Session 2010-11
Publications on the internet

Oral Evidence

Taken before the Health Committee

on Tuesday 23 November 2010

Members present:

Mr Stephen Dorrell (Chair)

Rosie Cooper

Nadine Dorries

Yvonne Fovargue

Andrew George

Grahame M. Morris

Mr Virendra Sharma

Chris Skidmore

David Tredinnick

Valerie Vaz

Dr Sarah Wollaston

________________

Examination of Witnesses

Witnesses: Rt Hon Andrew Lansley MP CBE, Secretary of State for Health, Richard Douglas CB, Acting Permanent Secretary (and Director General for Finance and Chief Operating Officer), Department of Health, and Sir David Nicholson KCB CBE, Chief Executive, National Health Service, gave evidence.

Q311 Chair: Gentlemen, good morning and thank you for coming. In the manner of the Speaker, I want, if we are going to cover the enormous amount of ground that we have to cover this morning, to appeal both to my colleagues on the Committee and to our witnesses for reasonably focused and brisk answers. What we are trying to do is get to the bottom of the challenges faced both in social care and in health care as a consequence of the public expenditure decisions that the Government have taken. Slightly unusually, the Committee would like to begin this morning by analysing the implications of the spending decisions on social care, because of the potential knock-on effect if the social care decisions lead to pressures of demand in social care that lead to cost-shunting and back-up into the health care system.

I would like to begin, Secretary of State, if I may, by referring to a paper that has been prepared for the Committee by the King’s Fund, which I think you’ve seen, on the spending round’s implications for personal social services in local authorities. The paper suggests that, by the end of the review period, there will be a funding gap of £2.6 billion resulting from the level of resource in social services not being sufficient to meet rising demand for social care. Does the Department agree with that analysis? If not, why not?

Mr Lansley: Good morning. Thank you very much for your invitation. I am delighted to be accompanied by Sir David Nicholson, who is Chief Executive of the NHS, and Richard Douglas, who is the Department’s Director General for Policy, Strategy and Finance.

Yes, I did see the paper-I have it here. The short answer to your question is, no, I don’t agree with the paper for two principal reasons. First, the paper treats the historical increases in pay and price pressures within social care as being necessarily replicated during the spending review period. We don’t agree with that, because we have already made decisions on pay that, although a significant proportion of the social care work force earn less than £21,000, will have a moderating impact on pay pressures in social care. Secondly, in a way that I don’t understand-it seems rather odd, so it may be a simple error-the paper assumes that a 3% efficiency saving in one year will only happen in that year. A 3% efficiency saving would, of course, happen in each year if that is the intention.

I believe that you have had witnesses from the social care sector and local government who have made it clear that they believe that 3% year-on-year efficiency savings in social care are achievable. Such efficiency savings build up. The table I have seen in the paper, however, suggests that they are achieved in one year, but not in subsequent years. The difference is between a 400-and-something million pound efficiency saving and a figure that would, over four years, rise to nearly £1.9 billion of efficiency savings. Taking those two factors together, that largely resolves the funding gap asserted by the King’s Fund paper.

I would also say something beyond that, which is that it is important, not simply to deal in cash numbers-it is the intention of the spending review that there is substantial NHS support for social care-but to make it very clear, and this will have an impact both in the health service and in social care, how that money is deployed collectively between local authorities for social care and the NHS for health care in order to deliver improvements in quality, outcomes and efficiencies on both sides of health and social care. It is very clear, when we look at where efficiency, quality and productivity can be best improved, that the interface between health and social care has for a long time been one of the areas that is most susceptible of improvement. The resources that we are making available through the spending review-even this year we have found £70 million in savings to support reablement-are specifically directed at delivering those gains in efficiency.

Q312 Chair: Is it your intention that the £1 billion that is to be made available by the health service to social care will, to some extent, be conditional on an improved interface between the two departments? If so, how is that likely to be delivered?

Mr Lansley: That is not the language that I would use-"conditional". This will be jointly planned, and we will ensure that there is a formal transfer of resources, net of the reablement activity, to local authorities. For example, for 2011-12, the next financial year, the total figure in £800 million, because the £1 billion transfer is front-end loaded, so it doesn’t rise to £1 billion at the end of the period on a straight line. There is a considerable amount available, even in year 1. There is £800 million in year 1 and a net of £150 million for reablement, which is a health spend on the rehabilitation of people who are leaving hospital and returning home, but which has a direct impact on social care costs.

In addition, £650 million will formally be transferred from primary care trusts to local authorities on the basis of an agreed plan as to how this is to be spent. You asked us to be brief, but if you want I can give you several instances of how that money would be spent in order to try to deliver those benefits.

Q313 Chair: It is easy to imagine how it would be spent. It is a question of the extent to which the planning within the social service department and within the NHS are going to be brought together to avoid institutional conflict and cost shunting, and to improve the institutional working between two systems. It seems to me that there is an opportunity, given that this resource transfer is going to take place, to insist on improved operation of that interface for the improvement of patients.

Mr Lansley: As I said to the National Children and Adult Services conference, we are moving from a world in which there have been years and years of cost shunting to a world in which we deliberately intend there to be cost sharing. To that extent, we are creating what is, in effect, a pooled budget to support actively. In addition to what the NHS is providing, there is an expectation that local authorities themselves will be participating and bringing their resources to bear in that pooled budget.

In the paper provided to you, there was a range of scenarios about what decisions local authorities would make about the total quantum of spending in social care. From my point of view-I think the evidence you have had will back this up-local authorities and elected members of local authorities are themselves very conscious of the pressures on social care and the need to sustain eligibility and support for people requiring social care. Yes, there is a reduction in the formula grant available for that, but remember that, in addition, the Department of Health has made available a number of social care grants and the learning disability transfer grant, all of which are not themselves subject to any reduction in the transfer that takes place.

Local authorities themselves, in the context of their council tax, are not seeing a reduction in cash terms of the resources available to them arising out of council tax. So when you take all that together, I don’t think there’s any reason to suppose that any of the more extreme scenarios are likely to eventuate in local authorities, because of the nature of the resources they have coming to them. They are much more likely to be in the middle or lower end of your scenarios than the top end.

Q314 Dr Wollaston: In places like Torbay, they already have pooled budgets and are already demonstrating very good savings and great statistics in terms of hospital discharges, but they feel that the loss of coterminosity under the White Paper and the lack of their flexibility to make some make-or-buy decisions is impeding them. Could you comment on that?

Mr Lansley: Of course, in the next two years, the resources will continue to flow through primary care trusts, and the resources to local authorities will flow through primary care trusts. So the extent to which the Torbay care trust is, at the moment, both a primary care trust and a local authority co-operating together is not affected in the first two years. We will be clear in subsequent years about the transfer to support local authority social care activity. We have set out in the spending review the resources that will be spent for health purposes to support social care, but they will be available to local authorities in the resources that we have indicated.

Q315 Dr Wollaston: Yes, but they feel that it is actually going to get worse, because they are losing their coterminosity and they are being forced to transfer some of their-

Mr Lansley: You are making an assumption about the way in which general practice consortiums are going to configure themselves, are you not?

Q316 Dr Wollaston: Not really. They already have a very effective commissioning consortium, and the difficulty they are finding is the way in which they are no longer going to be able to make those make-or-buy decisions, because they are being forced to transfer their provider arm and make it completely separate, so they are no longer able to commission their own services. The system there works very effectively, and they feel that the reorganisation is going to actually impede what they are doing, so they feel they will be less efficient.

Mr Lansley: Oh, I’m sorry. You mean in relation to the transfer of provider activity out of the control of the care trust directly.

Dr Wollaston: Yes.

Mr Lansley: Well, we’ve been clear across the country, and, indeed, this process-the transfer of provider arms out of primary care trusts-was actually initiated by the previous Government, because of the requirement to separate the commissioning activity from the provider activity. It doesn’t mean that you can’t integrate services. It doesn’t mean that they can’t commission services from the same provider activity that they’ve had up to now. They just can’t do it on the basis of simply creating a single organisation without any transparency or opportunity for challenge or for new providers to be able to offer improving services.

Q317 Rosie Cooper: Before we go on, Secretary of State, I wonder if we could just clear up the position of PCTs and the targets for 2013. You’ve just said that, for example, consortia will be underpinned, in the interim, by the PCTs. What is the timetable for PCTs between now and 2013? We heard that, in March 2011, London PCTs will all be gone. Is that accurate? What is the real timetable?

Mr Lansley: No. The White Paper set out very clearly that our intention is to legislate for primary care trusts to cease to exist from 1 April 2013. Up to that point, they will continue, legally, to be primary care trusts. Before the end of the year, we’ll set out, in the response to consultation and the operating framework, how primary care trusts should manage themselves in order to develop general practice-led commissioning consortia in the meantime, including the use of their delegated powers. The legal position will remain that primary care trusts will exist until 1 April 2013.

London, of course, has always had a larger number of primary care trusts relative to the rest of the country. What London is doing-perfectly sensibly-is that as the general practice-led commissioning consortia establish themselves, it wants to make progress in reducing the management costs of primary care trusts and the extent to which they make decisions, rather than the new commissioning consortia taking on more responsibilities, by bringing the PCTs together into clusters. It doesn’t mean that they cease to exist. Legally, they continue to exist.

Chair: Can I just remind the Committee that the Secretary of State is returning to talk about commissioning in three weeks time? We have got a long agenda on public expenditure. I’m sure that he is looking forward to that occasion.

Q318 Chris Skidmore: Secretary of State, you mentioned how cash-releasing efficiency savings would be able to deliver the challenge and funding of adult social care. I actually want to focus on the efficiency savings themselves.

In the Department’s evidence-answer 11 to paragraph 1.1.4 in PEX 01-the Department quotes evidence saying that the "Association of Directors of Adult Social Services (ADASS) published a report on expenditure in April 2010, based on a survey of its members. It estimated that, in 2009-10, adult social care departments achieved efficiency gains of 2.5%." It also-I think this is quite important-said, "However, this figure should be treated with some caution, as it includes savings from service reduction and income generation. If only value for money savings are considered, the efficiency rate falls to 1.8%."

Now, I understand that we are looking at efficiency gains of 3%, year on year. Evidence that we’ve heard has been pretty overwhelming in stating that that is not only going to be challenging, but, for instance, the LGA has said that that will involve squeezing every last pound and pursuing other ideas ruthlessly. ADASS themselves have said that the 3% cash-releasing savings would "include genuine efficiencies but to get to 3% would also have to include measures such as raising the level of income collected from charges and in some cases eligibility criteria."

I was just wondering what your view on the nature and the exact character of these savings will be. Obviously, there are some ways-using telecare-that we are going to be able to generate income, but the LGA reckons that that is only going to be around £800 million. In order to hit 3%, we are going to see service reduction and eligibility criteria change. Is that the case?

Mr Lansley: It is not my view that that is necessary. My view is that, when you look at the combined total of resources available to local authorities responsible for social care, the spending review is consistent with them being able to sustain eligibility to social care. However, it depends, as you rightly say, on delivering what would literally be unprecedented efficiency gains in social care, just as we are looking for what are literally unprecedented gains in quality, productivity and efficiency in health care.

I think that, without reiterating the points I have made, the relationship with health care can make a substantial difference, and that has not been available in the past. The extent of preventative support on reablement, telehealth, equipment adaptations and social interventions-befriending and so on-can all make a big difference in helping this to happen. That is rather than what has tended to happen too much in the past, which is treating social care budgets as consisting of how much you are going to spend-a simple calculation of how many hours of support you are going to give people multiplied by your average hourly cost of providing that support.

But, if you were to ask me what will make the biggest difference in the future compared with the past, it is simply that over the next two years, as the vision for social care that we published last week made clear, we are looking, among those other principles of prevention and so on, to drive forward with local authorities the whole personalisation of social care. It can make an enormous difference not only to the quality, first and foremost, but to the efficiency with which care is provided, because it gives people the opportunity to shape the social care in ways that best help them.

At the moment, we are in a position where 13% of adult social care recipients have access to a personal budget. Not as many as we would like of those actually have access to a direct payment. By 2013, we are looking to give everybody access to personal budgets, and as far as possible, do that on the basis of direct payments. Our view is that that will have a major impact overall on the efficiency with which those resources are able to be deployed.

Q319 Chris Skidmore: But that would come within the 3% cash-releasing saving; it is not an additional service.

