Select Committee on Health Minutes of Evidence


Examination of Witnesses (Quesitons 230-239)

RT HON ALAN JOHNSON MP, MR DAVID NICHOLSON CBE AND MR RICHARD DOUGLAS

29 NOVEMBER 2007

  Q230 Chairman: Good morning, Minister, could I welcome you and particularly welcome back your two colleagues who were sat in those chairs this time last week. I wonder if I could ask you for the record if you could introduce yourselves and the positions that you hold.

  Alan Johnson: It is a great pleasure to be here with these two old bruisers. Alan Johnson, Secretary of State; David Nicholson, Chief Executive of the NHS; and Richard Douglas Director General Finance in the Department of Health.

  Q231  Chairman: Welcome to our final evidence session in relation to our Public Expenditure Questionnaire this session. Could I just ask a question of you, Secretary of State: last week David Nicholson used the words on the 2% budget variance that we had—whether it was surplus or deficit—"a reasonable place to be". Do you agree that it is a reasonable place to be and if it was a 2% deficit would you agree that it is a reasonable place to be?

  Alan Johnson: I do believe it is a reasonable place to be. Perhaps, Chairman, I should just confirm, because we have laid a written Ministerial Statement this morning, to be absolutely sure, that it is a 2% surplus. At the end of 2005-06 the NHS had a deficit of £547 million with 123 organisations (that is 33%) building up to a total gross deficit of £1.3 billion. Today I am pleased to say we have turned that position around completely. The financial projections at the end of September show that the NHS is forecasting a very healthy £1.8 billion surplus for 2007-08 with only 25 organisations forecasting a deficit, so this is a dramatic improvement. I think it is testament to the tremendous efforts of NHS staff over the last year and a half. I do think it is reasonable for a large organisation with a £100 billion turnover to have a 2% surplus. I certainly do not believe the NHS can properly function on a break-even basis, not least of all because those in surplus have to cross-finance those in deficit, and the old cash brokerage scheme, frankly, was a disaster in areas like mine where we had very large health inequalities, very serious health problems, and we always managed our books but had to put money into areas which had far better health outcomes to balance the books, so this is a much better place to be and I think 2% is a reasonable surplus.

  Q232  Chairman: When it was a 2% overspend, as I think it was called, there were quite a lot of difficulties with that. Indeed, the last Secretary of State took a very brave decision to say that we should have transparency with our National Health Service budgets. Some people would feel that was probably one of the bravest decisions any Secretary of State has ever made who has ever held the position that you hold now. Do you think it is right that the Department should have reacted to the 2% deficit in the way that it did?

  Alan Johnson: Yes, I think they should have done. I have said this before, I feel that my ministerial team and I, almost all of whom were new apart from one when we came in in June, owe a debt of gratitude to Patricia Hewitt and her team because they went through a very difficult period, but a very necessary period for the reasons I have mentioned. I was one of the MPs plaguing Patricia to say we cannot keep going on like this with this cash brokerage system; somebody had to get a grip of this situation. What we are seeing today is not just a result of tremendous efforts by people in the NHS, who I congratulate, but also the heavy lifting that my predecessor did.

  Q233  Mr Scott: Secretary of State, in your written statement you have said that the forecast is for a record surplus of £1.8 billion in 2007-08. David Flory last week acknowledged that there was a potential problem of an underspend in some NHS bodies. How is that going to be dealt with and is there more money that could be spent?

  Alan Johnson: All that money could be spent and, as David Nicholson and David Flory made clear last week, it is not in Richmond House, we do not have it in Whitehall; it is out there with the PCTs, not with the strategic health authorities, and it is there to be spent on other things. One of the things I think is so good about this, as I know David said in more detail last week, is that the NHS has never, in recent memory, been in a situation where you have the capacity that has gone in, you have the staffing in there, you have the new challenges on the next stage of the NHS journey, and you actually have a bit of financial flexibility over which local people have control. The second thing to say is that most PCTs recognised that we were going from a situation on funding from, if you like, spectacular increases to steady increases and that actually it would be good to ensure that they had some fat in the system to cope with that as well, so I think all round this is very good for the NHS.

  Q234  Mr Scott: Secretary of State, my own NHS Trust, Barking, Havering and Redbridge, in glancing at the figures, has one of the highest deficits at £34.6 million. Before continuing I would like to thank you for helping me get some figures recently on the former Chief Executive of that Trust. Would you agree with me that it is obscene that chief executives should be paid the sums of money that the one for that Trust was when there is such a deficit in the Trust, and obviously he has been a failure in his job and then he is rewarded for it?

