Examination of Witnesses (Questions 80-99)
MR DAVID NICHOLSON CBE AND MR DAVID FLORY
21 JANUARY 2008
Q80 Mr Touhig: But you said in November 2006 that you would be in balance. What went wrong?
Mr Nicholson: I was being prudent. We always knew that we had a contingency of £450 million available to us, and we fed that in during the year when we needed to. That came from the £450 million that has just already been described—
Q81 Mr Touhig: You say you have been anticipating this, yet in the Report, page 16 — you agreed the Report, I take it—it says, "The Department set the NHS three main financial objectives for 06-07", and the first one was "To deliver net financial balance across the NHS", and it was not a surprise that you had that surplus.
Mr Nicholson: £500 million, I think, is well within the parameters of what we thought was possible. I would be much more worried about it being £500 million the other way.
Q82 Mr Touhig: £500 million which you have still got in the bank that could have delivered treatments, procedures and so on to people who are sick and need healthcare.
Mr Nicholson: The thing I want to say about the surplus, I am sure you understand this, this is not in a safe in my office. This money is out in the Service. Individual Strategic Health Authorities, PCTs and Trusts have this money in their accounts to use as they see fit, subject to the rules around the operating framework. The most important thing for us in those circumstances is to make sure that we got ourselves into balance last year. It had, you know, untold damage to the NHS, not just in terms of the money overspent but also in terms of public confidence, so it was very important for us as an NHS to deliver that.
Q83 Mr Touhig: I appreciate it is not in your safe in your office, I was just trying to make the argument simple, but there is £515 million of resources which Parliament has provided for healthcare which you have not used.
Mr Nicholson: In that particular year, but is available to use in subsequent years in a planned and organised way. What I do not want to do is to get into a position that the NHS used to get into, when it looked as if it was having a surplus towards the end of the year, it suddenly went in manic overdrive of trying to spend it all, that would be a completely nonsensical way to be.
Q84 Mr Touhig: That comes under poor management.
Mr Nicholson: Absolutely poor management.
Q85 Mr Touhig: But you end up with half a billion pounds surplus, and you said to the Chairman that was not achieved by cuts, it was achieved by efficiencies and so on. Would these efficiencies have meant, say, perhaps a freeze on vacancies?
Mr Nicholson: Yes.
Q86 Mr Touhig: It would have done so, therefore staff would not have been replaced, or been in a position where they would have treated and cared for people. Would it have meant perhaps a Trust had decided that it had to make a saving on orthopaedics, and it would have therefore done fewer operations as a result?
Mr Nicholson: Individual organisations have to make these kinds of decisions, but what organisations do not do—
Q87 Mr Touhig: What I am trying to get at—I fully understand that, I know that you do not manage it all from the centre, but you told the Chairman this did not involve any cuts whatsoever. I am a simple soul, but it seems to me that if you have certain objectives, and Trusts therefore decide that they are not going to recruit people, and therefore you do not have all the people the Trust thought it should have in a hospital, if you decide therefore that, say, in the example I gave, orthopaedics needed to make savings, and those savings resulted in fewer operations, I saw Mr Flory nod his head at that time, surely that is a cut in the service; is there anything wrong with plain English?
Mr Nicholson: This is against the context of increasing the number of people who work in the NHS by a third, and during that period, the NHS had significant growth. So the idea that you would have to reduce services in those circumstances does not seem to me to add up, because we delivered all the major things that we said we would do.
Q88 Mr Touhig: If you needed a hip replacement and you did not get it because your Trust had decided it had to make savings within orthopaedics, which meant there were fewer operations, you would consider that to be a rather painful consequence, would you not?
Mr Nicholson: I have not seen any circumstances where people reduced the number of operations that they were planning to do. What people did—
Q89 Mr Touhig: I simply put the question, you seemed to be nodding when I said that if a Trust decided it wanted to reduce its orthopaedics budget, that would mean perhaps fewer operations, I thought there were nods on your side. Perhaps I am not seeing things properly.
Mr Nicholson: What the Trusts had to do, they had to deliver their waiting list guarantees, so they organised what activity they need to deliver those services, and that is what they were doing. That does not to me sound like a cut in service.
Q90 Mr Touhig: I think we are going to have to disagree there, Mr Nicholson. Mr Flory, you are responsible for finances, yes? Sorry, your title, I beg your pardon, is Director General of NHS Finance. Do you not monitor expenditure over the year?
Mr Flory: Yes, we do.
Q91 Mr Touhig: How often?
Mr Flory: Monthly.
Q92 Mr Touhig: Your objective for the year was to be in balance, and yet you are going into quite a considerable surplus, Mr Nicholson did not think it was a great amount, but half a billion is a great amount to me. You are not seeing that coming, and you did not take appropriate action?
Mr Flory: The most important objective for the year was to make sure that the NHS was not in deficit. Across 370-something organisations, an overall surplus of £515 million on a turnover of over £90 billion was pretty close to being spot on, on balance.
Q93 Mr Touhig: I tell you, the people who sit opposite me in my weekly surgery who need healthcare, they would rather that money was spent on them than being in some Trust's bank balance.
Mr Nicholson: But it will be, of course. That is the whole point.
Q94 Mr Touhig: But it has not happened, has it? When I served on the Welsh Affairs Committee, we did a report on the internal market in the NHS, and what we found is that those Trusts that got into deficit had their deficits picked up by Central Government, certainly in Wales, that was the case, and those that managed their finances effectively actually had less money to spend.
Mr Nicholson: And that is the big change, I think, in 06.
Q95 Mr Touhig: So why are you tolerating that? In 2005-06, 33% of NHS organisations reported a deficit, followed by 22% in 06-07. When are you going to get down to zero?
Mr Nicholson: We are down to 7% this year, and that has been the big change, in a sense, over the period before, that what we have done is we have tackled those organisations in those parts of the country where the deficits have been run up in the past, they have been offset by those surpluses. That is exactly what we have done.
Q96 Mr Touhig: Both Mr Hill and Mr Bacon referred to the fact that 80% of the gross deficit exists in 10% of NHS organisations. Anybody been sacked as a result? Any chairmen removed, any chief executives removed?
Mr Nicholson: There has been quite a significant amount of change.
Q97 Mr Touhig: Where they have deficits, because of their deficits?
Mr Nicholson: In organisations in turnaround, because of their deficits.
Q98 Mr Touhig: Have they got bonuses? Those Trusts that are in deficit, have senior staff had bonuses?
Mr Nicholson: We do not collect information in terms of NHS Trusts. We do in terms of PCTs.
Q99 Mr Touhig: Would they normally have bonuses?
Mr Nicholson: You would not expect them to get a bonus if they are in deficit.
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