Mr Lansley: No, it is not additional. An essential part of the process of delivering greater efficiency is precisely to do with the question of what more efficiency is, and the answer is delivering the support and care that people are looking for within existing resources, in a more effective way. Frankly, personalisation is a very direct route to achieving that.

Q320 Chris Skidmore: We have talked about the supply side, with these efficiency gains. There is obviously the issue of the demand side too, and the fact that there will be 300,000 older people with social care needs by 2014. Are you confident that that demographic tide will be held back by these efficiency savings?

Mr Lansley: I can do nothing to change the underlying demography. What we can do is try to change the extent to which that demography turns into demand, which is what we’re aiming to do through the relationship between the NHS and social care. Indeed, within the spending review period, I would not discount at all-and I think it is important to emphasise-the importance of public health interventions. That is because local authorities themselves, in addition to what they will be equipped and supported to do on social care, will have an increasing role in relation to public health and preventative support. It is very important to recognise that one of the signals of success, in relation to public health, is the reduction of dependency arising from age.

Over recent years, we have had steady increases in life expectancy. What we are most concerned about now is that that increase in life expectancy is not disability-free life expectancy. There are significant risks to that. For example, when you look at the impact on social care, one of the central factors has been the extent of dementia among people who are getting older, and that extent is essentially unexplained-what are the factors that are driving the extent of dementia? Even if we can’t cure dementia today-and we are putting resources behind research to try to find cures and better treatments-none the less, there are proven ways in which we can help people to remain more independent, and to offset some of the rising levels of dementia among an older population. The health service and local authorities will work jointly on some of those things, such as memory clinics, befriending and so on, to help people to be active and independent at home.

Q321 Grahame M. Morris: May I come in on that point, just before we move on? This is in relation to the definition of an efficiency against a cut, particularly in the context of what is happening in local government, where they are suffering 28% cuts in their revenue support grants. I noted your response that there was the element of council tax that could supplement the budget, but-with the gearing effect-the vast bulk of their resource comes from central Government grant. My colleague has already pointed out that, anecdotally and certainly in my area, there is evidence that residential home and day centre closures are planned, as are increases in charges for day care and so on. If the £1 billion that has been transferred hasn’t been ring-fenced, there will inevitably be back pressures on the health service if the evidence is that residential homes and day care centres are closing and people cannot access facilities in their communities. Have you factored that into your efficiency savings?

Mr Lansley: First, you said the "bulk" of social care expenditure is funded out of the formula grant, but I think you’ll find that for many authorities that isn’t true. For many authorities, the majority of their expenditure is locally financed rather than formula-grant financed. It varies by local authority of course, but many local authorities would themselves dispute that point. For the reasons I explained earlier, it is important to understand that the headline overall real-terms reduction in formula grant over four years does not necessarily translate into a corresponding reduction in the resources available for social care-far from it.

Secondly, I will not reiterate the points I made earlier, but the resources being provided within the settlement through the formula grant by the Department for Communities and Local Government rise to £1 billion a year, and that is part of the formula grant. Of the resources being provided from within the Department, we have de-ring-fenced quite a number of grants to local authorities precisely because we take the view that local authorities, in the context of having to deliver unprecedented levels of efficiency, have to be given the flexibility to be able to make those decisions, to be sure that they can do it most effectively. In addition, where learning disability services are concerned, for example, that grant will be allocated on the basis of a formula that is directly related to the level of need for learning disability services. I have no expectation or fundamental concern that that won’t be spent for the purposes for which it is provided.

Where the NHS is providing health support to social care, including a transfer of resources, those resources are not transferred as part of the formula grant, and to that extent are provided for that specific purpose. There will be a line of accountability to ensure that they are spent for purposes that deliver improvements in health gain as well as social care support.

Grahame M. Morris: I would like to return to the point about how you will measure that in little later in the evidence, Chairman.

Chair: Okay.

Q322 Nadine Dorries: Secretary of State, I’d like to go back to the King’s Fund memorandum because it is on the fundamental question I want to ask you now. You identified, when the Chairman asked you, that amendments to salaries and wages and reorganisation improvements to social care-I think you said-have not been taken into that calculation, so if the total amount of central Government grant for local authorities is falling, in what sense is the £1 billion extra spending on social care? It has been incorporated into the King’s Fund memo. Could you isolate that out a bit more for us?

Mr Lansley: Right. The point I was making earlier among a number of points was that the memorandum you had assumed the same level of pay and price pressure in the future as there has been in the recent past, and there is no good reason to suppose, in the light of the two-year pay freeze, that that will be the case. I have no reason to think-Richard, you’ll correct me if I’m wrong-that the paper took account of the fact that the NHS is going to provide additional support for social care, although I’m not sure-

Chair: Table 1.

Mr Lansley: Yeah, okay. Plus the NHS transfer. It is in that. My point was not that that was not taken into account, but that table 2 in the document assumes a 3% cash release in efficiency but only does so once, whereas the intention clearly is for that to happen each year, and that would rise to something approaching £1.9 billion total efficiency savings. So when one takes those differences into account-I would say, although clearly it is more difficult to quantify, that the combined resources directed at the interface between health and social care will have a significant additional impact-that is sufficient to ensure that we are meeting the requirements of social care funding to sustain eligibility. I know we are doing it against the background of consistently rising demand for social care support. That is why we, as a coalition Government, took the early decision in the coalition programme to set up an independent commission to look at the long-term funding of social care. That was established in July, with Andrew Dilnot as chair. I don’t know whether you have invited Andrew Dilnot to come and speak to you, Chair.

Chair: Not in this round.

Mr Lansley: Okay. Certainly when he was at the National Children and Adult Services conference he took the very strong view that in effect the spending review had made an enormous step towards enabling his commission’s proposals to be implemented in circumstances where the needs had been bridged. I am recognising that what we did in the spending review was to that extent meeting the immediate needs, not trying to deliver the long-term solution to the funding of social care.

Q323 Nadine Dorries: On that point, could you elaborate on the extra care, and on where the £1 billion will be spent? In light of the fact that there will be no ring-fencing and no absolute requirement on the local authorities on how they spend that extra money, could you elaborate on what you would identify as social care going forward, what is going to be spent and what was spent in the past? Via that process, could you identify what the extra spending will be on social care? What extra services will we see delivered?

Mr Lansley: Just to be absolutely clear, the money that is provided through the NHS to local authorities to support social care will have to be accounted for in the terms in which it has been spent. To that extent, it is not simply an addition to local authority spending.

Q324 Nadine Dorries: So there will be accountability although there is no ring-fencing?

Mr Lansley: Strictly speaking, it is ring-fenced-correct me if I am wrong, Richard-in the hands of local authorities. They have to spend it in relation to this purpose.

Richard Douglas: I think it’s the difference between the money that is coming through from the NHS and the money that is in the formula grant. The NHS money is effectively ring-fenced.

Mr Lansley: I thought I’d explained this to Grahame. The money coming through the Department for Communities and Local Government that is part of the formula is in the formula. There are a range of social care examples that have been provided by the Department where we have taken off the ring fence. The learning disabilities and health reform grant will be de-ring-fenced, but the formula is different from the formula that is used for the revenue support grant. The money that is provided through the NHS to support health and social care is to that extent ring-fenced. We have not taken the ring fence off it; it comes from the NHS for specific purposes on a transfer from primary care trusts. What does it buy? Clearly, that will depend on the individual circumstances and the plans that are agreed, but my expectation is that in addition to the money that is spent on reablement-£150 million in the first year, rising to £300 million thereafter-it will pay for things such as the introduction of more telehealth, equipment services and befriending services. I have a range of examples-I have a friend here who has a range of examples.

Nadine Dorries: That would be useful.

Q325 Chair: That looks like a page and a half of examples, so you will have to send it to us rather than read it to us.

Mr Lansley: I will give you a good example, because I was with a group in my constituency of people who were at risk-if I remember correctly, Torbay is a very good example of a place that has done excellent work at assessing people’s risk of falls, and enrolling people in exercise and physical activity classes and groups in order to offset the risk of falls. That is one of the major issues; just as I have been talking about dementia as a major issue-and there are things we can do with memory clinics, local groups and befriending services-the same is absolutely true with falls. There are good examples of assessing the risk of falls and putting in equipment and indeed exercise and referral classes to try and offset that risk.1

Q326 Nadine Dorries: This is the £150 million that is going into revenue from the capital. This is the reablement £150 million.

Mr Lansley: No, the reablement is very specific. The reablement is the £150 million next year, which is very specifically for the purpose of rehabilitating people who go home having been in hospital for a period of time. It will do things like physiotherapy and occupational therapy, and home adaptations and equipment services. The £650 million beyond is a much wider range of activity done fundamentally in a preventive character, rather than secondary prevention. Primary prevention is better.

Q327 Nadine Dorries: What criteria are being used for the distribution of that £150 million?

Mr Lansley: It is being distributed on an adult-

Richard Douglas: I’ll have to check. I will have to give you a note on that. I couldn’t immediately tell you.2

Mr Lansley: In the operating framework, we will be telling primary care trusts and local authorities the basis on which it will be distributed.

Sir David Nicholson: Yes.

Q328 Andrew George: One request from you regarding the King’s Fund and the one year 3% cash-releasing efficiency gains. According to table 2, that is clearly 3% per annum. It would, in any case, be helpful to have a written commentary on the paper so that we can go back to the King’s Fund and perhaps compare notes on the issue.

I wanted to come back to the question that Chris was probing earlier on what you described as the unprecedented efficiency savings with regard to social care. While I understand what you are saying about personal budgets and, no doubt, the whole range of whizz-bang management and budgetary tools, the issue being probed was what impact that will have on social care on the ground in terms of eligibility, access and the range of services available to those receiving adult social care services. We have seen over time that eligibility is often under pressure and that services themselves-particularly with health care assistants under tremendous pressure on their time and motion, if you like-are where the efficiency has to be gained. I wonder where you think, at the present time for the services on the ground, the inefficiencies are that are going to be driven out of the service.

Mr Lansley: It is not just for me, it is for local authorities as well. The Department has worked together with local authorities to identify those. First, driving out inefficiencies does not entirely sum up what we are trying to do. We are trying to deliver a programme that is more efficient in the sense of giving the care and support that people want and in the way they want it, in the most effective way. That is very often about things such as personalisation. I won’t repeat all the things I said about that. I think that that can make an enormous difference to people. Driving out inefficiencies is very much about looking at variation in cost and reducing it. There are major variations in cost between places across the country in terms of the per hour cost of the provision of local authority social services support.

Q329 Andrew George: Can you give examples of where you think those inefficiencies can be driven out?

Mr Lansley: We will happily send you a note about that, if you are comfortable with that, because a lot of this was covered in the memoranda that the Department sent this year and in previous years, illustrating the variation in cost between local authorities in the per hour delivery of social services support. It is a case of showing you some of those variations. There is a variation between local authority provided-social care support and those that are provided through private sector suppliers. We need to ensure that we drive out all that variation cost.3

Q330 Chair: It’s a fair summary of your position on social care, is it, to say that, provided local authorities deliver 3% compound efficiency gains over four years and provided we have the Government’s relief of pay pressure through the pay freeze for two years, those two things will be sufficient, provided again that we have the £1 billion from the health service and the £1 billion genuinely marginal through the PSS grant? Those factors come together to reconcile the pressures of supply and demand for social care to mean that demand can be met in social care.

Mr Lansley: I wouldn’t disagree with that, but you say "sufficient". In my view and on the basis of the discussions we have had with local authorities on their ability to sustain current eligibility, the risk is that I agree with "sufficient". It is not sufficient to do everything; it is sufficient to sustain the position we are in. Sometimes that is difficult. There are still difficult decisions being made in local authorities about what their eligibility criteria are. May I just drop back to something that Andrew said?

Q331 Chair: Before you do that, may I pick up one point? One of the factors that was striking in the King’s Fund memorandum was the suggestion that resource pressures were greater as the period went on. In other words, because there is front end-loading, as you emphasised in your original answer, in the short term, the pressures on social care will be less than they will become during the third and fourth years of the planning period. Do you recognise that scenario?

Mr Lansley: That’s true. Inevitably, the pressures rise as time goes by, but we have, deliberately in the way in which we structure the support from the NHS, front end-loaded it. The resources don’t just increase towards £1 billion over four years. We are at £800 million in the first year, because we see this as being largely preventive. If you just do cash tables, you don’t take any account of the fact that money spent in 2011-12 in a preventive programme to try to give people greater independence at home and less dependency on care and support will have positive impacts in subsequent years on demand. It is intended to have that effect. The Department for Communities and Local Government’s addition, alongside ourselves, in the spending review to the formula grant builds up over time. From memory, it is £530 million from 2011-12, and that builds up to £1 billion.

