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The Parliamentary Under-Secretary of State for Health (Dr. Stephen Ladyman): I congratulate the hon. Member for St. Ives (Andrew George) on securing the debate. I know that he feels strongly about the national health service and he is right to congratulate NHS staff throughout the country and in Cornwall on their excellent work—his wife included, no doubt. I am pleased that he acknowledges the funding that is going into the NHS. I reply to many Adjournment debates and usually—certainly when Conservative Members are raising these issues—one would think that we were spending less than in 1997 rather than about double.

The latest round of revenue allocations to primary care trusts, covering 2006–07 to 2007–08, represents further investment in the NHS of no less than £135 billion: £64 billion to PCTs in 2006–07 and £70 billion in 2007–08. That is equivalent to an average increase of 9.2 per cent. for 2006–07 and 9.4 per cent. for 2007–08, and an average of 19.5 per cent. over the two years.

The hon. Gentleman said that I would give him lots of figures and he is quite right. With an election under way, I am not likely to let anybody forget that the Labour Government are responsible for a huge reinvestment in the NHS. His constituency has benefited, too. PCTs in Devon and Cornwall will receive cash increases of more than £368 million for the two-year period. The West of Cornwall PCT, in the hon. Gentleman's constituency, will receive an increase of £37.4 million or 19.9 per cent. for the two years. Those are considerable increases in funding, however we cut it.

The hon. Gentleman raised issues about the funding formula specific to his constituency. I have been a Health Minister for two years and have thoroughly enjoyed it. Electorate and Prime Minister willing, I shall be delighted to carry on for another years. In that time, I have answered an awful lot of Adjournment debates and have heard reasons from every Member of the House as to why his or her constituency is a special case and needs special additional funding. The hon. Gentleman's argument is the first that I have had real sympathy with, because my constituency, too—albeit in east Kent—has land to only one side and it had never occurred me to use
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that as an excuse for trying to wheedle some more money for the health service. Now that the hon. Gentleman has done that, I shall bear it in mind, but I fear that I cannot be too helpful to him tonight.

The formula that the Government inherited was not getting health services to the areas of greatest health need, so we undertook a wide-ranging review of it before the allocation rounds. 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 uses better measures of deprivation that are capable of being updated regularly.

The market forces factor of the allocations formula is not a new concept. In fact, all versions of the allocations formula for the past 20 years have included a market forces factor weighting to recognise the different costs of labour and land across the country. I hope that the hon. Gentleman would agree that it is right and proper that the different costs of land and labour are reflected in the allocations formula to ensure that funds are allocated fairly, but we did not just pluck the formula from the air. It is not an invention of Ministers or politicians. Its development has been overseen by the Advisory Committee on Resource Allocation, and it is the result of many years of analysis by academics.

We recognise that this is a complex issue, which is why we have sought the advice of experts to ensure that the model used to calculate these costs is fair. To the best of my knowledge, the hon. Gentleman has not made any objective criticism of that factor or challenged the opinions of those experts, other than to say that, because he does not like the result that the formula gives us, the formula must be wrong. It is my view that the market forces factor is the best mechanism available to reflect unavoidable differences in the cost of providing services.

For the latest round of allocations—as I say, those for 2006–07 and 2007–08—changes have been made to that factor also to support the implementation of payment by results: the number of zones has been increased from 119 to 303, and they will match the geography of PCTs. An adjustment has also been made to the weights for multi-site trusts in the land and buildings indices.

Andrew George: I am not trying to wheedle out money, but the fact is that the Minister has not answered the question about why other Departments do not use a market forces factor, or something similar, in circumstances where national pay scales apply. In fact, people on local pay scales cannot undertake operations, for example, or provide the kind of service that those in hospitals provide on their national pay scales. That is why the funding formula does not properly reflect the true costs of providing the service.

Dr. Ladyman: I note the hon. Gentleman's opinion. I cannot tell him why other Departments have not used such a factor. I suspect that Ministers from other Departments answer Adjournment debates on other evenings of the week in which they are asked why they do not implement the same formula as the Department of Health. The fact is that an expert advisory panel
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works out the allocation formula that we use. We believe that it takes account of such factors in as fair a way as we can come up with, but if he can provide objective reasons to that expert panel that would lead us to believe that we have got it wrong—that is why the panel exists— that would help us to refine the formula and to get it right in future years.

Andrew George rose—

Dr. Ladyman: Let me deal with some of the issues that relate to payment by results. In fact, I suspect that payment by results will help the hon. Gentleman a little bit, and I shall explain why.

Under the new system, instead of funding based on historical patterns, hospitals and other providers of care will be paid a fixed price for each patient treated. The prices are based on health care resource groups—groupings of treatment episodes that are similar in resource use and in clinical response—thus reflecting the complexity and cost of providing care. The incentives within the system will help to increase the number of treatments provided by rewarding providers for the work done.

The current figures provided to the Department by the Royal Cornwall hospital suggest that, once payment by results is fully rolled out, the hospital would gain about £13 million. For 2005–06, payment by results will cover only elective activity, and to create a smooth transition, a cap of 2 per cent. has been placed on organisations' gains or losses under the system for this year. The Royal Cornwall hospital consequently stands to gain about £1 million on its baseline activity, as a result of the introduction of payment by results. If the trust performs more activity, it will do even better under the new system. So the financial gains that the trust stands to make will be available to it to invest in quality-enhanced local services and facilities.

