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9 Nov 2004 : Column 235WH—continued

NHS Funding (Cornwall)

4 pm

Matthew Taylor (Truro and St. Austell) (LD): I   welcome the opportunity to have this debate and I appreciate the fact that the Minister met my colleagues and me earlier this year to discuss some of the issues. There are at least two areas on which we certainly agree, and one on which I hope to be able to persuade the Minister to agree with me.

The first area on which we agree is that there are outstanding staff in the national health service, not least   in Cornwall. They do an extremely good job in conditions that have traditionally been difficult, and that work is appreciated both across parties and across Cornwall. I get a lot of letters from people expressing their appreciation for the work of staff, particularly at Royal Cornwall hospital, and their concerns about the pressures under which staff work. The second area on which the Minister and I agree, is the Government decision, since the last general election, to raise taxes to increase investment in the NHS. The Liberal Democrats argued for that, so we welcome it and acknowledge that investment in the NHS has increased as a result. It is important to put that on the record; otherwise it might sound as though I do not acknowledge that when I voice my concerns.

The area on which I wish to concentrate—I informed the Minister's office of this in advance—is the concern in Cornwall and Devon about two coming changes in the way in which the Government propose to fund the NHS in future. They are, first, the combination of changes to the market forces factor that have been introduced over the past couple of years and, secondly, the implications for formal NHS funding for the future, particularly once it is formalised into the new tariff system, if it is done in the way that is currently planned.

The market forces factor has been in place for many years. It dates back to 1976. The great majority of its purpose is to adjust funding to allow for the realities of differing local costs in delivering health services in different parts of the country. Some 70 per cent. of it   relates to an adjustment to take into account local wage rates, but that adjustment has, until recently, been modified in two respects. First, there was a dampening, so that areas of high wages did not get the full implied benefit in extra funding, and areas of low wages did not get the full implied disbenefit, in recognition of the fact that people in the NHS operate on national pay scales, so, although there may some link to local earnings outside the NHS, it is far from a complete one.

Secondly, and perhaps more significantly from our point of view as MPs representing the poorest county in England, the lowest 47 of the 117 wage zones based around counties, unitary authorities and metropolitan authority areas counted as one block, so, as the poorest, Cornwall was, in effect, raised 47 places in the assessment, the result of which was that the notional funding impact on the NHS in Cornwall was much less than it would have been had there been a direct link to   local wages outside the NHS. Although everyone might have argued about it, no one disagreed with the fundamental principle that there should be adjustments to reflect local costs. However, I am not aware of anyone arguing that the NHS costs should directly reflect local wage rates.
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Under the old system, the Royal Cornwall Hospitals NHS trust was assumed to be able to operate at 4 per cent. below the national average in funding terms—indeed, it was regarded as efficient because it was operating slightly more cost-efficiently than that. However, a year or so ago, a new system was introduced in relation to the market forces factor. That system introduced a direct 1:1 ratio in respect local wages, with no dampening for low or high-wage areas and, perhaps even more significantly, taking into account all 117 wage zones. In effect, Cornwall dropped 47 places and then got no help in acknowledgement of the fact that the impact of those low wages would not directly transfer into NHS costs.

The result of the introduction of that new system was a huge increase in the range between the highest and the lowest, with the Royal Cornwall Hospitals NHS trust, for example, which is in the lowest-pay county, being at   minus 12 per cent. of the level at which it could notionally operate compared with national average funding needs, and the highest hospital in London being at plus 28 per cent. That is a full 40 per cent. range in the levels of costs at which hospitals were assumed to operate, despite the fact that they continued to work on the basis of national pay scales. That change in reference costs meant that, in one year, the RCHT moved from being patted on the back for being relatively efficient against the reference costs, to being told that it was performing very badly, despite the fact that its actual costs had not changed at all.

The basis of the change is questionable. It is hard to see how it can be assumed that the difficulties of recruitment and retention in high-wage areas and the costs of extra agency nurses, and the ease of recruitment and retention in low-wage areas because of the NHS being relatively well paid compared with those outside, could lead to the costs in the NHS being directly related to average wages. It would be a bit of a coincidence if there were a 1:1 link. It is hard to see how there could be.