If you are relying on the paper from the King’s Fund, as Andrew was saying, it clearly says 3% per annum cash releasing efficiency savings. It might say that at the top of the table, but that is not what the numbers say. In table 2, if you take the 0% real cut columns with or without 3% cash releasing efficiency savings and compare the 2011-12 and 2014-15 numbers, the gap between those two numbers on the two sides of the table is of the order of about £450 million to £490 million. When you compare 2011-12 with 2014-15, this is just arithmetic. If you get 3% cash-releasing efficiency savings in 2011-12, you will have a gap of more than £400 million. In each of the subsequent years, you will add another £400 million or so to it. That is how it builds up £1.9 billion.

Q332 Chair: We will ask for a second edition of the paper from the King’s Fund. I want to probe the point about front end-loading further. Is there an implication, because the resources are front end-loaded for social care, that more resources may come for social care later in the period as a result of the Dilnot process?

Mr Lansley: I am not in a position at the moment, until we see what Andrew Dilnot’s commission reports and recommends next July, to say what time scale that can be implemented on. The design of its solutions and its timing are bound to be closely related, not least the extent to which it might require any support from central Government or legislation. These things inevitably take time. I’m afraid that the answer to that is no at the moment-there is no expectation of that and there is no expectation on my part that there will be additional resources in the spending review period.

I will add one thing that is relevant, which is that from 2013-14 onwards, local authorities will have a responsibility for public health. The budgets associated with that have to meet a very wide range of objectives-preventive objectives of many kinds. But, of course, the preventive agenda in relation to older people is important. If we can engage in primary prevention, and if the baby boomers, as they shift through to their older years, access primary preventive services through the NHS, such as health checks and so on, we will start to deliver, hopefully, something that moderates the impact on social care and support. I wouldn’t overestimate it and couldn’t put a number to it now, but, given that local authorities have the responsibility for social care and will have the responsibilities for public health and will have a direct-as we’ll come on to discuss in three weeks’ time-relationship with the joint strategic needs assessments and the strategy and commissioning locally, I think that the synergies between those three things will have an impact as we get towards the end of the spending review period.

Chair: We can’t talk about baby boomers in the third person.

Q333 Rosie Cooper: Before we move one to the question I want to ask you, you have referred to pay pressures in relation to efficiency savings and the reason why you feel that the King’s Fund table isn’t accurate. I wonder how many people in social care earn more than £21,000, and what the percentage of people earning more than £21,000 would be, because if my view, which is that most do not, is correct, it will have virtually no effect, as you suggested.

Mr Lansley: That’s true, but the pay freeze does not apply to people in the public services earning below £21,000. That doesn’t mean that the increase in their pay is actually comparable. The levels that are likely to be agreed collectively are comparable with the pay increases in percentage terms that we’ve been experiencing in recent years. That is the simple fact of the matter. Pay pressures over the next two years are clearly moderated compared with the recent past.

Q334 Rosie Cooper: Absolutely, but I’m suggesting that, in social care, that effect is minimal.

Mr Lansley: The point I’m making is that there are people who work in social care who earn more than £21,000, but there are fewer proportionately than in many other parts of the public services and certainly fewer proportionately than in the health service. The point I am also making is that staff earning less than £21,000 in the next two years will not see pay increases that will be proportionately as great as they have seen in the last period.

Q335 Rosie Cooper: I’m sure that will go down-

Mr Lansley: I’m only stating what is already an established fact.

Q336 Rosie Cooper: Absolutely. Okay. You told the Local Government Chronicle that there will be an emphasis on prevention and that we understand that some of those funds will be used to meet the cost of funding care services. Is that an admission that the money will end up being used simply to help councils maintain the status quo? We say that in the light of the questions that Grahame Morris asked before about the 28% cut experienced by local government. Will they be forced, out of necessity, to use the money to minimise cuts that the Secretary of State’s Department have made elsewhere?

Mr Lansley: No, I don’t think that I would accept any of that. The point is that we are setting out to tackle something that should have been tackled years ago, which is that there are significant opportunities for expenditure that are essentially about maintaining people’s health and independence, and that has a significant beneficial impact in reducing the requirements for local-authority-funded care and support. If we can do those things through the NHS, it has a health gain and a social care gain.

We shouldn’t ignore the fact that if you-like I was describing to Dr Wollaston-undertake a risk assessment and give people access to equipment adaptations and exercise referral or local physical activity groups, not only do you potentially reduce their requirement for social services support, you actually reduce their likelihood of emergency admission to hospital, and you get them out of hospital faster and better through reablement as well. All of that impacts on the NHS directly, so we are looking for something that is literally a win-win, which is good for the NHS, because it moderates pressures on the NHS, and we need that to happen, and it is good for local authorities.

Q337 Rosie Cooper: Will there be clear reporting on how that sum is spent? How will you guarantee that there is an improvement in the interface between social care and health bodies?

Mr Lansley: Do you know what? The basis is that the people who are going to be doing this, whether they are GPs, primary care trusts, social work staff or elected members of local authorities, actually care about the people that they are looking after. They are going to be given resources to do this job. They know that this is where they can make the most beneficial impact, and they have the dedicated additional resources precisely to do this job. I have hardly been to anywhere in the country where they have not said that, with additional telehealth, additional equipment adaptations and additional support for preventative services, they could do more. Everywhere they say that they can do more and that it will have a beneficial impact on the health service and on the social care side.

Q338 Rosie Cooper: There is potential for confusion with the £1 billion. Is that £1 billion, which is coming from the health budget, going into local authority budgets, or is it to be retained by health? You read out the amount of money that is being spent on reablement, and you went on to talk about telehealth equipment, befriending services and risk analysis, which are all great things that will enable people to remain healthier longer. There is still, however, that great pressure on local authorities to deliver basic social care. I’m not sure that local authorities can actually see that they will receive that money, which they want to spend on maintaining their social care services at the current level, but that is what I’ve heard you say today. There is almost double counting with that money, because, while it will help, it is not going to deliver the same level of local authority care.

Mr Lansley: At the risk of repeating what I said earlier, I do not think that it is the least bit confusing. The spending review was very clear that, within the context of an overall reduction in the real-terms value of formula grant, there is a significant transfer of de-ring-fenced grants to support social care. In addition, through the Department for Communities and Local Government, up to £1 billion a year will be made available specifically to support social care, which does not come from NHS resources. Additionally, through the NHS, we have found what will be £1 billion a year, but in the first year will actually be £800 million, to support the delivery of health and social care support, because very often the same people have needs that span health and social care. Such care often needs to be better integrated and co-ordinated.

The White Paper was very clear about the desirability of creating further integration between health and social care. Those resources are designed specifically to enable that potential to be realised in ways that will mitigate the impact on the eligibility requirements for social care support and mitigate the potential demands on the health service. So it seems to me to be very straightforward. We know the numbers-£800 million in 2011-12. Of that £800 million, £150 million will be spent directly by the NHS on reablement services; £650 million will be transferred to local authorities through primary care trusts in order to support the agenda.

Q339 Rosie Cooper: So we will not have any terrible stories of local authorities cutting their level of service next year, the year after and the year after that?

Mr Lansley: What I have said, based on the figures that I have explained to you and the conversations that we have had with local authorities, is that the resources provided to support social care in local government are sufficient, in my view, for local authorities not to have to reduce their eligibility requirements for social care support.

Chair: I need to move this on to the health service. Before I do so, Yvonne and Nadine want to come in.

Q340 Yvonne Fovargue: You have mentioned the National Audit Office and how it has reported that it has seen that the PCTs and local authorities have improved services. The National Audit Office and the local authority targets are going, so how will you measure any improvement? What baseline will you start from?

Mr Lansley: The National Audit Office isn’t going anywhere, but the Audit Commission is going.

Q341 Rosie Cooper: No, the local area agreements are going.

Mr Lansley: Well, the primary care trusts and the local authorities will be jointly responsible for ensuring that they have a plan that delivers those improvements. From my point of view, we will be progressively creating an outcomes focus, rather than a process focus. We will look at the outcomes that we achieve in the NHS; we will look at the overall levels of outcomes that we achieve in public health; and, likewise, we will focus on the outcomes in social care. The purpose is not to take this bit of money and say, "Let’s focus on these specific inputs and processes" and see it in isolation, but to look at it in the context of how we in the NHS and local authorities collectively are delivering improving outcomes in health and social care.

Q342 Yvonne Fovargue: And they’ll be published?

Mr Lansley: Of course they’ll be published.

Q343 Nadine Dorries: Secretary of State, what if social care fails and it doesn’t improve? There is an accepted a belief that if social care spending was spent well and social care services improved, they would be a saving to the NHS. What, however, if the converse is true? The reason for asking that is my local authority is having to make cost savings of £22 million this year, as are authorities across the country to varying degrees. The fact that this £1 billion, which is going into local government, will not be ring-fenced means that you can understand a temptation for local authorities to maintain spending or deliver social care services only to the extent they are at the moment, and not provide an improved level of care. Therefore, would it not preferable for this additional funding, rather than being provided to local authorities, to be ring-fenced in some way? That is, to be ring-fenced in terms of having to provide and demonstrate an improved level of social care delivery or services, because, at the moment, it seems as though £1 billion is being thrown out to local authorities that are struggling to provide services at the existing level, let alone to provide additional or improved care.

Mr Lansley: Let me say two things, first, just to reiterate the point that I made earlier: the specific additional resources provided through the NHS to local authorities on a transfer from primary care trusts are within a ring fence in the sense that local authorities have to account directly for the spending for health and social care purposes. It cannot be transferred, for example, into another local authority budget and spent on something unrelated to health and social care.

It is important to remember that the overall level of public spending on social care is of the order of £16 billion-

Richard Douglas: £15 billion last year and rising to £16 billion.

Mr Lansley: Between £15 billion and £16 billion a year. How those resources are spent is of much greater significance; overall, they have the bigger impact. I have to say, our view, as a Government, is that previous Governments have done to death the idea that central Government can specify to local authorities how best the money is spent to deliver the best results. Frankly, we’re talking about a devolution of responsibility-in the first instance to local authorities, through the de-ring-fencing of a range of grants to local authorities, of which the Department of Health’s responsibility was pretty substantial. We de-ring-fenced something approaching £2.7 billion of grants from the next financial year, on the basis that local authorities are competent authorities that have the interests of their populations at heart and need to be given the flexibility to determine them. It is double devolution; the second devolution is more power in the hands of individuals themselves, through personal budgets, to enable them to make decisions.

Q344 Nadine Dorries: But on that, will there be criteria in place to prevent local authorities from reducing the eligibility criteria on the point they can start charging?

Mr Lansley: Local authorities have the power already to make their own decisions about eligibility criteria and the level of charging.

Q345 Nadine Dorries: But will there be a temptation to reduce that eligibility criteria?

Mr Lansley: With respect, you will have to talk to local authorities about that. The conversations that I have had with local authorities lead me to the opposite conclusion to your fear. They lead me to the conclusion that local authorities are very much aware of the demands for their social care. They do not regard cutting eligibility for social care support as something that they will immediately resort to in order to fund other priorities. They regard social care support as one of their central functions, which they are trying to protect resources to maintain, rather than take resources out of to fund other priorities.

Q346 Mr Sharma: I was glad to hear when you said that the £1 billion is ring-fenced. I think that it will be important if it is actually demonstrated in every document that local authorities should not be using it for any other purposes.

I was very concerned when you said that the local authorities have to decide how they prioritise the amount for the services in their areas. I speak with some knowledge of local government-I served as a local councillor for 28 years and also worked in another borough in adult services for many years. Sometimes, when the policies and the practices become finance-led, the local authorities tend to change the criteria and the charges. The fear is that if that situation arises, what will the Government do to instruct local authorities that they should not be doing that?

Mr Lansley: In my view, through the spending review we have, in what were exceptionally difficult financial circumstances for the country and the Government, secured sufficient resources through exceptional measures-both on our part and on the part of the Department for Communities and Local Government, with Treasury support-that mean that there is, in our view, generally no need for local authorities to reduce eligibility to social care. That will help us to bridge to a period some years hence, when more sustainable long-term funding solutions for social care are established.

