Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 140 - 159)



  140. What is the value basis of the asset that you use?
  (Mr Wearmouth) It is based on the district valuer's valuation every five years.

  141. The same article that my colleague George Osborne was citing gives the example of Hairmyrs and Stonehouse Hospital Trust. They had derelict land worth £4 million on the open market but they bore an annual capital charge of £22,000. Why is there such a discrepency between the open market value of £4 million and the capital charge of £22,000?
  (Mr Wearmouth) We would have to look at that in further detail. There would be no depreciation element on the land because it is not depreciating. The only element would be a six per cent return on £4 million. If there were this discrepency we would have to go and have a look at it.

  142. Would it be possible to have note on that? It does seem extraordinary. You would expect a five per cent increase on the value of that land every year at least, maybe more, so the incentive would be to keep it and not to dispose of it. Can trusts sell capital assets and then reinvest the money in long-term financial assets and then use the income from those financial assets?
  (Mr Crisp) Effectively, trusts can gain income from money in the bank but there is a very, very restrictive range of uses that you can put money to in financial assets. You are talking about can we buy stocks and shares?

  143. Anything that is long term, not speculation. I get the impression sometimes that there is too much capital spent in the NHS and too little revenue spending. We hear examples of plush, brand spanking new hospitals being built but with wards closed because they cannot afford to staff them. The incentive would be to sell a bit of capital, stick the money in the bank and use the income to employ nurses instead of building that extra wing.
  (Mr Crisp) I cannot give you the exact chapter and verse but that would not be something we would normally expect trusts to be doing—to be using money for long-term investment in financial markets.

  144. So if they do not have any need for a new building there is no real incentive to dispose of surplus land or to declare it as surplus other than these capital charges?
  (Mr Crisp) Trusts can build up some assets. It is at the margins is the short answer that I am giving you. There are very few trusts in the happy position that you are talking about to be able to do that.

  145. Is the notion of the £76 billion replacement figure for NHS stock the same as the market value in that sense?
  (Mr Wearmouth) No, the replacement value is the value you would replace it as you would have it today. If we were replacing it in relation to new NHS buildings we would have a different arrangement, extra single bedrooms, additional waiting areas, or better facilities, for example, in front entrances. The £76 billion is to replace NHS hospitals to the standards we would expect today.

  146. So £76 billion is a higher value than the market value of the properties?
  (Mr Wearmouth) That is right.

  147. What is the market value then of the properties? Presumably it is higher than the £20 billion?
  (Mr Wearmouth) The replacement figure is £23 billion. The market value is not undertaken. We only value properties at market value when they are coming forward for disposal.

  148. They would presumably form the basis of the calculation of £23 billion.
  (Mr Wearmouth) The £23 billion is the replacement value of assets as they stand today. £76 billion would be to replace it to modern standards introduced to the NHS. The open market value (which is the disposal value) is something that we only take a valuation on when a property is offered for disposal.

  149. So how do you calculate the £23 billion if you do not have reference to the open market value of land?
  (Mr Wearmouth) It is calculated by the district valuer every five years.

  150. So it is, in effect, a market valuation?
  (Mr Wearmouth) If we are buying hospitals it is.

  151. £350 million sales out of £76 billion is only 0.46 per cent, less than half a per cent of turnover of assets. Is that a normal turnover figure in large organisations with large property portfolios. Is that in line with that, less than that or more than average?
  (Mr Wearmouth) When the Public Services Productivity Panel carried out their review looking at the disposal of NHS surplus properties and also when the NAO carried out their review, they involved private sector organisations, property developers and people who had large portfolios and they identified that we were carrying out the best practice and that we were using best practice whether this was the public or private sector. It would be difficult to say if that does compare to the turnover of property that would occur in other organisations because other organisations are different to operating health services, for example the retail sector or the leisure sector. What we could say is that there has been a high turnover of our assets over the last five to seven years which generated in the NAO Report over £1 billion worth of asset sales, but when a property—this would be outside of London of course—comes on the market its open market value can be anything up to 50 per cent of its hospital value because we have to seek development potential to change it from a hospital into something else.

  152. Okay. I think that is an answer. Going back to this mental hospital issue, you said that 71 per cent was not the figure so presumably it is some other percentage, but what happens if there is a change of policy by government and they say "care in the community" is no longer our policy and there should be large institutions catering for people with mental problems? What happens then?
  (Mr Crisp) We are venturing into care in the community more widely. It was 71 per cent of hospitals or mental institutions.

  153. What is the actual figure?
  (Mr Crisp) I think there are two things. As you know, very many of these big hospitals that have been disposed of, even if you were to reverse 30 years of policy, you would not use those ones, you would build a different sort of asylum.

  154. Can I just ask, Mr Wearmouth, what is your property experience and qualification in managing a large property portfolio?
  (Mr Wearmouth) Actually I am a Chartered Engineer. I actually worked within the NHS for a number of years and I managed a number of property disposals in the NHS. For the last five years I have managed the property disposals within NHS Estates which was initially examined by our colleagues in the Audit Office and a number of examples brought forward as best practice. I was the author of Sold on Health which was a Public Services Productivity Panel Report which was accepted by Ministers in the Treasury and in the Department of Health. I actually was responsible for preparing the development of an estate strategy. The NAO Report on Disposal of NHS trusts that you have today pointed to much good practice which had been identified within the NHS and it has all come about, I believe, through the work of NHS Estates and the NHS locally and estate managers locally in grasping this particular situation.

  155. Mr Crisp, is it not rather odd to have somebody in charge of a £76 billion worth of property who is a chartered engineer and has five years' experience in property management?
  (Mr Crisp) Not firstly if he is good at it, as he is, and secondly if he has got access to the best professional advice when and where he needs it. I think the document he has referred to, Sold on Health, which was produced for the Public Services Productivity Panel, makes it clear that we should put in place a sensitive and appropriate framework and then we should buy in expertise locally. I am very pleased with it.

  156. A final question to you, Mr Crisp. You said earlier in the session that this Report is useful in bringing these issues to the attention of the trust.
  (Mr Crisp) Yes.

  157. Which is a doubled edged kind of statement really because in effect you are saying that the Report is a useful management tool.
  (Mr Crisp) Yes.

  158. I see this Report not as a useful management tool but rather as an oversight tool by Parliament. My question really is this: are there any other areas of the NHS management which would benefit also from the use of such a tool? It seems to me if you are relying on this as a tool, which it should be an oversight tool, that you are relying too much on management tools which really are not yours.
  (Mr Crisp) I do not think I intended to imply that it was my audit in that sense of an audit, that I had asked for or wanted to use it as a management tool either locally or nationally. I was merely commenting on the fact that this sort of study does raise to prominence particular issues.

  159. Should you not have raised these issues to prominence already which really is my point?
  (Mr Crisp) I think the documents that Mr Wearmouth has been showing to you indicate that we have. I think this Report itself does show that we have documents on developing estate strategy, we have got the Sold on Health approach, we have got a clear estates strategy nationally and all those sort of mechanics.

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