sure that you generalise the best?". How can you do that? In order to do so, you have to have a wide variety of levers and one of the levers is that we have to move to a situation in my view, based on the experience that we can see elsewhere in Europe and indeed elsewhere round the world, where the organisations which are doing better get more freedom to get on and become even better still. Recently I held a seminar with so-called foundation hospitals, although their model is not exactly the same as ours, from Sweden and Spain and other countries in Europe. We brought them here and got their people to talk to us. What is so striking about it is the ability to manage. The ability to get on and organise the institution and organise its performance, free of day to day interference from people like me or from these guys makes a profound difference to the performance of any organisation. It is just like anything. If you are more in control of your own life you tend to perform better as an individual. That is true of organisations too. NHS foundation trusts will have that freedom. What we will do explicitly is free them from Secretary of State direction. I will not be able to direct them. The way they will be held to account is through the regulatory route, the Commission for Healthcare Audit and Inspection, and through the commissioning route. The PCT, if it wants to, will commission services from the local foundation trust and the foundation trust will have to account for its performance back to the PCT, back to the local community as well as back to the regulator. As you know, we are proposing as well and are doing some thinking about how we can strengthen the local governance arrangements too. I said to this Committee before, I am personally not convinced that the best way of encouraging the best community involvement between the local community and local hospital that serves it, is simply by an independent appointments commission appointing five non-executive directors. I do not think that is the best way of doing it. I really do not. What we need to see is better relations, closer working relations between the community and the hospital, between the trusts. We have to think about the governance arrangements. If in a sense the public accountability through me is being moved sideways, then the quid pro quo is that there has to be strengthened accountability between the local community and local trust and we have to do some thinking about the best way of doing that. For example, we could have a two-tier board structure with stakeholders from the local community, representatives of staff who are currently not represented at all on trust boards, maybe the democratically elected local authority, maybe local businesses on a council of trustees wider board, which is more the European model than the English or UK model, with a board of management who would be experts getting on and delivering the improvements patients want to see. That is where our thinking is. Final point. These are there to serve NHS patients. They are part of the NHS family and there job is to provide care according to NHS principles and NHS values, free according to need and not ability to pay.

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.

Chairman

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.

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 work for 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.

(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

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?

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.

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.

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.

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.

Will the foundation hospitals be subjected to the star rating system?

(Mr Milburn) Yes.

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.

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 -

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.

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.

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

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.

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.

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.

They would have a vote on key issues.

(Mr Milburn) That is an option if you go for that model.

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.

But they might vote for something which NHS managers do not like.

(Mr Milburn) They may well do that. Well is that not a risk in the public service? The thing is that I am accountable, I come here or I go to Parliament. People working in the public service, particularly people who are leading the public services locally, have to be accountable too. In the end what I think about this is that what is so interesting about the models you look at elsewhere in Europe is that at precisely the same time in 1948 when we were creating a nationalised industry in the UK, elsewhere centre-left governments, left-wing governments favoured community ownership rather than state ownership. That is what happened. People care deeply in the local community about their local asset, the local hospital, the local service. Maybe it is just time that we allowed local voices in the local community to have a greater say.

John Austin

You are preaching to some old "co-operators" over here and young ones.

(Mr Milburn) What is interesting about this is that organisations as diverse as the Co-operative Movement on the one side, who are broadly on the left, and the Institute of Directors, who are probably broadly on the right, are interested in this idea.

It depends where the control is.

(Mr Milburn) Absolutely.

If you do take foundation hospitals outside the bureaucracy of the capital control system, it could mean that they would be free from a requirement to go down the PFI route.

(Mr Milburn) I suppose it would be for them to determine.

(Mr Douglas) It would be for them.

Julia Drown

The idea behind a foundation hospital seems to be that freedom allows good hospitals to do better, but freedom allows bad hospitals to do worse. Where is the evidence for that?

(Mr Milburn) Elsewhere in Europe.

Which particular country?

(Mr Milburn) Spain, Sweden, Denmark.

So the worst hospitals went worse.

(Mr Milburn) Yes. The best hospitals went better.

And the worst hospitals went worse with freedoms?

(Mr Milburn) I do not know.

Where is the evidence that the worst hospitals go worse if they are given the same freedoms?

(Mr Milburn) You can probably see within the arrangements we have that where there is a problem in a NHS hospital under existing circumstances some get better but some do not. Some are consistently bad.

And is it the ones which are given the freedoms which get worse?

(Mr Milburn) They do not have freedoms.

So where is the evidence that bad hospitals do worse if they are given the same freedoms which make the best hospitals do better?

(Mr Milburn) To turn it round slightly, what I have to think about, back to the issue of accountability, is that my accountability has to be for the overall performance of the system. Where I feel comfortable in the overall performance of the system is in those parts of it which are doing well.

At any particular moment in time?

(Mr Milburn) Measured over time because we do, we measure over time. For the first time, that is what we are doing. We never had the means to do that and we are doing it now. That is what I find slightly odd about the argument that somehow or other this is a free-for-all or whatever, because it is not. What you are doing is measuring performance over time. This year when we do the star ratings next month you will, the public will, everybody will be able to compare like with like. They will be able to look at a hospital as it was last year and a hospital as it is this year. The early evidence suggests that from the star ratings last year, where we zero star rated the ones which were really bad and which were consistently poor performers, a very small minority had consistently had problems and where we brought in outside help - in your formulation less freedom - performances improved. I went to Medway which was a hospital -

I do not need the example of Medway.

(Mr Milburn) You were asking for examples a moment ago.

You did not give Medway more freedoms, did you? I want to know the evidence where more freedoms produced a worse performance.

(Mr Milburn) I can give you evidence for where more intervention has produced better performance.

That is not what I asked for. Your solution for poor performing trusts is to change the management in terms of franchising.

(Mr Milburn) I think there are gradations of response. This is why you need to be quite specific and sophisticated about it really. Overall performance in the NHS. You have a group of organisations which are doing really, really well and my response to that, based on evidence which I have seen elsewhere, is that they should be liberated and allowed to get on with it. You have a group of organisations which sits somewhere in the middle, which is probably the majority - I do not know what the numbers are but 60 to 70 per cent.

They are not being given freedoms either.

