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6 Mar 2007 : Column 382WH—continued

Again, I urge the Minister to ensure that any schedule of repayment that is announced for the North Bristol trust will allow its long-term stability to be preserved. It must be able to make decisions based on
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the long term, not just on desperately scrabbling around to try to make the budget add up by the end of Wednesday fortnight.

Obviously, the fundamental concern is the impact of cost-cutting on service delivery, but the second is cash shortages, from which the North Bristol trust has suffered. Even towards the end of last year—a year in which the trust was on the brink of financial balance—it had to borrow money to pay its bills. That seems a ridiculous situation.

Cash shortages can have serious effects. The NAO provides a case study of the Queen Elizabeth Hospital NHS Trust, which was struggling financially in 2005-06. Some of the things that it considered withholding were tax and national insurance payments on behalf of its staff, payments to PFI partners and general payments to creditors. Each of those would have had a worrying consequence. In the end, the trust was bailed out through a sort of emergency cash brokerage. But imagine what could have happened. Non-payment of PFI partners would increase the cost to everybody in the NHS for future PFI projects. If people who are involved in PFI projects in the health service were to realise that cash-strapped trusts might default on or delay payment, it would be more expensive to do things through PFI. There is a cost implication.

What if trusts were to delay paying bills from private suppliers and small businesses? They are doing that. The public sector is supposed to set standards in prompt payment, but NHS trusts are some of the worst for paying bills, and that of course leads to a premium. If I want to do business with an NHS trust, I will build into my price the cost of a delay in payment. The cash crisis has a consequence. Should Revenue and Customs—the general taxpayer—have to wait for NHS employees’ national insurance payments because trusts are broke? Short-term cash shortages have real impacts, and too many trusts are facing them.

The third thing that the NAO and Audit Commission report highlights is how management resources are diverted. The chances are that the finance director, not the clinical director, will get the most attention in a trust with a cumulative deficit of £100 million, and that is a real worry. That is not to say that there is not first-rate clinical care at the North Bristol trust. In many cases, there is such care, but it is human nature that managers wrestling with such a debt without knowing when it has to be repaid will devote much of their energy to trying to save money, and will make short-term economies that, inevitably, will be at the expense of a focus on patient care.

The last concern highlighted by the NAO is about future foundation status, to which I referred earlier. How will trusts with accumulated deficits ever become foundation trusts? It is clear that there is a different regime, as foundation trusts can fail, although I believe that the failure mechanism is not yet well worked out. Could the Minister clarify whether his timetable for making all NHS trusts foundation trusts is still on track? Does he still expect that to happen by the end of 2008? I cannot see how the North Bristol trust, with an accumulated deficit of £100 million, can become a foundation trust without a write-off of some of the debt, and a clear and affordable repayment schedule—even coupled with
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the PFI liability that it is about to take on. Are we on for 2008, and how is that compatible with wider Government policy? The issue is local and specific, but the effects of deficits are also more general.

I mentioned that the North Bristol trust does not believe that it actually has any debts at all, as they do not formally appear on the balance sheet in the normal way. I mentioned the private dividend capital, but I would like some clarification on the other slice, the £48 million. The way that the North Bristol trust tells the story is that in any year that it was bailed out—it does not use those words, but that is obviously what happened—there was a freestanding transaction and no clear reciprocal obligation arising from it. There was never a deadline for paying back money that was handed over. That situation, which increases the uncertainty that trusts face, is not clear to me.

If the North Bristol trust, as well as simply breaking even were to start to make surpluses, and if a hypothetical neighbouring trust that had no historic deficit were also to start to make surpluses, would there be, in effect, a North Bristol trust tax to match the North Bristol trust subsidy? I do not want to be hysterical about this, but I hope that the Minister will respond on that specific point. In other words, if two identical trusts next door to each other—one with an accumulated deficit, one without—both make a small surplus, will they be equally required to put money into the national pot to deal with deficit trusts, or will the North Bristol trust have more of a handicap because of the help that it received in the past? Will there be more of a penalty on financial recovery if a trust has historic deficits?

How will that work with foundation status? Presumably, once a trust is a foundation trust, it can dispose of surpluses as it sees fit. Perhaps the Minister will say that that will be resolved before the trust becomes a foundation trust, but if the time scale is the end of 2008, the North Bristol trust will not be able to pay the money back. It may never be able to do so, but certainly not by the end of 2008. Some deficit must be carried forward into a trust’s existence as a foundation trust, so how will that work? Will there be a first claim on surpluses, if a trust makes them? It would be helpful if the Minister could clarify that.

To draw the threads together, there have been improvements in the NHS. I supported the extra investment, which was entirely welcome. But one of the things that has bedevilled the NHS in recent years has been financial uncertainty and in-year changes—I believe that some primary care trusts have been top-sliced three times within a year—and now acute trusts are expected to plan for new hospitals and a new generation but still do not really know where they stand.