That does not mean that I am in a position-nor do I wish to be in one-to tell individual local authorities how they should exercise their responsibilities in relation to their budgets. We have given them the resources; I am explaining to you why I think that those resources are consistent with them not having to cut eligibility to social care, but we are not taking powers to require that or to control it. We haven’t in the recent past, and we’re not proposing to do that in future. In fact, if anything, I know that our intention is to move in the opposite direction, which is to give greater freedoms to local authorities through flexibilities and the way in which their budget is provided to them, particularly through grant, in order that they can manage their resources better to meet the overall needs of their community. We elect people in local authorities and we have to trust them to take these decisions.

Q347 Mr Sharma: Once again, I am very happy to hear that-about local flexibility and the freedom for local authorities. If the situation arises in which the client, service user or resident feels that there is a disservice, what safeguards are you putting in as part of giving the resources to them?

Mr Lansley: The safeguards for individuals in their local area are essentially through the ballot box. They elect a local authority, and it is the local authority’s job to take responsibility for the provision of services in their area. Those are decisions that local authorities will have to make.

Q348 Chair: One simple question, then we will move on to the NHS. In your assumptions about social care-and you have been very clear that you think the plans are sufficient to allow social care to continue to be delivered without the reduction of eligibility criteria-have you made any assumptions about increased revenue into local authorities through charges for social care?

Richard Douglas: No, the efficiency assumptions don’t assume an increase in income from charging.4

Q349 Chair: I said it was a simple question.

Can we move on to the NHS? On social care, you have spoken about the need for 3% efficiency gain, compound over four years. I think it’s fair to say that on the £15 billion to £20 billion challenge that Sir David Nicholson first articulated in 2009, the implication of that is 4% efficiency gain, compound over four years, required within the national health service to deliver continued patient care within the budgets that the Government are planning. Can I ask a question that I think is widely asked in the health service at the moment, which is how the White Paper process feeds into the ability of the management system of the health service to deliver that unprecedented efficiency gain?

Mr Lansley: I think, essentially, it happens in two main ways. The first is because, at the heart of the White Paper, there is the principle, which is one of a number of principles, that we should devolve decision making closer to the front line and ensure that those who are responsible for making clinical decisions do so alongside the resource consequences-they see those two things side by side. To give you a practical example, one of the principal means through which, clearly, we can deliver the QIPP-the quality, innovation, productivity and prevention agenda-is by escaping from the primary-secondary divide, and integrating services better between community and hospitals. Clearly, if we empower local clinicians, as we intend to through the White Paper, to be able to purchase or commission services that are more integrated for their patients and are more community-based, which Secretaries of State, even including yourself, have said for a very long time is a desirable outcome-

Chair: Indeed. Even one or two even older than me.

Mr Lansley: We have been saying this for a long time and it hasn’t happened. The reason why it hasn’t happened is that primary care has sat in one place having its budget, and even in circumstances where it has said that this is desirable it has done it by simply saying, "Well, we are going to cut the budget of the hospitals."

Q350 Valerie Vaz: Sorry, Secretary of State, that is not true, because it is happening. We have had people giving us evidence, and it is happening in Cumbria and in lots of other places.

Mr Lansley: Of course it is happening in Cumbria, because that is one of the places where the commissioning consortia are already up and running.

Q351 Valerie Vaz: So why do you need to change anything if it is actually happening? Why don’t you pick on the best practice of some of the areas that are doing it properly and transfer it out?

Mr Lansley: That leads me on to my second reason-

Q352 Valerie Vaz: Can I just finish? I am pleased to see you, but I want to ask you a question that everyone has asked me and I am not able to ask you smiling at you through Portcullis House. The Prime Minister was against reorganisation, and everybody in the health service was against reorganisation. Why are you doing it?

Mr Lansley: The Prime Minister and I were very clear before the election, as indeed were our Liberal Democrat colleagues-the Liberal Democrat manifesto said, for example, that it was necessary to scrap strategic health authorities, to cut the number of quangos and to redirect NHS resources to the front line-going back to 2006, that we were going to focus on outcomes; that we were going to empower patients; and that we were going to devolve responsibilities to the front line. It was always clear that once one focuses resources and responsibility at the front line consequences flow in terms of management activity.

That brings me to the second point I was going to make about how the White Paper interacts with this. Under current financial circumstances, in the NHS as in any other part of the public services, we were always going to have to reduce the total management and administration costs of the NHS.

Q353 Valerie Vaz: Agreed. And you say that it will be 45%, but 45% of what? What is the figure?

Mr Lansley: The 45% is actually in relation to the management costs, but there is a broader measure of the total administration costs. The spending review made it clear that in common with other parts of the public services, because we don’t think that the NHS should be in any sense exempt from the disciplines that apply elsewhere for delivering greater efficiency, we would reduce the total administration costs of the NHS by one third in real terms. That is across the departments, and it is the NHS and its arm’s-length bodies as a total.

Q354 Valerie Vaz: And 45% of what? What is it based on?

Mr Lansley: The 45% is the direct cost of the employment of managers and senior managers in the NHS.

Q355 Valerie Vaz: And what is that figure?

Mr Lansley: It is about £1.5 billion.

Richard Douglas: I have not got that number in my head. The overall administration cost, which is the one we are now focused on, is £5.4 billion. So £5.4 billion is the figure that we will reduce by 33% in real terms.

Q356 Valerie Vaz: I used to be good at simultaneous equations at school. We have the Nicholson challenge-£15 billion to £20 billion-and we have the Lansley challenge of the reorganisation costs. I have absolutely no figure for how much reorganisation costs are going to cut. How do you make those two equations add up?

Mr Lansley: Within-

Valerie Vaz: Can I just finish my sentence? How do you make those two figures add up? You have those two sets of challenges. What is the figure for the reorganisation costs? It is not clear anywhere.

Mr Lansley: Not only are they consistent, in fact, but the reduction in management costs and administration costs in the NHS is an integral part of achieving the overall reduction, or the achievement of efficiency savings. By 2014-15, the one third real-terms reduction in administration costs across the NHS will yield a reduction in total administration costs of £1.9 billion. That is effectively one tenth of the maximum efficiency savings we are looking for. As my colleagues made very clear when they were here with you before, even if there were not a White Paper, the reduction in management costs across the NHS and administration costs would lead to a redundancy cost of something approaching £900 million. We have been very clear about that. Beyond that point I cannot tell you, because in response precisely to places such as Cumbria-which clearly you know well-

Q357 Valerie Vaz: What does that mean?

Mr Lansley: Because you are citing Cumbria.

Valerie Vaz: Yes; because they gave evidence to us.

Mr Lansley: The way they are doing this is they are going to have to make decisions about the nature of the transfer of staffing and support from the existing primary care trusts into the commissioning consortium. I have invited pathfinder consortia across the country to come forward. I don’t yet know how many are going to do that-we will announce that once they have come forward-but that is an essential part of the question of determining, within that overall control total on total administration costs, how commissioning consortia are going to configure it. You make a perfectly reasonable point. If people have got things working well, can they sustain them? Answer-yes they can.

Q358 Valerie Vaz: And so why aren’t you doing that? Because they are asking-

Mr Lansley: They are free to do it. If the GPs in Cumbria say to the chief executive of the primary care trust, "We want you, Sue, to be responsible as our chief executive of our commissioning consortia, to bring a team on board", they can do it.

Q359 Valerie Vaz: Okay, so why aren’t you building on that in an evolutionary way, which is what other people who have given evidence to this Committee are asking? They are saying, "Could we please have evolution and not revolution?" and you are going for revolution.

Chair: Can we have the answer to that question, Valerie, and then move back to public expenditure?

Mr Lansley: What I am proposing is an evolution. I have never called it a revolution; it is an evolution. We have at the moment 909 practice-based commissioning consortia, 152 primary care trusts, strategic health authorities and all sorts of players on the pitch. Where we are going to end up is, in commissioning, we are going to focus on the commissioning responsibility being in the hands of the commissioning consortia.

Valerie Vaz: We’re doing commissioning next time.

Mr Lansley: Okay, fine. But the point is this: this is an evolution. Practice-based commissioning consortia already exist-92% of the country has PBC consortia. The point is that they do not have the powers they ought to have. Previous Governments, Labour Governments, said this should happen; didn’t do it. Why? Because primary care trusts existed and had the legal control-the control of the budgets and the control of commissioning-but they did not achieve the thing, going right back to the point that I made at the beginning, that is absolutely essential to deliver improved commissioning and better clinically-led service redesign, which is to put commissioning and financial responsibilities together in an organisation that is, fundamentally, clinically led.

Q360 David Tredinnick: Secretary of State, I want to ask you hopefully three short questions relating to: expenditure to do with overall pay, doctors’ costs, and one aspect of regulation as it will impact on the cost of the health service.

On the first question about pay, the Nuffield Trust has stated that "unless the NHS can keep a tight grip on pay and inflation it will mean a reduction each year in the volume of health care services that the NHS can deliver, if current trends continue". Do you think that that is a fair assessment? How confident are you that you can meet the challenge?

Mr Lansley: Sorry, David. Can you just repeat the question?

David Tredinnick: The Nuffield Trust has stated that "unless the NHS can keep a tight grip on pay and price inflation it will mean a reduction each year in the volume of health care services that the NHS can deliver, if current trends continue". In other words, if you cannot keep a grip on your costs.

Mr Lansley: It is a bit of a truism isn’t it? A pound can only be spent once. We have had a decade where overall in the NHS, on ONS data, there has been a reduction in productivity. Now, a central part of that has been because a large amount of the resources that have been provided have gone to increases in real-terms pay. You may say that that is a good thing, but it doesn’t deliver, necessarily, rising productivity on that simple measure, because the money can only be spent. If you are paying for rising productivity through contracts, that is great. The National Audit Office was very clear in the report it published. Looking back at, for example, the GP contract, the consultants’ contract and even "Agenda for Change", it felt that they had insufficiently incentivised for productivity as a consequence. So, pay and productivity are not necessarily contrary, but it is very important that, if you are changing pay, you do it for productivity reasons.

Specifically, in the next couple of years, there will be a pay freeze across the public services. From our point of view, that is very important. If my memory serves me-Richard will tell me if I’m wrong-in next year itself, and based on precedent, potential cost will be reduced by something like £800 million next year and £1.8 billion the year after. To that extent, it is a big part of the process of delivering savings and that money is therefore available. There is a direct trade-off between pay and our ability to spend money, including sustained jobs, to deliver services.

Q361 David Tredinnick: And you are confident that you can hold the line on these pay costs.

Mr Lansley: The public service pay freeze has been set out across the public services as a whole.

Q362 David Tredinnick: I want to take a slightly different slant on this and look at doctors’ cost per patient and quote some figures from Switzerland from santésuisse-Datenpool. They show that, in terms of cost to the Government, the bills of doctors who have received additional training in using herbal medicine or traditional medicine come down dramatically by 12% for traditional Chinese medicine, 20% for anthroposophical medicine and 37% for homeopathic medicine. Another study from the Netherlands, in which Kooreman and Baars at Tilburg University analysed 150,000 patient dossiers from an insurer, showed that GPs who had additional training in anthroposophic medicine, homeopathy or acupuncture have substantially lower health costs and lower mortality rates. As you move forward with this process, do you envisage looking at how a wider range of services and a wider integrated health service-you talked about prevention earlier and used the word "integration"-can reduce the cost to you of doctors’ services?

Mr Lansley: What we are aiming to do through quality, innovation, productivity and prevention is provide to commissioners and providers of health care services a constant source of ideas and proposals about how they can deliver improving quality and efficiency of services for their patients. It is not to tell them what to do, by and large. We are moving to a service that is clinically led with more autonomous providers. To that extent, there is a very long list of QIPP available for everybody to look at on the QIPP website of the kind of approaches that can be undertaken. I don’t recall immediately whether any of them bear directly upon traditional herbal medicine or other complementary therapies.

Q363 David Tredinnick: But in principle you are not against?

Mr Lansley: No, the point I’ve made is that we are looking for clinically led commissioning and clinically led services. To that extent, as I think the Committee knows from when I was here last, I am trying to spend less of my time and that of the Department and Health trying to tell commissions how they should do their job, and spending much more of my time making sure that they have the freedoms and information on choice, on the basis of which they should do their job.

