Examination of Witnesses (Questions 60-79)
MR DAVID NICHOLSON CBE AND MR DAVID FLORY
21 JANUARY 2008
Q60 Dr Pugh: In terms of the other factor mentioned by the Chairman, what are called activity limits imposed by PCTs, can you put a figure on that, the amount of money that has been saved simply through doing less?
Mr Nicholson: It was not doing less.
Q61 Dr Pugh: What is an activity limit?
Mr Nicholson: The activity limit was trying to keep the amount of extra under control, because in both non-elective emergency activity and elective activity, waiting list operations and the rest of it, the numbers went up. We were just making sure that they did not go up so far that we could not afford them, so they were increased in both of those cases.
Q62 Dr Pugh: But you would have a figure for what was the limit the year before last and how much it was exceeded by and what sticking to the limits did this year, would you not?
Mr Nicholson: Within each Health Community's plan, they will identify what activity they expect, both to deliver their waiting list targets, but also to deliver what they regard as being appropriate need from the community, and both of those were exceeded last year.
Q63 Dr Pugh: An easy hit in terms of saving money is always to cut back in training. Have you been able to assess the extent to which there have been cutbacks in training across the NHS, and can you give a figure for it?
Mr Nicholson: Yes, one of the things that we did—as you know, the NHS spends more on training than almost any other employer you can imagine, nearly £4 billion a year on training and education, and in year 05-06, we did put restrictions on the amount of money that we were spending on training and education.
Q64 Dr Pugh: Was it a reduction or a cutback on growth or what?
Mr Nicholson: It was a real reduction of about 4%.
Q65 Dr Pugh: In cash terms?
Mr Nicholson: Altogether, in terms of all of those things, it was a £354 million reduction.
Q66 Dr Pugh: So you saved £239 million on redundancies, £354 million on training.
Mr Nicholson: Yes.
Q67 Dr Pugh: Can we come to borrowing now? A lot of hospitals borrowed an appreciable amount. I have an answer given to a colleague of mine, Greg Mulholland, for the total figure of borrowing at 27 March 2007, and that comes to £777 million. That is nearly £1 billion, is it not?
Mr Flory: Yes, and that was at the very start of the new cash loan system that was introduced alongside the accounting regime changes that we talked about previously, so working capital loans for NHS Trusts. We expect the majority of those working capital loans to be repaid within a five-year period, and we expect that by 31 March of this year, the balance outstanding will have reduced to £615 million.
Q68 Dr Pugh: My general supposition is you have paid £43 million for a turnaround team, but you have done some pretty obvious and fairly traditional things, have you not? Top-slicing used to be very much part of the NHS; was it called brokerage or something like that in the old days? There was some sort of system running to that. You have cut back on staff, you have allowed them to borrow a little more, you have altered the accountancy rules back to where they were before. It is getting hard to see what the turnaround team were paid £43 million for, given that most of the moves you have made are fairly traditional NHS moves that were made in years gone by in hard times.
Mr Nicholson: I would say two things about that. The first thing is that the figures on turnaround are impressive, in the sense that the 104 organisations that were in turnaround, as we put them into turnaround, had a gross deficit of about £1.1 billion. This year, it is not quite the same 104 organisations, because some of them have been merged, but the same group of organisations will deliver a surplus of £60 million. By any stretch of the imagination, that is a big difference. What is absolutely true is that what we learned from turnaround, and we have used all the big accountancy firms, we have had expertise from the private sector, from all over the world to explain to us; the thing that was very clear about it to us is they did not come up with anything we did not already know.
Q69 Dr Pugh: I hoped you would say that.
Mr Nicholson: Most of the ways to reduce costs and to make savings were already understood and known by the people working within the NHS. What they did, and this was the impressive thing, was they showed us how weak we were in terms of the execution of some of those plans. We had lots of plans; Bedfordshire and Hertfordshire was a good example, they had lots of plans over many years to deliver changes, but they did not execute them, they did not have the detailed knowledge or understanding of execution. That is what we learned from turnaround, and so the cost of turnaround that you just described was massively outweighed, I think, by the benefits that we got from it.
