Examination of Witnesses (Questions 180-199)|
16 OCTOBER 2006
Q180 Mr Dunne: Can I move on to the
double deficit issue that has been talked about, particularly
in relation to payments to the NHS bank, in addition to the resource
accounting deficit make-up? Those trusts that are in deficit are
having to make substantial contributions to the NHS bank, and
that is particularly true of the west midlands health authority
area, which is where I am. However, there seems to be little provision
for repaying that funding out of subsequent years' annual resources.
How will it be paid off?
Mr Nicholson: You are referring
to the money that PCTs have given up for the reserve across the
west midlands and across a number of strategic health authorities.
That money is being used to support the deficits in a whole set
of organisations in the west midlands. The issue of payback is
yet to be finalised, and I am sure that it is subject to significant
negotiation, but the real driver is the delivery of financial
balance in those organisations that are in deficit. Once they
are in financial balance, they will no longer need the resource,
so it can be paid back. That is the delicate issue that needs
to be negotiated, but we obviously hope that the PCTs get the
resources back as fast as we can arrange it.
Q181 Mr Dunne: But the tariff makes
no provision at all for helping to recover historic deficits.
How do you intend to square that circle?
Mr Douglas: The tariff does not
make specific provision for any organisation for any individual
thing; it is based on the average cost across the NHS and is then
uplifted by pay and prices. For organisations to generate surpluses
and recover past deficits, they will have to operate at less than
the tariff pricethey will have to be more efficient than
the average organisation.
Q182 Mr Dunne: And if they cannot
be? They are left with a debt, are they not? Should you not be
arguing to the Government that you should be looking for a longer
repayment of historic debt? Is that not a way out of the problem?
Mr Douglas: I think that there
are two issues. One is the cash issue for organisations. Where
organisations have got into a cash problem as a result of running
a deficitit is the cash thing that people usually call
the debtwe are creating a system under which we are potentially
looking at giving people longer-term loans to repay that cash.
Q183 Mr Dunne: Sorry, but can I be
clear about that? You are looking potentially at longer repayment
terms? Over what period?
Mr Douglas: For the cash payment.
At the moment, if someone borrows cash from elsewhere in the system,
it is flipped over to the following year and paid back. What we
have done is to look at the demands for cash from each NHS organisation,
based on their past financial problems, and at those organisations
that will potentially have a surplus of cash. We are matching
the two and, in most cases, that will lead to short-term loans.
However, for some organisationsthose with the most intractable
problemsthose loans may stretch over longer periods.
Q184 Mr Dunne: Could you envisage
those periods stretching over three years or beyond five years?
How do you see that?
Mr Douglas: We have got to look
at the final figures for this. I would find it difficult to see
any stretching beyond five years.
Q185 Mr Dunne: Thank you. My final
question relates to paragraph 3.37 on page 37, which states: "Recovery
plans may need to include non-recurrent measures such as asset
disposals to tackle cumulative deficits", so asset disposals
clearly could be one means of paying off historic deficits. The
problem for many of the trusts with assets on their books that
have not been properly depreciated through the NHS accounting
rules is that there is a substantial impairment charge. Under
your accounting rules, it has to be written off against revenue
in the year in which it is incurred, thereby effectively stymieing
any opportunity to use asset sales as a means of solving the problem.
Would you like to comment on that?
Mr Douglas: We follow normal accounting
practice on the impairment of assets, so organisations have to
recognise an impairment in their revenue account.
Q186 Mr Dunne: Yet you do not follow
normal depreciation rules for fixed assets such as buildings,
Mr Douglas: The system overall
is broadly in line with normal accounting practice, and the NAO
and the Audit Commission confirm our compliance with UK general
accounting procedures. The issue of using land sales to deal with
deficits is quite complicated because if you get a capital receipt
from a land sale, you have to apply that for capital purposes;
you cannot apply it to pay off a historic revenue deficit. The
only element of a land sale that allows you to deal with a deficit
is the profit on disposal, so this is not an easy way for people,
just to dispose of assets.
Chairman: Thank you very much. Your last
questioner is Mr Williams.
Q187 Mr Williams: Is not the ultimate
problem that there is an ambivalence right at the heart of the
health service as to who is in control? You, for examplewe
have had a succession of yous, as you will understandsit
there and issue your Caesar's edict, which is carried out to the
provinces, but by the time the chariots get back you have already
lost control. The information system is not adequate to begin
with to enable you at the centre to exercise more hands-on, contemporaneous
control. Is that a fact?
