I am pleased to have secured this debate about the future of NHS Logistics and the market testing process being carried out as part of the review of NHS arm's length bodies following the Gershon report. I have a constituency interest in that one of the six distribution centres that services the NHS supply chain is based at Somercotes Alfreton in my constituency. The centre, which employs about 400 staff, also serves as the headquarters of NHS Logistics. Labour Members who have NHS Logistics sites in their constituencies or whose constituents work at sites in neighbouring constituencies have been visiting the sites over the past year and more, we have held meetings and written to Ministers and recently tabled a number of parliamentary questions. Not all those Members who have a constituency interest are able to be here todaytwo are Ministers, so they are barred from participating in the debate, and a couple of others have inescapable commitmentsbut all are concerned about NHS Logistics.
That was the former Health Secretary, my right hon. Friend the Member for Airdrie and Shotts (John Reid), talking about NHS Logistics when it scooped a top award at the Health Service Journal awards. The award was for improving care through its work on developing an e-technology system and a good computer system. NHS Logistics received a large number of compliments for that work and for saving large sums of money through its systems.
Jonathan Shaw (Chatham and Aylesford) (Lab): I congratulate my hon. Friend on securing this debate. Is she aware that last year NHS Logistics beat all comers, including private sector organisations, to win the coveted supply chain of the year award, which is organised by Motor Transport magazine?
Judy Mallaber : Yes, I am. NHS Logistics has won a string of awards. For example, last year it won an IT technology award for which it was praised by Sir Nigel Crisp. I am particularly interested in the IT awards, because we are told that the need for investment in a new computer system is a major reason for bringing the private sector into the NHS supply chainin the role that is currently fulfilled by NHS Logistics. We hear that
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such investment can be funded only by the private sector, yet NHS Logistics has won many IT awards as well as awards for its other functions. That is just one of the things that puzzle those of us who have NHS Logistics sites in our constituencies.
We are also puzzled by some of the arguments that have been made for moving the service into the private sector. There is much on which I agree with my right hon. Friend the Minister. It is sensible to review the plethora of arm's length bodies to ensure that they provide value and effective services and work as efficiently as possible. It is also reasonable to keep the NHS supply chain under continuous review to ensure that it runs efficiently and to seek improvements. The evidence from our visits suggests that the supply chain is run efficiently. While safeguarding the security of the supply chain, we should also ensure that maximum resources are available for front-line patient care.
While we would not dispute that we have some common ground with the Minister, I and other hon. Members have sought this debate because there is under way a process of market testing to decide whether the private sector should become involved or whether NHS Logistics should stay as it is, perhaps with adaptations. We want to ensure that that process is carried out properly. We are concerned that it is not taking into account all the necessary factors, and I would like assurances from my right hon. Friend the Minister that nobody involved in the processwhether a civil servant, a member of the Department of Health commercial directorate or a Ministerstarts by automatically assuming that the private sector is the best or the only option. I should also like to be told clearly the aim of the process. In what direction are we going? Because I am accountable to my constituents, I need access to full information about how any decision is taken. I want to make sure that the process is transparent, and I seek ministerial assurances on all the issues. That is why my colleagues and I have sought this debate and tabled a number of parliamentary questions.
We started off thinking that the issue was NHS Logistics' efficiency, but when we visited its sites, we were impressed by its efficiency. As has been mentioned, it has won a number of awards and it clearly is efficient in a number of ways. Following a number of efficiency exercises, many jobs were lost at the Alfreton site last yearI know that because one of my good friends lost her job in that review. One of the six NHS Logistics sitesthe one in Bridgwateris already privately run, and that is the site with the lowest satisfaction rate among customers. In addition, the organisation already works with private sector partnersthe transport that I saw was provided by TNT. I note that NHS Logistics' on-time delivery performance is running at about 99 per cent. It runs a benchmarking system to test its performance against that of the private sector through Logmark, the UK logistics benchmarking club, and utilises a number of other means. There is not necessarily any doubt about the organisation's efficiency. I think that it is generally accepted that it is efficient, and I ask the Minister to confirm that.
We were then told that the argument had moved on and the question now was whether the organisation could be more effective if a greater proportion of the market were provided for centrally, thus achieving economies of scale and enabling more money to be put
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into patient care. I am rather dubious about some of the arguments that have been put in that respect and I should like the Minister to ensure that all the arguments are taken into account. When colleagues and I met the Health Minister Lord Warner before the election, he stated that NHS Logistics formed only a small proportion of the supply chain. However, although it has only 20 per cent. of market share by value, it provides 70 per cent. of the market by volume.
It is important not to disrupt the supply chain to health providers. I am told that there are 9,000 suppliers in the sector, of which NHS Logistics is by far the largest. I have also seen the current business plan, which I believe the commercial directorate has approved. NHS Logistics is already expanding into some of the more specialist areas with which it has not previously dealt. It has plans for a 41 per cent. growth target over the next four years, taking it to a market share of 30 per cent. by value, following growth of 35 per cent. in the past four years. Although there may have been a rocky start after the Cabinet Office report, NHS Logistics has gone zooming ahead over the past few years.
Judy Mallaber : The review was conducted some time ago and it makes interesting reading on the potential for market expansion. The report recognises that we should not expect all NHS supplies to be provided centrally. Sometimes, therefore, it is not necessarily sensible to say that a certain proportion should be provided by NHS Logistics.
In response to some of the questions that I have raised, I would like a clear analysis of the types of item that NHS Logistics does not provide. They are clearly high-value items, because otherwise there would not be such a disparity between value and volume market share. If so, it would probably be difficult to achieve common ground across the health service such that sufficient supplies could be ordered to secure economies of scale. It is easy to consider the gap in the figures and assume that the private sector will have a magic way of securing agreement among those being supplied to ensure that those economies of scale can be gained.
Jonathan Shaw : Further to the question that my hon. Friend the Member for Weaver Vale (Mr. Hall) asked about the 1998 Cabinet Office report, does my hon. Friend recognise that parts of it are not really relevant now, given the expansion of NHS resources since 2001? The authors of the report could not have known of the record investment that we were about to make, so their projections are not relevant to today's operations.
Judy Mallaber : I agree, but it is important to have information about those items that are not provided, so that we can consider sensibly whether an assumption that the private sector can come and sweep up the market is dogmatic or realistic. I hope that the Minister will insist on having that detailed information when she
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considers the matter. I shall be interested to see whether it will be possible to provide me with that information in answer to questions that I have raised.