Q70 Dr Pugh: When you look at things like Brighton and Sussex University Hospital borrowing £29 million, repaying it back over six years in order to balance their books, you do not need to be a turnaround team to see it can be done like that; whether it is desirable that it should be done is arguable, but for far less money than any member of this Committee could save, borrowing money is a way out of a problem.
Mr Nicholson: Turnaround teams did not teach us how to borrow money. The point of changing the financial regime of NHS organisations, which we did last year, was first of all to make it more transparent, because you are absolutely right, in the past, you would not have known whether money was moving in and out of organisations, and accountability becomes really very clear in those circumstances.
Q71 Dr Pugh: Can I just stop you there? A couple of other questions I want to get in very briefly, if the Chairman will tolerate me on this. Mr Hill raised the issue of the fact that, to my horror, the North has been subsidising the South for many years in the past, and I think you have acknowledged that much. The North West SHA has a huge surplus of £206 million. Is that a good thing or a bad thing, given obviously that that £206 million could be spent in the North West, where health inequalities are quite marked?
Mr Nicholson: I think it will be a good thing, if it is spent wisely and sensibly to improve the health of the population. If we try to get into a position of having to spend all the money we have, which to be frank got us into the position that we are in today, I think it would be a bad thing.
Q72 Dr Pugh: Okay. Second unrelated question: £450 million was cut back from the Department of Health projects. Can you send us a note on which projects they were?
Mr Nicholson: Whereabouts is this?
Q73 Dr Pugh: Can you answer this specific question, in terms of central projects? Sorry, the £450 million is mentioned in a summary, certainly, paragraph 8, page 5.
Mr Nicholson: Yes. What that was was until that particular year, the Department of Health carried a significant central budget which was delegated to the Strategic Health Authorities, and we took £450 million out of that when we delegated the responsibility. It was that £450 million that, for example, the reductions in training budgets came from, so that explains most of that, and there were relatively small—
Q74 Dr Pugh: That is incorporating the figure you have given me on training?
Mr Nicholson: Yes.
Dr Pugh: I will stop there, Chairman.
Q75 Chairman: It is very important to get to the bottom of these figures. Just following on that line of questioning, just to get it absolutely right, would you like to look at paragraph 2.8 on page 17? It says at the bottom, "A total of £1,144 million was originally retained by the Strategic Health Authorities in this way. Of this total, £319 million was returned to Primary Care Trusts by 31 March 2007." So if we subtract those figures, we end up, do we not, Mr Nicholson, with £825 million top-sliced off the funding of Primary Care Trusts, is that right?
Mr Nicholson: That is right.
Q76 Chairman: So what healthcare were they unable to deliver as a result of that?
Mr Nicholson: They were able to deliver all of the national targets, all of the big service changes they needed to do as part of the national arrangements. Where they would have had to make changes is in, for example, some of the local things that they wanted to do. There may be delays in that, that is absolutely true.
Q77 Chairman: Like what?
Mr Nicholson: I cannot second guess PCTs in the sorts of things that they wanted to spend their money on. What I can say is all of that money will be available to them over the period of the comprehensive spending review, so it is only a matter of delay, not a matter of—
Q78 Chairman: It is quite a large sum of money, £825 million, I would have thought you would have a better idea of what they could not do that they might have wanted to have done.
Mr Nicholson: I do not want to get into second guessing what PCTs would want to spend their money on. Part of what we try to do is give them more flexibility over what they do.
Chairman: All right, thank you. Don Touhig?
Q79 Mr Touhig: Mr Nicholson, in 2006-07, the NHS had a surplus over expenditure of £515 million. Was that a surprise to you?
Mr Nicholson: No, it was not a surprise.
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