Mr Nicholson: We are not running
a Ukrainian tractor factorythat is true.
Mr Williams: This is not the allusion
that I am trying to get at.
Mr Nicholson: No, and I would
not want to give the impression in any way that I was, but there
are two or three things that we can do. First, we can ensure that
we have proper business processes in the system; and secondly,
we need to ensure that the organisations have the capacity to
respond. Those are quite important things for us to do, but we
should not get carried away with the idea that there are certain
leversthere is certainly no lever in my office connected
to some hapless nurse on ward.
Q188 Mr Williams: You are not a Ukrainian
factory controlleryou are sitting in Moscow pulling levers
and expecting things to happen, but the lever is not connected
to anything. Let us take this ambivalence to a different level.
Is it not also a fact, administratively and operationally, that
there is ambivalence in the key units within the health service?
Some years ago, we were asking Sir Alan Langlandswho was
a very good witness and for whom we had great admirationabout
controlling this vast empire and he told us, "Well, I have
about 600 accountable officers". I am told by the NAO that
the precise figure is now 567 accountable officers, but they are
an illusion, are they not? How does their power, as accountable
officers, compare with your power as an accounting officer? They
have the responsibility, but do they have the power to go with
Mr Nicholson: They certainly have
the power to manage their own organisations. They are all part
of statutory boards that have the kind of statutory responsibilities
that we have. They all manage incredibly complex organisations,
many of the costs of which are driven by clinicians treating patients.
Q189 Mr Williams: But that is a value
judgment. I hope that Sir John does not mind my quoting his reply
to a note that I passed to him. I asked about the accountable
officers and he said, "Well, they don't cut the ice in the
way the accounting officer in other departments does." That
is the reality, is it not?
Mr Nicholson: I do not think that
I quite understand that point.
Q190 Mr Williams: When I probed the
issue a bit further, the Comptroller and Auditor General made
the point in a second note that the accountable officers do not
have the same authority as the permanent secretary and that they
lack that status when compared with the clinicians. Is it not
a fact that there is a struggle down at the operational level?
Those who want the resources actually have more status than the
people are trying to control those resources.
Mr Nicholson: What is true is
that you get the best results where clinicians and managers work
closely together. That is absolutely true and I have seen from
my own experience, when I was responsible for Doncaster royal
infirmary for 10 years, that that is exactly what happens. That
was exactly the position that we were in, working very closely
with clinicians. If you are set in opposition to clinicians, things
become very difficult and a trial of strength. It was true up
to about four or five years ago that the mean reason chief executives
were fired was because they fell out with their doctors. That
is not the case now, but it was.
Q191 Mr Williams: I know of an example
of precisely that. The administrator was in the right, as it happened
in this particular instance, as I recollect. We have had reference
to creative accounting at a local level, but is that not a way
of covering up this tension and incompatibility with the wishes
of service suppliers and the need for control by the man or woman
in charge of the finances?
Mr Nicholson: I cannot accept
that there is lots of creative accounting going on in the system.
Perhaps I can give you an example of the sort of thing that I
think that you are talking about. It could be that a particular
hospital has a deficit and that, historically, a deficit was dealt
with by the region or the strategic health authority, or whoever
it was in those days, shifting resources to it to enable it to
cover that up so it could say that it was in balance. That was
often done on the basis that it had a year to sort its problems
out. Typically, those problems did not get sorted out, because
the really tough decisions about the way in which clinical practice
is developed, including the number of day cases, the number of
beds that a particular clinician would require for his or her
work, and the perioperative length of stayall those thingsare
difficult to deliver. One thing about the transparency that we
have now is that it is impossible to avoid making those big decisions.
That is the crux of the matter at the moment. We need to be absolutely
resolute to ensure that we make those difficult decisions and
Q192 Mr Williams: We are told in
the report that 70% to 80% of the bodies with a deficit, knowing
that they are in deficit, are not implementing their recovery
programmes; they are definitely implementing the programme that
exists. Are you saying that this is entirely down to the accounting
officer, who will therefore be held accountable for failure at
the end of the financial year?
Mr Nicholson: They are accountable
for delivering their savings programmes. That is their job; that
is what they are paid to do.
Q193 Mr Williams: But how is it,
since their job is on the line, that they cannot ensure that,
in 70% to 80% of the cases where a recovery programme has had
to be introducedthey must know that their job might be
on the linethey get the response that they need from the
body that they are working within?