As I said, NHS Logistics operates effectively and has done a number of benchmarking exercises, using Confederation of British Industry benchmarking, Score Research, which is part of Manchester business school, and Logmark for its operational activities. NHS Logistics has come out well in all those exercises. Have those in the commercial directorate who are considering the issue and who are advising Ministers taken those results seriously or have they assumed that the private sector is bound to be able to operate more efficiently?
One of the reasons why I am particularly concerned to ensure that all the issues are considered seriously is that the dangers of not doing so and of getting things wrong are very great. We must ensure that the supply service is risk free and that it can provide what is needed to all those who are so dependent on it. There is no point in giving the task to an organisation that will not carry it out effectively. We must be absolutely confident that any change in the supply system will not lead to any disruption of supply.
Some of the examples that have been drawn to my attention are particularly worrying. One involves the supply of cleaning equipment. I understand that the Health Protection Agency tells NHS hospitals that they should get supplies from NHS Logistics to ensure proper materials to deal with the MRSA problem. In that context, I would like to knock on the head the News of the World article that was picked up from the website and included in the Library briefing for this debate. No other paper ran the story, in which it was said that there was MRSA at the Normanton site, as confirmed by Chemsol Consultancy. The Health Protection Agency went in and found no evidence to support the story and we are told that Chemsol Consultancy has not been prepared to provide the Department of Health with its samples in other instances so that it can be determined whether it is identifying MRSA or some other, non-problematic, bacteria. The Health Protection Agency found nothing wrong at all.
It is important that cleaning equipment is provided safely and properly. I will just plug a company in my constituency, JohnsonDiversey, which has produced the wonderful Jonmaster system and which won a manufacturing excellence award last week.
Steve Webb (Northavon) (LD): The hon. Lady is speaking up powerfully for her constituents. Does she think that anything of an inherent public service ethos is to be found in this process? After all, Tesco has to have extraordinarily reliable, up-to-the-minute delivery systems and so on as well. Could the hon. Lady clarify why she feels that NHS supply is intrinsically a public sector activity?
Judy Mallaber : I would argue that, as the NHS Logistics Authority is running efficientlywhen I first started investigating, I was prepared to be told that it was not efficient, but everything that we have seen makes us think that it isI would want clear reasons for making a change spelled out so that I could explain it to the people who work there. Often, we turn things upside down for no good reason. If the authority is working
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efficiently, I, as the MP who represents one of its sites, want to be given the full information that justifies any change. That is particularly important because the authority is managing the vaccination programme and the cleaning supplies and is part of the anti-terrorist contingency plans. It would be worrying if that went wrong.
One of my main concerns is that the debate and process should be transparent. At the moment, it can be difficult to get information because we are told that it is all commercial and has to be kept secret. If I make inquiries, I am told that that is not something that I should know about. To me, as a local representative, that is not acceptable. I want a totally transparent process. We have asked parliamentary questions about issues such as identifying the gap between what is provided by NHS Logistics and what could be provided, and about its growth levels. I also want to know whether NHS Logistics can submit a bid, which I understand it has not been allowed to do. If it gets to the next stagewe are now down to three bidders, each of which has an IT componentthe question has been raised whether it will need a new IT system. I also want to know and be able to see the commercial case, if it is decided to go on to the invitation-to-negotiate stage.
Jonathan Shaw : Before my hon. Friend concludes, would she comment on the ability of NHS Logistics to expand its capacity? We have been led to believe that the commercial directorate is considering that as an option for future operations. To meet the demands of the NHS, capacity will need to be expanded. The question is whether NHS Logistics can expand its capacity without further recourse to the public purse.
Judy Mallaber : As I understand it, NHS Logistics has dealt with that in its plans. It would be able to expand and it has built into its plans the need for additional warehousing. The original report suggested that it should reduce the number of its distribution centres to six or seven, one of which should be tested privately, which is how the Bridgwater site came into being. However, it has been pointed out to me that these days supply chains tend not to buy warehousing but to lease it. That has been built into NHS Logistics' plan, so it should not be a problem.
I ask my right hon. Friend the Minister to ensure that all the issues are taken into account and that we, as Members, have full information on why any change is taking place. I have yet to be convinced that change is necessary. If there is a good argument, I will not stand in the way of ensuring that NHS supply is done efficiently and well. There may be alternative ways to improve the authority besides straightforwardly handing it over to one private sector consortium. From the evidence that I have, it seems to operate efficiently.
I also want to see the commercial case so that if it is decided to extend invitations to negotiate, we can see the advantages of any firm being involved. I have an example from the same area, in Alfreton, near the NHS Logistics site. When it was decided to transfer some Benefits Agency services to the ONE service, we had a private sector pilot in my area. The company chosen was Reed, but I was not allowed to have any information on why the service was put out to the private sector. Subsequently, it came back in house and into the public sector again. I do not know why.
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The review of NHS Logistics affects hundreds of my constituents and I would like an assurance that the process will be transparent, that all the factors will be taken into account, that our questions will be fully answered and that I will be given a clear, compelling and detailed argument about why any change should take place. I am the one who will have to go back and explain things to my constituents, and my hon. Friends will have to explain to theirs. Will my right hon. Friend the Minister ensure that we have full information throughout the process?
Mr. Mike Hall (Weaver Vale) (Lab): I congratulate my hon. Friend the Member for Amber Valley (Judy Mallaber) on securingby the skin of her teeththis important Adjournment debate, which covers a number of constituencies, on arriving right on time and on delivering such an excellent and eloquent dissertation on the reasons why we are here this morning.
NHS Logistics has an operational distribution centre in my constituency, on the Astmoor industrial estate. It employs more than 200 people and is part of an excellent distribution network that serves the NHS well. I understand that my right hon. Friend the Minister will soon be making a visit to NHS Logistics in Runcorn, and I am sure that she will be warmly welcomed whenever that visit may beher office has not told me yet, but I understand that it will be on Thursday.