Q364 David Tredinnick: Thank you very much for that. My last question relates to cost savings linked to regulation and the potential problems you may face if the complex herbal remedies that a lot of people get over the counter are no longer available. I want to highlight a problem. On the traditional herbal medicines directive-you and I have discussed the regulation of practitioners, so I don’t want to get into that today-there is a specific problem for Ayurvedic medicine and traditional Chinese medicine that are currently provided over the counter, because they don’t fit into the traditional herbal medicines directive. According to Nils Behrndt, who is the deputy head of Cabinet at the European Commission and whom I met last week, they would be open to considering a simplified registration procedure to encompass those remedies-some of which are made up of 48 different components-if Members of Parliament and the Government approach them to make such a study. If you approach the Commission, there is an opportunity to do something, given it is going to be a very big problem for you next year. I ask you to look at this sympathetically.

Mr Lansley: I think there are two things. First, next year I expect the Commission to bring forward proposals in relation to the directive on traditional herbal medicines. It has not yet formally brought forward its proposals on what should be able to be marketed and what cannot, and so on. To that extent, we are waiting to see and we are trying to influence the Commission in terms of what herbal and other remedies are available over the counter.

You made the point about the regulation of herbal practitioners. I am sure that many members of the Committee know that we have been thinking very carefully about that, and we will make an announcement to Parliament soon.

Q365 Grahame M. Morris: May I ask the Secretary of State about the impact of management cuts? We’ve heard about the Nicholson challenge and the £15 billion to £20 billion of efficiencies in the QIPP programme, and we’ve heard from the permanent secretary about the management savings of 33%. We currently have 10 strategic health authorities, which are to be abolished, but they play a fairly important role in terms of managing performance. I’ve read in the press that there may be 10, nine or three. If we don’t have that kind of outpost of the Department of Health, how will we be able to measure efficiencies and productivity improvements? In areas such as mine in Easington, where there are big issues about health inequalities, what management muscle will we have to drive special measures to tackle these problems?

Mr Lansley: I suppose I would say three things. First, without reiterating all the points that I made about the outcomes, the focus on outcomes and the outcomes frameworks, which are already the subject of consultation in relation to the NHS-we published a very full document in July, which has had some really very high quality responses that have given us a very strong basis to design a future outcomes framework for the NHS-I am determined that we will seek, from the centre, to specify the outcomes that we’re looking for and hold the service to account for those outcomes.

Q366 Grahame M. Morris: Is there a difference between an outcome and target?

Mr Lansley: Of course there’s a difference.

Q367 Grahame M. Morris: Could you explain it to me?

Mr Lansley: Okay. Let me give you an example. If you go to an accident and emergency department, and they don’t treat you properly and say, "I’m sorry. You’ve been here three hours and 59 minutes, so we’re going to discharge you now," they’ve met their target, but they haven’t given you an outcome that you could be happy with. The point is that we have to focus on what are generally outcomes, which are things like avoiding mortality or ensuring that we reduce premature mortality and improve the quality and safety of the care that is being provided.

Q368 Grahame M. Morris: In a measurable way?

Mr Lansley: In a measurable way, of course. Outcomes can be measured. There is no doubt about that, but we are very clear that there is a clear distinction. In addition to those outcomes, performance has to be managed in the service. My job and the Government’s job is to be clear about what it is that we are trying to achieve, which are the outcomes, but then to let the service be responsible for determining how they achieve that, and that will be through performance management.

The NHS Commissioning Board will be responsible for the performance management, through the commissioning framework, of the NHS commissioning consortiums across the country. The boards of foundation trusts and health care providers will, themselves, be directly responsible for their performance management, and they will be held to account more, in the future, through the contracts that the commissioning consortiums have with them for the performance that they provide for their patients.

Everybody in the system, whether it be GP practices on the one hand or hospitals and health care providers on the other, will increasingly be accountable through the information that is provided in the public domain. In October, we published a document on the information strategy, which is currently under consultation, looking at how we can provide much more meaningful information to people, on the basis of which people can be held to account. People will be able to exercise greater control and choice over the health care provided to them. They will hold providers of health care and GP practices directly to account through the choices that they make about who provides them with care.

Q369 Chair: The key issue is that that sounds like a wonderful world, and we all look forward to it, but how is this process going to be managed next year and the year after and the year after that? The Nicholson challenge-4% compound over four years, starting next year-requires management during the interim stage. I think the Committee would be grateful if you could address how this is going to be delivered in 2011-12, when this new world won’t yet exist.

Mr Lansley: I will say one thing, and then, if I may, I’ll ask David to add to it. From my point of view, it is very straightforward in that sense. We are moving towards the establishment of pathfinder GP consortiums in the course of 2011, which will demonstrate not only in their area, but for others across the country, through the established learning network, how they can impact positively.

One of the purposes of that is that we should be genuinely engaged with the QIPP agenda in order to help to make it happen. We are more likely to make the savings that we need by the early engagement of general practitioners in clinical service redesign, rather than leaving it to a later point.

In 2011-12, they will be doing so with delegated responsibilities from primary care trusts. In 2012-13, they will be doing it by leading in a more formal sense with the primary care trust still having the legal responsibility, but backing them up. In 2013-14, they will take the legal responsibility for this. On the provider side, of course, we will be moving progressively towards a more consistent set of providers, whether it be in the community or the hospital. From my point of view, I would rather we talked about health care providers-because they may be in the hospital or in the community, which would break down those barriers-which are more autonomous as foundation trusts and, obviously, independent sector providers.

Q370 Chair: I would be grateful for Sir David’s views, but isn’t the key thing-harking back to what you said in response to my initial question in this section-to achieve service reconfiguration of the kind that all Secretaries of State have talked about to put more emphasis on community and primary provision, because that is closer to the patient where it can be delivered most efficiently?

Mr Lansley: Sorry to interrupt. Can I just make a point? I don’t want it to be thought that I have somehow said, "Oh, it must all happen in the community." It must happen where it is the right place at the right time for patients. For example, GPs have been managing patients in the community, very often those with risk of cancer, and thinking that referral to hospital is an expensive thing to have to do. It is perfectly clear, for example, that the best thing that could happen is for us to have early identification of risk and early diagnosis. Quite often, actually, one of the most effective ways of doing that would be an early referral to a specialist cancer service for many cancers. So it doesn’t follow that we are just talking about doing things in the community; it is about being much clearer, on the basis of clinical service design, about where is the right place at the right time for patients to get the right treatment.

Q371 Chair: But if you are going to deliver that, it is easier always to provide the new service in the form that you want it than it is to close down the service that was traditionally provided. But unless you address the second, you haven’t the resources to do the first.

Mr Lansley: What you say is undeniably true, but the emphasis in the past has too often been on shutting the service in order to provide the service in the community, rather than seeing this as a co-operative effort. I think this is terrifically important: if you look, for example, at the work of the National Primary Care Research and Development Centre, which did an analysis a couple of years or so ago of examples of care closer to home pilots and initiatives, it was perfectly clear that the way to design services that are more accessible to patients in the community, but that give patients and clinicians confidence in the quality of service being sustained, was for general practice and hospital consultants to design these services together. Quite often, actually, some of the activity in the community is done by hospital specialists or specialist staff employed by the hospital, which is why I am so keen that hospital trusts stop talking about themselves just as hospital trusts and think of themselves as health care trusts.

David, do you want to add a bit about transitional management?

Sir David Nicholson: I am very happy to add something on that. Clearly, we are talking about 2013-before the commissioning consortia can take the legal budgets through the process. We know that it is probably 2014 before organisations will all become foundation trusts, so we are managing a transitional arrangement here. Now, to manage that transition appropriately, there is no doubt in my mind that in some ways we are going to have to centralise more power in the very short term to deliver the benefits in the medium and long term.

We will be publishing an operating framework in the middle of December, which will set out our expectations from health organisations in 2011-12, the financial rules that we expect people to work with, and the information and monitoring that we will do to make the changes a reality. So, if you are saying to me, "Will the NHS feel, universally, a more freed up system in the next 12 months?", no it won’t. We will have to take a very tight rein in relation to the management of finance, for example. We will be setting out that process in the next few weeks. Just to reassure you: although we made the challenge in May 2009, we have been planning right up to the present to get this into the right place. So this year, for example, with the present arrangements, the efficiency gain for providers is 3.5%. We ratcheted it up to 3.5% from 3% the year before so that people get used to the fact that it will be moving to 4%. We are giving people the planning time that they need to make that happen.

The other thing that we did was to ask all PCTs to look to reserve 2% of their allocation this year to be spent non-recurringly-to spend it on things that wouldn’t have a recurring basis-to give PCTs the headroom to move into the new world. The vast majority of them have been able to do that and are spending the money non-recurringly. My expectation is that a similar set of arrangements will be put in place for 2011-12 to do, in some ways, the sort of things that have just been described, such as the ability to double run-to set something up before you close something down. We plan to keep those controls absolutely in place.

Having said all that, it is really important that we start to grow the new system out of the old. It is not just a question of setting out a whole series of what might be described as Stalinist controls on the system; we need to grow the new. I have three examples that might help you with that. With the consortia and the pathfinders, one of the things is that although there are people who talk about the need to slow down the pace, there are many people in the system who are saying that we should speed it up, and many of the consortia are. We will get a whole set of pathfinder consortia coming forward and, in a sense, we want to use their experience, enthusiasm and knowledge, and not to spend the next 12 months talking to them about how we will arrange the governance and how it will all work, but to get them engaged in some of the major issues that we need to tackle.

The most obvious issue is the management of long-term conditions, which has a massive effect on both the quality of service that people receive and on the run-through to secondary care. It is very important to get the consortia engaged with that. It seems to me that a much better measure of whether a consortium is ready for a statutory budget is how it improves the management of long-term conditions in its locality, rather than its governance arrangements. When we put the authorisation position together to identify who can form consortia and how they will work, those are the criteria that will be really important.

The second area is with the development of the provider side, particularly in relation to the foundation trusts. In order to become a foundation trust now, you have to get over significant quality, clinical and financial hurdles. Those are things that all our organisations should do, but they need to be able to show how they can sustain themselves as a clinical organisation in the new world. That helps and supports the development of the financial position overall.

The third one is the issue of integrated services, the role of community services and the role of some of our new organisations, which are setting up what is described in the jargon as vertical integration. It will be very important to see how we can get real benefits for patients out of those.

In that way you can see how, on the one hand, we can hold much tighter to some of the levers that we have to ensure that the system is managed properly, but, on the other hand, we can grow the changes from within.

Chair: That’s very helpful answer.

Q372 Dr Wollaston: In those pathfinder sites it is already happening and it will be successful-I don’t doubt that. The trouble is that, in many other areas of the country, we are seeing PCT managers disappearing and PCTs effectively in meltdown. In such areas, how will we deliver an efficiency challenge at all, let alone deliver it in a logical way?

Sir David Nicholson: I think you’re absolutely right. That is a big challenge for me as chief executive and for the other executives. If you were to ask me whether I think we can sustain 152 independent PCTs between now and 1 April 2013, I would say that we cannot. Increasingly, in parts of the country, we see that we cannot do that now. That is not to say that we want to abolish them, or that we would abolish them statutorily, but we need to make arrangements so that we can pool the capacity that we’ve got. Hence, in London, they’re looking at clustering organisations together and having one management team to run a series of PCTs. I have absolutely no doubt that that will be the model across the country as a whole. So, you will see PCTs being clustered together with single management teams in order to sustain the management capacity, both to enable them to devolve the responsibilities to the local government and consortia and, on the other hand, to enable them to hold on to the accountability chain, which is going to be so critical for us over this period.

Q373 Dr Wollaston: Are you concerned that that is happening in a somewhat uncontrolled manner at the moment? How are you going to keep the very best people in place and stop haemorrhaging?

Sir David Nicholson: I hope that it will become much clearer in the middle of December, when we publish the operating framework and the HR document to enable us to support that. You’re absolutely right; it is on the job, but it is unlike any reorganisation I have ever managed before-in a good way. If you take the previous reorganisations that I’ve been involved with-"Shifting the Balance of Power" and "Commissioning a patient-led NHS"-they were essentially top-down, transitional management changes where you organised your number of SHAs, appointed to them, organised how many PCTs you were going to have, appointed to them, and then went down the system in that kind of way. This is very different. In transitional terms, this is very bottom-up. Individual consortia are emerging, people are thinking about where their futures lie as individuals, and some people want to work in a consortium, some in a cluster and some for the Commissioning Board-it’s a very different arrangement. It is more fluid, but I think we need more stakes in the ground.

Q374 Dr Wollaston: Do you call "bottom-up" rather than "belly-up"? I’m only joking.