For primary care trusts, payment by results will support the development of a more effective approach to commissioning. In place of block contracts or service level agreements, primary care trusts will commission the volume and mix of activity needed by their communities. The introduction of a national tariff will remove the need for price negotiation and focus discussion on the quality of care.

As the organisations that control more than 80 per cent. of the NHS budget, primary care trusts will have an incentive to provide as much care as possible in the most appropriate settings and to avoid any inappropriate admissions to hospitals. In this way, the new system will help to support the development of care closer to home, and the emphasis will be on improving the quality of care for people with long-term conditions. I strongly believe that that will help the hon. Gentleman's constituency.

Another factor in his constituency is out-of-area treatments. Central Cornwall primary care trust has received an extra £4.2 million to cover the costs of the out-of-area treatments that it performs. Under payment by results, the system for funding treatment given to people who fall ill away from home will change and hospitals in Cornwall will be able to invoice the home primary care trusts of their visitor patients directly. This will ensure that the funding is received directly by the
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hospital within reasonable time scales and, by using the national tariff, there will be no need for home commissioners to engage in discussion about costs.

That brings me to the issue of the inherited debts that the hon. Gentleman raised. As for the challenges of achieving financial balance, I am sure that he will 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 without relying on financial support from the centre or from other parts of the NHS. There is a finite amount of resources available to the NHS each year. Where an individual NHS body has a deficit, the overspend has to be matched by underspends elsewhere. This debt must be repaid. We cannot just wipe the slate clean as it would send the wrong messages about responsible financial management to others who balance the books year on year.

Achieving financial balance is a key requirement for all strategic health authorities and the Department's recovery and support unit meets every SHA on a monthly basis to discuss their progress against key requirements and performance targets. For the south-west peninsula, the task of achieving financial balance is particularly challenging. Therefore, we advised the South West Peninsula SHA last year that we would allow it two years to repay the debt and return to recurrent financial balance. This means that the SHA as a whole is working to a maximum deficit control of £15 million for 2004–05, but must deliver recurrent balance by the end of next year. The latest information from the SHA shows that it is working towards delivery of this control total.

The Department, in conjunction with the SHA and the local health economy, is committed to delivering an affordable and sustainable financial position, while delivering the necessary and appropriate levels of service delivery to the local population. The PCTs in Cornwall have developed recovery plans, and the director of finance at the SHA meets monthly the local NHS organisations to discuss financial performance, the risks to delivery and the measures being taken to meet the recovery plans. I am assured that the local health community, with the support of the SHA, believes that it can achieve financial balance while delivering key targets.

The hon. Gentleman also asked about the role of the independent sector. As he said, we are committed to working with the independent sector to provide the best possible services to NHS patients. The independent sector treatment centre programme has already benefited more than 17,000 people. ISTCs have helped us to cut waiting times for NHS patients.

I assure the hon. Gentleman that there will be no target for independent sector usage. That is made clear by Sir Nigel Crisp, the chief executive of the NHS, in his recent publication "Creating a Patient Led NHS: Delivering the NHS Improvement Plan". We are committed to delivering a further national procurement valued at £500 million. The Department of Health is working with the NHS to develop proposals that provide the capacity needed to deliver 18-week waiting times, promote innovation and offer more choice to patients across the country.
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The independent sector programme is enabling us to offer new and innovative services to patients in more rural communities. In the south-west peninsula, mobile treatment centres performing cataract operations have visited Plymouth, Tiverton, Hayle and Barnstaple and performed more than 1,700 operations. That means patients coming off waiting lists to have their cataract surgery quickly.

In Plymouth, we will be opening a treatment centre in May 2005 to perform the nearly 3,000 operations annually that the NHS has indicated it needs. The majority are much needed orthopaedic operations. In east Cornwall, a new treatment centre will open in October 2005 to deliver more than 4,000 operations annually, again largely ophthalmic and general surgery. Expanding access to independent sectors providers will give NHS patients greater choice, and ensure more contestability for the NHS, driving up standards for all. I hope that the hon. Gentleman will agree that, even in the circumstances that he has described, it is possible for his constituents to benefit from the independent service providers.

The hon. Gentleman also raised issues relating to the configuration of services, and I hear the points that he makes. It is important, however, to recognise that the decisions are not made in Whitehall by Ministers; they are made locally. There are different opinions about the configuration of acute services everywhere, including in Cornwall. I think that it is right and proper that decisions are made in Cornwall, because I do not know the position there. I cannot make the decision in my office in Whitehall that he and his constituents could make. That is why responsibility for commissioning decisions is devolved to the local area.

Cornwall is already served by three district general hospitals at Truro, Plymouth and Barnstaple. Approximately 120,000 people from Cornwall live in the catchment area of the hospitals in Plymouth and Barnstaple, and there are smaller acute hospitals in Penzance and Hayle, as well as an extensive network of community services throughout Cornwall. The local NHS is trying to make services as locally accessible as possible when it is clinically safe to do so. To achieve that, it has increased the number of operations undertaken and clinics run at the two smaller acute hospitals, as well as the number of clinics and minor injury units.

I am pleased to say that the hon. Gentleman engages with his local NHS. That is not true of all hon. Members who secure Adjournment debates to which I respond, because they sometimes seem to debate such matters before even raising them with their local PCT. I congratulate him on being prepared to engage in the matter, but the debate must take place in Cornwall. I am sure that there will be an opportunity for people to engage in that debate over the next few weeks.

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