National Health Service Landscape Review - Public Accounts Committee Contents

2  Managing the transition to the new model

10. The reforms proposed will in the short term mean extra costs to the NHS from staff redundancies and reorganisations, but in the long run the Department expects that they will produce a 33% per cent reduction (from £5.1 billion to £3.4 billion) in the administration costs of the Department, its arm's length bodies and the commissioning organisations.[18]

11. The Department currently estimates that the direct cost of the changes will be £1.4 billion, which will be incurred mainly in the financial years 2011-12 and 2012-13.[19] The King's Fund has estimated that these costs may be higher, between £2 billion and £3 billion.[20] Over ten years, the Department's impact assessment, published alongside the Health and Social Care Bill, estimates that the direct benefits of the reforms will be £11.8 billion and direct costs £2 billion.[21] The Department expects that its spend on consultancy and interim staff will go down at the same time as the change programme is delivered.[22] The Department said it would monitor all the costs of transition and we intend to hold the Department to account for the costs on a regular basis.[23]

12. The Department's estimate of redundancy costs of around £1 billion - accounting for the majority of the £1.4 billion direct costs of the changes - depends on the extent to which GP consortia choose to use existing Primary Care Trust (PCT) staff to provide commissioning support. The redundancy bill will increase if GP consortia decide to make greater use of private suppliers or other third party sources of commissioning support than the Department's modelling assumes.[24]

13. We asked the Department whether it was confident it would achieve the planned efficiency savings of up to £20 billion, which were announced before the reform programme. The Chief Executive of the NHS told us that the first 40% of the savings would come in areas such as the pay freeze, reductions in central budgets and the delivery of management cost savings on which the Department had a "national handle" and he was "pretty confident" they could be delivered. The next 40% of the savings were essentially the delivery of efficiency gains in the provider arm, which would be delivered by setting the tariff with a 4% efficiency gain for next year. The remaining 20% of the savings were around service change, such as shifting services from hospitals to the community, and would be the most difficult to achieve.[25]

14. The Department has not yet worked out how the NHS Commissioning Board will be structured in order to commission both national services and the primary care services provided by 8,500 GP practices.[26] The Commissioning Board would have management tiers between the national Board and the local consortia, but the Department could not yet say whether this would be a regional structure. The King's Fund considered that there would need to be four to five regional commissioning offices.[27] The Department has decided to keep existing accountability arrangements and central controls in place during the first year of the transition process, the financial year 2011-12.[28] There will be 50 clusters of Primary Care Trusts. On 1 April 2012 the GP commissioning consortia will become accountable to the Commissioning Board.[29]

15. The Government wants all hospitals to become Foundation Trusts by 2014.[30] To that end the Department is working out a trajectory, with the Strategic Health Authorities, to achieve this. But around 20 of the some 120 organisations that are currently not Foundation Trusts will not achieve that status and other options need to be worked out in the coming months. These options include demerger, splitting up organisations and moving them to different places, takeover by existing Foundation Trusts, or the model proposed at Hinchingbrooke Hospital where a franchisee is expected to be appointed to run the hospital.[31] Some trusts have substantial PFI debts. The King's Fund believed some way will need to be found to write these off.[32] The regulator, Monitor, will in its new role have responsibility for ensuring that 'designated services' continue to be run, making sure that patients have access to services.[33]

16. We asked the Department about its plans to provide an 'operationally independent banking function' to Foundation Trusts including making repayable loans when there is a reasonable expectation that they will be repaid. The Department told us that the purpose of this proposal was to regularise what happens at present and to put it on a more transparent basis. Providers could seek a loan from the Department or from the private sector. The details of the Department's scheme were still to be worked out.[34]

18   C&AG's report para 3.6, Qq100, 101 Back

19   C&AG's report para 3.8, Department of Health Coordinating document for the Impact Assessments and Equality Impact Assessments, Health and Social Care Bill 2011 (para 56) Back

20   Q283 Back

21   C&AG's report para 3.9 Back

22   Qq 110, 111 Back

23   Qq 206, 207 Back

24   Q199 Back

25   Q127 Back

26   Q104 Back

27   Q249 Back

28   C&AG's report para 3.17 Back

29   Qq 105, 106 Back

30   C&AG's report para 2.18 Back

31   Qq 87, 88 Back

32   Q90, 270 Back

33   Q41 Back

34   Qq183-188 Back

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© Parliamentary copyright 2011
Prepared 27 April 2011