Sir David Nicholson: Even "bottom-up" is a bad one. You’re supposed to call it "inverting the pyramid", in the latest jargon.

Q375 Chair: Are you confident that these clusters of PCTs will be redundant at the end of the process?

Sir David Nicholson: In a sense, that’s a matter for the Commissioning Board, because the board will get them from 1 April 2012. But, we know that the Commissioning Board, for example, will be responsible for commissioning dentistry and primary care. As such, it will need some kind of more local presence. It won’t be able to do all that from wherever its headquarters end up being; there will need to be a local presence.

Chair: That’s precisely why I asked the question.

Sir David Nicholson: I think there is a synergy there that we could make work quite well on health.

Q376 Rosie Cooper: And here’s me thinking that the description of PCTs was reminiscent of Old Mother Hubbard opening the door-there would be nobody there.

Sir David Nicholson: Sorry, was that a question?

Rosie Cooper: It was a statement, but-

Chair: Rosie, before you continue, can I bring in Nadine and Andrew?

Q377 Nadine Dorries: Sir David, perhaps we can provide a helpful suggestion. We have a situation whereby in 2011 we will have the pathfinder consortia. We have PCTs in meltdown, and one reason why is that many people working within PCTs at the moment are taking a redundancy or sabbatical package, and the only criterion is that they don’t have to come back for two years-coincidentally, that will be around 2012-13, which will just fit in. So, we have valuable people within the PCTs and you’re actually giving them the opportunity to go off and do something else for two years, while all this reorganisation takes place, and then walk back in to plum jobs. Perhaps if you said to the PCTs that none of these packages will exist from today onwards, we might have an opportunity to keep the PCTs more stable for longer until we can get past the 2011-12 barrier.

Mr Lansley: Can I just comment, because there is a tendency to repeat a phrase that I don’t think is justified? PCTs across the country are not "in meltdown". They are delivering a continuing responsibility. Where financial control is concerned, as David has said-and as Richard would happily explain to you further-we are, if anything, expecting to retain stronger financial controls through the course of next year than we have done in the past, because we are in a very constrained financial situation.

Q378 Nadine Dorries: That is based on what information?

Mr Lansley: Let me just make this point. The point is, as David has quite rightly explained, that we know that we need to arrive rapidly at the point where the consortia are able to identify what sort of direct commissioning support arrangements they are going to need, and there will be staff in primary care trusts who will be appropriate and want to transfer to become part of that. There are people in primary care trusts who will want to focus on this transitional period of management, often in the larger clusters that David refers to, and who will want to be focused on that job but then maybe not transfer into the commissioning consortia. At the same time, other things will be happening, such as the transfer of public health responsibilities to local authorities.

We should not leave out of account here that as we go through this transitional process, we will be developing new forms of commissioning support to the commissioning consortia, whether that is in respect of shared back-office services or in relation to local authorities being able to offer more commissioning support through the management of pooled budgets, or in relation to the independent sector or people in primary care trusts coming together to establish new social enterprises that act as commissioning support organisations. That will create new opportunities for stronger commissioning support, and, frankly, in many respects, I think we will end up with the world that we are looking for, which means a stronger local sense of clinical ownership of the commissioning decisions being made, and very often economies of scale in the management of many of those support functions-financial control or purchasing, contract monitoring, risk stratification or back-office services-to enable those commissioners to do their job effectively.

Q379 Nadine Dorries: I’ll recast the question: do you have any idea of the number of PCT staff who this year have left or have taken this redundancy package in which they do not have to return for another two years?

Sir David Nicholson: You’re referring to the MAR scheme. That was a one-off scheme that we ran, which is closed now. It gave primary care and SHA staff the opportunity to leave-

Q380 Nadine Dorries: When did that scheme start?

Sir David Nicholson: I think it started at the beginning of August.

Q381 Nadine Dorries: It started at the beginning of August and you’ve closed it now. So you basically provided the PCT staff with a window through which to jump ship.

Sir David Nicholson: We’ve closed it, because part of the issue, to be frank, is that there are some people who want to go-they want to leave and they don’t want to be part of the new system-and we should help them to do it. Why have them sitting around? More than 2,000 people took the opportunity. It has cost us £40 million to pay them off, and it will save us £70 million next year and £70 million every year after that. By any of the measures that you want to use-public or private-that seems to be a very good return.

Q382 Nadine Dorries: Could you explain why? Why will it save you £70 million?

Sir David Nicholson: Because we won’t replace those people. They’ll be part of the management cost savings we need.

Mr Lansley: It’s very important to remember that all of this is in the context that if there was no White Paper, we would probably have had to have the same scheme, because we have to deliver overall a one third real-terms reduction in administration costs and substantially reduce the total management costs. We would always have had to look for that opportunity to reduce management numbers.

Q383 Nadine Dorries: That sounds incredibly sensible, but we still have a situation whereby, looking forward to 2011, we will have the pathfinder consortia, reduced capacity in the PCT and in delivery, and GPs, who have yet to decide where they will go and what they will do, standing back to watch how the pathfinder consortia organise themselves and learn from their problems before they decide to jump in. There will be a hiatus between 2011 and 2012-before 2013-when we will have a weakened capacity within the PCT, with some consortia wanting to get up and running and others standing back. That is a hiatus in any way.

Mr Lansley: I think that that is looking at it in the static form in relation to PCTs. We are looking for the capacity that we require in primary care trusts, not least, as David describes, by bringing together the management resources on a larger cluster basis to make that happen. The PCT’s job can be done effectively where it needs to be but, at the same time, we are looking to create the opportunity-literally the space and the opportunity-for the commissioning consortia to establish themselves and bring onboard the expertise they are looking for, which may be derived from the staffing of existing PCTs, but may come from elsewhere, such as the independent sector, local authorities or commissioning support organisations generally.

Q384 Nadine Dorries: Do you anticipate that the 2,000 people who left during the window of opportunity from August until now will be coming back in two years, which will be 2012-just in time for the consortia and the pathfinders? Do you see those people coming back then?

Sir David Nicholson: Can I just take the first thing? This was a scheme called the mutually agreed resignation scheme. It is not just a question of someone saying that they want to go; we have to agree that they are the kind of people who we can do without, in a sense.

Q385Nadine Dorries: So why did you only provide them with a two-year prohibition from coming back into the NHS? Why was it not, "Take this redundancy package, but you can’t come back and work in this capacity again"?

Sir David Nicholson: What, ever? Well, that is against the law.

Q386 Nadine Dorries: So why is two years okay?

Sir David Nicholson: It is not actually two years; it is a significantly shorter time than that.

Q387 Nadine Dorries: It just conveniently fits in at 2012, doesn’t it?

Sir David Nicholson: No; that is absolutely not the case.

Mr Lansley: You can’t deprive people of the potential to have a livelihood in the future; that is the point.

Q388 Rosie Cooper: So if it is not two years, how long is it?

Sir David Nicholson: Six months.

Chair: That is a normal commercial practice.

Sir David Nicholson: And if they come back in that period, they have to pay the money back. That is the way it works.

Q389 Andrew George: Secretary of State, can I ask you the "Come off it" question? You yourself have said that in order to achieve your objectives you have to achieve efficiency savings in both health and social care that are not only challenging, but unprecedented; that you have to defy gravity with regard to NHS inflation; and that you have to take on the Nicholson challenge at the same time as arguably a very significant reorganisation, which some might even say is like a nuclear device going off at the commissioning level. Are you asking us totally to suspend our disbelief that all this can be achieved? There has to be a level of plausibility. What can you say to reassure us that this is genuinely realistic, and that we shouldn’t inject your ambition-there is nothing wrong with ambition, and I admire it-with a degree of realism? When you add all those things together, particularly the year-on-year achievements that you are asking for in terms of efficiency savings-

Mr Lansley: The first thing is that it is an unprecedented level of efficiency savings and improvements in quality, but we are also starting from an unprecedented level of resources available to the NHS after a period when we have had declining productivity overall. All those things point to the potential. If you have a relatively high platform of resources to work from and you have had a decade of declining productivity, it follows logically that you have a more realistic prospect of delivering greater productivity in the years ahead than if you started with a relatively low level of spend when you had been increasing productivity.

The second thing I would say is on the same point about revolution and evolution. This is not a nuclear device going off from the point of view of most of the staff working in the NHS. Most of the efficiency gains that David’s QIPP agenda is talking about are delivered by redesigning clinical services in hospitals and in the community. It is simple stuff-well, not simple, but important and straightforward things-such as a productive ward and maximising staff contact with patients in a hospital.

What I am doing in the White Paper reforms doesn’t change any of that, but it gives hospitals overall greater autonomy to pursue those kinds of productivity changes. The tariff is driving best practice and efficiency. We are going to develop the tariff to do these things and it will be a powerful instrument to make it happen, but I didn’t invent the tariff. I didn’t start with practice-based commissioning; the previous Government started with practice-based commissioning. I think they should have done this many years ago; indeed, they intended for practice-based commissioning to take commissioning responsibilities, but they just by and large didn’t do that. Where they have done, I think we can see there is real potential ahead.

So, much of this is evolution. Seen from the perspective of GP practices, this is more to do with empowering them than changing the terrain around them. I have spent more time talking to general practitioners who have explained to me how the primary care trust is making the job they want to do harder, than to people who are sitting there saying "Oh, it’s the primary care trust that has really enabled me to do my job well." So we are in a position where, frankly, what we need to do is to keep the best of many of the processes that were set in train, whether it is patient choice, practice-based commissioning, the introduction of the tariff or greater autonomy for providers through foundation trust status. I didn’t invent any of those things. What I am doing-I make no apology for it, because I regard it as absolutely essential-is ensuring these things are done in a consistent and coherent fashion, not done piecemeal. If you end up, as has happened in the past, giving hospitals greater autonomy and a payment system that incentivises activity, you get a lot of supplier-induced demand generated by hospitals. You get a lot of that happening.

Q390 Valerie Vaz: What evidence do you have that what you’re doing is going to work?

Mr Lansley: There is a range of evidence. When you look at this country and at other countries, there is good evidence that clinician-led commissioning is more likely to impact positively on efficiency and benefits for patients. We know that there are two things at the heart of the comparative advantage, in efficiency terms, of the NHS relative to other systems. The first is that we have a taxpayer-funded system on a national basis, so we don’t have all the transaction costs of insurance, and we have no plan to change that, so we retain that level of efficiency. The second comparative advantage is the system of family doctor services. We are basing this on our general practice community, and-

Q391 Valerie Vaz: They don’t want it.

Mr Lansley: No, they do want it.

Valerie Vaz: No. Not the ones in my constituency.

Chair: That’s another commissioning discussion.

Q392 Andrew George: Secretary of State, we will be coming back to the issue of commissioning. There is certainly a very significant debate going on among the stakeholders, as we heard even at the weekend with the Royal College of General Practitioners’ comments about the proposal. We will be coming back to that.

In terms of the unprecedented efficiency gains from your proposals, it would be helpful to have a little more clarity in the narrative with regard to the distinction between cuts and efficiency savings. In other words, when is an efficiency saving a cut and when is a cut an efficiency saving? Is it dependent on who is explaining it to whom? If a lot of these decisions are being taken by GPs commissioning services, for example, but path labs in hospitals and doctor cover in casualty services, for example, are being removed-they are being removed from one of the hospitals in my constituency at present-is it appropriate to describe those as budget-driven, or should they use some other language to describe those kind of changes?

Mr Lansley: I think we do know the difference between an efficiency saving and a cut. A cut is where you actually deprive the patients of the service that you were previously providing to them. That is the difference, and that’s not what QIPP is about. QIPP is deliberately designed around the proposition that we are going to increase quality and deliver greater efficiency by the use of innovation and prevention to deliver an overall rise in quality and productivity.

Productivity only captures a sense of doing the same thing with fewer inputs. We’re looking not only to carry on doing the same thing, but to increase the quality of what we do by changing the design of what we do: for example, we have much more prevention, so that we have fewer people having to be admitted to hospital. Productivity would just be letting them all come to hospital and treating them more efficiently to show an increase. We are interested in trying to ensure that the design of what we do changes the character of what we do in a way that delivers better outcomes. That’s what the QIPP agenda is about.

Q393 Andrew George: What will you be doing to discourage GPs from referring patients to hospital? Will you be fining them for inappropriate admissions? What other mechanisms will be used?

