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6 Mar 2007 : Column 388WH—continued

The Committee’s report refers specifically to poor management by the Department and the fact that it went over budget on the “Agenda for Change” and on the GP and consultant contracts. The Committee refers to the
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cost estimates as “hopelessly unrealistic”, which is a fairly damning indictment from an all-party Committee and highlighted poor local financial management, which is clearly part of the overall cause. The Committee specifically mentions the impact of private finance initiative schemes—as raised by my hon. Friend—and also refers to the impact of the independent sector treatment centres on finances.

My hon. Friend referred to a matter that relates to the Norfolk and Norwich University hospital. In that case, the local chief executives and chairs of the previous primary care trusts in Norfolk warned, at the time, that there would be substantial refinancing. They also warned that the costs of the hospital were excessive and had a damaging effect on the finances of local primary care trusts. That warning was given to the Government and I subsequently referred the issue to the National Audit Office, which confirmed in a parliamentary report that, through PFI, we were paying over the odds for the hospital, one of the earliest to pioneer PFI. That has had a damaging effect on the finances of the Norfolk health economy, but do the Government help? No, they do not. Norfolk PCT has a £47 million deficit, which it is expected to clear by the end of the next financial year. The people and patients of Norfolk will ultimately pay the price for those deficits unless the Government are prepared to consider how to resolve accumulated historic deficits.

On the impact of how the Government have tackled the debt problem, it is worth noting that substantial debt existed before the 2005 general election. However, then there was a different approach to how to deal with the problem. More time was given, which got trusts through the difficult period of the general election, but once we were through the election, the position started to change, and of course the Secretary of State gave the infamous commitment that by the end of this financial year the NHS “as a whole” would break even. That seems to me to have driven the policy—the political imperative to ensure at all costs that the NHS as a whole breaks even.

What has suffered? My hon. Friend the Member for Northavon referred to cash shortages and the perverse consequences of those, but in terms of the health services that have suffered, the Health Committee referred to soft targets, including voluntary organisations, often doing incredible work on a shoestring, which suddenly find that their funding has been cut. Soft targets also include hospital chaplaincies and mental health services. There is lots of evidence from around the country that critical mental health services have been cut. Another soft target is public health and, in particular, sexual health services. Money allocated to those services has been diverted to clear deficits.

There was reference to out-of-hours services. In Norfolk, when the contract goes out to tender this summer, there will be a reduced specification, and the out-of-hours service will decline. As we saw this week in the report relating to ambulance trusts, that has knock-on effects. It is the law of unintended consequences: the out-of hours service is reduced, suddenly more people are calling ambulances, at great cost, more people are admitted to A and E, and the overall cost to the NHS ends up increasing.

Large numbers of posts have been deleted. It is great to avoid the particular damage caused by compulsory redundancies. No one wants individuals to lose their jobs, but if posts are simply deleted when people retire or leave their employment, that is totally arbitrary in its
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effect. Some departments can be affected far more than others. Trusts have found the impact of lost posts very damaging.

Training budgets held by SHAs have been cut by, I think, £350 million. My hon. Friend referred to short-term measures having long-term damaging consequences. What is happening with training budgets is one such short-term measure. There is also the impact of top slicing, which I have mentioned. Management resources are diverted to try to cope with an endless financial crisis, rather than an attempt being made to deal properly and objectively with Government reforms.

I want to say a few words about the role of strategic health authorities. I have witnessed in the east of England that SHAs are in an incredibly powerful position. From what I hear off the record, they are dictating how PCTs clear their deficits. We have ended up losing the acting chief executive, we understand, because of pressure from the SHA. SHAs seem to operate entirely without public accountability. They operate in the shadows and are accountable only to the Secretary of State. That needs to be examined. There ought to be transparency in the operation of SHAs and the directions that they give to local health trusts.