NHS Logistics is a very successful business. It is not for profit, it is an NHS operation, it is run by NHS staff, and the interests of NHS staff and patients are at the epicentre of what it does. Figures vary, but I understand that, nationally, NHS Logistics employs more than 1,400 people. It has six distribution centres and 230 vehicles and makes 1,200 deliveries a day to hospitals, clinics and GPs' surgeries. It has a catalogue of 42,000 items, which it delivers to 10,000 points in approximately 600 NHS trusts. As my hon. Friend the Member for Amber Valley said, its efficiency in delivery is superb. Some 98 per cent. of items are always available, 99 per cent. of the items that are important to the NHS are available and 98 per cent. of deliveries are made within 30 minutes of the delivery time specified by the purchasing NHS trust. That is a fantastic record. Achieving that on a day-to-day basis shows us that, as she has said, this is a superb operation.
The non-pay, non-drugs spending of the English NHS is about £12 billion. NHS Logistics operates in a market that has been estimated at about £3.7 billion. The turnover of NHS Logistics is about £700 million per annum. It has an operating cost of about £70 million. Again, we can see that this is an efficient operation that does not cost the NHS any money to run. It provides the NHS with 75 per cent. of the volume of consumable durables involved at factory gate prices. It is important to make the point that any surplus that it makes is given back to the NHS in rebates. Over the past three years, at least £9 million has been returned to the NHS. The business is growing very fast at the moment: we are talking about a 10 per cent. compound interest rate per annum. That is a phenomenal growth in an already excellent business.
At the core of the business is the fact that it involves a paperless ordering system, through its e-commerce computers, which connects every NHS trust
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everybody in the NHS who buys from NHS Logisticsdirectly to the operation. Online orders are made and, as I said, 98 per cent. of deliveries are made within 30 minutes of the delivery time specified by the NHS Logistics Authority. It is an extremely efficient operation. There have been at least two efficiency studies. You will not be surprised to hear, Mr. Olner, that both conclude that it is an extremely well run and efficient business that provides the NHS with an excellent service.
Given the facts and figures that are on the record, anyone from outside who observed what was going on this morning would rightly ask why we were considering moving a service that serves the NHS well into the private sector or outsourcing it from the NHS. Clearly, the service does its job.
"the pursuit of efficiency also includes reducing bureaucracy, that both cuts headquarters' administration costs and frees up time of front line professionals to respond better to the needs of their customers".
Anybody who works for the NHS Logistics Authority would have thought, listening to the Chancellor, that there was nothing in the Budget that should cause them to worry about their job security or about the prospects for NHS Logistics. The service allows a huge amount to go to front-line services, it is efficient and it provides a service that the NHS wants. It is a front-line NHS service.
However, on 20 May 2005, the then Secretary of State, my right hon. Friend the Member for Airdrie and Shotts (John Reid), announced in a press release that the number of arm's length bodies in the NHS were to be reduced by 50 per cent., which would save £500 million and reduce the number of posts by 25 per cent. It is not clear why he chose the figure of 50 per cent. I understand where the saving of £500 million comes from and that, when we reduce the number of arm's length bodies, the number of people on the central payroll will reduce. I have no problem with that argument as long as it is done for the right reasons. My right hon. Friend went on to say:
The next bit of the audit trail is a statement made by a Department of Health spokesperson in the Derbyshire Times, which was published on 21 October 2004. The spokesperson said of the Department of Health review of arm's lengths bodies that
That is almost a return to something that we had in local governmentcompulsory competitive tendering. A service that is delivered publicly by the NHS is being subjected to a market test to determine whether it can be done better; whether efficiency can be improved and costs reduced.
"The decision about contracting out will be taken in due course and will be subject to careful evaluation of the responses that the private sector will provide to the market testing currently initiated."
What does that mean? How are we going to evaluate whether the market test has produced either a more efficient delivery of consumer durables in the NHS or delivered those durables more cheaply? Is that the test in this case? Is that the acid test that NHS Logistics must be put to? I hope that the Minister will address that when she responds to the debate.
We are getting closer to the real reasons why we face the market test. It is not about delivering efficiency or about value for money. It is about capturing more of the business of the NHS that does not relate to wages or the drugs bill.
Our noble Friend, the then Under-Secretary of State at the Department of Health, Lord Warner, went further on 13 December 2004. He sent us a publication entitled "Developing the supply chain and procurement services for the NHS to achieve better value".
There was no question of contracting out, or of the private sector making comments as to whether the service could be delivered. The question was whether it could be achieved through partnership with the independent sector. The document then states something quite extraordinary:
That is quite remarkable because the Government do not do that anyway. It is a self-funding business that puts money back into the NHS. Its running costs stand at £70 million, as has already been said, and if it needed to it could clearly expand its operation through its financial ability to draw on funds wherever possible. The Government do not actually fund what goes on within NHS Logistics.
The NHS Logistics Authority could provide the Government with extra money or enable someone in the private sector to deliver this service in one of only two ways: it could reduce staffing costs or increase the cost of the services that it provides. I am not certain that there is much scope left for reducing staffing costs because that exercise has already been carried out. The only way in which anything can be achieved for the private sector is if it takes over the business and increases the cost to the national health service. That would be disastrous for the Department of Health and the NHS because increased
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costs for consumer durables would be passed on to NHS trusts. It would be a fruitless, pointless and stupid exercise.
Jonathan Shaw : My hon. Friend talks about increased costs to the NHS, but does he agree that if hospital trusts are not satisfied with the charges that NHS Logistics make to their hospitals they will go elsewhere? They have the ability to do that now, and most of them do not choose to do so. The local hospitals that I have spoken to choose NHS Logistics because of its cost and efficiency.
Mr. Hall : My hon. Friend makes a valid point. The simple fact is that NHS Logistics does not have a monopoly of supply in the NHS. The NHS purchases from NHS Logistics because it is the best supplier. If the NHS was not satisfied with the service from NHS Logistics, it would go elsewhere. However, 75 per cent. of the business in consumer durables in the NHS goes to NHS Logistics because it is price efficient, it can guarantee delivery and it provides security in the contract. The trusts are also linked to NHS Logistics through the e-commerce computer. That system saves the Government £100 million a year, and it is a very good one. That is why NHS Logistics is so successful.
Judy Mallaber : Does my hon. Friend know whether a proper study has been carried out of whether those who will have to deal with this new private sector bodyif it is createdto purchase additional goods wish to do so, or whether they wish to continue getting goods through NHS Logistics? Is he aware of any proper surveys of the views of those consumers on whether there is any point in handing over to a private sector operation, and on whether it would be any better at expanding the market?