As I said, the issue does not affect North Bristol NHS Trust only. In the piece in The Guardian that I referred to earlier, the chief executive of the NHS “did not dispute”—I am not quite sure what that means—reports that

I am aware of the statutory duty to break even. The letter from the Department to the North Bristol trust said that the trust was in breach of its statutory duty to break even because it had failed to recover within five years.

I would not want to be reported as saying that the chief executive of North Bristol NHS Trust should be
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clapped in irons and dragged away to Horfield prison, but what does breaching a statutory duty mean? If it is statutory, if a law has been broken, what should happen? I am not clear that the statutory duty has any force. The letter spoke of a breach of statutory duty, but life appears to be going on pretty much as before. Will the Minister clarify what force it has? Four of the 10 trusts mentioned in the league table had, at that point, four years of cumulative deficit, so several of them are on course to breach their statutory duty.

At one level, we could have spent the entire debate talking about the deficits in NHS trusts in any given year, but my focus has been on accumulated deficits. It is my perception that those deficits are like millstones around the necks of those trusts and their hardworking staff, North Bristol NHS Trust being the exemplar. I am sure that the Minister will properly pay credit to the people who work at North Bristol NHS Trust, who do an outstanding job.

Inevitably, Members of Parliament are contacted when things go wrong, but I receive a good flow of information from people saying what a good experience they have had. Nothing that I have said this morning was designed to say anything other than that. Those people and the patients of the North Bristol trust need to know where they stand.

I draw those threads together. My first plea, for my constituents and my trust but also for trusts across the land, is for certainty. They need to know where they stand, and they need plenty of warning if they are going to have to repay some or all the money. My second plea is for those trusts that, in everyone’s words, are in an unrecoverable position as regards their historic deficits. The current position may be recovered, but the historic position is a millstone.

Action needs to be taken. I realise that it must be conditional on the trusts getting their financial houses in order—which the North Bristol trust has now done. The uncertainty has continued for far too long. I believe that the Government may be about to make a decision on the matter, which I would welcome; but in recognition of the achievements and the progress that has been made, I urge that the debt does not remain as a millstone. I would particularly value an assurance that the public dividend capital will be allowed to roll on indefinitely, because the most sustainable way to deal with the problem is to allow the trust to continue servicing the debt but without having to repay the capital.

I would be grateful for the Minister’s clarification on what future liabilities have been incurred by the North Bristol trust, either implicitly or explicitly, in respect of the help that it has had since the lump-sum bail out—in other words, when it was helped during the past three years. Is there now an expectation that the money will be paid back; or as the trust goes into surplus, will some or all of that money go into the pot for those parts of the NHS that are no longer in surplus?

It is a privilege to have had the opportunity to raise such an important issue in this Chamber, and I look forward to hearing the contributions of other hon. Members.

10.3 am

Norman Lamb (North Norfolk) (LD): It is a pleasure, Mrs. Humble, to serve under your chairmanship for the first time. I congratulate my hon. Friend the Member for Northavon (Steve Webb) on
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securing this debate. The subject is clearly central when it comes to delivering good-quality health care, both now and in the years ahead.

Of all the points that my hon. Friend drew to our attention, one of the most important seems to be that health trusts are rightly expected to demonstrate clear financial discipline. We can only go forward if trusts delivering health services do so, but it is extremely difficult if they are operating in an uncertain financial climate—and the financial climate is provided by the Government.

My hon. Friend used as a case study his local North Bristol NHS Trust, which has a deficit of £100 million. He made interesting and important points about the public dividend capital of £52 million—the first part of the debt. The trust is able to make the repayments, but—this is one of the examples of uncertainty—it appears to be unsure whether it will ever have to repay the money. That is an impossible position for such an organisation, and not one that any private company would suffer.

That position reminds me of the problems of the Norfolk and Norwich University Hospital NHS Trust which were brought to my attention. Just before the start of the financial year, the trust received the full details of the financial package within which it would have to work during the coming financial year. When it came to managing its resources effectively, it said that it had heard about the package far too late. When planning for the year ahead, it was faced with an extremely challenging financial position and unexpectedly had to make cutbacks of several million pounds because the settlement was worse than expected.

On the current deficits of trusts around the country, the figures for the third quarter were published recently. The forecast gross deficit across the NHS for that quarter is £1.3 billion. The deficit at the end of the second quarter was £1.179 billion. The position has worsened, and those figures were higher than those for 2005-06. The commentary that accompanied the figures confirmed that 35 per cent. of organisations are in deficit—a high total. We keep hearing that we will secure a financial balance across the NHS, but the fact that 35 per cent. of organisations are in deficit is clearly a cause for concern. Again, that figure was up on the second quarter, when it was only 33 per cent.

The commentary also reported a sharp increase in the number of primary care trusts in deficit in the current financial year, when it is supposed that things were starting to be sorted out. Richard Douglas, who wrote the commentary—he is the Department of Health’s director of finance and investment—said that the problem remains a “cause for concern”.

