Examination of Witnesses (Questions 20-39)
MR JOHN
BACON, MR
MARTIN CAMPBELL,
MR ANDREW
FOSTER AND
MR CRAIG
MUIR
28 OCTOBER 2004
Q20 John Austin: Let us take another
example where the Census got it wrong. Let us take the example
of part of the area I represent, which is in the Thames Gateway,
which is undergoing massive population growth. I represent an
area which has two PCTs, both in deficit, and two hospital trusts,
both with substantial deficits—Queen Elizabeth's and Queen
Mary's—and no additional funding coming in to take account
of the growth of the population or certainly not commensurate
with that growth of population. How is that going to be addressed?
Mr Bacon: The way in which we
work this is that we look to ONS to give us the best advice possible
on the population for the period we are allocating. We know that
areas grow and occasionally the growth of a population is ahead
of the ONS forecasts. As the ONS forecasts catch up with that
growth of population, so the allocation reflects that. We are
aware that there are areas of growth, and Kent is one of them,
where I think I am right in saying that for Kent and two other
growth areas we have made a special allocation this year of 20
million to reflect the fact that you will need to be putting some
infrastructure in place ready for that population to arrive.
Q21 John Austin: Perhaps you can provide
a statement of where that allocation has gone.
Mr Bacon: There are three areas,
one of which is Ashford in Kent, one is the Stansted corridor
and the other is Milton Keynes. We can give the Committee details
of that.
Q22 John Austin: Neither of which is
Greenwich or Bexley.
Mr Bacon: I should have said also
within the Thames Gateway, forgive me, I forgot. Actually that
is the principal recipient. Let me stress the point here that
this is in recognition of the need to start to develop the infrastructure
to receive that population rather than a reflection of the fact
that we are slightly out of kilter on the population itself.
Q23 Mr Bradley: From that, you are establishing
the principle that you can make special allocations outside of
the total budget that you set at the beginning of the year for
exceptional circumstances so where you can project an increase
in population you are putting additional resources in and where
it has been shown that thousands of people in Manchester actually
exist because we pointed out to the Census people that people
who pay council tax tend to exist rather than not be on the register,
and we were surprised they did not agree with that position, there
is an opportunity to make an additional allocation in the circumstances
my friend has described but you cannot do it for the thousands
of people who are actually receiving care and treatment in Manchester
currently.
Mr Bacon: I said earlier that
ONS had assured us that this Census was the most accurate that
there has been.
Q24 Mr Bradley: But it has been discredited.
You are compounding the problem by accepting it.
Mr Bacon: The point I was going
to make is that there are other areas of the country. I happen
to live in the Borough of Westminster which appeared to have lost
a quarter of its population overnight in the Census and there
are other instances where ONS are looking at the numbers in the
Census. I think the difficulty is we could not completely rerun
the model during the course of our three year allocation process
and reallocate money that we had already allocated and, therefore,
we took the decision, in my view rightly, that we would live with
the allocations that we had made and that we would revise for
the next allocation process based on the new ONS statistics. That
was the decision that we took.
Mr Bradley: All I can say is you may
say it is right but I think it is wholly wrong.
Q25 Mr Burns: Can I just pick up one
point there. You said that the Department was making extra money
available in anticipation of development in Ashford, the Thames
Gateway and the Stansted/M11 corridor, but what happens though
if a local authority has to build 14,000 extra dwellings between
now and 2011 in an area that directly adjoins the boundary that
has been drawn for the M11/Stansted corridor, because 14,000 extra
dwellings over a relatively short period of time is going to have
a significant impact on the provision of health care and yet they
will not be getting any of this extra money?
Mr Bacon: The straightforward
answer is that we took the decision to restrict this to the designated
areas.
Q26 Mr Burns: Even though with the designated
areas there is an inevitable overspill?
Mr Bacon: We have never sought
to seek to adjust for every development. We have taken the decision
to adjust for these four designated areas.
Q27 Mr Burns: Right.
Mr Campbell: I think it is worth
adding that for the next set of allocations, the ONS population
projections that we will be using should take into account exactly
those sorts of developments.
Q28 Mr Burns: When will that be?
Mr Campbell: That will be for
2006-07 and 2007-08.
Mr Burns: In Mid Essex, my own PCT, there
is a serious deficit and there is an argument—
Chairman: Can you say how serious, Simon.
I am interested in how you define "serious".
Mr Burns: About £4.5 million.
Chairman: I will be a bit more serious
in a moment or two.
Q29 Mr Burns: Fortunately they have not
got problems on the scale that you have. For the Mid Essex area
that is having quite a serious impact on the provision of services.