When I asked where the notional link came from, the first answer that I received was that it was based on research data from Warwick university. However, the university applies only the wage data; it has not done any research that indicates what effect that has on NHS   costs. I then asked who had done such research. However, as far as I can determine, there is no independent academic research that verifies the link, nor has there been any internal, Department of Health research that verifies it. It seems to be no more than a theory.

That theory would not matter too much, if it did not relate to the funding that our hospitals will receive in future. However, with the introduction of the system of tariffs, funding will be adjusted over time—it will not happen overnight—to bring the amount that hospitals get for each operation in line with the tariff, and it seems that the tariff is to be directly in line with the notional link between wages outside the NHS and inside it, despite the fact that in my area, we have the lowest wages in the UK outside the NHS, whereas inside the NHS we operate on national pay scales.

As that system is brought in, other areas will receive funding increases, but we will not share equally in the increase, because the aim is to bring the tariff into line with the idea that hospitals' costs are linked to local wages. Cornwall's will then fall gradually to become the
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worst-funded health service in the UK because, outside the NHS, we have the lowest wages anywhere in the country, and Devon will not be far behind us. The new system assumes a direct 1:1 link between local wages and NHS costs despite national NHS pay scales. The full impact will be a downward adjustment of Devon and Cornwall funding of £102.3 million in 2003–04. As I said at the start, I am not saying that there should be no adjustment to take account of local costs, but it is hard to understand why it is believed that there should be a direct link with our very low local wage levels.

Ms Candy Atherton (Falmouth and Camborne) (Lab): I am interested in the hon. Gentleman's argument and have been following it carefully. What does he think the adjustment should be?

Matthew Taylor : Since 1976, when the last detailed academic research took place, we have operated on the system that I described, which would result in a much smaller adjustment. That is what happened before. In those circumstances, the RCHT was operating at lower costs than expected; now, it is argued that its costs are higher than expected, but the difference for the trust is the difference in funding from a 4 per cent. negative to a 12 per cent. negative compared with the national average. I would certainly prefer the old system—I might argue that even that was ungenerous, given the other costs of operating in a wide geographic dispersed area, the cost of tourism, and so on.

The question for the Minister is why the Government have decided to change from a system that existed until a couple of years ago at the very moment that they are introducing a tariff system that will have a maximum impact on our hospitals. I hope that the hon. Lady will join the Liberal Democrats, who are opposing what, if implemented, will be a huge smash-and-grab raid on Cornwall NHS funding.

Andrew George (St. Ives) (LD): Is my hon. Friend aware that the movement towards greater dependence on the market forces factor contradicts the outcome of a meeting that I had with the Minister of State, Department of Health, the right hon. Member for Barrow and Furness (Mr. Hutton), in June this year? He acknowledged that Cornwall's NHS funding was below national averages and that in the review of formula the intention was to bring Cornwall's funding closer to national parity, because he thought that Cornwall was being underfunded. My hon. Friend seems to contradict what the Minister assured me back in June.

Matthew Taylor : The Government have some history of that, because when the former Secretary of State for Health, the right hon. Member for Holborn and St. Pancras (Mr. Dobson), intervened to keep the cottage hospitals open, he promised that we would get a review of funding that would result in increased funding. He did so precisely because he accepted that the problem in maintaining hospital services in the county was caused by fair money not being made available. However, he was replaced and we heard no more about the change. We now face radical change in the opposite direction,
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which will mean that Cornwall's NHS will get the worst funding in the country under the Labour Government, because we have the lowest wages outside the NHS. To be frank, that is hard for people to understand and accept. It is particularly hard to accept from a Labour Government who, in many other Departments, are trying their best to improve the situation in Cornwall and to put in increased investment precisely because of our poverty.