I understand that the figures take account of top-slicing. I shall return to that, but it is clear that the process has plunged more trusts into deficit. Many feel a sense of grievance that they have managed to operate in surplus, but then an arbitrary decision is suddenly taken to slice off some of their funding. I appreciate that, in theory, the funding comes back later, but not all trusts believe that it will be refunded in full. They feel that their position has been made a lot more difficult.

I spoke over the weekend to the chairman of a primary care trust in an impoverished part of London. He explained that it gets extra funding because of the community that it serves but that it then suffers top-slicing, which takes away some money and makes
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its position more difficult. I accept that the Department said in its commentary that there was an expectation that £300 million of that top-slicing could be repaid. That is about a quarter of the total money taken from trusts, but it would still leave a gross deficit of a little over £1 billion.

The position is clearly different in various parts of the country. The Select Committee on Health considered where the deficits were occurring and their cause. It is hard to define any clear link, as there are many causes, and I shall return to that. In some parts of the country the position is very bleak. I come from the east of England, where the situation is extremely challenging and, most important, getting worse. There is no sense of improvement. I met the acting chief executive of the newly formed Norfolk primary care trust in October last year. Incidentally, she has now gone—forced out, it seems, by the strategic health authority. The Norfolk PCT talked about significantly reducing the deficit in this financial year and suggested that it could cut £9 million off the deficit and then clear the rest in the next financial year. The reality is that it is now forecasting a deficit, which, if anything, is slightly higher than that inherited when it took over at the beginning of October. No progress has been made with that at all.

London and the south-east continue to suffer substantial deficits within strategic health authority regions. London contains many deeply impoverished boroughs, and the anxiety that I hear when colleagues talk about the impact on local health services is disturbing. On individual trusts, the point that my hon. Friend has made is that some are clearly in an impossible position. Most people concede that it is impossible for trusts ever to clear the total deficit that they face. Trusts must carry the burden of deficits at the same time as a rapid pace of reform is imposed by the Government and must cope with substantial deficits and an imperative to clear those deficits in a tight time scale.

By implication, much of the Government’s rhetoric puts the blame for large historic deficits purely on the local trust organisations that face such deficits. As my hon. Friend mentioned, there has been a lack of financial discipline in the past—we all recognise that. Part of the problem is that many trusts have been starved of investment for so long that when the extra investment was suddenly made, it was difficult to handle such a significant and sudden inflow of additional resources. There has been much discussion of how money went into employing more staff. Trusts now find that they must cut back on staff and that that creates a boom-and-bust effect. Staff are brought in and then must be cut again because of the financial crisis faced by many trusts.

In his commentary, Richard Douglas refers to the

His rhetoric points to responsibility simply resting with the local trusts concerned. However, in the Health Committee report published before Christmas, a far more complex picture emerges about how deficits have developed. It is harsh to suggest that there is a unique concentration of financial incompetence in the east of England. If that is really what the Government are saying, I certainly take offence, and I am sure that people working in the NHS in the east of England would too. As we know, the position is far more complex. The third quarter report acknowledges that

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On the complex pattern of how such deficits have built up, my hon. Friend discussed the rather pernicious effect of resource accounting and budgeting and the double deficit. The Health Committee highlighted how that could lead to a rapid worsening of accumulated deficit and create a downward spiral. The Committee’s conclusions were stark:

It could not be any clearer than that.

As my hon. Friend said, David Nicholson—chief executive of the NHS—used the phraseology “unsustainable and inconsistent” in relation to the principles of fair funding for hospitals. On the one hand, he accepted the logic of the Audit Commission’s proposal to exempt trusts from the resource accounting and budgeting regime. On the other hand, he said that no change was likely in the near future. While such a regime continues, the problems continue to stack up.

The Government’s response, published a fortnight ago, to the Health Committee’s report confirmed the view that the RAB accounting regime was becoming increasingly unsustainable. The response states:

Tantalisingly, the response goes on to say:

this financial year—

The Government are considering that issue, but, as my hon. Friend asked, will the Minister make an announcement today about the financial uncertainly that trusts face? Trusts still do not know whether ultimately the rules will change, even though they are required to behave in a way that will clear deficits and make tough, difficult decisions about local health services. What is the time scale for the review and when will the Government know whether a change will occur?

On other causes for the problems which go beyond RAB, the Health Committee referred to the funding formula. A funding formula from central Government will always lead to complaints that certain parts of the country are unfairly penalised compared with others. The Committee highlighted concerns that the formula had an unfair effect—for example, on rural areas. I do not know what the conclusions were, but there is clearly a continuing concern in the health service that resources are not fairly allocated from the centre. The Committee referred to the effect of Government policies in terms of the development and build-up of deficits—particularly the accident and emergency department four-hour target. I readily accept that the four-hour target has, in many cases, transformed how hospitals operate. When I recently visited the Norfolk and Norwich accident and emergency department, people were broadly positive about the effects of the target. However, the financial consequences for trusts already in some financial difficulty have been tough.

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