There is a school of thought that PCTs in Mid Essex are actually
too small and there seems to be a movement to vote with their
feet in that the chief executive of the Chelmsford PCT is now
exactly the same person as the chief executive of the Braintree
PCT, which seems sensible because you are saving a salary, etcetera.
Is there not an argument in the light of the experience of PCTs
so far to allow some of them that are considered too small to
merge so that one can cut out some of the bureaucracy in the senior
management to save costs which can be ploughed back into patient
care? If one agrees with that analysis, and I see you nodding
your head in what I assume is an affirmative way, when will they
be allowed to do it?
Mr Bacon: Currently we have 302
PCTs across the country and those were determined by some natural
population groupings and what we considered at the time to be
sensible populations through the local development of primary
community based services. PCTs have essentially three roles, two
of which suggest smaller populations, one of which suggests larger
populations. The role in terms of developing primary community
based services and in local public health issues really does benefit
from small-ish scale.
Q30 Mr Burns: What is your definition
of "small-ish"?
Mr Bacon: I think something up
to 200,000 population. In London they are slightly bigger because
they are coterminous with the boroughs of London, which is a very
sensible arrangement. Across the piece, 150,000 to 200,000 lends
itself to that sort of activity. For what we have termed as their
commissioning arrangements, which is the interaction with NHS
trusts and other providers, in a sense we would take the view
that probably a larger size would be sensible. In the immediate
term we want to avoid massive disruption by another wholesale
set of structural changes, and I think this Committee has expressed
views on that before, but we do see, particularly for the areas
of business which benefit from larger scale, that where it is
appropriate to do so we should allow PCTs to share senior managers
which concentrates expertise and reduces bureaucracy. Across the
country we have given people permission to put those arrangements
into place. What we have not formed a view on yet, and at the
moment it would not be appropriate to do so, is whether over time
we would wish to move towards rather more formal mergers of those
organisations.
Q31 Mr Burns: That is very interesting
because there is a school of thought that the Government does
actually want to allow mergers where it is sensible, where you
do not lose the whole ethos of local organisations providing local
health care, but they will not do it before the next General Election
although they will immediately after the next General Election.
I am not quite sure why the General Election should be so important
in taking these decisions. If you are here in a year's time, on
the assumption that the General Election has taken place, and
mergers have been allowed and given the green light, it will be
quite interesting to hear your analysis of the situation then
as opposed to what it is now.
Mr Bacon: I think it would be
inappropriate for me to comment on what Government may or may
not decide on this matter either before or after the election.
The stated policy position as of today is that we are not allowing
mergers of PCTs and, indeed, our ministers have taken that decision
in one or two specific cases recently. Of course, we will continue
to reflect on structural issues as we progress through this major
series of reforms.
Q32 Mr Burns: In a year's time I look
forward to your answer.
Mr Bacon: If I am here in a year's
time I would be delighted to discuss it with you again.
Mr Bradley: You are assuming no change
in Government, Simon.
Q33 Chairman: Can I press you further
on the whole issue of financial controls giving an example I referred
to a moment or two ago of the situation in the Mid Yorkshire trust
which covers part of my constituency. In terms of the 2003-04
financial year they had a report to their trust on 2 May 2003
indicating a gross financial gap of £19 million with £8.4
million of identified savings proposed, leaving a residual 10.6
million financial problem. The picture looked broadly similar
with a financial outturn deficit worst case of 8.7 million reported
in July 2003. We had a new financial director who appeared later
in the year, I believe in August, and the trust board was told
on 3 October that the gross financial challenge was by then £34
million. What I do not understand is how we have a situation where
a trust is given figures which are markedly different over a very
short period of time. Without looking just internal to the trust,
my concern is, and this is what the first question was from my
point of view in this session, is there sufficient financial rigour
at SHA level outside the trust looking at the way that trusts
are managing their finances? I find it incredible that we can
have a situation where the board are being told one thing in one
month and something fundamentally different a couple of months
later.
Mr Bacon: First of all, if I briefly
describe the mechanism for monitoring and performance managing
financial control and then I will come on to talk about the specific
trust that you have mentioned. The process we currently have,
as I said earlier, is the basic financial duty of the trust is
to break even taking one year with another. Each year a trust
is required to produce a business plan which demonstrates prospectively
that it can achieve financial balance or, if it is forecasting
that it cannot, what mechanisms will be put into place either
to bring it back into balance or to give it transitional support
while it is coming back into balance. When I was describing earlier
the process of leaving deficits where they lie, that does not
exclude the possibility of prospectively giving support to an
organisation which has any structural problem or whatever to
overcome in order to do the balance. That arrangement is put into
place prospectively and then on a monthly and more rigorous quarterly
basis the health authority examines, monitors that performance
and reports to us. There is a process of that to do. We were aware
during the course of 2003-04 that the trust that you referred
to, which I think is called Mid Yorkshire Trust?
