Examination of Witnesses (Questions 140
- 159)
MONDAY 15 APRIL 2002
MR NIGEL
CRISP AND
MR PETER
WEARMOUTH
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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