Mr Lansley: We will come on, perhaps when we talk about people, to what the commissioning framework looks like, but it is a framework of outcomes. It’s a very simple proposition. We are saying to the commissioning consortia that they have a budget, within which they have to live, and they will be held to account for the outcomes that they achieve. They will have a direct incentive, including a corporate incentive, to deliver improving outcomes within a finite budget.

Chair: Rosie, I think you were going to talk about surpluses among other things.

Q394 Rosie Cooper: Secretary of State, you just commented that the NHS has had unprecedented resources. Am I hearing you tell the NHS that they’ve never had it so good? The House of Commons Library has produced some figures in a table of NHS expenditure in England. Would you like to comment on the figures that show that real-terms change in NHS expenditure actually reduces from 7.1% in 2009-10 to absolutely nothing in 2014-15, and that NHS expenditure per household reduces from £4,511 in 2009-10 to £4,297 in 2014-15?

Mr Lansley: No, I would prefer not to have words put in my mouth. The point I made-I would have thought that you would be keen to make this point-was that we start with a level of resources for the NHS that is far in excess of what it was, in real terms, in the past. The NHS, over its whole lifetime, has seen, on average, above 4% real-terms increases each year. In the recent past, it has been in excess of that 4%. That takes us to a position this financial year in which the NHS has a level of resources greater than it has ever seen in the past. My point, since you are talking about what the spending review says, is that those resources are going to go up each year. They are going to go up in cash and in real terms. They are going to rise for the NHS overall from £103.7 billion in 2010-11 to £140.4 billion in 2014-15.

Q395 Rosie Cooper: And the real-terms change is down to nothing.

Mr Lansley: The resource available to the NHS-the revenue expenditure limit-will rise by 1.3% in real terms.

Q396 Rosie Cooper: The real-terms change shown here for 2014-15 is absolutely flat.

Mr Lansley: The revenue increase for the NHS over four years is 1.3% in real terms, accumulatively expressed over four years. That is an arithmetical fact. If you take the numbers and calculate them against the GDP deflator, it is a 1.3% increase overall.

Rosie Cooper: Okay, I’ll probably come back to that.

Q397 David Tredinnick: Secretary of State, you mentioned the prevention strategy. Will you be looking at the issue of diet and the quality and quantity of food that people eat? There are some very interesting studies. For example, the China study-I forget the name of the book’s author-shows that the arteries of people who cut back on fats actually de-fur. We can do a lot to manage health care through diet, but I don’t think that has happened, certainly not over the past 13 years-not that I am trying to make political points. I think there is a great opportunity here. Would you like to just comment on that?

Mr Lansley: I believe in the proposition that people should have all the information and support necessary to help them to have a good diet. I will not disguise from you that, fundamentally, people must take responsibility for their diet. But we can help them more. The Foresight report on obesity was published about two and a half years ago and said that we live in a more obesogenic environment, by which it meant a number of things, including the fact that far fewer people work in manual labour and have high levels of calorie outputs and so on, but that some of our dietary behaviour is still geared to that recent past. It also meant that we have relatively inexpensive energy-dense food available to us.

What we have to do collectively-this is where the responsibility deal is working to bring forward proposals and action-is ensure that we do more nationally, across Government and the private and independent sectors, to try to ensure that people can access the foods they want with the tastes they want and the enjoyment they want from their food while consuming less saturated fats, sugar and salt in order to try to improve their diet overall. But the problem will not be solved without people themselves becoming more aware of what is in their food, which is one the reasons why-I have been very keen about this-we are also looking at, through the responsibility deal, the question of out-of-home calorie labelling. It is all very well having calorie labelling on foods that are available on your supermarket shelf, but if a third of meals are being taken out of home and there is virtually no calorie labelling on those, that is a major gap in people’s ability to be able to understand literally the quantity of food they are eating and to try to manage their diet themselves. If we can make progress on all these things, I hope we will do so rapidly. We will say more about that in the public health White Paper soon and in the responsibility deal in the New Year.

Q398 Chris Skidmore: I’d like to return to public expenditure and efficiency savings. You mentioned the need for them to be consistent, but coherent. I entirely agree with that statement. What I am interested to know is how the savings will be monitored over the controlled period. For instance, will we see a consistency of £5 billion one year, £5 billion the next and £5 billion the next? Is that possible or could we get into a situation where suddenly all these savings are dumped into the final year of the efficiency savings round? How will that be monitored? Will the public be able to monitor it themselves? Will access to information be available?

Richard Douglas: I’ll let David say something about the monitoring, but in terms of the scheduled efficiencies, they can’t all be pushed back to the end of the period because it is essential that we have them in a steady way to fund the demand question. Because they are a way of funding the demand in the system they are spread relatively evenly over the spending review period. But David might want to say a little bit more about monitoring and reporting.

Sir David Nicholson: We have a system in which, although we set out the expectation centrally, each individual organisation then draws its own plans together. We are just about to kick that off. By the end of March we will have a plan for every organisation in the country which sets out staffing levels, money, quality indicators-a whole series of things for that. That is the gist of what we are talking about. All of that is in the public domain. In terms of the way that we are going to deliver the savings, Richard is absolutely right. Our views are that the demand is not going to be lumpy in the way that it comes out. It’s going to be relatively constant. That is the history of how it has worked in practice, therefore the efficiency gains need to be in that kind of way.

Q399 Chris Skidmore: This obviously kicked off before the coalition Government came in. So could you tell me how far we are into the £15 billion now? What are the savings so far?

Sir David Nicholson: We don’t start counting them until next year but we had to deliver 3.5% this year, which we have delivered so far. It starts next year. If you look at those savings, about 40% of them will come from essentially a mixture of things which are much more under our central control. So, for example, the pay savings, the management costs savings, the administrative cost savings, the savings on central budgets of the Department-all of those things-come to about 40% of the total savings. That is reported out and we can look at that. The second group of savings-about 20%-come from service change. So that is the thing I talked about; the movement from secondary to primary care and that sort of thing. The third lot is about 40%, which is the savings you get through the tariff in the acute sector, so driving efficiency in hospitals. What we plan to do is to set out the matrix and the milestones for that in December and then every quarter, we produce something called The Quarter, which will measure how effective we are nationally across all of those for each of the quarters as we go along. So it will be transparent and for public view.

Q400 Chris Skidmore: You mentioned the 20% that is related to primary care. I also note that the QIPP programme had to be delayed by you as a result of the White Paper and recalibrations. Is that not the case? Originally full efficiency savings were going to be due in 2013-14. That has now been extended to 2014-15.

Sir David Nicholson: When we originally talked about QIPP, we were talking about two things. We were talking about a three-year time scale from 2011-12 onwards, but we were also talking about our assumption, which at that stage was that it would be flat cash, not flat real. So we are having to redo our numbers based on the CSR, in particular, because there is a different set of analyses. But the fundamental changes we have asked people to carry on and do anyway.

Q401 Chris Skidmore: So moving from flat cash to flat real, how has that impacted on the changes?

Mr Lansley: If you had an assumption that the overall settlement would have been flat cash, then the relationship between the available resources in the NHS and the level of demand would have been more extreme and more urgent. The pace at which, in order to respond to rising demand-indeed, for that matter, the time you were doing this, David, was before the pay freeze as well, wasn’t it?

Sir David Nicholson: Yes.

Mr Lansley: The pace at which you would have to implement efficiency savings in order to cope with rising demand would be more urgent and more extreme. To that extent, we are asking for the same level of efficiency savings, but in a context where the financial settlement is in a much stronger place to respond and deliver better outcomes against-

Q402 Chris Skidmore: Just to clarify this, on what the CSR has actually allowed for in terms of the rates of efficiency savings or cuts-whatever you want to call them-the cuts would have been more severe under the previous Government, pre-CSR. The CSR is actually mollified terms.

Mr Lansley: I can’t, of course, speak for what the previous Government’s intentions would have been.

Q403 Chris Skidmore: But those cuts were already set out four years ago.

Mr Lansley: What we are asking, as you will have gathered, is about as challenging as anybody could reasonably expect to be.

Q404 Chris Skidmore: It would have been deeper under the previous Government.

Mr Lansley: That’s the numbers on the page. Whether it could have been done is another matter.

Richard Douglas: The difference in the number of years is largely down to presentation. We now have a four-year CSR settlement, where originally, when we kicked the QIPP off, we were planning for a three-year CSR settlement. So we then automatically run the efficiency programme across a different period. I think the years thing is purely a-

Q405 Chris Skidmore: Sir David, you’ve talked about it being extraordinarily challenging. Do you feel that having that extra year in place as a result of the CSR will allow you to deliver those challenges?

Sir David Nicholson: There’s no doubt. When we talked about it being flat cash, that wasn’t in reference to the Government. In a sense, it was an assessment that we made-the people responsible for managing the NHS, looking at what was happening in the world and all the rest of it. It wasn’t that the Government told us to do it; we decided that that was a good place for us to start, partly because we know from the last time the NHS got itself into financial difficulties that one of the real criticisms was that first of all, we only delivered 70% of what we said we were going to deliver in terms of savings. It’s worth slightly overshooting in the first instance to make sure you deliver.

Also, things were done on a very short-term basis as a response to, in a sense, a financial crisis. We were determined that we would plan our way into the new arrangement to give us that chance. There’s no doubt that the position of a flat real and being able to handle the arrangements over four years make it more manageable, but that’s not to underestimate the massive challenge-

Q406 Chris Skidmore: But in a post-CSR world, you’re more confident?

Mr Lansley: Since 20 October, I think it’s fair to say that this has created a much greater sense of certainty across the NHS about the financial situation they’re going to be in. From the point of view of delivering the QIPP agenda and the level of internal savings that are required, that has been a real confidence-building situation. Everybody across the service charged with doing this is now no longer working on pieces of paper, as in the past, where they had to make savings but they didn’t know whether those savings would be available. If they had been, for example, flat cash rather than flat real, a significant part of those savings would have been required simply to respond to some of those underlying cost pressures before they could ever think about reinvesting to meet demand.

Where we are with flat real-in fact, slightly better than flat real-is that we are in a position where every part of those QIPP savings can now be reinvested. I think, from the point of view of clinicians across the service especially, this is an extremely positive situation for them to be in. I shouldn’t underestimate-I am acutely conscious with my colleagues across Government-that we are in a very advantageous position relative to the rest of the public sector. We are asking people to deliver 4% efficiency savings each year. There are many places across the public services where they are being asked to do more than that. But we’re doing it in circumstances where we know that every penny of those savings can be reinvested within the NHS, within that overall protected budget, in order to deliver improving services and better outcomes. I think that is a tremendous incentive in the service to deliver the agenda.

Chair: Rosie, you were going to ask about services.

Q407 Rosie Cooper: My apologies. On reinvestment into the NHS, foundation trusts have got a surplus of between £2.5 billion and £3 billion. On 9 November, Peter Carter of the Royal College of Nursing asked for those surpluses to be distributed to parts of the system that were struggling. Do you think it’s justified for trusts to be able to retain those large surpluses when other parts of the services may be struggling to cope? Could I also quickly look at end-of-year flexibility? By surrendering the existing £3.5 billion of end-of-year flexibility stocks, we are giving up efficiency savings that were made in previous years, to the detriment of the NHS. Would that be a disincentive to make further savings?

Mr Lansley: Foundation trusts have autonomy to manage themselves and, not least, where they generate surpluses, to reinvest them for the benefit of those services in the future. To that extent, if we didn’t allow them to do that, they wouldn’t be able to improve services. We’re looking to all other NHS trusts to convert to foundation trust status. Frankly, from their point of view, they would be looking toward foundation trust status as offering precisely that kind of opportunity.

I might say that, at a very basic level, Monitor, as the independent regulator of foundation trusts, has a responsibility under the legislation to set criteria for the level of surpluses that FTs have to retain. That, in itself, would require them to retain surpluses of the order of maybe £1.5 billion or thereabouts. The surpluses are in excess of what is strictly required, but if you talk to any foundation trust, they will tell you that they have often generated those surpluses in expectation of using them in the future to generate improvements in services and to make sure that they can protect services for the future.

On end-of-year flexibility, I’m not quite sure I understand the point you’re making. In recent years in the NHS, when surpluses have been generated, it has been possible, by virtue of the Department of Health’s management of the departmental expenditure limit as a whole, to retain and reinvest them in the NHS, and that continues to be the situation. The Treasury’s approach in ending end-of-year flexibility is, strictly speaking, a reiteration of the practice, from our point of view, that it has always applied.