In Education questions the other day, I asked the Under-Secretary of State for Education and Skills, the hon. Member for Enfield, Southgate (Mr. Twigg), whether there were plans to introduce the same crazy system in education, where there is a broad area cost adjustment, and therefore more money for high-wage areas than for the rest of the country, but nothing that ties funding directly to local wages. He ruled it out. It is hard to see why it does not apply in education, but does apply in the NHS. That shows a lack of joined-up government—at least I hope that that is the explanation; if not, the implication is that we will see the same trend in police funding, education funding and local government funding. It is hard to see why the Government would not do that if they believed that it was right for the NHS.

The crucial point is that the final decisions have not been made. The Government have said that they will apply a market forces factor and that the principle of that is not open for negotiation. As I have said, we are not arguing that it should not apply. It has for many years been accepted in broad terms across the parties that some kind of adjustment needs to be made. The issues still up for decision are how great the impact will be on individual trusts and whether it will be fair to individual trusts, which I take to mean that the link to very small-scale changes in wages will go all the way through the system so that Cornwall will get the least help of any area. I hope that I can persuade the Minister to go to her colleagues and argue that that cannot possibly be right.

I have some specific questions for the Minister, of which I have notified her. First, I would like an answer   to my question about the academic research underpinning the theory. I cannot establish that there is any. If the Minister says that there is, I hope that she will place it in the House of Commons Library so that hon. Members can see it—after all, Cornwall is not the only area affected by such issues, even if it is the worst affected. Secondly, if we are going to base figures on local wage rates, even if only partially, what is the date of the pay survey currently being used and how often will it be updated? Wages can change rapidly, and the anecdotal evidence suggests that they are changing rapidly in Cornwall; public sector employers such as the county council and the hospitals used to find it easy to recruit administrative staff, for example, on relatively low local government and NHS pay grades, but they are now finding it very difficult to recruit or retain staff because private sector salaries are rising. That is a sign of the success of policies such as objective 1 funding in improving the economy, but it suggests that if out-of-date figures are adopted, the results will be very unfair.

I understand that Devon and Cornwall will be the areas worst hit by the change. That would be quite out of line with the effects in most areas. Can the Minister confirm that? When will the final decision on tariffs be taken? My hon. Friend the Member for North Cornwall
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(Mr. Tyler) wrote to request a meeting through the Secretary of State for Health with one of the departmental team, and we would still appreciate such a meeting. Although I would be grateful to hear from the Minister what was said, we would like to talk the matter through in detail before a final decision is taken.

To be blunt, it is extremely unfair of the Government, and wrong in principle, to assume that there is a direct link between local wages in the poorest parts of the country and the ability to deliver health services in an NHS that still operates on national pay scales. I hope that the Minister can see that, and that although she may not be able to give a final verdict on the decision, she will agree to take the issue back to her colleagues.

4.17 pm

The Minister of State, Department of Health (Ms   Rosie Winterton) : First, I congratulate the hon. Member for Truro and St. Austell (Matthew Taylor) on securing the debate. He and other hon. Members with constituencies in the south-west peninsula have raised the topic in the House on several occasions. Before I    speak to the specific issues, I thank the hon. Gentleman for drawing attention to the very good work that is being done by NHS staff throughout the peninsula and the fact that they are delivering good-quality services. I join him in paying tribute to all the staff, who are dedicated and committed to the process. Ministers from the Department of Health spent a day in the area recently; unfortunately, due to parliamentary business, I could not go, but I know that my colleagues were most impressed by the range of projects and facilities that have been developed across the peninsula. They saw for themselves the commitment of NHS staff in the area.

I thank the hon. Gentleman for acknowledging the   Government's increased spending in the NHS. He   described concerns about funding, but between 2003 and 2008, in addition to the increased expenditure in the NHS, it will be improved even further, by about £36 billion. That means that NHS organisations in the   south-west peninsula are receiving record funding increases. Altogether, primary care trusts in the peninsula will receive a cash increase of nearly £390 million over the three-year period. The three PCTs in Cornwall will receive an increase in funding of more than £125 million—a cash increase of 30 per cent. I am glad that the hon. Gentleman agrees that funding has increased that that it reaching the local level. Some real changes are resulting: waiting times are falling; patients with suspected cancer are seen by a specialist very quickly; 96 per cent. of patients are in and out of accident and emergency within four hours; and new buildings and new facilities are coming on stream .