(Mr Milburn) You have to give them some freedoms actually. You probably have to give the two-stars something, which is the way we categorise these things. For example, we are thinking about how big an access to money, what the conditions are, what strings are attached to their bids for money, what the monitoring for them might look like as distinct from the monitoring for a one-star or a zero-star. In the case of a zero-star we have applied quite acute and specific judgements. Not every zero star trust went through the franchising process. Some did and some did not. We applied a judgement. The ones where we actually thought the existing management have the capability of turning it round or, for example since we published the star rating it is on the up, then nothing happened. With some, that is right, we franchised the management.

Picking up the specifics of pay, John was talking about the two trusts next to each other, one of whom, if it is a foundation hospital, could have more flexibility, more over what you are discussing than other hospitals would do. If you recognise, as you seem to, that trusts sometimes need to have the flexibility to recruit people, do you recognise that if you give any extra flexibility to a foundation hospital which has another near by, you are necessarily giving them an additional lever to bring in staff which necessarily prejudices the ability of the non-foundation trust to recruit?

(Mr Milburn) No, I do not really accept that. A foundation trust, just like an NHS foundation trust, just like any other NHS trust, will have a pot of money which will have to earn and increasingly under the regime we are planning, certainly for elective surgery -

If it is a benefit for one it has to be a disbenefit for the next, does it not?

(Mr Milburn) They will have to determine how to use their limited pot of cash. They will always have a limited pot of cash, just like any organisation. If, for example, they decide in trust A to spend more on childcare than in trust B, then presumably in trust A they have less money to spend on something else.

That would be a freedom to all; all trusts have that freedom already.

(Mr Milburn) Yes; absolutely.

If you are giving any benefit to foundation hospitals, it is necessarily going to be a disbenefit to non-foundation hospitals.

(Mr Milburn) It depends how they spend their money. They may decide that the best thing to do is to spend their money on more equipment.

They both have that freedom at the moment, do they not?

(Mr Milburn) Yes, they do. So what? That exists now.

So you accept that any benefit you give in terms of pay to a foundation hospital will be a disbenefit to the nearby non-foundation hospital.

(Mr Milburn) No, I do not really accept that. It may well be that on the narrow terms, if a foundation trust or a NHS trust decides to give £500 extra to its porters, its porters will be £500 better off than the porters next door, but it may well have £500 less to spend on its nurses.

Yes, but that is true at the moment.

(Mr Milburn) Absolutely, but nobody is arguing, as far as I know, unless you are, against some element of local flexibility.

I am arguing against one particular type of hospital having a flexibility that the neighbouring hospital, which necessarily by your performance ratings is already struggling more and you are necessarily giving it a disbenefit compared with another which could lead to more recruitment, more morale problems. What we want to do is level up performance in the NHS not make things harder.

(Mr Milburn) Absolutely and that is why we have all these levers in place; precisely why we have all these levers in place, why we have NSFs, why we have a modernisation agency, why we have an inspectorate, all of these things.

Julia Drown: That does not explain why you are giving extra levers to those already at the top.

Dr Taylor

I am not coming in on the Kidderminster issue because you know exactly where I stand on that and I do have quite a measure of agreement with a number of the reforms that you are making. I really very much want to follow up Julia's point because one of the huge benefits of the NHS when it came in in 1948 was that it established standard pay scales for consultants across the board so consultants had the same financial attraction to work in Darlington or Wakefield or a major teaching hospital. Are you going to undermine that and make it much more attractive for consultants to go to the best hospitals?

(Mr Milburn) No, I hope that we are not going to do that, but we are going to do what most NHS employers have long since recognised, which is to move beyond the fairly rigid arrangements for national pay bargaining which have prevailed since 1948 through the Whitley Council system. Why? Because they do not respect the difference between Leeds and Barnsley or for that matter between Lewisham and Darlington. They are different areas with different problems and the idea that somehow or other we can, in a committee, with a group of trade unions, determine accurately what the needs of Worcestershire are against the needs of Swindon or of Lewisham or of Essex -

I am talking particularly about groups of staff who are prepared to move. It does not affect the people who live in an area and are going to work in that area in any case. I am talking particularly about highly qualified consultants and nurses to whom it makes a difference from the pay point of view if they work in a major teaching hospital or otherwise. I think it should be kept so that people of the top calibre find it just as attractive to work in Darlington as in the centre of London.

(Mr Milburn) Yes, and there are different and countervailing influences, are there not? Some would say that although there are major teaching institutions with high status and international reputations in a mile radius of where we are sitting, nonetheless they actually suffer the greatest problems. Why? Because they have a bigger labour and housing market problem. Lots of people increasingly, doctors and nurses, make lifestyle choices about where they want to be. They may want to be in the countryside, they may want to be in the North because it is cheaper rather than in the South which is more expensive. The idea that somehow there is a perfect set of systems at the moment is not quite right. That is not where we are at. It is true that what we cannot have is something which exacerbates those problems. That is why, back to this point, it is exactly the same on the performance front as the pay front, you have to get the relationship right between the national framework of standards and the local autonomy. That is what you have to do. Trying to drive the system, as our predecessors did, purely through one at the exclusion of the other or through the other at the exclusion of one, will not work. That is why all of these negotiations, including some element of flexibility within the consultant contract around some of these things, combines a national framework with the acceptance of local flexibility because there has to be. Otherwise the local NHS employer in my patch employing a couple of thousand people do not have the wherewithal to design their pay system, their job system, their job design system, to suit their special circumstances. I cannot design that. Nobody can. It is impossible to design from the centre. You have to get both and if we see the debate as either or, we have a real problem. That is how the debate is being posited and, Julia asked for evidence, that is not the evidence from elsewhere.

Siobhain McDonagh

I was really interested in what you were saying about looking at models for diversity, which personally I find very interesting, particularly if you look at the whole housing association model where you have hundreds of organisations which bloom in all sorts of directions and they do not do damage to one another by being different or having different amounts of capital funding or different rules governing them depending upon their performance, where they all thrive by being a bit different. Would it not be fair to say and quite reasonable to say that for those hospitals which are struggling, particularly like my own, St Helier, the idea that you would give that organisation more freedom at a time when it could not do the basics, when it could not keep the hospital clean, is quite terrifying. There seems to be a framework of regulation that you do need for those hospitals who are having difficulties to make them concentrate on what they need to do as a very basic before you allow them to carry on to even more imaginative things.

