Examination of Witnesses (Questions 120
MONDAY 15 APRIL 2002
120. Are they taking their bad practice with
(Mr Crisp) Hopefully they are taking their good practice
with them. Where people move from one to another, and that was
my point about if there has been an estate strategy developed
before, we have not lost it necessarily.
121. So if there has been a bad strategy before,
we have not lost that necessarily either.
(Mr Crisp) That is perfectly fair but the point that
I made in answer to the Chairman's very first question is that
there are incentives to get your strategy right. One is the performance
management, the second one is that you will not get investment
unless you have got an adequate estate strategy and that is a
122. I shall bear that in mind when I read the
Report. Does price determine what we get rid of rather than operational
(Mr Crisp) What we get rid of?
123. Not in the retained sector, I know that
is quite simple, I know how to deal with that. I am more interested
in this residual part, the smaller part albeit. Does price bear
an implication on where you decide which part to get rid of?
(Mr Crisp) There is a process the estate strategy
goes through to look at what assets you have got and whether you
are making full use of them in the first place, clinically, and
secondly whether the money that is tied up in them, including
the maintenance cost on keeping them redundant, you can invest
that money better. Now in that sense the value of the property
does play a part because it is part of what you are calculating
124. So you may get rid of a very good operational
unit which is in a prime site to reinvest that money into a less
(Mr Crisp) No, my first point was that you first of
all look at what you need operationally. Therefore, if you have
got a good and well functioning hospital, clinic, whatever it
is, of the right size that is being used in that clinic well that
is what you stay with, that is what the estate strategy starts
with. What do you need to deliver your services? That is the first
point, that is the starting point, and that overrules everything
else. Having established that there may be some property surplus
after that the way in which you deal with that may depend on what
it is, how much it is costing you to keep it and how much if you
have a very expensive asset that is tied up there that is doing
nothing for you, that is not operationally useful, whether you
can use that money better. It is at the second level. The first
point that people are looking at is can we deliver today's service
with the facilities we have got now. This is not about selling
the hospital in an expensive area and moving to a cheaper area.
125. If I was to tell you of a hypothetical
case where two hospital units within a town were shut down and
a new one was built on a greenfield site and the old hospital
buildings were in such an appallingly difficult state to maintain
that the developer who bought them refurbished them and said that
the structure, the building, was so good that they did not have
to bother maintaining it, it was built by the Victorians, but
the reason it was sold was to maximise the income of development
land, both sites being used for housing, and the investment taking
place in green belt land, would you be surprised at that outcome?
(Mr Crisp) I would be surprised unless you had missed
out an important part of that argument which is that the two hospitals
were not providing the service that was needed by the local population.
That is the starting point. Are these hospitals providing the
service for the local population? That is the starting point.
If after that you end up deciding you need a new replacement hospital
then you make the decisions about disposal. It is that way round.
You do not get rid of the hospitals because they are on an expensive
126. Yes. I think it was suggested that the
cost of refurbishing the existing hospital to bring it up to the
modern standard was far less than building a new hospital but
the sale of the land would have been of benefit at that time because
the price of buying the agricultural land was so cheap that they
might be able to make a profit.
(Mr Crisp) This is all very, very hypothetical. I
hear lots of anecdotes about the NHS all the time and my experience
is they are worth investigating and looking at properly. If a
developer is telling you this story, I wonder why the developer
is telling you this story? If I was presented with a case like
that I would like to see the facts because what you are describing
to me is extremely unlikely. We start off by looking to see whether
or not the Service is providing the services needed and only subsequently
then look at what is surplus.
127. Unfortunately as a business, as the health
service, you look at your bottom line and do not take into consideration
the cost imposed on the public by having to travel to a hospital
in a green belt area.
(Mr Crisp) I do not think that is true either. Though
this is not what the subject is about, planning services, it is
very important in planning services that we take account of all
those issues as well as the clinical ones.