Mr. Hall : That exercise has not been carried out. Had it been done, the satisfaction ratings of NHS Logistics suggest that the 600 NHS trusts in the UK that use its services would send the message loud and clear that they are very satisfied with the service. I defy anyone to improve on the figure of 98 per cent. of deliveries made within 30 minutes of the promised time of delivery. That is a fantastic service to offer the NHS.
It is important that the NHS has that security of supply. If the private sector takes over that part of the business, will a private sector company be able to guarantee that sort of efficiency? What will a private sector company do in relation to the e-commerce system that is now in place? Will it make further investment in information technology at a huge cost? I do not know the answer to that. Has that question been factored into the market test undertaken by the Government? There is a fundamental point about how the delivery system will work. Will it be an e-commerce system, will it be available to all NHS trusts and will the delivery time be guaranteed?
There is another question. If the Government's purpose is to use the NHS Logistics Authority's £700 million business within the NHS as a platform to secure more of the £12 billion non-drugs and non-wages business, what percentage of that business is available? As my hon. Friend the Member for Amber Valley said, a great deal of that business is capital investment in expensive, high-tech diagnostic machinery, which the
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manufacturers supply directly to the NHS. I do not think that that aspect of the business would be available to any company in any new set-up.
Jonathan Shaw : Does my hon. Friend agree that it should be possible to open up new markets to the NHS Logistics Authority, not just in the NHS but in the private sector? There are currently constraints on the operation of markets. If we were not to take a dogmatic and ideological view, it would follow that the NHS Logistics Authority should be able to compete along with the private sector. Indeed, we might see the authority expand even more.
It is important to note that we already have an efficient business that guarantees security of delivery, and that it is not for profit. Any surpluses that it makes are fed back into the national health service, and its e-commerce computer ordering system enables it to save the NHS £100 million a year. If we are to place that business in the private sector, what guarantees are there that the service that it provides to NHS trusts, clinics, doctors and their surgeries will continue, and that there will be no wholesale price rises for consumer durables, 75 per cent. of which the authority provides to the NHS? What security is there?
The NHS Logistics Authority does that, and if that is the acid test, we do not have anything to worry about. However, if the Government had a hidden agenda, I should be very concerned, because I should have to return to my constituents on the Astmoor industrial estate to tell them that they have done a fantastic job during the past four years delivering to the national health service the goods that it wants at a price and at a time that it wants, and that they have been absolutely superb, but that the Government have decided, for whatever reason, that the service is to be transferred to the private sector. I should find it difficult to explain that to them, and I want to be sure that any decision-making process leading to that transfer is transparent, that Members of Parliament are consulted about it and that our voices are heard.
Jonathan Shaw (Chatham and Aylesford) (Lab): I echo the words of my hon. Friend the Member for Weaver Vale (Mr. Hall) in congratulating our hon. Friend the Member for Amber Valley (Judy Mallaber) not only on securing this debate, but on all the hard work that she has put into the review of the NHS Logistics operation. The NHS Logistics Authority is a vital part of a successful NHS. Its hard-working staff are the backroom people of the NHS, not seen by the public, but the service that they provide is fundamental to our
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hospitals. NHS Logistics supply some 42,000 items, including blankets, bandages, biros, buckets and bedpans and many others. My hon. Friends and I understand that the Government have a responsibility to cut out waste and slash red tape to maximise the amount of resources going to the front line of our public services. It was a manifesto commitment on which we all stood for election. We all support that proposal.
The arm's-length body review was commissioned by NHS Logistics and its sister organisation the NHS Purchasing and Supply Agency, which are two of the 38 agencies whose number is to be reduced to 20. The Chancellor has said that the proposals for the arm's-length bodies will produce savings of £500 million, and my right hon. Friend the Minister will rightly point out that £500 million could be used to build four new hospitals or employ 20,000 more nurses, 6,250 consultants or even 7,500 GPs. I have not attempted to calculate how many bedpans it would purchase, but I am sure that it would be a lot.
We want to understand clearly what the Government hope to achieve by the end of the process. If they want the very best supplies operation for the NHS and a better-managed operation that is more efficient, that can expand its capacity and that can return resources to the NHS, they will have our support, but we need to understand how they will arrive at their decisions. Are they confident that they can, in advance, compare the private sector with the existing operation and its achievements, which my hon. Friends have described in detail?
Judy Mallaber : Is my hon. Friend surprised that, unless we are mistaken, NHS Logistics appears not to have been invited to put in a direct bid or offer, even though it has plans for major growth over the next few years following substantial growth in recent years?
Jonathan Shaw : That is the question that my hon. Friends and I have placed on the Order Paper. We are asking whether NHS Logistics was invited to tender to run the service. Our aim is to help the Government to compare the operation's costs, efficiencies, savings and, importantly, its quality with those of the private sector. Quality is essential. We have record investment in our NHS, and operation waiting times are being driven downfrom 18 months when Labour was elected to six months this year. By 2008, we want people not to have to wait more than 18 weeks from seeing their GP to their operation. For that to happen, all staff in NHS hospitals, including doctors and nurses, need an efficient supply system, so that everything is there when they need it. As my hon. Friend the Member for Weaver Vale said, 98 per cent. of products currently arrive in hospitals on time.
People do not complain when things work well. I spoke to the chief executive of the Medway NHS Trust, which runs one of the hospitals that serves my constituency. I asked whether he had ever heard complaints about his suppliers, the logistics operation. He said, "Never, but I'll tell you one thingI flippin' well would if there was a problem, because it would cause chaos. The operation runs smoothly. It isn't on the radar of things that I'm concerned about, and I never want it to be." That is an important point.
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That does not mean to say that we take a dogmatic approach to the issue. We simply want to know what will be tested and how Ministers will arrive at their decision. When my hon. Friends and I look at the comparisons with the private sector, what we see is that NHS Logistics has been the best. In 2004, it beat all comers, including Woolworths, Nestlé UK and John Lewis Partnershipall private sector companieswhen it won the coveted supply chain of the year award organised by Motor Transport magazine. I have in my hand a picture of Barry Mellor, the chief executive officer, receiving the award from a chap who looks remarkably like a former Conservative London mayoral candidate.