(Mr Milburn) I think that is right; I do think that is right. If anybody thinks that somehow or other, if you have an organisation that on objective measures, on the basic things, on the really, really, really basic things, around waiting times or trolley waits or clean wards and you say to them, "By the way, off you go", that is going to improve things, I just do not see it. Personally I do not see it and that is why we tried to develop a graduated set of responses according to circumstances. To tell you the truth, what has bedevilled the whole NHS almost since its inception has been the policy makers at the centre who have said they were going to treat this lot as an undifferentiated mass when it is not undifferentiated. You know that and I know it, so let us have a more sophisticated, targeted response.

Dr Naysmith

And yet the reasons for choosing who are going to be foundation hospitals have nothing to do with the problems and the special arrangements which are going to be made for them. Let us just look at the four which are talked about, Norfolk and Norwich, Addenbrooke's in Cambridge, Peterborough and Northumbria. They are all in completely different labour markets and they might not be the ones who most need this assistance and the freedom to develop what you are suggesting.

(Mr Milburn) Interesting is it not? I do not know what is going to happen because we have not done any run of the star ratings yet that I have seen, so I am not in a position to comment on this year's. What struck me about last year's was that people said it was all going to be terribly unfair because those parts of the country which have higher mortality or less morbidity were going to come out naturally worse. So Tyneside, which has one of the highest mortality rates in the country, came out as a three-star organisation. Then people said that it was all to do with labour markets and this is going to disadvantage the South-East. Then you got two trusts in Surrey, Epsom on the one hand and Frimley Park which is not a million miles away, very similar labour market, one a three and one a zero. That is about the performance of the individual organisations.

That is not the question I am asking. What I am saying is that you are giving these hospitals special privileges, that they can do things and be less lightly managed than others.

(Mr Milburn) Yes, and as performance improves your two star becomes -

Some of them do not need these extra freedoms because they can get staff easily anyway and it is not something they need to worry about.

(Mr Milburn) I am not sure that is true. I cannot remember which ones you quoted but I am sure it is not true in Cambridge. Incidentally those on the list are just the ones which have expressed an interest.

They have expressed an interest and they have three stars.

(Mr Milburn) I do not know what the labour market is in Norwich but I am sure it is not straightforward. I am sure the labour market in Cambridge is not straightforward. I have no doubt that all the time trust will be coming forward in difficult labour market areas which are nonetheless three star and want foundation trust status because it gives them the ability to move forward and crack more of their problems. Great. We welcome that.

Just remembering that sometimes we sit here and someone tells us they have no nursing recruitment problem because they can get nurses quite easily. Everybody is getting shot by their staff. We have them on record. What you want to do then is focus in on that problem rather than giving hospitals freedoms to do things they do not really need in terms of improving things. You and I have had this argument before about the star system and what is really measures. In Bristol, which you and I know and have talked about before, one of the hospitals which did not do too well on the star system has had some brilliant reviews recently in terms of clinical achievements and other things.

(Mr Milburn) Absolutely. As I said to you before, so in a sense we are rehearsing an old argument, the star ratings and the performance measures will in my view only ever get better at the point at which you actually have the courage to apply them. The truth is that there has never been any science around this, not in this country. There probably is more in the States but it is guided by a different set of values there frankly from the ones we have here. You have to start measuring in order to improve the measures. I hope what you will see with this year's criteria for the star ratings is an improvement in the sort of measures we have used over the last year. I have no doubt that next year it will be even better. It is only by use that you get improvement.

Julia Drown

I should like to understand a little better how money is going to move round the system. Delivering the NHS Plan said that all providers will be contracted for a minimum volume of cases to achieve waiting time reductions. Will that take place at their own agreed prices or is that at regionally decided prices?

(Mr Milburn) It is going to change over time. We shall have a transition.

Next year?

(Mr Milburn) Next year.

(Mr Douglas) For next year our plan would be that the marginal increases required would be priced at agreed tariffs.

Marginal increases?

(Mr Douglas) The increase for next year, moving on then over the medium term to pricing all activity at the regionally agreed tariffs. Next year we would shift just at the margin and then gradually work our way through into all activity.

Even next year for everything else they can negotiate what price it will be.

(Mr Douglas) There would have to be base volume and price agreed for the base and then a change at the margin, whether we can price all the marginal activity on standard tariffs or whether we will just have to take the top 50 procedures and maybe get 70 per cent of it from that.

So within a region you are going to have to have very variable costs depending on whether it is a new hospital, an older hospital, particular capital values or particular area. How are you going to deal with the obvious fact that some people will be making a clear profit, others might be struggling to cover costs once it is all done on regional tariffs?

(Mr Douglas) A couple of points, one on the shorter term and one on the longer term. On the short term, we will be dealing with the marginal change, so we shall be looking at a smaller sub-set of activity. On the longer term, what we have to do is make a transition path towards this full system. There is a number of ways of doing this. We can start moving from a position at the start where we have, as we do, the price equals the cost, to moving maybe then to some ranges of cost before we get the specific regionally agreed tariff. We could gradually move through the proportion of procedures that we cover to give people time to adjust. We could split prices in some ways, the price which is paid for the activity delivered and some sort of ownership payment or some access payment for the difference. All of these would be strategies we could use over a three- or four-year period.

In the short term at least, why should some providers make profits on patients and others not make so much profit or make no profit?

(Mr Douglas) I think we should get back to what we are really trying to do here. There are two things. One is that we are trying to link incentives to the targets we have. We are trying to link incentives to activity and to waiting. The other is to make sure that those efficient providers actually benefit from that and the less efficient providers are given an incentive to become more efficient. There are clearly issues about the factors which are outside their control which they cannot adjust. We talked about regional tariffs, but whether regional tariffs are actually regions as you might know and love them now, or whether they are smaller areas, we still have to think about. We have to make sure we have identified those factors which at least in the short- and medium-term are outside people's control and adjust prices for that. Most of these elements within a defined geographical area should be controllable within the medium- to long-term for people.

Is this not just trying to re-create the internal market?

(Mr Douglas) No.

Why not?

