Examination of Witnesses (Questions 1-19)
DEPARTMENT OF
HEALTH
2 MARCH 2009
Q1 Chairman: Good afternoon and welcome
to the Committee of Public Accounts where we are considering the
Comptroller and Auditor General's Report on NHS Pay Modernisation
in England: Agenda for Change, and we welcome back David Nicholson,
NHS Chief Executive. I am sure you greatly enjoy coming to see
us so regularly.
Mr Nicholson: Yes, absolutely.
Q2 Chairman: Would you like to introduce
your two colleagues?
Mr Nicholson: On my left, your
right, is Mike Griffin, who is the HR Director from King's, and
on my right, your left, is Clare Chapman, Director General of
Workforce, Department of Health.
Q3 Chairman: We are talking about
huge numbers here. Over one million people work in the NHS and
nobody denies that it was an achievement, Mr Nicholson, to introduce
a rationalised pay structure, but I want to ask you about what
has been achieved in terms of productivity and costs. If we look
at paragraph 20, we see that the department expected that Agenda
for Change would result in a 1.1-1.5% year-on-year rise in productivity.
In fact, we know, do we not, Mr Nicholson, that between 2001 and
2005 productivity in the NHS declined per annum by 2.5%, and since
2005-06, which are the latest figures we have, productivity has
been going down by 0.2% per year, so clearly that hope of achieving
a productivity increase of 1.1-1.5% has definitely not been achieved.
Why does it say here then that you have signed up to this? Later
on in this paragraph it says, "The Department has not carried
out a specific exercise to demonstrate the productivity savings
resulting from Agenda for Change nor have trusts attempted to
measure the resulting efficiency or productivity gains".
Why did you not put in place, Mr Nicholson, given the huge sums
of money involved here, an annual pay bill of £28.1 billion
in 2007-08, obligations on trusts to show that they were achieving
or attempting to achieve these productivity gains? It is absolutely
crucial, is it not?
Mr Nicholson: We have had the
discussion in the Committee before about the way in which you
measure productivity and our concern about the inability of the
present measures to reflect the enormous gains in quality that
we have had over the period. As I say, we have had that discussion
before.
Q4 Chairman: This figure of a productivity
decline in the NHS between 2001 and 2005 of 2.5% a year was given
to us by the National Audit Office. Do you dispute that?
Mr Nicholson: Using the criteria
that the Office for National Statistics use, that is absolutely
the case, but we do not believe it is a proper reflection of productivity
in the NHS. We have commissioned work through York University
and others to help us get a better definition of quality. Nevertheless,
having said all of that, on the issue of pay modernisation generally,
and this is again a theme that has come up before, pay modernisation
in itself does not improve productivity. It is the way in which
it is applied; it is essentially an enabler, something that helps
us improve services to our patients. When we looked at it what
we had was pay modernisation on the one hand, changing the terms
and conditions of service of 1.1 million people (which was no
mean feat in itself) going on at the same time as major programmes
of service improvement, a major investment in IT and increasing
the number of people who work within the NHS by almost a third.
All of those things were happening at the same time.
Q5 Chairman: Given the huge sums
of money involved, why did you not put in any measures or obligations
on trusts to help you achieve these promised productivity gains,
which you yourself set out; nobody else did, you set them out,
of 1.1-1.5%, which clearly you have utterly failed to deliver?
If you had imposed obligations, if you had imposed these measures,
we might have achieved them or at least known what was going on.
Mr Nicholson: We do know what
was going on and I will explain why we do. If you look at a particular
service improvement, it could be the reduction in the average
length of stay or whatever, it is very difficult in those circumstances
to work out whether that reduction in length of stay is due to
service improvement, having more staff, the job redesign associated
with Agenda for Change or the implementation of IT, and we felt
it would be much better to look at what the conclusion from all
of those things working together would give us rather than trying
to argue and debate with the service what the various elements
were doing. As you know, our conclusion from that was that this
change of pay modernisation, coupled with service improvement
and the increase in the number of staff that we have, gave us
something in the region of £3 billion worth of savings. That
is what we think when you look at it as a whole. We think that
is a reasonable return on the massive investment that we have
made in terms of pay modernisation.
Q6 Chairman: Where is that in the
Report?
Mr Nicholson: I do not know whether
it is in this report or not but it is part of the Gershon efficiencies,
it is part of the productive time savings that we have identified.
Q7 Chairman: Nobody denies that Gershon
has achieved efficiencies but I was asking about the overall picture.
You do not deny the figures that I have given you, do you?
Mr Nicholson: No, of course I
do not, but what I am saying is that pay modernisation on its
own will not deliver—
Q8 Chairman: What I am saying is
that it is such an enormous organisation you can always point
to certain areas which are working more efficiently, where efficiency
savings have been made, and when you have got a staff bill of
£28 billion I am sure it is possible to add up £3 billion
of savings somewhere. All I am saying is that you have not put
in the measures to try and ensure that you achieve what you set
out to do.