Mr Nicholson: Well, I think they
are getting better at it. I have identified that, some years ago,
it was 50% for the turnaround organisations and now those are
delivering 95%. One of the major lessons from the turnaround teams
is clinical engagement. That is what you need in order to deliver.
Q194 Mr Williams: That was my next
questionand exactly where I was going. Because of the less
formal attempts being made to reconcile finance with need in the
past, when the turnaround teams go in and draw up their proposals,
how binding are they? Are they laid down as commands that shall
be obeyed or are they guidelines around which the old ambivalence
Mr Nicholson: We do not accept
a turnaround plan unless the local organisation owns it. So we
start from a basis that that is what it needs to do. If it does
not think that it can deliver it or it does not own it or, particularly,
if its clinical staff do not believe that it is deliverable, we
would not accept it. That is why we are taking so much time to
get these plans in place.
Q195 Mr Williams: I am running out
of time. I apologise. Jumping to your aspirations for the future,
I am slightly confused. I can see that it is a real problem for
you, intellectually. If you aim for break-even, you either make
it or you do not; you may be just above or just below. I understood
you to say that you are aiming for small surpluses everywhere.
When small surpluses occurif they dowill the hospitals
or other organisations be told, "You have been good children.
You can carry this forward to next year in addition" or will
they be told, "That nasty Treasury is breathing down our
necks and since you had a surplus last year, you are having less
this year"? Is not that a temptation at the centre: to try
to claw to some of it back to put to other uses?
Mr Nicholson: It is certainly
not a temptation for me, because I have to put exactly the right
incentives in place. If I said to people, "Whatever surplus
you get, we are going to whip it off you," I should get the
surpluses that I deserve, should I not? My ability to deliver
those surpluses to people is dependent on our ability to deliver
balance in those places that have deficits. If they are organisations
that continue to rack up deficits, I shall never be able to give
them back their surpluses.
Q196 Mr Williams: This is my final
question. What structural changes have been necessary to ensure
that you get that collective view, so that instead of there being
a struggle between the head of finance and the clinicians, you
now have a consensual approach to the solution?
Mr Nicholson: I do not think there
is a structural solution to it; it is about the way in which organisations
function. One thing that potential foundation trusts must demonstrate
in terms of their ability to manage their finances is that clinicians
are brought into the general strategy and direction of that organisation.
Those are the processes that are most likely to deliver. The other
thing I would say is that we need to improve the quality and leadership
of management in the NHS in general. One thing that I need to
do is to start to encourage and bring more clinicians into senior
chief executive and management positions in the NHS. We are quite
unusual in the developed world for having relatively fewparticularly
doctorsin those positions. One of my jobs is to make that
happen over the next period.
Mr Williams: I look forward to seeing
you in a year's time when you can boast about your 567 surpluses.
Chairman: Thank you, Mr Williams. Mr
Bacon has a final supplementary question based on the evidence.
Q197 Mr Bacon: Actually, it is based
on Mr Nicholson's CV. Would you clarify whether you were the chief
executive of West Midlands South and of Shropshire and Staffordshire
strategic health authorities consecutively, or was it one joint
appointment? It looks like you have had four jobs since last year.
Mr Nicholson: I have had five
jobs since last year actually, including this one. I was the chief
executive of Birmingham and the Black Country strategic health
authority. In the August or September, I was given the job of
running both the Birmingham and the Black Country and the Shropshire
and Staffordshire strategic health authorities. About one month
later, I took over responsibility for West Midlands South SHA.
I was the chief executive of three organisations by October last
Q198 Mr Bacon: When you stopped being
chief executive, you did not get any severance payments from those
SHAs, did you?
Mr Nicholson: No. I applied for
one of the 10 strategic health authority chief executive jobs,
and I got the London strategic health authority job. I was there
for two months before I came here.
Q199 Chairman: To clear up a problem
that is still confusing me, under this Governmentthe Labour
Governmentyou accept that there is a dramatic increase
in spending and the output has also improved, but confirm to me
whether productivity has increased. What is the ratio between
inputs and outputs? Has it improved?
Mr Nicholson: The evidence produced
by the Office for National Statistics over the last five years
shows that on average we have increased our productivity, which
includes quality, and all the stuff around coronary heart disease
and cancer is improved by 1.6% on average per year.