Q34 Chairman: Yes.
Mr Bacon: Was running into serious
financial difficulties and the health authority were giving very
heavy oversight to that. There were changes in the finance structures
and reporting and subsequently changes in the chief executive
and the health authority put one of their senior directors into
the trust to seek to help overcome the issue but by the time the
issues were really fully understood by the new finance director
I think the issues were too big to deal with in year. As you no
doubt know, that trust is on a very heavy recovery programme currently,
very heavily overseen by its health authority and is managing
its way back into current balance. I should stress that I think
this is an exceptional circumstance. We commented last year on
North Bristol, if you remember. We would seek to avoid these but
from time to time, sadly, there will be a failure of financial
control in trusts where that happens, given that we have got 572
of them, but the mechanisms are put in place to minimise the risk
of that happening and to ensure rapid intervention when we discover
it.
Q35 Chairman: When you discover it. This
trust has been in deficit and its predecessor trust in quite serious
deficit over many, many years, this is not a sudden discovery.
The discovery is jumping from the one figure I mentioned of 19
million to 34 million in two months which was a concern but that
19 million reflects a problem over a long period of time. Having
been in local government, I cannot see this kind of situation
occurring in local government. I find it very interesting that
we do not appear to have mechanisms to address this kind of serious
problem which has been going on, not just for two months but for
many years.
Mr Bacon: I would not dispute
the fact that this is an example of failure of financial control,
there is no purpose in trying to do that.
Q36 Chairman: Obviously you are aware
because you are prepared on this issue and you had an idea that
I might be interested in this issue. Where has the failure been
because the failure is not just within the trust, the failure
is elsewhere, the failure could arguably be in your Department
as well as the SHA?
Mr Bacon: If we come back to a
very early discussion we had this morning about the ability of
the system in the past to move money around to disguise these
issues, I think I am right in saying that this trust in the year
before the one we are talking about had a deficit of around about
£2 million. Clearly that disguised an underlying position
that was much more serious than that. I think the ability of the
system to cover that through the sort of manipulations I have
talked about, legitimate as they were at the time, probably led
the trusts to feel that they did not have to take these issues
as seriously as they should. The current system really does focus
attention very heavily on individual organisations such as this.
We are now of the view that the regime that we have put in place
very recently, and remember we described this for the first time
last year, will, over time, ensure a much tighter position. The
Wakefield and Pontefract situation, as you rightly described,
had been developing over many years and really came to a head
in 2003-04. You are quite right to say that the system should
have been much sharper on addressing that earlier, but it did
not and what we are trying to do now is to ensure that in future
situations of that sort we are much more on the ball and quicker
to intervene.
Q37 Chairman: Can I ask you about the
issue of monitoring the financial performance of foundation trusts
because in the last few days we have had this development in Bradford,
again which is near to where I am from. As a Committee we are
particularly interested in Bradford because we had them as witnesses
in our inquiry into foundation trust status. My understanding
is that prior to the prospectus being issued by the Bradford Trust
in terms of foundation status, there was a dispute between the
acute trust and the three PCTs over payment for treatment, an
issue of £2.5 million. There was adjudication by the SHA
in favour of the PCTs but this was before the submission of the
prospectus in terms of foundation status. In the prospectus the
trust had stated that the SHA had found in their favour on this
dispute, in other words that they had an income of £2.5 million
higher than they actually had. Are you satisfied that the regulator,
in terms of approving this application, was sufficiently rigorous
in analysing the financial circumstances of this foundation trust
application?
Mr Bacon: Chairman, you are correct
in your comment about the adjudication of the specific issue.
I find myself in some difficulty answering the rest of the question
because, as you know, the monitor accounts directly to Parliament
and, therefore, to this Committee on issues of how it appraised
the prospectus and how it has dealt with the financial issue subsequently.
I think the regulator has submitted some written evidence to this
Committee about how it approaches that. It would be inappropriate
and, indeed, impossible for me to comment on that because I do
not know how he approached it.
Q38 Chairman: So to get any information
at all about this trust and what has happened, we need to get
the regulator before the Committee?
Mr Bacon: Yes.
Q39 Chairman: So for every foundation
trust where we have got questions about the manner in which they
presented their prospectus or management details, we have to have
a session with the regulator on each trust, is that what you are
saying?
Mr Bacon: It is my understanding
that the regulator accounts directly to Parliament for his actions.
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