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Paul Farrelly (Newcastle-under-Lyme) (Lab): The debate is timely because, as my hon. Friend and neighbour the Member for Staffordshire, Moorlands (Charlotte Atkins) has already pointed out, last week our local hospital, the University hospital of North Staffordshire, published its plans to tackle its financial deficits. I hope that the House will bear with me as I focus on the same subject, although I shall take a different tack from that taken by my hon. Friend and neighbour, even though I share her ambitions for the NHS in our area.

Ours is, I believe, the first of the 18 so-called turnaround trusts to announce its financial recovery plan, although I understand that the Shrewsbury and Telford Hospital NHS Trust has made an announcement today. Whatever one thinks of its record, the Shropshire and Staffordshire SHA is now certainly leading the way. The cuts announced in North Staffordshire last week affecting up to 1,200 workers make gruesome reading, and they have already had a
 
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devastating effect on morale. They include 573 nurses, midwives and nursing auxiliaries—one in five of all nursing staff. In total, one in six of the hospital's dedicated and hard-working staff will go if the plans go through.

It is true that the 18 trusts singled out in the NHS hall of shame are a small minority of NHS trusts, and the projected deficit of approximately £800 million is only a small percentage of total annual spending, which has    grown enormously for the benefit of patients everywhere in the country, but the problems exemplified by the situation at my local hospital point to an NHS that is creaking at the seams—in some places, but by no means all—because so much change is happening all at the same time. Even if eyes have been taken off the ball—amid all the change in my area, they certainly have—what is important now is that the response to tackle the deficits must not veer out of control.

The brutal announcement in North Staffordshire last Thursday, however, appears to provide some evidence of a system in panic—or, in my patch at least, of a response calculated to cause political panic. Either way, the consequences are appalling for staff and for people's confidence in our local NHS. I am afraid to say that the document issued to staff last Thursday was a disgrace both in content and tone, whatever apologists say about the legal requirement for statutory 90-day notice of redundancy.

The document was predicated on the fact that we must save £43 million over two years—to put it crudely, every £1 million means that 30 jobs will go. However, we are talking about a hospital, not a business going bankrupt, and that is no way to secure the good will of staff, which is the basis on which much of the NHS operates. Staff representatives from Unison, the Royal College of Nursing and other trade unions are rightly up in arms because, in many respects, the hospital was allowed to drift in a relatively short period by its board, by the SHA, whose chief executive was replaced last autumn and, ultimately, by the NHS executive. Like my right hon. Friend the Member for Rother Valley (Mr. Barron), I am certainly not a softy or an apologist for poor management by the hospital itself.

At a time of immense change and huge investment, the hospital was allowed the luxury of letting its former chief executive, David Crowley, serve 13 months' notice before leaving for personal reasons. The NHS is not a business, but it needs to be run to the exacting standards demanded elsewhere, and I complained that that symptomatic drift would not be acceptable in other organisations. After 13 months, in August last year, the hospital appointed only an acting chief executive, Peter Blythin, who was shifted in January, with the obligatory warm words, to another part of the NHS. In the meantime, the wake-up call came loud and clear last November, when the trust announced a doubling to £18 million of its predicted deficit for the current financial year. The bell tolled deafeningly with the resignation of the chairman and all the non-executive directors only three days before Christmas—just the sort of festive present that people do not want.

Since then, local MPs have tried to get to the bottom of the hospital's £18 million deficit. As late as mid-February, at a meeting in Parliament, the SHA could not provide us with all the details and assumptions that we needed, but they are crucial, given the vagaries of
 
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NHS accounting. It promised to do so, but out of the blue came last Thursday's news: £43 million of savings are now planned over two years, with calamitous consequences for staff. Despite those consequences, the statement and plan were issued on no higher authorisation than that of the hospital's acting chief executive. They were not issued on the authorisation of the SHA board or, as far as I am aware, the Department of Health.

Mark Pritchard: Will the hon. Gentleman give way?

Paul Farrelly: I am afraid not, because the hon. Gentleman intervened earlier, and other hon. Members wish to speak.

The so-called NHS turnaround team consists of one man from Deloitte, who only got his feet under the table last Monday, so he has not had any input. When I asked what was the point of the turnaround man, the reply was, "Good question." The purpose of my gnashing of teeth is to make the point that the process is hardly well stewarded. At times there is a vacuum of governance, accountability and control. I do not want to bog the House down with too much detail, but some is necessary to illustrate the impact on the deficits in my local area of different policies changing at the same time.

On Friday I was finally provided with the first draft of    the hospital's financial recovery plan, dated 18 January—two months out of date, but a first faltering step on the road to accountability. It is clear that for   some time the hospital was allowed to employ accounting staff who found it difficult to recognise basic accounting principles. For example, one does not make up for recurring overspends by using the budget for one-off items. It is clear, too, that there is a cosiness among NHS accountants locally. The hospital did not bill PCTs for extra work, as it did not want to embarrass them and force them into deficit, and it knew that they could not pay. Unfortunately, the numbers have to add up for big payments on private finance initiative projects such as our new hospital, so that eventually leads to a brick wall.

We need rigorous accounting, not because the NHS is a business, but because we need to know what everything costs so that the taxpayer can obtain value for money. In the hospital's predicted deficit, some items stand out like a sore thumb. For example, there are £4.2 million of unfunded costs for the new consultants' contract, the working time directive and "Agenda for Change". In addition, £7.2 million so far this year and £4.2 million next year have been earmarked for the new policy of payment by results. In many respects, those are unknown, unintended or poorly predicted consequences of policy change. The new chief executive has acknowledged that much of the recruitment that has been undertaken is in line with national targets, but we want to know exactly how much.