Mr Nicholson: As I explained,
when you look at the detail of how you do it, it is enormously
difficult to separate out those savings.
Q9 Chairman: Okay. Let us press on;
others can come in if they want to. Let us look at paragraph 25.
We are now talking about what the effect of this is on staff.
"Achieving the benefits of Agenda for Change was predicated
on staff working differently ...", so you signed up to that.
"The Department did not put in place the necessary arrangements
with trusts, so the Department has limited evidence to show what
impact pay modernisation has had on productivity". Have you
any kind of evidence to show that the majority of your staff,
as a result of Agenda for Change, are behaving differently to
any significant extent?
Mr Nicholson: There are lots and
lots of examples and I will ask Mike to say something about that
in a moment. There is no doubt, whether it is delivering 18 weeks
or reductions in hospital-associated infection, that you can see
new roles, new responsibilities, new jobs being created.
Q10 Chairman: Nobody denies, Mr Nicholson,
that things have changed in certain respects for the better, but
could you not have achieved your work on hospital-acquired infections,
for instance, without Agenda for Change? Point to me in this report
the tangible evidence of what Agenda for Change has achieved in
terms of changing the way your staff work.
Mr Griffin: Chairman, can I offer
a view? In terms of tangible evidence, if we look at the Workforce
data of my own hospital, ever since the inception of Agenda for
Change all the Workforce indicators—staff turnover, sickness
absence, et cetera, have improved dramatically. I cannot say that
that is entirely due to Agenda for Change but for sure—
Q11 Chairman: Why did you sign up
to this phrase then, "... the Department has limited evidence
to show what impact pay modernisation has had on productivity"?
Ms Chapman: I would like to add
to that, Chairman. One of the absolute tangible benefits is that
to increase the capacity of services that are offered you absolutely
did need the staff. If you looked at the vacancy rate before Agenda
for Change, which was running at just over 3% for qualified nurses,
after Agenda for Change that has dropped to about 0.5%. The same
can be said of a number of other professions, so I think one of
the things you do see is that the pay modernisation absolutely
did hit the objective in terms of paying people better and being
able to attract and retain them.
Q12 Chairman: I want to ask about
what is saved in money terms. Going back to paragraph 20, "This
rise was planned to contribute to net savings of at least £1.3
billion over the first five years ...". Where was this going
to come from?
Mr Nicholson: It was going to
come from increased productivity.
Q13 Chairman: That did not happen.
Mr Nicholson: In certain areas
it certainly did.
Q14 Chairman: Not overall it did
not.
Mr Nicholson: By the measures
that are produced by the Office for National Statistics that is
absolutely true, but it does not take into account the significant
improvements in quality that we have had over the time. It was
in more staff being involved, the vacancy rates, all of that,
less use of agency staff, reductions in pay drift through the
assimilation and the improvement in quality that I described earlier.
Q15 Chairman: Let us look at this
in slightly more detail. If we go further into the report to paragraph
2.15, "Calculating the Cost of Agenda for Change", "The
Department monitored the costs of Agenda for Change for 2004-05,
but did not set up arrangements with trusts to continue to track
the actual costs of Agenda for Change thereafter", so why
did the NHS trusts not say what Agenda for Change had cost them?
Mr Nicholson: They may have done.
What we did not do was set out a national picture to calculate
that.
Q16 Chairman: Should you not have
done so?
Mr Nicholson: As I explained before,
there were a whole series of changes going on at the same time.
What we were looking at overall was the impact of things like
the efficiency gains that were required as part of the tariff,
the delivery of a whole series of improvements in service for
our patients through hitting the targets that were available.
They were the things that were important for us to focus our attention
on rather than trying to identify in retrospect the detailed costings
of Agenda for Change.
Q17 Chairman: You told us last month,
do you remember, that Gershon has achieved £15 billion? That
is in the uncorrected oral evidence from the Committee hearing
on 2 February, "Financial Management of the NHS". How
much of that £15 billion is coming from Agenda for Change?
Mr Nicholson: We know that out
of the Gershon savings the savings out of Agenda for Change and
the changes I have described in terms of service improvement were
in the region of £3 billion.
Q18 Chairman: So that is £3
billion out of £15 billion?
Mr Nicholson: Yes.
Q19 Chairman: Pressing on, the Knowledge
and Skills Framework is very important. Let us look at paragraph
3.33. This has been re-launched twice. It has not yet been implemented
across the entire NHS. I see in paragraph 3.30 that "the
Knowledge and Skills Framework Handbook issued by the Department
is 262 pages long". Have you read it, Mr Nicholson?
Mr Nicholson: I have not read
the complete handbook.
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