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Baroness Hayman: That has to come as part of the overall budgeting which looks at developments that are likely to take place, not only for drugs but for any other extra potential demand on services. As the noble Baroness will be aware, when AIDS and HIV hit the scene, the costs at first incurred were not particularly drug costs but hospital admission costs. Later the situation developed into more of a demand on the drugs budget.

Of course there is no absolute certainty. We are providing within a unified budget some flexibility for meeting the sorts of demands which may arise. We hope that the establishment of more national standards and the horizon scanning to be carried out by the national institute for clinical excellence with regard to when new drugs will come on to the market will be allowed to feed into the process of forward budgeting. The reason for increasing the NHS budget as much as we have is a recognition that there will be extra demands on the service and on the new services we want to provide.

In-year indicative budgets can be varied during the year if unforeseen and new costs arise. As to risk, the PCTs will carry through their risk-sharing arrangements with other PCTs and health authorities. There will be no great difference in the problems caused by a demand which may suddenly arise--to which the noble Baronesses have rightly referred--in this set up than in any other. But there is more of an advantage in bringing them together and not artificially separating out drug costs from any other costs.

9.45 p.m.

Earl Howe: I am still a little confused. It seems that two options are available here. If the unified PCT budget is set at such a level as to cope with all calls upon it for prescription medicines, it will be much too high for general purposes. If that happens, it can lead only to wastefulness because GPs will not be as cost conscious as they should be. If, on the other hand, the budget is set at an otherwise realistic level, there is a risk of the money running out. So I am not quite sure which option we should expect.

Baroness Hayman: The risk is of the indicative money rather than the real money running out. The risk is that the indicative sum is not correct. Because it is indicative it will not be certain that it is right. It is important that we have an indicative budget because we want to encourage GPs and other primary care practitioners to prescribe sensibly and cost effectively for the benefit of all patients. PCTs will monitor prescribing by their constituent practices to ensure that they are clinically effective and cost effective and that the maximum benefit to patients is obtained from the funds available. Practices will monitor their own prescribing both for financial purposes, which has been

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the subject of this debate, and to further clinical governance. Bad prescribing can be not just under prescribing but incorrect prescribing. Primary care trusts will be provided with a range of budgetary and performance management information to enable them to compare the performances of their practices.

What we are doing in the form of the guidance that we are giving and the assistance that we are putting in through, for example, computer-based prescription decision support systems like PRODIGY, will encourage a responsible use of indicative budgets. But there is built-in the flexibility both between other areas of expenditure within the practice and within the primary care trust if drug costs are higher than are expected in the indicative budgets, and flexibility is also built in if the primary care trust overall overspends in terms of what can be done by the health authority to cope with that at end year.

Lord Clement-Jones: I thank the Minister for taking us through this area. I feel as though I have been through a seminar on NHS finance speak. I am not sure whether I should have opened the door marked "finance". Perhaps we should have had a two-hour debate on the subject.

I welcome some of the Minister's assurances. It is rather ironic that this is an absolutely crucial aspect for PCTs and GP practices, but nowhere is it set out in the Bill. In a sense the value of this debate has been to flush out the Government's plans in that respect and to understand some of the terms which they are using. Of course at GP level it is important for GPs to be financially prudent in the way they operate their practices. PRODIGY, NICE and so on will have a major impact on their practices. I welcome the fact that they are to be indicative budgets as opposed to fixed budgets. However, there is huge faith that, because in a sense the PCT will be 50 or so GPs in total covering 100,000 patients, the swings will match the roundabouts. When it comes to the next level, when we talk about the cash-limited unified budget, will it have the flexibility to meet all those needs? Some of those issues have arisen in this debate. I cannot say that the current system as described by the Minister has any advantage over the system that pertains at present, whereby the health authority has a greater degree of flexibility, as I understand it, than the PCT will have in the future.

Baroness Hayman: I understand the difficulties of definition in terms of prescribing costs. This is a new area and there will be a change when we introduce unified budgets. We plan to bring forward at a later stage a government amendment to refine the definitions of prescribing costs that will be included in the budget of a given health authority or PCT. Perhaps at that point we may return to this issue. If it is done at an earlier point in the evening, perhaps I shall be clearer in my seminar giving. Neither the existing clauses nor the government amendment will allow cash limits to be imposed on individual GPs and their prescribing.

Lord Clement-Jones: I thank the Minister for that final clarification and for the confirmation that this

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matter will be reconsidered on a government amendment, although the form of that amendment is not clear at this stage.

Although the unified budgets are to be cash-limited, the Minister qualified that by saying that if a body found itself with problems of overspending, there would be some mechanism that would mean that it would not suffer. It was not clear whether that was temporary and whether the overspend would eventually have to be paid back. It would be useful at a future date to clarify what that emergency mechanism would be and how paying back the overspend would be dealt with. Greater clarification by letter or in some other form to medical practitioners would be enormously helpful. If we are uncertain, let us think how much greater is the uncertainty outside this Chamber about a matter that is crucial to the welfare of GP patients. To that extent it has been valuable to open the box marked "finance". I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 3 shall stand part of the Bill?

Earl Howe: The Committee can relax. I have absolutely no intention of opposing the Question that the clause stand part of the Bill. I merely wish to ask the Minister a couple of questions about the clause.

The first relates to the powers of the Secretary of State to earmark funds for particular purposes and to direct PCTs to apply those funds for those purposes. It is a way of ring-fencing money. Will those powers of direction have the force of law?

Secondly, given that the new clinical governance arrangements, and particularly the guidance from NICE, will send GPs and clinicians down the desired channels, in what kinds of situation might the Secretary of State direct a PCT to use its money in a certain way? In other words, in what kinds of circumstances will priority-setting at a national level override the priorities that are set at a local level?

My final question concerns the provisions relating to asset sales. As I understand it, the Secretary of State may give directions to primary care trusts to pay back sums to health authorities that arise from the sale of assets or other charges payable to the trust in respect of assets that it holds. Am I correct? If I am, does the Minister agree that that could create a perverse incentive? Trusts might be reluctant to make proper and efficient use of assets, knowing that any extra revenue they received could be clawed back by the health authority, which could then presumably use the money on anything that it liked.

Baroness Hayman: In response to the noble Earl's last point, I understand the issue that he raises about a perverse incentive. The clause also brings primary care trusts into the capital charging regime of the NHS and the payment of capital charges on assets owned by NHS bodies provides an incentive for efficient asset management.

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The noble Lord asked me whether when the Secretary of State makes directions under this clause they will have the force of law. Yes, they will. But the circumstances in which specific directions will be made would, I assure noble Lords, be exceptional: for example, the out of hours development fund and possibly particular funds that are allocated to deal, for example, with winter pressures over a difficult period. We would not look at those directions as a means of enforcing the national guidance on national service frameworks or the advice that came out of NICE. The mechanisms of spreading good practice, clinical governance and reporting back to the commission for health improvement are the way in which we will test how local bodies adopt national advice. It is not envisaged that these powers of direction would be used in those circumstances. There will be much more limited and focused areas where ring-fencing was considered necessary.

Clause 3 agreed to.

Clause 4 [Primary Care Trusts: provision of services etc.]:

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