Clearly, I agree with my right hon. Friend the Member for Rother Valley and other hon. Members that we must know not just what we spend in the NHS, but how well we spend it and what everything costs. In North Staffordshire and elsewhere, the financial recovery plan does not seek to restore finances just to an even keel. The requirement is that in the following year, trusts must recover the underlying deficit, plus an element of the deficit carried forward from the previous
 
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year. That is a painful incentive not to get into deficit in the first place and a powerful signal, but where recognisable failures have occurred in the NHS system at a time of great change, it is too brutal in its effects now.

In North Staffordshire, some of the vagaries of the modelling, particularly with payment by results, may yet lead us to predict another £20 million of deficit. Staff and patients in areas such as north Staffordshire, which are already underprivileged, should not bear the pain of that brutality. The response must be managed and planned; it should not cause chaos, run amok or be out of control.

9.10 pm

John Hemming (Birmingham, Yardley) (LD): A lot of good points have been made today, particularly by the hon. Member for Wyre Forest (Dr. Taylor). He and the hon. Member for Newcastle-under-Lyme (Paul Farrelly) made the same key point that a lot of trusts bill one another within the health economy, so there is a risk that deficits are concealed for some time. It is very difficult to pin down what the deficits are, and sometimes people do not find out until the end of the year.

A lot of the problems were predicted, which is backed up by the evidence. I shall quote from "Early lessons from payment by results"—a report produced by the Audit Commission in October 2005 that one would expect the Minister to have read. It says:

"There are valid concerns that the level of risk inherent in the current policy design, particularly given the pace of implementation and the size of the change is too great."

In other words, we may not be in meltdown now, but if we keep going in the same way, we are likely to be in meltdown.

In the current financial year, about £8 billion is dealt with by what is called payment by results, but it is actually a transactional fee, not a market-based system. So Woolwich hospital's underlying costs are higher, because it cannot pay its tax bill and because its PFI costs are so high, but from the health service's point of view, the hospital cannot be shut down, because those costs must still be paid—so chaos ensues. We have chaos at the centre.

We have had a triple whammy, whereby well-managed Peter is being robbed to pay badly managed Paul. Eastern Birmingham PCT, which covers my constituency, is very well managed—it controls things very effectively—but it has been hit by three things within six weeks of the start of the financial year. First, it has been hit by the phasing out of the purchaser protection adjustment, to which hon. Members alluded earlier. Secondly, it has been hit by top slicing. Although we do not know the final top-slicing figures, they vary nationally between 1.5 per cent. and the 3 per cent. figure that is often quoted. Some people argue that that at least gives them a bit of money to deal with the chaos created by Government policy. Thirdly, we do not know what the tariff will be.

There is an argument that, if anything should be top-sliced, it should be the tariff, because that is where the real danger lies. There is a good argument for a scheme
 
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whereby people aim for a 3.2 per cent increase for non-elective surgery, and if people go above that, transactionally, it is only 50 per cent. of the cost and if they go below it, transactionally, it is only 50 per cent. of the benefit. There is a substantially stronger argument that that figure should be reduced, because it is very clear that the current chaos—as I say, it is not meltdown, but it is likely to turn into meltdown—is caused by too rapid an implementation of the process. If the speed of implementation were reduced, we would have a chance of people managing. The hon. Member for Dartford (Dr. Stoate) made the point that we want to plan expenditure. With payment by results—or transactional payment—people cannot plan such things.

Let us take the situation that we are in. We have deficits all over the place and we are not quite sure what they are. We will go further down a route that will create more and more deficits. Suddenly, we decide that we will take the money off the PCTs. We are top slicing some of their money. We are removing the purchaser protection adjustment from many of them. We are not telling them what they have to spend in the next financial year, which starts in a couple of weeks. They do not know the cost.

What do we do if we want to create total chaos? We sack all the senior managers and tell them that they must re-apply for their jobs. That is really clever. For proper financial accounting, the deficit at the end of the financial year must be predicted. If accounting staff are told that they will not have a job if they predict a figure that is in deficit, of course no deficit will be predicted. Suddenly we find that PCTs have been merged and there are massive deficits all over the place, beyond the amount top-sliced by the PCTs. What do we do?

We encounter a further problem, which was raised by the Royal College of Nursing. If someone is made redundant, their redundancy pay must be included in the accounts for that year, which is why there is such a big rush to make people redundant. If cost savings have to be made all in one year, it is difficult to find savings, so more people are made redundant than need to be.

We are caught up in a horrible administrative mess. The Prime Minister said that every time he reformed something, he wished later that he had gone a bit further. When everything in the health service settles down, we will look back and think, "No, we did that a little too fast." There is far too much change. The well organised managers who can add up are reeling with the pace of change, and we get more and more change.

We should look for a couple of things from the Government. First, they should stop reorganising the primary care trusts. They will never get anywhere if they tell all the people who are responsible for dealing with the tight management that they are to be sacked and will have to re-apply for their jobs. That will create chaos. Secondly, the Government should review the rise from £8 billion to £22 billion. I know that they are constrained to do it for the foundation trusts but it is clear that the Audit Commission views that as causing a massive problem. Thirdly, the Government should listen to the points made by the RCN, especially about timing. If everything is done in one year, the result is total misery. We must remember that our concern is with the patients—the people who need that health care.
 
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If there is no nurse or doctor to treat them, they do not get treatment. Action is needed from the Government to stop pushing us down that route.

9.17 pm

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