Examination of Witnesses (Questions 20-39)
MR DAVID NICHOLSON CBE AND MR DAVID FLORY
21 JANUARY 2008
Q20 Keith Hill: Is it the case in your observation that the better financial performers tend to be the better performers on quality and vice versa?
Mr Nicholson: It is one of the things that is really very striking when you look at the results of the Healthcare Commission's assessment of NHS Trusts, and you look at their financial performance, you look at their patient satisfaction, you look at the staff satisfaction; those things tend to be consistent in organisations. Well-run organisations who provide good services to their patients also, generally speaking, have good control of their finances.
Q21 Keith Hill: Let me turn then to the loss-making organisations. The statistic that 80% of the deficits are recorded by only 10% of the organisations is really very striking, is it not?
Mr Nicholson: Yes.
Q22 Keith Hill: If you turn to appendix 2 in the Report, I think it is very noticeable that the organisations, both PCTs and Trusts, with the biggest deficits are to be found in the South East, the Home Counties, the East of England; in other words, in the most prosperous parts of the country. That is a general finding, but do you agree with that?
Mr Nicholson: It has historically, certainly in my experience of working in the NHS, been those sorts of areas that have the greatest financial difficulties, that is true.
Q23 Keith Hill: It is very interesting that if you even look at the North of England, you find that relatively prosperous North Yorkshire and York turn in the deficit, rather than the less prosperous West Yorkshire or South Yorkshire; is that the case?
Mr Nicholson: That is the case.
Q24 Keith Hill: Even if you look at London, you find that it is the relatively well-heeled Hillingdon, Kingston and Sutton, rather than the harder pressed boroughs, where the deficits are to be found. Do you agree with that?
Mr Nicholson: That is true.
Q25 Keith Hill: What I want to know is why are we getting the biggest deficits in the most prosperous parts of the country where people enjoy the best health?
Mr Nicholson: There are a whole range of issues here. First of all, the sorts of parts of the country that you have described have traditionally relatively dispersed populations, ie not concentrated populations in big cities, and what you tend to find in those circumstances is you have a large number of small hospitals that tend to reflect the populations that are around them, and the ability to manage the financial affairs of those organisations has proved difficult over the last few years.
Q26 Keith Hill: Is that true of Cambridgeshire and Bedfordshire and counties like that?
Mr Nicholson: Yes, it is. Smallish hospitals with relatively small catchment areas.
Q27 Keith Hill: It is not that you have got more consultants and GPs who like to live in these nicer areas and therefore there are more people available to carry out the operations, for example?
Mr Nicholson: I do not think there is any link between those two things.
Q28 Keith Hill: There is no connection?
Mr Flory: It is speculative, but there is no real evidence that is available to us that shows the correlation between workforce numbers in the way that you describe and the extent of deficit in those organisations.
Q29 Keith Hill: There is no shortage of consultants and GPs in those areas of the country which do fewer operations and therefore presumably are less liable to produce deficits?
Mr Flory: I think the cause and effect that you imply, as I say, is not obvious from evidence that we—
Q30 Keith Hill: That is very interesting. Because I have heard it asserted that historically in the NHS, an overall balance was achieved, because surpluses resulting from underspending in the North of England were used to balance the deficits run up by overspending in the South of England. Is there any truth in that?
Mr Nicholson: Up until this year, generally speaking, the pattern has been that for the four or five years before that, there have been surpluses in the North of England which have offset the deficits in the south. This year it is different, there are surpluses in every region of the country, so we do not have that position, which is fantastic.
Q31 Keith Hill: The fact is, of course, however, that we still do have—what is the level of the deficit, something in the order of £500 million amongst those responsible for deficits, is that right?
Mr Flory: This year, the projection for those organisations that are in deficit is a total of £201 million. In 2006-07, the gross deficit number was £917 million.