(Mr Douglas) The Secretary of State has already mentioned a number of differences on the overall systems for the market which are primarily around the setting of very clear quality standards and also that we shall be fixing prices here. The discussions we had in the market were a lot of discussions about price. What we really want to get in here is discussion about quality and volume and that is the reason we are trying to go for a fixed price for this.

Nevertheless, if hospitals will be able to compete to get extra work at full regional prices, is there not a problem that you are re-creating the incentives for hospitals to compete against each other, because they know that if they can fit in the extra 20, 40, 50 cases, that is enough money to start paying for the next piece of equipment and therefore if they have a good new technique, there is an incentive for them not to share that with their next door trust. How are you going to be sure that the new system does not replace collaboration with division and competition again?

(Mr Douglas) This is not building competition into the system really. What it is building in is a driver for efficiency for people. So we are not talking about competition here, we are talking about the driver to efficiency. In terms of the ability or the requirement to share, the requirement to work in collaboration with people, we are not in a business which is purely driven by price, we have other levers in the system and one of them is the star rating system, one of them is the regulator's role.

But it was not a particular price of an operation which made one hospital want to compete with another, it was the fact that if they could pick up another 10, 20, 30 operations, they could make a considerable sum of money which would make a really big difference to an individual specialty's budget in any one year. By doing this, are you not replacing those incentives with the same incentives?

(Mr Douglas) No. One of the first things which is important with this is that we are saying to the hospital which wants to attract additional patients that they will first of all have to deliver the targets which have been set for them. So they will not be taking on patients without having delivered the targets at the agreed price we have set for them. If they then can deliver additional activity which will meet the overall targets we have set, and they will benefit from that, that is good, because that is really what we want. We are making sure that the capacity we have overall is used to best effect.

So every trust's starting point in the year will be to break even and this is only very much at the margins of things where people are very much exceeding their waiting times.

(Mr Douglas) To actually benefit from additional money under the choice pilots, where we will have money going with the choice of the patient, people will have had to have delivered their own targets first before they have an ability to benefit from that. They must deliver the base targets themselves.

At the starting point every trust will be breaking even if they achieve their waiting list targets with their local hospital.

(Mr Douglas) They will not be breaking even when the full system is in on an HIG basis necessarily, because if their prices are higher or if their costs are actually higher than the set tariff they will not be breaking even at the start, but they will have an incentive to drive down costs and improve efficiency.

Are you saying some people are hampered because they might be in a very expensive capital building or inefficient capital building which might have small wards and that is hard to nurse? Those people necessarily will have to work harder just to stay still.

(Mr Douglas) They will. What we are trying to do initially is -

Is that right?

(Mr Douglas) It may be right in the short term for people.

It will not feel right to them, will it?

(Mr Douglas) I am sorry, I thought you meant factually correct rather than right in principle. I just misunderstood, I am sorry. That is why we are trying to give a transitional period for this and that is why we are saying that we will not introduce the full system until we have worked through that transitional path of two, three, four, five years, depending on how long we need for that. If there are special circumstances we can identify for the modelling, then we shall make adjustments to prices to reflect those.

(Mr Milburn) There may well be; there may well be within the same region, however we choose to define it - and your point about new versus old is an obvious example. There will also be, and we know this already, however crude reference costs are as an indicator of price or efficiency, some pretty inexplicable variations in cost. There are some which are explicable, but there are some which are inexplicable. It just is not fair in the end in a system which has a certain amount of money, if you are not using that pot of money to maximum effect. It is not fair. Somebody is gaining and somebody is losing under the system as it is. What we have to try to do is drive out the realisable efficiencies.

Where they are realisable.

(Mr Milburn) Exactly.

There is obviously still a lot of work to be done.

(Mr Milburn) There is. Richard's key point is to get the transition right. If you try to do it just like that, it will not happen. We have to migrate there over time.

Sandra Gidley

I should like to touch on the subject of choice briefly. Everybody would agree that it is a laudable aim, but at the moment what you have is a choice between waiting 15 months for your hip replacement in one hospital compared with waiting 15 months in the hospital next door. It really is not very much of a choice. There is an acknowledgement in Delivering the NHS Plan that in order to provide choice you need to increase capacity. That has been acknowledged. How long in reality do you think it will be before the average patient is routinely able to exercise a choice?

(Mr Milburn) There is again going to be a transition. You are quite right. Your starting point is obviously right that in a capacity constrained system you have obvious problems. However, what I do not think is quite right is when you say that everybody is roughly the same. They are not. In Dorset nobody is waiting six months for a hospital operation. In my patch I do not think anybody is waiting 12 months at the moment. That is not true everywhere.

We are all waiting 15 months in Hampshire.

(Mr Milburn) There you are. They might prefer in Hampshire to have the choice of not waiting 15 months.

I am sure.

(Mr Milburn) In the end what most people want is the choice of being treated locally, that is what all of the international evidence suggests, even in those countries which have long enjoyed choice, like Denmark or Sweden. All of the evidence suggests that most people, even with a better choice objectively on offer, choose subjectively to stay local, even if it means a slightly longer wait. That is fine, but for some people, people who want to have the choice of moving hospital in order to get quicker treatment - and the truth about the NHS again is that there is capacity; there is capacity shortage but in some places there is capacity surplus - the problem is that the current system of incentives means that the incentive for the provider is not to use the maximum capacity available because the commissioner will only contract for a certain volume of cases. Once that volume of cases has been exhausted, that is the end of the matter. It does not matter if in my hospital the eye surgeons could do more eye operations. So what? Unless there is advice for paying them to do more, it cannot be done. There are two things here: there are the choices which individual patients can exercise and necessarily they will be limited in a capacity constrained system; second, as part of the same process, there is how you make a better link between supply and demand, between the demand patients have, the shorter waiting times, and the fact that there is some supply out there. In London there are differential waiting times.

To come back to the original question, when do you envisage that patients will be routinely able to exercise a choice?