That recognition comes from the industry itself. The judges also gave NHS Logistics a technology award, to which my hon. Friend the Member for Amber Valley referred, for its e-supply package, which includes an electronic catalogue, ordering and billing. That part of the operation was, they said,
Staff and organisations receive such awards with great pride, and those awards are not achieved by accident. A point that my hon. Friends have not made is that NHS Logistics has taken off in recent years because of good management and the dedication of staff. With that comes good industrial relations with the main union, Unison. NHS Logistics invests in its staff and has a good training programme. The Maidstone site is next to my constituency and has 300 employees, and when I have visited it I have seen that management and staff work very well together. It is what the Labour Government wanta modern partnership in the workplace that invests in staff and improves productivity through investment in training. Many of the staff who work in the sector benefit from an increase in their basic skills and customer care skills. The results are there for all to see. The 98 per cent. achievement of delivery times is no accident and nor is the acknowledgement of NHS Logistics as the "best of the best", nor the fact that more money is being put back into the NHS.
My hon. Friend the Member for Amber Valley referred to the comparison between the private sector site at Bridgewater and the other four sites elsewhere in the country, including the one at Maidstone. A recent customer survey showed that Bridgewater was the poorest performer. The Cabinet Office report recommended that
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the number of sites should be reduced from six to five and that one should be run privately so that comparisons could be made. Everyone should be able to understand the intention and then determine whether the private sector is delivering a better operation.
Judy Mallaber : Is my hon. Friend aware that Exel, which runs the Bridgwater site, and TNT, which he said was beaten by NHS Logistics for an award, are among the last three bidding consortiums? We know about TNT only becauseperhaps inadvertentlyit told its staff. Does he share my concern that Ministers and those who advise them should not start off with a dogmatic assumption that the private sector can do better, and that they should not fall into the trap that the Conservative party fell into of automatically assuming that NHS Logistics should be privatised? The Conservatives stated that position before the election. We want to avoid dogma, to keep an open mind and to analyse the options correctly.
Jonathan Shaw : My hon. Friend is correct. A worrying feature of the process has been the lack of information about how judgments will be made on whether it is appropriate to privatise NHS Logistics. Leaks are not the way to get information, as they might not be accurate and staff work against a backdrop of concern that undermines confidence.
On comparisons and not being dogmatic, if TNT, Exel or any of the other private sector bidders were the best of the best, the documents that they submit to the Department would refer to such coveted awards. I wonder whether they will mention the fact that they did not even get on the shortlist. I think not.
I conclude my remarks by endorsing those of my hon. Friends. We should not take a dogmatic approach. If we are to be able to speak to constituents who are valued members of the NHS work forcethe best of the best across the boardwe need to understand how the Government will decide whether it is right to stay with the existing operation, with all its achievements, or to take another route. We look forward to the Minister's response.
Steve Webb (Northavon) (LD): I congratulate the hon. Member for Amber Valley (Judy Mallaber) on securing this debate. She and the hon. Members for Weaver Vale (Mr. Hall) and for Chatham and Aylesford (Jonathan Shaw) spoke convincingly of the work done by their constituents who are employed by NHS Logistics. We heard about their excellent performance and the awards that they have won. I do not believe that anyone who heard those three hon. Members speak need have any doubt that NHS Logistics is a highly effective and, as far as one can tell, highly efficient organisation.
I have a great deal of sympathy with the general thrust of what the hon. Member for Amber Valley said about the need for a proper and transparent market-testing process. No one who has spoken would object to the principle of assessing whether what is done at present by NHS Logistics could be done better another way, although I believe that they are all confident about what the answer would be.
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In trying to reassure us that the market-testing exercises are properly, not dogmatically, done, could the Minister give us an example of a market-testing exercise undertaken by her Department that did not find that the private sector would be more efficient than the public sector? If she could demonstrate that sometimes the answer is to keep activities in house, that would reassure us that the process is open, and not one that inevitably leads to a private sector solution.
The starting point for this debate and this process is, as the hon. Member for Weaver Vale said, the Gershon process and a bidding war between the Chancellor and the Tories over who could get rid of the most civil servants. I presume, although I am open to correction, that if NHS Logistics were market-tested and someone else were to carry on, the civil service head count would go down by a few thousand.
Steve Webb : My point is that the Chancellor has set a goal to reduce the number of public servantsperhaps civil servants is the wrong descriptionand replace them with private sector employees to achieve an arbitrary goal of shrinking the public sector. The same amount of money would be paid to get the same job done, but the classification would be different; that is the arbitrariness to which the hon. Member for Weaver Vale referred. He said that the plan was to reduce the number of arm's-length bodies by 50 per cent. Where has that magic number come from? What is so special about 50 per cent.? Surely, the right approach would be to ask what needs to be done in the public sector and whether this is the right structure within which to do it, not to start with the answer and work backwards, but that is what this process seems to be about.
The traditional argument for involving the public sector at all is that there is some market failuresomething that the private market cannot provide at all or as well, without which there would be some loss to society. At first glance, it is hard to see what that is. On the NHS Logistics Authority customer bulletin in May there were 15 new products, including Columbian coffee, rich roast Arabica coffee, dried cream and latte cream. There was also something about discounts on stationery.
At first sight, it is hard to see why we need a public sector organisation to sell coffee, paper and headed notepaper. What is the public service ethos there; what is the market failure? I cannot see one, except that there may be an issue about the taxpayer getting better value for money out of bulk purchasing. I understand that the Purchasing and Supply Agency does the contracts, but it might be that we taxpayers get more health care out of our NHS budget if coffee, paper and so on are bought cheaper through the massive bulk-buying power of the NHS, which is a huge organisationthe biggest employer outside the red army, or whatever the figure is.
The market failure could be that if we allow all that to be done privately, we will end up with lots of atomised bits of the NHS buyingthis is a slightly facetious exampletheir individual boxes of coffee or whatever, and a higher total bill, and with the taxpayer getting less value for money. The first question to ask is: would we
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lose that bulk buying power if the NHS Logistics Authority were not doing the supply-chain work? In the past, the Government have separated those things, with a purchasing process that gets the bulk economies of scale, and a separate logistics process that gets things to where they should be. Can we still get the economies of scale that we want if we do not have a public sector Logistics Authority delivering the goods?
Jonathan Shaw : Does the hon. Gentleman agree that bulk purchasing in the NHS has served us well? A recent development has been the bulk purchasing of operations in the private sector for NHS patients, which has provided better value for money.