  Alan Johnson: I am concerned about people at the top of the organisation getting a different deal and a more generous deal than other people in the organisation, so two things have happened. First of all, we have made it clear that redundancy terms in the NHS should be the same for chief executives as they are for hospital porters. If it is two times annual salary then that is what it should be. There should not be a more generous package for people the higher up the income scale you go. The second thing which arose because of the Maidstone and Tunbridge Wells issue is that David has now sent out to all strategic health authorities and PCTs the fact that if people are looking to give a more generous package—and this could well have been the case in Barking, I do not know the full details in Barking—than their statutory entitlement, then it needs clearance by the strategic health authority and it needs clearance by HM Treasury. That did not happen in the case of the Chief Executive of Maidstone and Tunbridge Wells. As I understand the situation at Barking, which brings me on to a third point, I think that part of that money was a seven-month lieu of notice, and the third thing that we have made clear is that nobody should have a notice period of more than six months. That is reasonable for someone in a senior position to give the time to find a replacement. Six months is reasonable, not seven months and not a year, so we are capping the notice periods in future at six months.

  Q235  Chairman: Could I ask you about the CSR and the outcome of that. We think that the real term revenue increase in health funding in the 2007 CSR is 3.8%. If you compare that with the 6.9% increase throughout in the CSR 2004 period, that is substantially less. How will the Department manage with this reduced rate of increase in funding and what choices on spending priorities do you think will be taken in view of that?

  Alan Johnson: Just on the figures, I think you are over-estimating just a little the CSR 2004 settlement and under-estimating the CSR 2007 settlement. CSR 2004 was a 6.7% real terms increase and the Comprehensive Spending Review that we have just concluded is 4% real terms. That compares with an historic increase for as long as it has been recorded, which is from the early 1970s, of about 3.1%. The increase over the Major years 1992 to 1997 was 2.6% and what it means is that in the period 1997 to the end of this spending review in 2011 we would have seen 5.6% real terms growth year on year. As I say, it goes from spectacular to steady. I do not think anybody was expecting spectacular this time but I think an awful lot of people were expecting less than 4%. I am an expert on CSRs now. I have negotiated two this year, one on education and then I got moved on to health, so I could do without doing another one for the next 10 years. In both cases part of the deal was also a 3% efficiency saving which in an organisation the size of education, as I kept saying, and even more so now in health, is perfectly achievable. That will put another £8.2 billion a year in by 2010, and I believe there are all kinds of things that we can do to achieve those efficiency savings. I believe this is a good settlement; I think most people in the NHS now think this is a good settlement; and for those that have been around a few years, frankly, it is living in a dream world compared to what they were having to do in the 1980s and 1990s.

  Q236  Chairman: In the last few years it has been good but nonetheless this is a 50% reduction in the increase. You cannot predict any implications for spending at this stage?

  Alan Johnson: We will be publishing our Operating Framework soon. We negotiate a CSR that has sufficient money in there for all the things we want to do. There is always a long queue of things that you would like to do if you had the money. I do not think the NHS has ever been in a better place. First of all, do not forget we are locking in all that huge increase that we have had up to this year. It is not as if that disappears. It is 4% real terms on top of the record funding we have had this year. And on things like Stroke or the Cancer Strategy, all the things that we will be producing plans on over the coming weeks, we deliberately and very astutely, I think—and I pay tribute to Richard and his team who backed me on this—got the money to deal with all of that. I think this is a Spending Review that allows us to meet our priorities and to continue to close the health inequality gaps that we have had some depressing news on recently. There is nothing where we are saying because we only got 4% there is something we have to stop doing. The thing we have to do is to make sure on issues like procurement and on spreading best practice, all the issues within a huge organisation that you get those efficiency savings so you can use that for front-line care as well.

  Q237  Chairman: I will move on to an easier subject for you now and that is NHS staff pay awards. You predict in 2008-09 to have a 2% increase for NHS staff. Are pay settlements below inflation likely to be the norm in the Health Service?