128. I think Mr Davies asked a question about
salami slicing and you said it would not be in the rules but if
I had an estate and I knew I could sell off a million pounds without
seeking permission and the surplus was five or six million, I
would have no difficulty going to my board and my accountants
and explaining that we now seem to have a little money back here
and I can salami slice the estate up just under a million pounds
per year for the next five years and I would be within the rules.
Since I have to reinvest the money on the estate itself, improving
the provisions of the members of the public locally, the incentive
will be there to do it, so what is to stop them?
(Mr Crisp) The mechanism again, as I said, is that
we have a framework and set of rules and we have methods for checking
up whether or not people are following those rules, including
quite simply the local auditors. We can actually ask for an investigation,
we can look at it. What you have described implies that the only
other alternative to that would be to make decisions centrally
about relatively small disposals of land. We have very carefully
worked out a strategy which has gone through the Treasury Public
Services Productivity Panel whereby we put in place a very clear
set of frameworks and rules and these are managed locally in the
appropriate fashion and we have checks through audit.
129. I have got no difficulty with people selling
surplus land, surplus assets, I do not want to see a million pounds,
five million pounds is no problem at all as long as the money
is reinvested and gives an incentive for people to maximise the
facilities for the benefit of the people and the public. I have
got no difficulty doing that at all.
(Mr Crisp) Good.
130. When you answered the question about corruption
and the district valuer giving you totals for figures, did I hear
you say that the district valuer goes back and checks on the site
at any future time to ensure that the site sold did not acquire
a new value very shortly into its future under new ownership which
meant that the NHS could have and should have assumed a higher
price for that asset?
(Mr Wearmouth) What we have when we carry out property
transactions is we normally have advisors which could be the district
valuer or could be local property planning or legal advisers.
The transaction takes place. If it is felt there is potential
for further development at a later date we introduce claw back
into the transaction. 50 per cent of the transactions you will
see have had claw back introduced into them which actually ensures
that at a later date if further development is actually achieved
on that site and the value would have been more than we would
have originally got, we receive a percentage of the extra over
and above what we received for the original transaction.
131. Excellent. When you have a sale, do you
have a list of preferred purchasers? Do you work with people in
areas or is it just open competition?
(Mr Wearmouth) There are a number of competition routes
to follow but normally if it is for housing development it would
be a tender process and it would be open to the market-place.
There would not be any preferred purchasers. The only preferred
purchasers we have are other government departments, other NHS
trusts or people who have a right under the Housing Act.
132. So there is no preference or giving first
refusal to the county council or the local authority.
(Mr Wearmouth) As priority purchasers they would have
the right to purchase at the price of the district valuer's valuation.
133. Which would be a bargain, would it not!
(Mr Wearmouth) The district valuers value it at the
value we should have sold it. The issue we have got to remember
is it is being transferred between one public sector organisation
and another public sector organisation. If we moved it into the
private sector it is subject to the market to ensure that we get
134. But my recollection of the district valuer
was that they always set a value on the project that should be
expected to be met in the market-place. In fact, I can never ever
remember an occasion when the value was lower than the value the
district auditor set. Would you say that is your experience as
(Mr Wearmouth) The true test of value of any property
is subjecting it to the market-place.
135. But an open market-place, a market-place
where the purchaser gets full information and where bids can be
accepted in an open manner?
(Mr Wearmouth) That is right.
136. So it takes preferred purchasers?
(Mr Wearmouth) The only preferred purchasers are the
local authorities and other government departments. The rules
that we follow are that the district valuer's valuation will be
the valuation we use to transfer between one government department
Mr Jenkins: Thank you, Chairman.
Chairman: Thank you, Mr Jenkins. Nick Gibb?
137. Do you think that capital charges are sufficient
to give incentives for efficient use of capital assets?
(Mr Crisp) I am not sure they are absolutely sufficient.
They certainly do give an incentive and they do make people look
at how they are using capital assets as well. In many cases I
think they do change behaviour.
138. How are they devised? What is the basis
(Mr Wearmouth) There are two elements of capital charges.
One is a depreciation element on the value of the asset and the
second one is return on investment of that particular asset, so
there are two elements.
139. The return on asset is what percentage?
(Mr Wearmouth) Six per cent.