Steve Webb : I could not disagree more with the hon. Gentleman's final comment, but, in the interests of not spreading disharmony on the thing that he does care about, which is his constituents and the logistics agency, I shall stick with that point. Suffice it to say that that money would have been better spent in the NHS with NHS providers, but we will return to that. I appreciate that there is a paradox here, in that I am trying to stand up for his constituents and he is trying to undermine the NHS, but we will come back to NHS Logistics.
There seems to be no dispute about the fact that NHS Logistics provides an excellent service. The hon. Member for Amber Valley asked the pertinentalmost conservative, perhaps Conservativequestion, "If it ain't broke, why fix it?" What is the motivation for the change? Government reviews have concluded that there is scope for efficiency savings. It is not clear why they say so; they just seem to assert it. I hope that the Minister will clarify, given what we have heard about the performance of NHS Logistics, why the Government are convinced that there is flab or fat to be got rid of. I see no symptoms of that. In fact, the phrase that the hon. Member for Chatham and Aylesford quoted a chief executive using was quite pertinent; the issue just was not on the radar. The point he was making was "If it's not broke, don't fix it."
It is very interesting that we have, as it were, a mini market test, if one of the sites is run by the private sector and if, as we are told, it gives lower levels of satisfaction. If the Minister can tell us how that evidence will feed into the market-testing process, that will be helpful. I freely admit that the issue has not registered strongly on my radar until today, but I am concerned to hear from the hon. Member for Amber Valley that she has tried to get information about what is happening and that once again the response has been, "Ohcommercial confidentiality. Can't really say."
At what point will Members of the House stand up and revolt, and say "Hang on. We have a job of scrutiny to do here"? In individual constituency cases we get quite cross about such instances, but perhaps collectively we need to get crosser about the scrutiny of public services. All too often, we want to know what is going on, and are told that we cannot be told the details of the contract, because it is commercially sensitive, and we cannot be told operational details, because they are commercially sensitive, too. Our role in scrutinising what Government and public services do is undermined if we do not get answers to such questions, as the hon. Lady says.
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Perhaps I may be heretical for a moment. If the principle is bulk purchase and getting good value for the taxpayer, why must the NHS be ring-fenced? My example of coffee and stationery is slightly facetious, but why do not we link together public purchasers across the public sector? If the NHS has buying clout, presumably it and the Department for Education and Skills put together have even more. Could we get even better value for money by using the bulk purchasing power of the wider public sector more effectively, or are we dealing with a case of departmentalitis that prevents one Department from working with another for collective purchasing? I wonder whether the Minister has talked to ministerial colleagues in other Departments about whether the taxpayer, and the NHS purchaser, could get better value for money by working with other Government Departments as a bulk purchaser.
We seem to be dealing with a paradox. The Government and, to an extent, all the political parties want the NHS to be more devolvedmore local and more responsive to local needs and demand. Yet there is a danger that if we fragment and atomise the NHS we shall lose economies of scale from bulk purchasing power. Arguably, using bodies such as the NHS Purchasing and Supply Agency and NHS Logistics to deliver services is a way of maintaining those benefits. It does not matter how devolved the primary care trusts and the rest may be; it will still be possible for them to tap into national purchasing and national logistics, and potentially that is good value for money.
Will the Minister clarify the motivation for what is proposed? I get the sense that it was decided on higharbitrarily, as far as one can seeto reduce the number of arm's-length bodies. It was asserted that there was scope for efficiency gains, in the face of apparent evidence that we have an impressively efficient organisation that works well. I hope that the Minister can assure us about the transparency of the process, and clarify the motivation. We all want more value for money, but it is not clear that the current process is the first place one would look for it.
Mr. John Baron (Billericay) (Con): I add my congratulations to the hon. Member for Amber Valley (Judy Mallaber) on securing the debate and on all the hard work that she has done for her constituents. I share the concerns that have been expressed by all speakers so far about the apparent lack of information on, and transparency in, the process. I hope that the Minister will take the opportunity to clarify the issues and answer questions.
There is no doubt that NHS Logistics has been a success story. We have heard of the various awards that have been granted. As we know, demand for the organisation's services has risen year on year and it now accounts for about £730 million, which is a very good figure. Every day its fleet of about 200 vehicles delivers to wards in NHS trusts items from the 42,000 lines kept at its five distribution centres.
Credit for the authority's success lies directly with its management and staff of almost 1,500, many of whom are based at its headquarters and distribution centre at Alfreton in the constituency of the hon. Member for Amber Valley. I think that most hon. Members would
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agree with the Opposition that those staff face great uncertainty. For a number of reasons, either intentionally or inadvertently, that uncertainty has, to a large extent, been created by the Government.
To a certain extent, the Government have played politics with the authority in the timing of announcementsI shall make that clear in a momentand in the message itself. That has created uncertainties and a certain lack of transparency. I say this with all due respect to the Minister of State, Department of Health, the right hon. Member for Liverpool, Wavertree (Jane Kennedy). As she is newly appointed, I know that she would not have been party to the problem, which goes back a few years.
The Department of Health review of arm's-length bodies, which was completed in July 2004, recommended that the authority's functions be outsourced and that the authority should be abolished by 1 April next year. In truth, however, the authority's fate was already under discussion before the review started. In the autumn of 2003, the recommendation of the Department of Health's commercial directorate was that the authority's procurement and supply chain activity would be best developed in the private sector.
Unfortunately, that was decided at about the same time that the then Secretary of State decided to undertake a review of the Department's arm's-length bodies. The recommendations were unnecessarily delayed, so NHS Logistics was included in the review even though its future had already been decided. The Conservatives contend that it was included deliberately to expand the number of arm's-length bodies being considered so as to make the scale of the apparent cuts seem larger. I look forward to hearing the Minister's response.
The inclusion of NHS Logistics to beef up the review was not unique. The Commission for Health Improvement, the National Care Standards Commission and the Retained Organs Commission were also included, despite having been abolished before the review got under way; and the National Radiological Protection Board and the Public Health Laboratory Service were included, despite the Government simultaneously progressing legislation to abolish them. Six of the original 42 arm's-length bodies in the review had already been earmarked for abolition.
To a certain extent, at least, the timing of announcements about NHS Logistics was about playing politics. That may not have been the sole factor, but it has contributed to the confusion and lack of transparency that have characterised the entire process.
Judy Mallaber : I am slightly puzzled. As NHS Logistics is based in my constituency, I would have known about it if the Government were planning to privatise it. However, the Conservative party publicised the fact that it would privatise the service.