(Mr Milburn) I would imagine probably by the end of 2005. What we are going to do in July is start with heart patients, people who have been waiting over six months. They will be contacted by their local hospital. Their likely waiting time will be explained to them by a patient care adviser, usually a nurse, they will be offered the choice of either staying local - and most people may well opt to do that - or travelling elsewhere to get a quicker waiting time, in which case, if they travel, the NHS will look after them and make sure it is clinically safe. What we will do over time then is pilot further choice initiatives in different specialties such that we can get to a position by the back end of 2005 when we have IT and other capacity growth in place, such that where you the ordinary NHS patient go into your GP's surgery you will have some choice over where you are treated. Obviously it is rather like anything, you do not get unfettered choice in any walk of life. The product has to be available to exercise choice in the supermarket, the capacity has to be available to exercise choice in a hospital. We think that by the end of 2005 that is realisable.

So in future when primary care trusts are commissioning and they have arrangements with the local hospital, will they be forced to pay extra so that a patient can exercise choice?

(Mr Milburn) No.

Who picks up the bill?

(Mr Milburn) What we are not going to do is repeat the mistakes of the internal market where competition took place on price. The whole point about having HRGs is that there will be no competition on the basis of price. The choices patients will make will not be about price. Price will have nothing to do with it because you will basically have a common tariff adjusted for precisely the regional variations which Julia was talking about. The choices that patients exercise will be based on how long they are going to have to wait at different hospitals for treatment and what the quality and outcomes of care are that they are likely to receive.

Would you envisage choice being extended to other areas of the health service? I was thinking in particular of NHS dentistry. The target in the NHS Plan was that by September 2001 everyone would have access to an NHS dentist. I am not sure what that means, because certainly you cannot register with an NHS dentist locally, although I suspect the Government will have some means of saying it is available because there are emergency dentists. That is not what people want, they want to register with a dentist of their own choice. How are you going to make sure that people have a real choice of being able to register with an NHS dentist if they want to.

(Mr Milburn) I personally am not convinced that registration is the issue which is uppermost in people's minds.

They like a regular relationship with one dentist.

(Mr Milburn) What they want is treatment.

No, no, they like a regular relationship with a particular dentist. Dentists are horrible people. I am sorry if I offend anybody. You put quite a lot of trust in a dentist and once you have a relationship with that dentist you want to keep it. I think the people out there do want that and they want to be able to register with somebody and know that they will have an ongoing relationship with somebody they trust and that is not there at the moment. When will it be?

(Mr Milburn) I am clearly outnumbered on this. I think people want treatment and they probably want to have a relationship as well; crucially they want to have treatment and registration does not necessarily equal treatment. However, your question was: how can we apply choice across the piece? There is quite a large measure of choice already in the NHS, although it is not always dressed up as that. You have a choice about where to register with a GP, for example.

Not if you want to change.

(Mr Milburn) You do. It is true that it is more difficult to change, but you have a choice about where to register and there are usually not the same registration problems with GPs as you described with dentists. On choice, the scheme we have been talking about here is a scheme which importantly applies to elective surgery, to hospital operations. One of the big mistakes in the market was the idea that you could have the same discipline applying to elective surgery, mental health services, emergency care, when they are quite different services. As an emergency patient you do not really care, you just want the treatment. If you are waiting for a hernia operation, the choice between six months and three months is quite a profound choice which you might actually want to exercise because it is pretty painful waiting for it. We have to get to a position where as you expand the capacity you can make choices more widely available, including for NHS dentistry. There is money going into NHS dentistry, there are more NHS dentists now than ever before. It is the case now that through NHS Direct you can get in touch with a NHS dentist. The NHS Direct service will assign an NHS dentist to you. It might not be just around the corner, maybe there is no dentist just around the corner, maybe it is a mile away but you are getting access to a NHS dentist. What we have to do is continue growing the capacity. It is back to this transition point that in a capacity constrained system, which was your opening point, you can only enshrine choice across the piece when you have sufficient capacity and at the moment we do not, but we are growing it.

May I come back to the dentist being only a mile away? They are certainly further away than that. I am sorry to stray slightly off choice. How far do you think it is realistic to travel to access an NHS dentist? That brings me back to the definition of "having access". How do you define that? Ten miles? Is that realistic? Somewhere that is not on a bus route.

(Mr Milburn) It would probably depend on local circumstances. In Swindon there are probably still quite big problems; I do not know what the position is. We have probably put different schemes in there in order to ensure wider availability at one time. There were problems about getting access to a NHS dentist in Swindon at all. Now that has changed. You have to pick off these problems. It is picking off the problems. The position in your part of the world may be very different from the position in Julia's part of the world, in which case we have to apply some localised solutions rather than saying what we are going to do is bring an enormous big national club along and thump it down on the heads of everybody in an undifferentiated way and expect that will get the result.

I shall write to you about the localised solutions later. Choice is all very well and it is something we all aim for, but evidence in the Wanless Report states that in Denmark just over two per cent of the population have actually exercised this.

(Mr Milburn) More than that.

Two point one per cent is the figure. What evidence do you have that if we introduced this in this country it will be exercised? What I am quite interested in is the fact that some people are not in a position to exercise choice; they cannot afford to travel. Will this be yet another thing which in many ways is for the "haves" rather than the "have-nots"?

(Mr Milburn) No, and we have to avoid that. I cannot remember the figures from Wanless but I think the latest figure we have from Denmark is that for elective surgery around 6.7 per cent of non-acute patients seek treatment outside their county.

That is just non acute, it is not wider.

(Mr Milburn) That is non acute. You ask about the likely behaviour, whether people are going to choose to choose. It is likely, although I do not know, but the international evidence seems to suggest, that most people would choose not to choose; most people. However, a sizeable proportion will. If that means they can get quicker and better treatment, then that is a good thing for those people, provided it does not undermine fairness and clinical need and all those sorts of things and you have to have the right safeguards in place. I suspect that from some of the survey work which has been done in the past, there is quite a large number of patients, particularly with more severe clinical conditions, for example a heart operation. If you have been told you need a heart operation, a coronary artery bypass graft, and you are told you are going to have to wait 12 months, you worry about it. That is why we are trying to get the waiting times down, by expanding the capacity and making some of the changes. It may well be that when patients are offered choice for an operation next month, that most of them will say they prefer to wait to have it locally, they know the local team, that is where their community, family, are and they want to stay put. It may well be that quite a lot will say, "Thank you very much. I just want to get this over because I am worried about the state of my health and what might happen". In which case we, the NHS, have a responsibility to help them, for example with travel and accommodation. We have to make sure we have an appropriate carer and all of those sorts of things in place. You make a very important point about the "haves" and "have-nots". That is what we have to avoid. In Denmark and some of these other Scandinavian countries which are not dissimilar from ours, where they are tax funded public healthcare systems as we would recognise them in this country, but where they have long since enshrined choice, they build in these sorts of safeguards, whether it is patient care advisers, information which is made available to patients. We are trying to do that with the heart patients. From next month every single heart patient will have an identified patient care adviser, usually a nurse, who will be able to talk to them, explain what the choices and some of the dilemmas might be and help them to make an informed choice, regardless of their background. That is the only way we can do it. The NHS will have a facilitating role. It is not just make a choice in the marketplace, it is about how you can ensure that patients make the right informed choice for them, based upon the information that they have and the capacity that is available.