What is to be done? We all accept that as we go forward, there should be strict financial disciplines. Simply to remove deficits or clear deficits without requiring trusts to demonstrate that they are achieving in-year financial balance and are likely to continue to do that into the future on a sustainable basis would be ludicrous. However, there are reports of turmoil from all over the country and massive opposition is building up, because people are, rightly, protective of their local health services. When some trusts are in such deep financial difficulty that objective reports from the outside recognise that they are in an impossible position when it comes to clearing those deficits, something has to be done.

I repeat my hon. Friend’s plea that, above all else, there has to be certainty and clarity so that trusts can demonstrate financial discipline. People cannot demonstrate financial discipline when they are operating in a vacuum in terms of what the Government expect from them. Therefore, will the Minister provide clarity about the review that is apparently under way and particularly about the impact of the RAB accounting regime, and can he give any reassurance to those trusts and those parts of the country that are currently seeing fairly savage cuts to their local health services?

10.25 am

Mr. Stephen O’Brien (Eddisbury) (Con): I congratulate the hon. Member for Northavon (Steve Webb) on securing this important and timely debate. He obviously wanted the opportunity to return to the health portfolio.

In the time that is left to me after nearly an hour of a Lib Dem fest, I want to start by reiterating my and my party’s unequivocal support for all the wonderful work of the clinical and the non-clinical NHS staff. Too often as we lay bare the myriad incompetences of the Government, we hear the silly accusation that we are attacking NHS staff. It is terribly important that we place on the record the fact that we salute and applaud them for what they do. However, there are big issues of strategic direction, management and Government responsibility that we have to discuss without that being considered unfair or inappropriate.


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The Labour Government have presided over the biggest deficit ever in our NHS. The Minister will no doubt talk about the extra investment, but as we approach conditions of famine following the feast, we have to examine the effect that the deficits are having on the overall confidence that many trusts and the public at large have in the Government’s ability to manage the crisis, which is of their own making.

Let me remind the Minister of the figures. In the last financial year—2005-06—NHS trusts had gross deficits of £1.312 billion. A third of acute trusts and PCTs were in deficit, and 42 organisations had deficits of more than £10 million—a huge increase on the two organisations with such a debt in the financial year 2003-04.

It would be wrong of the Minister to repeat his mantra that most of the debt is concentrated in a small number of trusts. It is true that in the last financial year, 11 per cent. of the 174 trusts in deficit accounted for 70 per cent. of the gross deficit, but the Minister’s protestations on that score have been misplaced and will be again if he repeats them today. First, the argument is irrelevant, as NHS organisations are, rightly, not profit-making organisations—that is, they cannot recoup the deficits of one year through what might be described as a bumper year the following year, if they are fortunate enough to have one. Secondly, and more importantly, the Labour Government’s system for solving the deficit crisis has impacted adversely on the finances of all trusts and, consequently, on front-line services to patients.

A rigid system has been put in place this year to try to recoup the deficit money. It looks as though the Government may have skimmed off enough money to deliver something approaching a net run rate balance by the end of the current financial year at the end of this month. However, the figures tell a different story. Labour has imposed draconian measures on the NHS. Patients, students and NHS staff—we have read this week about junior doctors, in particular—have borne the brunt of the Government’s financial management. That is unfairness of the highest order. We have seen about 20,000 job cuts—I hope that the Minister is listening; the phrase is “job cuts”—through vacancy freezing, post cutting, wastage and redundancies. Training budgets have been savaged—behaviour that is utterly short-sighted. The derisory pay settlements that the Government have put in place for this year are a naive attempt to claw back some cash, but no credibility, after the mess they made of renegotiating salaries with NHS staff.

The Minister of State, Department of Health (Andy Burnham): The hon. Gentleman has referred to “derisory” pay settlements. Would he care to go on the record, then, with what the current Conservative policy is on public sector pay?