Mr. Baron : There should be no puzzlement on the hon. Lady's part. We have made our position clear. There is no reason why NHS Logistics should be excluded from the bidding process. I am trying to point out that the Government have played politics with the timing of announcements, which a number of hon. Members believe has helped to create uncertainty and a lack of transparency. She has admitted that she was not
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properly consulted, and she has a number of questions to ask of the Minister. I hope that the Minister takes the opportunity to answer them today.
Mr. Mike Hall : I am listening closely. Is the hon. Gentleman saying that the Government decided to privatise NHS Logistics in 2003, or was it simply the recommendation of the commercial director, which the Secretary of State rejected?
Mr. Baron : In the autumn of 2003, the Department of Health's commercial directorate recommended that the authority's procurement supply chain would be best developed in the private sector. Since then, the review body made its recommendation, but there is strong feeling in my party, and outside this place, that the NHS Logistics Authority was included in the review despite the fact that there had been a strong recommendation to privatise the supply chain.
If I may, I would like to move on because I want to give the Minister some time to respond to all our questions. In addition to the issue of timing, there has been an element of uncertainty with regard to the overall message. For example, in July 2004, the Secretary of State explained that
Putting the timing to one side, I put it to the Minister that the Government have also played politics with their message about the privatisation. It appears that the Government are pursuing the privatisation of the authority by stealth in order to avoid confrontation.
In the same way as the reforms in the new general medical services contract "Agenda for Change" were introduced, the national programme for IT and now the new general dental services contract are being introduced without the full engagement and involvement of all the affected parties. The Government are privatising NHS Logistics without adequate involvement and consultation of its staff or the relevant Members of Parliament. That can only serve to worsen the morale of the authority's staff, who deserve far better from the Government, particularly bearing in mind the successes they have achieved.
Jonathan Shaw : The hon. Gentleman referred to "Agenda for Change" as not having sufficient consultation. It took four years for 17 different trade unions to arrive at an agreement. It was a brilliant consultation. What does the hon. Gentleman mean?
Mr. Baron : The hon. Gentleman calls it a brilliant consultation, but many bodies involved felt that they had not been adequately consulted. I shall give him one example: the Society of Radiographers staged a picket of Parliament to make the point that it had not been adequately consulted. There were exceptions to that consultation and the hon. Gentleman should take them on board.
Bearing in mind that time is running short and as I would like to give the Minister plenty of time to answer a number of key questions, will she please address the
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following issues? There has been concern in my party about the actual privatisation. NHS Logistics has achieved valuable efficiency improvements in the NHS supply chain. Its strong and successful brand has encouraged NHS trusts and primary care trusts to use its services more and more, which is to be welcomed. That has further strengthened the integration of the various NHS supply chains and realised further efficiency gains.
The Government must ensure that the independent provider eventually chosen provides a service that is as good as, if not better than, that provided by NHS Logistics. Because of a poor Government track record regarding the designing of contracts involving the private sector, such as those related to the computer system for the Child Support Agency and independent involvement in London Underground, such contracts must be properly crafted. If the outsourcing of NHS Logistics is similarly poorly handled, we may see trusts seeking alternative distributors, the fragmentation of the supply chain and the loss of the efficiency gains achieved in the past few years.
We must not sacrifice the valuable emergency role played by NHS Logistics in order to entice private sector providers to bid for the contract. NHS Logistics provides a 24-hour, 365-day-a-year delivery service, which has been invaluable in building up the authority's reputation as well as helping to safeguard patient care. The authority will also be called on to supply health service consumables in the event of any terrorist or other major incident. The capacity for emergency response must be retained when the supply and distribution work for the NHS is put out to tender.
I also ask the Minister to address the fact that in recent years NHS Logistics has taken on an active role in bringing health care closer to the patient. The authority launched the home delivery service in April 2003, which now caters for more than 1,000 patients. That valuable resource should not be sacrificed simply because a private sector provider does not deem it commercially viable.
Finally, I ask the Minister to ensure that all relevant parties are fully consulted on the privatisation, including the relevant Members of Parliament. To help achieve greater transparency, I suggest to the Minister that there is no reason why NHS Logistics should not be allowed to bid for the contract, bearing in mind its excellent track record of recent years. The Minister should give due consideration to that.
I welcome the Government's apparent commitment to reducing the size and scope of the arm's-length bodies, although they have yet to demonstrate that commitment anywhere but on paper. NHS Logistics is a successful distributor. It has driven wider efficiency improvements across the NHS and its staff must be congratulated on that achievement. Although I believe that it can operate better in partnership with the private sector, the partnership must be carefully crafted for the reasons already given. It must be drawn up to ensure that there is no loss of service or reduction in standard as the provider shifts from the public to the private sector. It must be drawn up with the full involvement of the staff and, I would suggest, other relevant individuals,
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such as MPs, who have done so much to build a successful organisation. The staff in particular deserve to be consulted on its and their future.
The Minister of State, Department of Health (Jane Kennedy) : It is a pleasure to be here this morning. I feared that we would miss the opportunity to debate NHS Logistics, so I was delighted when my hon. Friend the Member for Amber Valley (Judy Mallaber) came into the Chamber. I congratulate her and my hon. Friends the Members for Weaver Vale (Mr. Hall) and for Chatham and Aylesford (Jonathan Shaw) on their speeches. I apologise sincerely to my hon. Friend the Member for Weaver Vale for the shortness of notice about the visit on Thursday; I shall make sure that that is corrected as soon as the debate is concluded.
I welcome the hon. Member for Billericay (Mr. Baron) to his position. This is the first chance that we have had to cross arms across the Chamber, but I am sure that there will be many more in future. I look forward to that, particularly if we can conduct business in the constructive style to which we have been treated this morning.
Today's debate is about the market testing of the potential outsourcing of the supply chain and consumables procurement service for the NHS, which involves NHS Logistics. Let me quickly run through the process to date. An outline business case was presented to Ministers in spring 2004 and the usual notice was published and released in August that year to engage the private sector in a procurement process.
I do not quarrel with any of the descriptions that hon. Members have given of the detail of the debate about the ALB review except what the hon. Member for Billericay said. I know my right hon. Friend the Member for Airdrie and Shotts (John Reid), who was Secretary of State for Health at the time in question, extremely well: he is an extremely complex individual, but not as Machiavellian as the hon. Gentleman suggests. I reject his suggestion that the process was manipulated to the extent that he claims.
