Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 80-99)


16 OCTOBER 2006

  Q80  Greg Clark: Can you speak for your predecessor on that?

  Mr Nicholson: Yes. I am sure that he would not have been involved in any of that either.

  Q81  Greg Clark: Can we check and clarify that for the record?

  Mr Nicholson: Yes.

  Q82  Greg Clark: Moving on to more substantial points, can we turn to table 9, on page 19 of the report? We see there that in 2004-05—the most recent financial year reported on—the number of PCTs in deficit, to take an example, almost doubled in a year, rising from 41 to 90. Did you expect this deterioration in finances or was it a surprise?

  Mr Nicholson: It was not planned.

  Greg Clark: It was a surprise?

  Mr Nicholson: It became clear during the year that a number of PCTs were not going to hit their targets, so in that sense it was not a surprise, but it was certainly not planned.

  Q83  Greg Clark: So you just realised during the year, rather than before the beginning of year?

  Mr Nicholson: Yes.

  Q84  Greg Clark: Page 4, paragraph 8 of the Report says: "The reasons for the financial difficulties . . . cannot be attributed solely to poor financial management". In other words, there were other reasons. Can you outline some of the other reasons for these deficits?

  Mr Nicholson: I mentioned earlier the GPs' contract, "Agenda for Change" and the consultants' contract, all of which cost more than we had identified in the original costings.

  Q85  Greg Clark: Yes, these contracts had been negotiated, yet the deficits that they produced were a surprise to you. If they were negotiated, surely you knew what they would cost the organisations.

  Mr Nicholson: Absolutely—they were negotiated nationally, but they were all implemented locally. For instance, the consultant contract negotiations were essentially local discussions between the management of the organisation and an individual consultant or a group of consultants, to deal with, for example, the number of PAs or the number of sessions that they were doing.

  Q86  Greg Clark: Why was it not possible to foresee the impact of that and to fund it?

  Mr Nicholson: On the other side, I would say that most organisations managed to live within the money that they had or found alternative ways of funding the cost.

  Q87  Greg Clark: You say that, Mr Nicholson, but 90 out of 130 PCTs were in deficit in 2004-05.

  Mr Nicholson: Yes.

  Q88  Greg Clark: So, most PCTs did not manage to cope with those pressures.

  Mr Nicholson: No, there are 303 PCTs.

  Greg Clark: Sorry. Almost a third did not manage.

  Mr Nicholson: Yes.

  Q89  Greg Clark: That is not a trivial proportion. A lot of PCTs struggled to cope with something that should have been predictable—the costs of new contracts.

  Mr Nicholson: If you take on PCTs, a major issue in relation to those contracts was the quality outcomes framework. Nationally, we took the best advice that we had, and our conclusion was that the average score for a GP would be about 750 points. In fact, it was more than 1,000 points in practice.[7]

  Q90  Greg Clark: Whose fault is this? You are the chief executive and we have the finance director here. The cost of the GMS contract was £300 million more than anticipated and the consequences are being visited on our constituencies, in ward and bed closures. Who is responsible for that underestimate?

    Mr Nicholson: The consequences for most organisations—two thirds of organisations—were good in the sense that they managed to deliver within the amount of money that they had. The quality and outcomes framework is a measure of quality of primary care, so—

  Q91  Greg Clark: Do you not care about the ones that could not deliver? You got it wrong to the tune of £300 million. You did not fund them enough. Do you write them off? Do you have no sympathy for them?

  Mr Nicholson: It is their job to live within the amount of resources—

  Q92  Greg Clark: Even when you get your sums wrong to the tune of £300 million?

  Mr Nicholson: We also got some other sums right—for example, on the benefits of changing the amount that we spent on drugs.

  Greg Clark: But you got them wrong to the tune of £300 million, did you not? You gave organisations £300 million less than they needed and told them to get on with living with that.

  Mr Nicholson: Yes, but that was in the context of them getting between 8.2 and 10% worth of growth. It seems perfectly reasonable for an organisation to manage its affairs against that scale of growth.

  Q93  Greg Clark: But £300 million—a third of a billion pounds—seems quite a big mistake. None the less, let us look to the future. Some of your answers indicated that things are getting better. Is that right?

  Mr Nicholson: I think that things are getting better, yes. There is the potential that we can balance the position across the NHS as a whole this year.

  Q94  Greg Clark: Why, at paragraph 5.2 on page 63, do the auditors of 59% of NHS bodies report concern about the financial standing of their organisation for the year just ended? The figure has gone up.

  Mr Nicholson: Because the environment in which people are working is more difficult than it was last year.

  Q95  Greg Clark: You said that things are getting better, but more auditors this year are concerned about the financial standing of their organisations than they were last year or the year before.

  Mr Nicholson: That is to say that the management challenges are greater; it is not to say—

  Greg Clark: But you say things are getting better.

  Mr Nicholson: Of course, because the management of the NHS are rising to that particular challenge.

  Q96  Greg Clark: If an auditor expresses concern about the financial standing of an organisation, is that concern not a negative thing, which it is difficult to reconcile with something getting better?

  Mr Nicholson: I do not think that at all. The bottom line in all this is whether we will deliver our financial targets, and we are on plan to be able to do that. It is going to be very tough for the NHS to live within its money this year, but I am confident that it can, because people will rise to the challenges that you have identified.

  Q97  Greg Clark: But 59% of auditors have their doubts. My concern is this, Mr Nicholson: this year, we have had real-terms increases of 7.3% for the NHS—as the report makes clear, it is the best-funded public service—but deficits are impacting on service standards and auditors are expressing concern. We cannot expect those funding increases to continue, so if we are having difficulties now, how will your organisation cope with the more stringent circumstances that we all expect?

  Mr Nicholson: That is why it is so critical to make those very tough and difficult decisions this year, while we have the growth to enable us to do so.

  Q98  Greg Clark: You find it difficult to live within a 7.3% real-terms increase. If that figure fell to match the rate of growth of the economy, could you reasonably expect the NHS to cope without experiencing the problems that we are currently seeing, or worse?

  Mr Nicholson: I think that we are going through a transitional period in terms of the way in which health care is delivered and of the system that we use. In those circumstances, there will undoubtedly be difficulties. For most of my career, however, I have lived with significantly less growth in the NHS than we have now, and it is possible for the NHS to do what you say.

  Q99  Greg Clark: Why are some bodies resorting to fraud? Page 51 of the Report says that the appointed auditors reported "evidence of inappropriate adjustments and/or omissions" in 21% of NHS bodies' accounts. One in five NHS bodies are fiddling the figures. Why is that?

  Mr Douglas: I think that it would be stretching it quite a lot to refer to that as fraud.

7   Note by witness: The average score per practice was 959 points. Back

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