Mr. O'Brien: Much as I would like to be in the Minister’s post, I am not, and it is up to him to sort out the pay settlements. The real issue, given the previous, failed negotiations, which were carried out in a deeply incompetent way, is what the Government have had to do this year. This has been a very sorry tale in terms of motivating people. The accusation stands, and patient services have been cut as a result. As ever, however, the Minister has focused totally on taking the use of words such as “derisory”, which are intended to be suitably
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insulting and critical of the Government, to mean that an Opposition Member has suddenly made a spending commitment, but I have not, do not and will not make such commitments. That is the sort of silly banter that comes across the Chamber when we try to deal with serious issues such as the motivation of staff who are deeply committed to the NHS.

The Government have been deeply incompetent and allowed themselves to be rolled over by certain parties with whom they negotiated. This has been a long story of incompetence. Above all, patient services have been cut. I know for a fact that there have been cuts in the number of Parkinson’s disease nurses and podiatrists, and in many other services that are vital to people with particular conditions, such as diabetes. The Government’s short-sighted approach has resulted in a shortage of the very services that, through early intervention, help to keep people off the more expensive treatments in hospitals.

None the less, the Government have failed to solve the debt problems, despite unquestionably savage cuts and an increasingly expensive turnaround programme—getting up-to-date information on the cost of that programme is like trying to pull teeth, although that is probably more than dentists who have run out of units of dental activity can do at the moment. It is the gross, not the net deficit figures that display whether the situation is improving, and NHS trusts forecast a deficit of £1.318 billion in 2006-07, which is slightly larger than last year’s deficit. The debts of NHS hospital trusts have accumulated over the past three financial years. At the end of 2005-06, their accumulated debt was £1.1 billion, but by the end of this financial year, based on the month 9 forecast, it could be £1.7 billion. As the hon. Member for Northavon said, measures to bring NHS trusts back to a run-rate balance will not deal with that accumulated debt.

In part, that failure is a reflection of the Government’s inability to increase efficiency in the NHS. The Chancellor may spin the figures to the press, as he does, but he must surely recognise that successive Labour Health Secretaries have failed to deliver anything like the efficiencies that have been repeatedly promised at the Dispatch Box. Indeed, the Labour party has presided over an NHS in which, on the latest available figures, productivity has fallen by 1 per cent. for every year in which they have been in office. That is in somewhat stark contrast to the previous Government’s record.

The deficits in each trust lead to two problems. First, as has been rightly argued, resource accounting and budgeting means that hospitals that are affected are regarded as having pre-empted resources. Their income for the next year must therefore be reduced by an equivalent amount, which is treated as a first charge on that income. That is the double-counting of the deficit, which carries on to the balance sheet and the income and expenditure account. In business, however, people put a plan in place over a period of, say, three years to ensure that there is no attack on their core business, and so it should be here. The Audit Commission has recommended that RAB should be applied not to NHS trusts or NHS foundation trusts, but to PCTs, and we agree. When will Ministers respond positively to that recommendation? It was to be covered in the operating framework for 2007-08. Why was it not?

Secondly, as has been argued, accumulated deficits on the balance sheet prejudice the ability of NHS trusts to
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achieve the financial control and credit worthiness necessary for foundation trust status and to undertake borrowing for capital investment. It is therefore necessary to have a plan to determine how such historic debts can be dealt with.

Write-off is seductive, but wrong. It was interesting to listen to the hon. Member for Northavon go through his case, and many of the revelations that he and others have unearthed are quite shocking. I notice, however, that his website says that he will be

We need to be careful about what we ask for, and I think that I heard the hon. Gentleman repeat that he is looking for an element of write-off. This is a tough question, but I think that write-off will send trusts entirely the wrong signal: it will tell them that, once again, they do not have to face up to deficits. Furthermore, write-off cannot be the priority for NHS resources.