Following the pre-qualification process six bidders were originally asked to respond to the invitation to submit an outline proposal. The next step would be to issue an invitation to negotiate. I was invited to take that step, but knew that there was anxiety on the matter; it was for that reason that I met Members of Parliament recently. I hope that this debate will contribute to dispelling some, if not all, the anxiety and to counteracting some of the misinformation, or lack of information, about the process.
Three options are under consideration. The first is what we have been debating todaythe option to outsource NHS Logistics only. However, there are two other options. One is to integrate NHS Logistics and the NHS Purchasing and Supply Agency into one organisation; that is the recommendation of the arm's-length bodies review. A third option is to market test the whole supply and procurement chain. We are not considering that option now, but it may be useful to describe it to hon. Members.
Mr. Mike Hall : Will my right hon. Friend, for the sake of clarity, confirm that she said that the
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recommendation of the arm's-length body review is a merger between NHS Logistics and the NHS Purchasing and Supply Agency?
The hon. Member for Northavon (Steve Webb), in a typically thoughtful and probing contribution, asked whether the Government were taking a dogmatic view of contracting out and whether we had examples of occasions when we had considered the issues and turned back. I cannot give him examples of recent Department-level decisions because I am not aware of any, but there is the option within trusts of considering market testing, and there are organisations, trusts and hospitals that do not contract out some of their servicessome have chosen to do so, but others have not. At Guy's and St. Thomas' across the river, for example, cleaning services are not contracted out. Equally, a hospital in my constituency does not contract out its portering service. We are not considering the issue from the dogmatic point of view that private is best. I hope to address that point in the short time available.
I accept that there are concerns about the impact that the proposals could have on staff and on the continuity and standard of service that the NHS currently enjoys. Since it came into being in 2000, the management team at NHS Logistics has grown the business from £500 million to £700 million-plus per year. It is important to place on the record the fact that NHS Logistics offers the NHS an efficient, one-stop shop for consumables and minimises the effort that trusts have to expend on such orders. Trusts benefit from the fact that NHS Logistics takes care of the ordering process, supplier payment, storage and the receipt and delivery of orders. As a result, those that rely on its services do not need to operate on-site stores to hold large quantities of consumables stock and they enjoy a paperless inventory trail.
One of the key points is that nobody has said that NHS Logistics is not a good business. The crucial point, however, is that the NHS is not realising its full potential. The logistics service must expand and develop to meet the needs of a rapidly changing health service and the vision of a public sector that puts people at its heart. I say that not as a piece of political jargon, but because it is crucial that the whole NHS constantly reviews and examines the way in which it does business. My hon. Friends have acknowledged that.
The NHS must become a service that works with patients to support them and their needsa truly patient-led service. That must be our focus. Operating and managing a consumables procurement supply chain might deflect effort and resources from that critical agendathe hon. Member for Northavon was prepared to contemplate the possibility that questions can be raised about that point. We should therefore consider partnering with someone for whom such things are their central focus. We have to take every step to ensure that the greatest percentage of the available budget is directed towards creating a patient-led NHS. By not achieving best value for money through our supply chain service, we are undermining our core mandate.
My hon. Friends have said that they will be less anxious if it can be demonstrated that the proposals offer the best value and are in the best interests of the
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NHS. Why, in the Government's view, are we not achieving best value? We spend about £15 billion a year on non-pay goods and services. Approximately £3.7 billion is spent on consumables, with only £700 million of that going through NHS Logistics, as we discussed earlier. There is considerable opportunity for expansion and to drive efficiency and savings across the NHS. All that will have a significant impact on front-line delivery. We believe that an independent sector organisation could be best placed to achieve such expansion. Far from driving up costs to the NHS, we seek to widen the benefits. We believe, for example, that we could achieve lower product prices through back-office efficiencies, and that we could provide a greater variety of services to meet different trust requirements.
The introduction of new and innovative technologies could also bring enormous benefits to the NHS. I assure hon. Friends and other hon. Members who have taken part in the debate that none of that would be achieved at the expense of the trusts. Trusts would benefit from significant savings, which could be invested in front-line delivery.
Mr. Baron : The Minister used the word "could" in relation to creating greater efficiencies by involving the private sector. Will she explain why early indications are that she will not allow NHS Logistics to bid for the contract? That seems to be the prevailing thinking at the moment, but if it is not, will she say so?
Jane Kennedy : We discussed that when we met hon. Members who represent constituencies that are affected. The truth is that the management could have responded to the advertisement placed in the Official Journal of the European Union. If the management had submitted a bid at that stage, I understand that they would have had to withdraw from the business in order to create a bid that could compete and that would not be based on the unfair advantage of actually running the business at it stands. I know that that is a convoluted process, but that was the advice as I understand it. Service delivery might have suffered if the management had withdrawn from the day-to-day operation of the business. The management would not have been able to inform or influence the process of developing the contracts and considering whether to move to the stage of inviting organisations to bid. That is as much as I want to say about that at the moment, but I have considered the matter.
I was asked about consulting customers. Customers have been consulted. The trusts that use NHS Logistics and PASA say that they value the service and do not want there to be any deterioration in it. We share that aspiration, and are determined that that will not happen. However, they do want changes in the range of services offered. There were common themes in the trusts' comments to those who organised the consultation. First, the organisers were told:
It is possible that an independent sector partner would be incentivised to increase the volume and business and to achieve better product prices. That would directly benefit the trusts. I assure hon. Members that one of the driving principles behind the market testing is to protect the continuity and standard of service that the NHS currently enjoys. No decision would be taken that would jeopardise that.
I do not have time to touch on the consultation with Unison, but there are two points to make. My hon. Friend the Member for Weaver Vale asked what we were testing. We are testing the ability of the market to deliver the lower total cost of supplying consumables to the NHS. That would be achieved by a growth in volume, which would deliver lower prices, thereby driving prices down further. That is our objective. We would not be cutting staff numbers if the business were growing; on the contrary, staff numbers would increase.
The commercial directorate in charge of the operation deserves great credit for its work. The supply chain excellence programme, under which the process is being run, is proving to be of real benefit to the health service. It is important for the House to note that the directorate has worked with the NHS procurement and supply agency to achieve an annualised saving that is forecast to be more than £140 million. The process may yet achieve even more savings for the NHS.
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