Q32 Keith Hill: £900 million, that is right. The truth is, of course, that somebody has to pay the price of these deficits, do they not? I mean, my own Primary Care Trust in Lambeth, which is a pretty deprived borough, found its budget top-sliced in order to bail out the lusher pastures of Hillingdon, Kingston and Sutton in London. The NAO Report itself tells us that in order to secure overall balance, there is not only top-slicing of the budgets but cuts in the workforce, in workforce training and education, vacancy freezes and other limits on healthcare activity. So my last question is: how long do you really expect other parts of the NHS to go on experiencing these sorts of cuts and limitations in order to support the deficits of the overspending authorities?
Mr Nicholson: Just to reinforce the point I think that David made, the gross deficit, you know, in 05-06 was £1.3 billion; it was £917 million last year, it is going to be about £200 million this year. So you can see we have significantly attacked that particular issue, and one of the things that we have done is we have focused on those organisations who have overspent in the past, particularly using the turnaround team of 104 organisations, and we expect that all organisations in the NHS during this year will get into some kind of run rate balance, and we would expect all organisations to be in balance next year.
Keith Hill: Mr Chairman.
Chairman: Thank you very much, Mr Hill. Richard Bacon?
Q33 Mr Bacon: Thank you very much, Chairman. I would like to carry on where Mr Hill left off, if I may, because it is very striking, as he says, that 80% of the deficit is found in only 10% of the organisations, and East of England, where my constituency is, has, if you look at figure 10, an absolutely enormous deficit compared with the others. In fact, if you look at the third column from the right, this is for 2006-07, figure 10 on page 12, the East of England has a deficit of £153.1 million, which is larger than any of the others, in fact most of the others are in surplus. It is three times larger than the next nearest one, which is the South East Coast. That is a startling difference, an absolutely enormous difference. How do you account for that, what is the explanation?
Mr Nicholson: Well, part of the explanation is that that particular part of the country has not been as well managed as it might have been, in fact a significant proportion of that is, and what we have been doing—
Q34 Mr Bacon: Sorry, a significant proportion?
Mr Nicholson: Of the deficit. This has not arrived overnight. In the East of England, deficits have been building up now for the past four or five years, without action being taken, and we were very clear last year that we needed to take the action to bring it back into line, and that is why we changed the management, as you know, of a number of organisations, we changed the whole arrangement at the Strategic Health Authority, we brought in the turnaround teams which were particularly active in the East of England, and we have got it to a place now where we expect the East of England to deliver a surplus for next year.
Q35 Mr Bacon: The East of England is an enormous area, of course. It covers Norfolk and Suffolk and Hertfordshire, Bedfordshire and Cambridgeshire, it is very, very big. Where within the East of England have been the biggest problems?
Mr Nicholson: Traditionally, Bedfordshire and Hertfordshire has been a particular difficulty, partly because there has been no settled arrangement for the organisation of health services in that part of the world.
Q36 Mr Bacon: What does that mean, no settled arrangement for the provision of health services?
Mr Nicholson: At one time, I remember seeing a report that said that there had been 17 different reports done on the configuration of services in Bedfordshire and Hertfordshire, what the hospitals were going to do, how big they were going to be, whether they were going to invest money in them, and all the rest of it, and none of them had been put into action.
Q37 Mr Bacon: In how long or how short a period of time were these 17 reports?
Mr Nicholson: This was from the mid 1970s. We are now in a position, of course, as you may be aware, that the scrutiny committee in Hertfordshire recently approved the plans of the PCT to reconfigure services, so what has been happening in those circumstances, you have had to invest in a whole range of services that did not have long-term stability.
Q38 Mr Bacon: Could I just take you over to the left of the chart there, where it says, at the top, "East Midlands, £80.5 million; East of England, £62.3 million", and so on. That is just the surplus in the case of East of England, a surplus of £62.3 million. Presumably, therefore, in order to get that number of £62.3 million, there are two other numbers that one must have had, and perhaps Mr Flory might like to answer this: budgeted or planned expenditure, actual expenditure, and then the £62.3 million is the difference between the two, is that right?
Mr Flory: Yes, the £62.3 million is the Strategic Health Authority for East of England.
Q39 Mr Bacon: And it is a surplus of £62.3 million?
Mr Flory: It is a surplus of £62.3 million.
| 