Dr Taylor

You mentioned matching capacity with availability, matching supply with demand and this is the obvious cue to bring in the whole question of information technology, which is absolutely crucial to the reforms you are trying to make. This morning in Birmingham Lord Hunt gave an address which I am sure you know all about outlining the national programme for procurement and implementation of IT for the nation as a whole. He made the very good point that successes in the past two years have been because of trying to take more measured steps and get them right. It strikes me that accelerating the pace and going on to a big bang approach is rather contradicting that. How feasible is it? How realistic is it to connect all NHS staff to the NHS net by March, to have electronic transfer of all biochemical or haematology and microbiology results by next March, which is the claim?

(Mr Milburn) I do not think any big bang is envisaged. The mistake in the past, which Phil touched on in his speech, was that we have had two distinct approaches, one of which was to go for that sort of approach, big bang, Wessex style; everybody remembers the Wessex failure, £50 million and all of that. The other approach has been just to allow local health services to do their own thing on IT procurement. Both have been a disaster in truth in terms of getting the NHS wired and getting decent value for money for the taxpayer. Because of the state of IT in the NHS today, where frankly we are a decade behind where we should be, we have a problem but also an opportunity. What we can do there is learn from some of the past failures which have taken place, not just in the NHS but in the private sector and elsewhere in the public sector, and get a phased implementation in place. You have to get the hardware and software in place, you have to be able to ensure that the systems talk to each other. What that calls for, and interestingly the call has been for this in the NHS too, is for there to be tougher standardisation from the centre rather than just allowing the individual GP practice to do its own thing or the individual hospital to do its own thing. That is fine for the hospital, but when its system does not talk to the neighbouring hospital, or when, worse still, it does not talk to the neighbouring GPs, you have big trouble. Some of this is feasible, but it has to be backed by standardisation, good partnering arrangements with the private sector, because they have the expertise and the public sector does not, and quite a lot of money.

I am delighted you are saying that there is not going to be a big bang because that was one of my very severe worries.

(Mr Milburn) No, I do not think that was Phil's intention.

It was the impression. You mentioned the Wessex affair and we know that there have been lots of other disasters. Are there really any sufficiently big IT firms to take this on, who have not been blamed for disasters, to have a realistic feel to approach? That is what worries me. Will you guarantee that you will not approach the same firms which have been responsible for Wessex, the Passport Office, the DVLA, RAF Logistics, Air Traffic Control? I can go on and on.

(Mr Milburn) Talking of constrained capacity, there is constrained capacity in the private sector as well. There just is. There is a limited number of big suppliers. You know who they are and I know who they are as well and that is true on both the software and hardware front. For example, we recently did a deal with Microsoft which cost us £50 million but it was far more sensible that we procured the licensing for software for the NHS at the centre rather than every little trust, PCT, GP having to do it, because it saves money and quite a lot of time. They happen to be one of the players in the market. The IT market is characterised by a few big monopoly players, so we are going to have to work with them. What would be a problem, would be if we put all of our eggs in one basket. That would be a problem. We want to keep the benefits of competition alive as far as IT group procurements are concerned.

The other thing which worries me is that the South-West procurement, which is way behind its project, was meant to sign contracts in May 2001 and they have not yet even signed contracts, yet although that which was meant to be a pilot has not completed and reported, I gather the same thing has been rolled out to Oxford and Birmingham.

(Mr Milburn) I am sorry, I do not have that information. I shall come back to you in writing, if I can. I am sorry, I just do not know.

Mr Burns

You will remember on the morning of Budget Day this year the Wanless report was published and the next lunch time you came to the House of Commons and gave a statement launching your own document Delivering the NHS Plan. In paragraph 8.10 of that, it says "We", meaning you and the Government, "have been impressed by the success of the system in countries like Sweden and Denmark in getting delayed discharges from hospitals down. We intend to legislate therefore to introduce a similar system of cross-charging". You then go on to say, "This was also a reform commended by the Wanless Review". Given that the Wanless report had only been published the day before, I was wondering whether you had had an opportunity to read the Wanless report. If you go to paragraphs 6.44 and 6.45 of the Wanless report it does not actually say that they are recommending the reform you are proposing, that is legislation on cross-charging. What the Wanless report actually says is that they had looked at this and although they accepted that sort of system could lead to excess social care capacity, it was something that the Government should look at. That is slightly different from saying you should legislate to do it. They said you should look at it to see whether it is a sensible way to proceed in this country. Why did you disregard or not pay any attention to the Wanless recommendation, but go immediately to announcing that you were going to legislate?

(Mr Milburn) Because we had looked at it. We had looked at it and we did look at it, we had been looking at it over the course of several months. To answer your first question: had I read it? Yes, I had. Yes, I had the benefit of reading it in draft.

I assumed you had. If you had read it, why then does your own document put a slightly different spin on what Wanless actually said?

(Mr Milburn) This is slightly dancing on the head of a pin, is it not?

It is not if that is the reform recommended by Wanless.

(Mr Milburn) If it asks us to look at it and we had been looking at it and we had looked at it both prior to Wanless and since, I read Wanless prior to Delivering the NHS Plan and then I did look at it and decide it was a jolly good idea and got on and did it, what is the problem?