The hon. Gentleman touched on some of the problems that the area faces in achieving financial balance. Obviously, I am sure that all hon. Members agree that the annual expenditure of the NHS must remain within the resources allocated by Parliament. NHS organisations, including those in Cornwall, receive a fair share of resources and have a corresponding responsibility to manage them effectively. If they do not do that and we have to wipe the slate clean in one area, the money has to come from another area within the NHS.
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That is not to say that I do not recognise some of the challenges facing the south-west peninsula. The strategic health authority and the Department's recovery and support unit are working closely: the unit meets the SHA monthly to discuss its progress against key requirements and performance targets. Following representations from local Members, including my hon. Friend the Member for Falmouth and Camborne (Ms Atherton ), about the problems sorting out the deficit within the one-year target that was set, we advised the South West Peninsula SHA that we would allow it a maximum of two years to repay the debt and return to recurrent financial balance. That means that the SHA as a whole is working to a maximum deficit control of £15   million for the current year, but must deliver recurrent balance by the end of next year. The latest information from the SHA shows that it is working toward delivery of that control total. Regular meetings take place and we are giving all the central support that we can.

In the past, the weighted capitation formula was criticised for failing to get health services to the areas of greatest health need. We therefore undertook a wide-ranging review of the formula before the latest allocations round. The new formula provides a better measure of health need in all areas. In calculating health needs in rural areas, it takes account of the effects of access, transport and poverty. It also uses better measures of deprivation, which are capable of being updated regularly.

I turn now to the concerns that the hon. Gentleman raised about the workings of the market forces factor. Again, as he acknowledged, the market forces factor is not a new concept. All versions of the allocations formula in the past 20 years have had a market forces factor weighting to recognise the different costs of labour and land across the country. The need for that was identified by the resource allocation working party in 1976 in recognition of the fact that the costs of care may vary from place to place. The current approach has been in place since 1996 and is based on wage rates in the external labour market that are adjusted for occupation, so that they are on a like-for-like basis. They are not based on whether an area is poor or well off: for example, the more deprived areas in central London have some of the highest market forces factors.

There is substantial academic research to support the   market forces factor. The current approach was adopted following a 1996 report by academics at the university of Warwick, which was reviewed in 2001. That research is in the public domain and a link was placed on the Department of Health website when the reports were published. However, if the Library does not have copies of the report, I undertake to ensure that it is given them.

Matthew Taylor : I appreciate that, but will the Minister confirm, first, that the full 1:1 link has been made in assessments of local expenditure only in the last couple of years, and that only when the tariff system is introduced will the full impact on the moneys received be seen? Secondly, can she confirm that the Warwick work is an analysis of the distribution of pay on the basis that she described, not an analysis of the way in which
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that has an impact on NHS costs? The latter is purely a theory, not something that is backed up by academic research.

Ms Winterton : Two changes were made to the market forces factor for the last allocations, which were based on recommendations made by the advisory committee on resource allocation. The 1:1 factor and payment by results will not have an impact on how much funding is directed into an area by the market forces factor, because that is already used as a mechanism to set the general allocations for PCTs.

To answer the hon. Gentleman's question about where the latest evidence comes from, it is based on the last three years of the new earnings survey, so for the 2003–04 to 2005–06 allocations the relevant years are 1999, 2000 and 2001. The hon. Gentleman asked when the data would be updated. I can confirm that we will do
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that as and when we need to. As I said, we have received advice and recommendations from the advisory committee for the forthcoming allocations round. Although the hon. Gentleman would like us to confirm today what those allocations are, I am afraid that that announcement will have to wait.

I end by saying that I would be more than happy to meet hon. Members from Cornwall and, I hope, discuss even more of the issues that have been raised today. NHS resources are increasing, but there are financial challenges. My Department is working closely with the SHA and others to ensure both that the difficulties being faced do not cause problems for services, and that financial balance is achieved in the local health economy.

Question put and agreed to.

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