  Alan Johnson: It depends which way you measure inflation. Inflation as far as the CPI is concerned, which is the one we really like, is 1.8% and certainly I think the Chancellor is absolutely right to ensure that we do not build in a temporary blip, which was the big argument last year, on energy prices and oil prices so that we build in an inflationary spiral that takes us back to the days of high interest rates, et cetera. When I was negotiating pay, the big deal every year was the Ford car workers and that set how the economy was going to go. Now it is public sector and so there is an obligation on a Chancellor not to say the popular things but to do the right things for the economy. I do also think, as I say on many occasions to nurses and GPs and consultants, if you look at the record since 1997 and if you look at what happened through Agenda for Change as well, no Government has done more to try to establish decent pay for people now. In terms of how we maintain that pay, we are going into a difficult set of discussions and negotiations, but I am hopeful that we will come out with a settlement—we settled last year in the end—and I hope that settlement will recognise the financial imperative to ensure we keep a strong economy. If we go back to high interest rates, if we go back to high rates of inflation, the people who will lose will be the lowest paid and those on fixed incomes.

  Q238  Chairman: In both our former lives, of course, you rarely looked at what wage increases you had five years ago, four years ago or even one year ago; you looked at what was on the table and what was being offered at the time. Are you confident that there will be no disruption if we do get pay settlements in the National Health Service that on the surface look like they are below levels of inflation and clearly below what other people in the private sector may be getting in the UK?

  Alan Johnson: I would argue that and so would you, Kevin, because we were sitting on the unions' side of the table. The employers' side of the table would look at recruitment and retention, they would look at the increase in wages and the increase in staff over the previous years, they would look at issues around affordability and what that would mean. We have a settled budget now for the next three years. The budget is not going to increase. This is an employer's argument; I am now an employer, I am not sitting on the unions' side of the table. We would also be entitled to point out on issues like pensions, where I personally took a lot of political flak to maintain a normal pension age of 60 for existing staff in the Health Service, and indeed in Education and the Civil Service, because I thought it was right that those people that had come in on that contract should have the right to do that, and we got the deal that all new entrants had a normal pension age of 65. I would point out all those things as an employer and say in that context and in the context of a 1.8% CPI rate actually 2% is not bad going.

  Q239  Dr Taylor: Good morning, Secretary of State. I was at a dinner last night with a large number of London consultants across the specialties across the board, and their biggest worry of all was the employment of junior doctors in training. When we took the first session on Modernising Medical Careers, Liam Donaldson, was fairly tactful with his answer because we think there are going to be something like over 1,200 applicants a year from UK medical schools who are going to be in difficulty finding appointments and the Chief Medical Officer said: "Again I cannot commit myself to things we have not discussed as policy options yet, but I think every effort will be made to help these doctors, just as we did in the packages that were put in place in 2007." Last week Mr Nicholson said it was going to be something like three trainees to one job. He did say last week: "As I sit here at the moment we are still working through how we can work that." I am really trying to impress upon you the tremendous importance and worry about jobs for UK doctors in training and ask you if you have ideas of how to get over this?

  Alan Johnson: We had an idea and our idea was that you cannot have an open door policy and a self-sufficiency policy; the two things are diametrically opposed and I want the self-sufficiency policy. The reason we have increased the number of medical training places by 72% is so that we can be self-sufficient. We published our guidance again this year saying that international medical graduates would not be included unless there were spare places at the end of the process, that it was people that have been through the UK education system that the UK taxpayer had funded through their training who would have priority for these places. That is the same as in every country across the world and not least of all, incidentally, because 80% of international medical graduates actually go back to their countries after a couple of years, so it was a difficult decision to make but we made it. We have been judicially reviewed and that judicial review actually went in favour of the organisation BAPIO, the British Association of Physicians of Indian Origin. We are appealing but by the time the appeal goes through, even if we win it, it will not give us a solution for 2008. What David said last week is that the ratio in 2008 will be three applicants for every place whereas this year in 2007 there have been two applicants for every place, so we are ensuring that 10,000 or 12,000 international medical graduates were taken out of the equation, as we tried to do last year, and last year we won the appeal on judicial review but it was too late because we were already into the process. This year we made exactly the same arguments but lost the judicial review so it is quite frustrating. What we are looking at now is whether we can change the immigration rules to deal with this. We are doubtful that we can do that for this year. All Sir John Tooke's recommendations, and he did a splendid job but it is only an interim report, in his interim report made it clear that the solutions would be for 2009. I am afraid it is going to be a difficult 2008, not least of all, as you understand Dr Taylor, because we started the process of run-through places last year, which is a much better system whereby people can be assured and confident that they are going to run through right to the end and they do not have to keep reapplying every year. That effectively takes out 0,000 places that were available this year that will not be available next year because of run-through which is why the ratio has increased, despite the fact there will be 2,000 extra training places next year. We will see where we get. We are going to leave no stone unturned, as the saying goes, to try to get a solution for 2008 but our solution was keeping IMGs out of the equation, and I am afraid that is not open to us now because of the decision at judicial review.



 
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