Q408 Chair: Can I be clear about that, Secretary of State? I have two questions. First, the surpluses already held by trusts are completely unaffected by any rules about end-of-year flexibility. Is that correct?

Mr Lansley: As far as we are concerned, we are operating on the basis that we have applied in recent years, which is that we are enabling NHS organisations that have a surplus at the year end to carry that forward into the following year as a result-thank you Mr Douglas and his colleagues-of the management of the departmental expenditure limit as a whole.

Q409 Chair: Does that include PCTs carrying forward surpluses as well?

Richard Douglas: Yes.

Q410 Chair: Throughout the health service, any NHS institution that believes it has a surplus can plan with confidence on the assumption that it will be available?

Mr Lansley: It is not whether they believe in an assumption; it will be an established fact or otherwise, won’t it?

Q411 Chair: Exactly. So those facts haven’t changed?

Mr Lansley: No.

Chair: Good. Thank you.

Q412 Yvonne Fovargue: I’d like to return to the outcomes. Let’s bring it down to the practical level. Two patients require hip replacement operations. We hope the outcome is that they have a successful hip replacement operation. Patient A has to wait 10 weeks. Patient B is waiting 20 weeks. How will they know that there are different waiting times? Will there be any targets for waiting times, or will it be a postcode lottery? Also, how will you measure patient satisfaction?

Mr Lansley: I will not go on at length about the outcomes, because the Committee will have seen the consultation on the outcomes framework, but patient experience is one of the five domains under the proposed outcomes framework. Actually, there is very poor measurement of patient-reported outcomes and patient experience in the NHS, and we intend to improve that, so that will form a specific part of our approach. I agree with you; I think patients should, when they choose, as they should be able to, where to have their hip replacement operation, have information that enables them to make that choice. From talking to patients and clinicians, I know that the choices that people make will bear on how long they have to wait, and they should be able to see the performance of a number of hospitals in that respect. However, their choice might also bear on who their consultant and the team responsible for their care will be. They might be having a second hip replacement and they might want to have the same surgeon as in the first hip replacement. Those are the kinds of choices patients should be equipped to make, and we are going to provide for that through the information strategy and patient choice. That was all in the consultation documents that we published at the beginning of October.

Q413 Yvonne Fovargue: Will you publish the average waiting times?

Mr Lansley: I have made it clear that, from the patients’ point of view, we want to use information to enable their exercising of choice to drive continuous improvement in the future. To that extent information such as referral-to-treatment times should be published, and that should be a basis upon which patients can exercise choice. That will drive improvement on the part of the providers.

Q414 Yvonne Fovargue: In what format will that information be published? Will it be for the consortia? Will it be for the local authorities?

Mr Lansley: No, the providers. In the particular instance of referral-to-treatment waiting times, I hope that we will arrive at the point where not only do we have aggregate waiting times, but, from the patients’ point of view-your example of hip replacement operations is a good one-they can look at particular hospitals. Forgive me, but what is your constituency?

Yvonne Fovargue: Makerfield, near Wigan.

Mr Lansley: So patients could look at Whiston hospital, or they could look at Warrington hospital. They could look at a range of data.

Yvonne Fovargue: Wrightington hospital.

Mr Lansley: Wrightington. They could look at those hospitals and ask, "What’s the waiting time? If I were to book with you, how long should I expect to wait for my hip replacement operation compared with somebody else?" Such information should be disaggregated and available.

Q415 Andrew George: I want to go back to the costs of reorganisation and, I am afraid, back to the implications of the White Paper. Professor Kieran Walshe suggested in his evidence to the Committee that, based on the figures that he looked at, the costs were somewhere between £2 billion and £3 billion. Your Minister, Simon Burns, said in the debate last week that the 2% service transformation, which was originally budgeted by the previous Government, would be sufficient to cover any transformational costs of reorganisation. Is that correct?

Mr Lansley: On the latter point, Simon was saying that for this financial year the previous Government, using the operating framework that was published last December, made provision for 2% non-recurring costs. So the mutually agreed resignation scheme was funded from that. The total set aside for non-recurring costs across the service as a whole was £1.7 billion, so it would be erroneous to think of that sum as being entirely directed towards redundancy costs. There are many non-recurring costs involving positive service improvements, such as developing community services at the same time as one is redesigning services across hospitals, and so on.

Going back to the point I made earlier, whatever happens we will have to reduce the administration and management costs. That will entail redundancies, and we’ve made it clear that we estimate the costs associated with that to approach £900 million in total. Beyond that, as we discussed earlier, the White Paper involves the transfer of primary care trust staff, and so on. To the extent that they are transferred elsewhere, that doesn’t entail redundancies; to the extent that they are not able to transfer elsewhere, it may entail redundancies. We simply do not know, so we are not disguising some figure from you. We do not know the conclusions of the emerging commissioning consortia on the nature of the required transfer of staffing.

Q416 Andrew George: So at the moment your plans are based on a median estimate of somewhere between your best estimate and the worst possible outcome?

Mr Lansley: No, I don’t think I am saying that. I think I am saying that we know, pretty much, what we need to do in order to reduce the management costs. That would happen anyway.

Q417 Andrew George: If you’re uncertain about the consequences of the changes and they are being implemented in 2013, what about monitoring? If you are saying that you already have both the pathfinder consortia and some indicative patterns from the staff working in PCTs, you are getting an idea, as things are proceeding, about the consequential costs of the reorganisation. Are you likely to monitor those costs and share that information?

Mr Lansley: It is fair to say that we will know; we are proceeding at a considerable pace where this is concerned. We are literally-July, August, September, October-we are four months on from publication of the White Paper, we’ve completed a full three-month consultation and we will publish shortly the response to the consultation. I have to say that it was a really fabulous response; there were several thousand responses, many of which made really good points. We are working through that, and we are just on to the consultation.

As David rightly said, that will go alongside the human resources framework and the operating framework. In a matter of weeks, they will give the service a great deal of definition about the nature of these transfers of responsibilities. The pathfinder consortia do not yet exist; they need to come forward. I can’t tell you how many will come forward, but that will give us greater shape as well. People in most parts of the country will increasingly be able to see, either in their own area or by extension from elsewhere, and within the overall framework, what the nature of the transfers of responsibilities will look like.

Q418 Andrew George: On the point about the commissioning consortia, you say that you do not know what number there will be, but will it be greater than 152?

Mr Lansley: Pathfinder consortia?

Q419 Andrew George: Pathfinder and ultimately the GP commissioning bodies.

Mr Lansley: I am sorry, but I really think it is better for me not to venture any thoughts on how many commissioning consortia there will be. I have been in places such as Northamptonshire, where the Nene Commissioning consortia propose taking responsibility for the whole of Northamptonshire. I have been in Runcorn, and the GPs there wanted to be responsible for Runcorn, which is about 70,000 patients. There is considerable variation. To that extent, I think it would be misleading and probably directly unhelpful to consortia, making what ought to be their own decisions based on their circumstances, for me to express a view on how many there should be.

Q420 Andrew George: And you don’t take a view about whether there is an optimum population level?

Mr Lansley: I think that the consortia are perfectly capable.

The point that I made earlier, which I shall come back to, is the erroneous assumption made by some commentators that the size of a commissioning consortium, if it is too small, necessarily precludes economies of scale. The point that I was making earlier is that there are many opportunities for the commissioning consortia to realise economies of scale in support for commissioning, because of the nature of the commissioning support arrangements that they enter into-whether it’s with local authorities or national bodies, the independent sector or other bodies-and to set up commissioning support arrangements that they can tap into.

Chair: We are being tempted further into a discussion of commissioning, with only eight minutes to go until the deadline.

Q421 Dr Wollaston: On commissioning groups, in evidence we heard that one of the few times that the NHS managed to save money was when it reduced down to 152 PCTs. Are you worried, if there are too many consortia, that we will lose that? Another way to save money is to have co-terminosity, so that we can have close working with local authorities and integrated health care. Would those two issues be considerations?

Mr Lansley: May I ask Richard to make a point about the first point that you raised? As for the second, on co-terminosity, it is open to the GP-led commissioning consortia to decide on their boundaries. Even if they do not so determine, and I imagine that in Devon they may well conclude that they don’t want a single Devon-wide commissioning consortium, if they conclude for example that they don’t want that, it doesn’t preclude them commissioning on the basis of services that are Devon-wide-for example, just as the GPs in Devon come together through Devon Doctors to have what effectively is a Devon-wide out-of-hours service. They can commission for services that are co-terminous with local authorities.

Q422 Dr Wollaston: But some decisions have been made on the basis of issues such as historic debt. We see practices not wanting to join together in certain consortia because of concerns about historic debt. There are all sorts of other issues.

Mr Lansley: We are four months down from the White Paper. We are just inviting the pathfinder consortia to establish themselves. It is probably premature for the commissioning consortia to consider such issues. They should simply consider, "How do we think that we can collectively best work together, in order to structure our consortium to meet the needs of our patients, delivering the services we want-whether it is because we focus on our very narrow locality, or because we get together on a much wider locality, related for example to the catchment populations of individual health care providers, looking at Torbay hospital or at Wansford, and saying we want to group around that?"

Those are the sorts of issues that I think they should first concentrate their minds on, rather than saying, "We can’t have a practice from over there, because they will come with that PCT’s debt", because in 2010 we are nearly two and a half years away from the point where they would take any legal responsibility.

Q423 Dr Wollaston: Would you be able to give them some reassurance about the issue of historic debt?

Mr Lansley: We will say more about these issues in the operating framework and beyond.

Richard Douglas: Just to say, these issues relate to the number of organisations. When we halved the number of PCTs, we saved about £250 million and we lost that saving within about two to three years-the costs were back up within about two to three years. The big difference this time is that we will be setting administration cost limits for the commissioning partner system, so it will not allow the costs to go up. We never set that limit before.

Also, most of the savings that we made last time around were from reduction in governance structure. Frankly, if you’ve got 150 organisations, and the relatively large boards and support structures that went with them-you multiply that by 150 and you get to quite a large number. If you come with organisations that, in structural terms, are quite light at the top, you don’t have the same problems about the number of organisations and their costs as we did with PCTs.

Q424 Chris Skidmore: I wanted to bring the discussion back to administration costs and the 45% figure. Is that entirely coming out of redundancies, or is there scope that there could be a reduction in salary levels? The public are obviously rightly concerned that you have many officials in the NHS on very high salaries and Sir David is the second highest paid public official, on between £255,000 and £259,000 a year. Do you think your salary is too high a due to pick up?

Chair: With respect, I don’t think this is a salary negotiation. I think that that is-

Chris Skidmore: No, but obviously in terms of-

Chair: I have not before ruled in the Committee that a question is out of order. I am not sure if that question is out of order, but I think it is ill-advised, if I may say so.

Mr Lansley: Well, I think he’s worth it.

Q425 Chris Skidmore: In terms of the salaries, regardless of individual circumstances-

Mr Lansley: How do we make the savings? We will make the savings by reducing the numbers of managers. I am afraid that I don’t have the numbers in front of me, but I think that, in about the last eight months, we have already reduced the number of managers and senior managers in the NHS by about 7% or 8%-something of that order. Don’t quote us, but it is of that order.

That is completely contrary to the previous experience. The number was rising by something like 10% or 15% a year in preceding years. There was a massive increase in the number of managers. We have had a period since 1997 when the number of managers has doubled. So we are going to bring them down. This is part of an unambiguous intention on our part that we will focus resources on clinical staffing rather than on administration, and back-office and management staff.

The quality of managers and senior managers in the NHS is absolutely critical, but too often in the past PCTs in particular resorted to quantity rather than quality. We are looking to retain quality and that comes back to some of the issues that we discussed earlier about ensuring that quality managers in the NHS recognise that they’ve got a future. There will be some natural wastage, there will be people who choose to leave, and there will be people who we want to keep and who we will retain.

We will focus on quality and nobody in the NHS in managerial terms at the moment is expecting, as a consequence of the pay freeze, to see their pay go up. We are not in the position of arbitrarily imposing pay reductions on people. I hope that people in the NHS in future, including managers as well as clinicians, will feel that they are appropriately and properly rewarded.

Chair: On that note-with one minute to spare-I want to thank all three gentlemen for coming and giving evidence this morning and I look forward to meeting the Secretary of State and Sir David again in about a fortnight’s time. Thank you very much.

©Parliamentary copyright	Prepared 13th December 2010