The problem is, and you will correct me if I am wrong, that I am unaware of anyone except possibly a few NHS managers who thinks this is going to be a very sensible suggestion. I do not imagine you have had many representations from local authority leaders, directors of social services or others saying that this is the best thing since sliced bread and we really want you to rush legislation through Parliament to bring in this system, where social service departments are going to have to pay cash to the NHS if someone stays in a bed longer than they clinically need to. First of all I should be interested to know whether you have had any representations from outside the NHS saying this is a wonderful plan. Second, if you had not announced legislation immediately and relied solely on your own judgement on the issue, you would have been able to consult and get a broader range of views. Third, you as a Government and my Government previously - we started it, you have continued it to a much more natural conclusion because of the time - have sought to break down the barriers between social services and the NHS in dealing with the problems of delayed discharge. To be fair to you, you have made great strides there and I should have thought, given that you are seeking to provide a seamless service with these two historically different organisations working very closely together to get over the problems, that to start bringing in a system of charging is going to start undoing a lot of the good work which has been done. I am just perplexed that you think it is going to work and be a constructive way forward and why you did not consult on it.

(Mr Milburn) Let me deal with the representations and then come to the thinking behind it. In terms of how this has been progressed, to make it work and to get the legislation right we need to work with local government and directors of social services and the NHS and that is what we are doing. Initial meetings have taken place to facilitate that. In terms of representation, I can tell you where I get a lot of representations from: I get a lot of representations from Members of Parliament and members of the public concerned about - to use the pejorative term - bed blocking, which is an expression of failure not success. People want a solution to that. That is what they want. Most people would never have heard of the Scandinavian model and if they hear those words they probably think of Ulrika Johnson rather than cross-charging. What they are concerned about is how health and social care work together. The Committee have been concerned about that, I am concerned about it too. I can tell you what I have found about this. When you take a slight step back and look at it, where partnership arrangements are working - and as we know they work pretty well and that is great - it is a real lottery. It really does depend very often upon simple things like local personalities. How well the director of social services in your area and how well the chief executive of the primary care trust and the chief executive of the hospital get on and whether they can agree with one another. That is fine in those areas where it works, but what we are talking about here are vulnerable elderly people, people who are over 75, who are needlessly stuck in a hospital bed for no apparent reason. As it happens delayed discharges - bed blocking - have fallen. It is falling for good reason: there is more money going in. It is falling from the position we inherited in fact. It is, and I am very happy to share the figures with you. I feel the need to share the figures with you but I shall do it in writing to save time. What you do not have, when you look at the system, is anybody within the system taking responsibility for the problem. It is neither the NHS problem, nor is it the social services problem, it is nobody's responsibility. Let me just finish, because you made an important point and I understand that it looks as though it is going the wrong way, so I want to reply to that. Nobody is responsible. The problem is the poor elderly person who falls through the gap. What we know from Scandinavia, and not just from Sweden but other countries too, is that when you get the incentive in the right place such that you provide, in this case, the local authority with the control over the budget to deal with discharges of patients in an appropriate way, provided you can get the incentive right, it gets the delayed discharges down. Point one. Point two: it does so in a non-punitive fashion. People talk about local authorities being fined. That is not what I want to achieve. What I want to achieve is one organisation rather than two or three having sole responsibility for dealing with the elderly patient at the point at which they are clinically ready to leave the hospital. They will have control of the budget such that they can then spend the budget in the right way and provided they are able to hit the appropriate timescale. People should not be stuck there after they have been determined to be ready to go and if they are ready to go, why should they sit there for three weeks? Over 50 per cent of these cases are waiting over 14 days now for discharge, although that too is coming down. Why should they sit there? What we shall do, is we shall set, as in Sweden, an appropriate timescale, based on our discussions with clinicians and with local government for how long it should take. If the local authority can exceed that, and in a lot of cases it will, because I think that local authorities can deliver this once they are given the responsibility for it, if they have the budget and if they exceed what they should do, that means they have free money from the pot they are given, that is free for them to spend. If, however, they fail to do so, and the consequence is that the NHS absorbs the cost, then the local authority will have to pay for that. What do I think will happen? What I think will happen is that the local authorities will succeed because the incentives will be in the right place. I think it will strengthen and not weaken the partnership arrangements. Partnerships work when there is a clear understanding about who does what. When there is uncertainty, that bedevils partnership and that is what we have had.

What happens then in circumstances where in an area there are no beds for someone to go to from hospital and it is not suitable for them to have a domiciliary care package and go home? What happens to them if there is an argument between the clinicians and social services about the individual concerned and whether they both agree that the person is fit to be discharged? Finally, I am not sure that I am as optimistic as you are about the impact this is going to have on relations between health and social services. If you are unhappy that in some areas the working together has not moved forward as much as you wanted - I am not suggesting this should happen, I am just asking - why did you not consider - you may have done - as part of the consultation process unifying the process so you do not have the split between social services and the NHS in long-term care but bring it under one umbrella to eliminate the cross-tensions?

(Mr Milburn) If you read Delivering the NHS Plan, the chapter on relationships between health and social care, read the last paragraph. What we say there is that we think this is the right way forward but we do not rule out in the future more radical solutions. We think this is the right step to take for now. I think it is a step which will work. You might disagree with that. We shall find out in practice what happens. All I would say is that sometimes there are important lessons to be learned from the practice, the evidence, the experience from elsewhere - and people make a lot of experience from elsewhere - from Scandinavia and when there are important lessons which can be learned and are translatable, let us translate them and let us make the European model work here. That is what we are going to do with this. In terms of the question you ask about who decides the patient is fit for discharge, multidisciplinary working is a great thing, although it has down sides because there are many players on a small playing field. We are thinking through that and trying to work through it. In the end, where we shall get to, is a position where the crucial decision which has to be taken is whether the patient's treatment is finished, whether it is safe therefore for the patient to leave the hospital. That is one decision and that must properly be a clinical decision, probably a decision by a doctor, maybe by a nurse, I do not know. That must be their decision. There is a separate but related set of decisions then about where people can go to. Part of the reason for increasing the social services budget - and last time I was here we were talking about that - part of the reason for giving reasonable increases in social services funding, is precisely to deal with some of these capacity problems which we have. We have to increase capacity. The news there is quite good. Some of the money we put out, the £100 million and then £200 million, is making a difference. The number of delayed discharges is coming down, more beds and places are being bought, fees for care homes are being increased by a lot of councils, that is helping to stabilise the market and there is interest about bringing new players into the market too. On all of those fronts, extra resources will make a difference to capacity.