One possible option, which must be explored—this has already been touched on—is that NHS trusts that have otherwise met all the requests for foundation trust status, especially in terms of having sound financial control and business planning, as well as no current deficit, should be enabled by the Government to convert historic debt into public dividend capital on their balance sheet—still paying a dividend, but not prejudicing their future status and capital investment. That could avoid the terrible damage that is being wreaked on trusts’ core business—the front-line services. I urge the Minister to say whether he is looking at that; I hope he is.

If such an approach were adopted, after having been fully explored, it could carry a powerful positive incentive. Trusts such as North Bristol—once a byword for financial deficits, but which has been turned around financially—could be given an opportunity. We need only compare the financial performance of foundation trusts with that of other NHS trusts. SHA performance management has clearly failed compared with Monitor.

Steve Webb: I am interested in the hon. Gentleman’s point, but I think that he has drawn a dubious conclusion. If we select only those trusts that are financially well managed and whose finances are under control and call them foundation trusts, we will mysteriously discover that they are better at financial management than the trusts that we decided were not good at financial management. It is therefore a complete non sequitur to conclude that Monitor is better than the SHA.

Mr. O'Brien: No, that is being over-simplistic. Monitor has demonstrated that it can look at organisations’ conditions and financial health in a way that makes less of an imposition on the conduct of their core business and interferes less with it. So far, therefore, that is the better model.

What is certain is that the Secretary of State and her Ministers must be held to account for the deficits, the failure to solve the problem and, in particular, trying to mask that problem through savage cuts to front-line patient services. I hope, therefore, that the Minister will acknowledge that the disaster that has been created and perpetuated could be mitigated by ensuring that the Government at least think about RAB.

On the “Today” programme of 11 December 2006, the Secretary of State said that RAB


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However, in evidence to the Health Committee inquiry on NHS deficits, on 21 November 2006, she said that

It is hardly surprising that NHS finances are in such a parlous state if the Secretary of State herself does not know what the system should be. In November last year, she vowed to take responsibility for solving the deficits. Therefore, I hope that the Minister will tell us whether he or any Labour Minister—particularly the Secretary of State—will take responsibility.

The fundamental point is to recognise that there cannot be simplistic write-offs. There must be a planned approach that does not simply cater arbitrarily to the Secretary of State’s convenience, but which is rather more focused on ensuring that the core business of delivering front-line patient services to, for instance, the constituents of the hon. Member for Northavon, is not affected. A proper business and financial plan must be put in place in recognition of the fact that the accumulated deficits must be paid back over time.

The proposal to look at that issue should be explored. The Opposition, who do not have the resources available to Ministers, have not been able to examine it, so it would be helpful if the Government said that they are genuinely considering the opportunity of exploring how public dividend capital and the dividends paid out of it could contribute to finding the solution.

10.40 am

The Minister of State, Department of Health (Andy Burnham): I add my congratulations to those that have been offered to the hon. Member for Northavon (Steve Webb). It is good to have him back on health matters. Like the hon. Member for Eddisbury (Mr. O'Brien), I think that we have had a rare treat this morning, with the finest brains of the Liberal Democrats giving us their thoughts: Liberal Democrats and NHS finances—an enticing prospect.

The hon. Member for Northavon spent much of his speech describing the details pertaining to North Bristol NHS Trust, and I shall deal specifically with some of the questions that he raised about it, but I hope that he will permit me, given the ambit of the debate, to go more broadly and discuss some more general points about the treatment of debt in the NHS. I am pleased that my hon. Friend the Member for Bristol, North-West (Dr. Naysmith) has joined us, as he takes a close interest in the future of the trust and its plans.

We are 25 days away from the end of the financial year, and I readily accept that it has not been an easy financial year for parts of the NHS. All three hon. Members who have spoken have tempted me to pre-empt some of the decisions that the Government might take when reviewing the financial year. They will have to forgive me if I do not accept their invitation to do that, but I shall try to give a greater flavour of our thinking on those matters and share some of our thoughts about where that will lead us.


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