Dr Naysmith

Nonetheless, Secretary of State, we have been conducting an inquiry into delayed discharges for the last few weeks and we have heard evidence from the voluntary sector, from National Health Service bodies, trusts and so on and from social services and local authorities. Not one single person has had a good word to say for the plan you have outlined. Do you think that is because they do not understand it, because of innate conservatism or because you have just not managed to sell it properly?

(Mr Milburn) It will probably be my fault, I would imagine; most things are. I do not know why that is. Those organisations have to speak for themselves. I have to decide what I think is right.

How can it work if there is this kind of opposition?

(Mr Milburn) The Local Government Association have expressed concerns. I hope the LGA and the ADSS and some of the voluntary sector and the NHS Confederation, all organisations which have expressed some concerns about this, will be, and I think they are going to be, working with us to try to make the thing work. I hope that is what will happen. We have had initial meetings with them, but it is like everything in politics, in the end you have to decide what is right and that is why I am here and I shall be held to account. If it goes wrong, it goes wrong, if it goes right, it goes right. I am confident it will go right based on what I know about it. Those organisations and individuals who are concerned about it should really go and look at the evidence and see for themselves. It is not perfect and the Swedes themselves will say that there are very important lessons to learn from some of the problems they have encountered. The good thing about being behind, if there is a good thing about being behind, is that we can learn the lessons.

Mr Amess

Do you believe that waiting time targets for all conditions need to be underscored by an explicit duty on clinicians and NHS managers to prioritise treatment according to clinical need in order to prevent waiting time targets distorting clinical priorities?

(Mr Milburn) The guidance, which I think you had as a Committee, but maybe you have not, which dates back to Simon's time rather than my time in Government, explicitly talks about treatment according to clinical need more than clinical priority. I cannot remember the phrase, but I am very happy to send you what there is. There is something there already.

Critics have argued that current Government policy concerning cancer referral has created a two-tier system and may in fact have increased the length of wait for some cancer patients. Should the two-week target for seeing urgent cancer referrals be extended to all patients referred with suspected cancer? I have examples of where it happens.

(Mr Milburn) The first thing we did was put the two-week cancer wait in. Why? Because we got far too many reports of people who went to the GP, suspected cancer, told it was going to be months and months before they could see somebody in Outpatients, which is just dreadful. Most people think that is dreadful; I think it is dreadful. A two-week wait and that is now being achieved in 95 per cent of cases. In the cancer plan which we published subsequent to the two-week cancer wait pledge, we then set out a further rolling series of improvements. Back to Simon's point about milestones and targets. Those include the time from being seen in Outpatients, getting treated and then in time from GP referral all the way through to treatment. From December last year - I think this is right but I shall correct it if it is wrong - the time from referral to treatment for children's cancers, acute leukaemia and testicular cancer was one month from point of referral to treatment. The big problem is around the diagnostic side of things, scanners and so on, it is not the capital, it is not the equipment, it is the staff that we desperately need, that is the big problem. What we are moving to as we get the capacity in is a situation where, rather than having fragmented targets, from the point of GP referral to Outpatients and then from Outpatients to treatment, we have one time for those particular conditions. We started to role that out and those targets are in the NHS cancer plan.

Mr Amess: If we have the Secretary of State back on another occasion, I want to ask about screening for prostate cancer, because it is Men's Health Awareness Week and we are supposed to be geeing up. I also want to ask about hepatitis C.

Dr Taylor

Towards the beginning of the NHS Plan is a statement about NHS Direct, "A single phone call to NHS Direct will provide a one-stop gateway to healthcare to give patients more choice about accessing the NHS". Are you aware of the tremendous concerns that NHS Direct probably is not working terribly well? What I have here is a briefing paper from the Secretary of the National Association of GP Co-operatives. They say quite clearly that they are going to end the partnership with NHS Direct at national level because none of the exemplar sites are saying the system is working well, some more vociferously than others. One has left, another second wave site is not going ahead. The targets set in out of hours review are not achievable and are not sensible. The single call access for patients is not working and has never been adequately sorted out. Are you aware of this? If you are not, will you become aware of it and take on that this flagship, NHS Direct, does not appear to be working for the people who are trying to use it?

(Mr Milburn) I am not aware of the letter from the GP Co-ops. Is it from Mark Reynolds?

Yes, it is from Mark Reynolds.

(Mr Milburn) I have not seen Mark's letter, so if you could send me a copy. Is it to me or to you?

No, it is a briefing paper from one of my local GP co-operatives.

(Mr Milburn) Let me see it and I shall have a look at that. I do not think you were trying to do this, but it would be unfortunate if the impression were being given that NHS Direct was not working. NHS Direct is a very good thing.

The impression I am getting is that it is not working.

(Mr Milburn) It works for millions and millions of people and gets them access to healthcare and healthcare advice.

Chairman

May I ask that you look at this and perhaps give a reply which is copied to all members. I am sorry we have had to rush through this. There are questions which we shall perhaps write to you about, if that is possible.

(Mr Milburn) Yes.

May I briefly abuse my position and ask Mr Foster a question. I asked a Parliamentary Question recently on the issue of restructuring the National Health Service, about redundancy costs where we have long-standing chief executives, for example, over 50 who are not appointed to new bodies, the costs to the NHS. I am told that figure is not available in terms of a Parliamentary Answer. I happen to know that the figure is quite substantial and I think it is important that the public are aware of what that figure is. Why is it that I cannot find out that information?

(Mr Milburn) To be fair maybe that is more a question for me.

If you wish to answer, I am happy.

(Mr Milburn) But the answer is that I do not know.

I am happy for you to look at it and come back to us.

(Mr Milburn) Yes, I am happy to look at it.

Mr Burns

On the same subject, I have asked exactly the same question and I too know some of the answers to the question but the answer comes back that the figures are not available.

(Mr Milburn) Let me have a look at it. If we are saying we do not have the information, then we do not have the information. If we do have the information, then we have it and we shall pass it on.

Chairman: Secretary of State, may I thank you and thank you colleagues for a very useful session. We are most grateful to you. Thank you very much.