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Lord Clement-Jones: May I thank the Minister for that reply. I appreciate what he said, but still feel that the clause as it stands is still somewhat unbalanced. It seems to be all "sticks" so far as the under-performer is concerned, and there are inadequate "carrots". I suspect it is a somewhat lopsided situation and it may be that the Minister may be able to make a case, himself, for giving cash and resources to under-performers, rather than going through brokerage, and so on. That would of course inevitably add to the costs of the local authority concerned. It needs further consideration. I will read carefully what he has said and in the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees (Viscount Simon): In calling Amendment No. 17, I must advise Members of the Committee that if it is agreed to I cannot call Amendment No. 18 due to pre-emption.

Earl Howe moved Amendment No. 17:

(b) they met the performance criteria set by the Authority and approved by the Secretary of State as criteria relevant to the satisfactory performance of their functions (judged by the method of measuring their performance against those criteria set by the Authority and approved by the Secretary of State),
and the Secretary of State shall publish details of such objectives, performance criteria and method of measuring performance within 28 days of approving the same."

The noble Earl said: I would like, if I may, when we come to Clause stand part, to talk a little bit about the so-called "traffic light" scheme, so I do not intend to dwell on that now. Whatever one thinks of the "traffic

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light" scheme as currently proposed by Ministers, I hope it is common to all of us to want to see it working fairly in practice. One of the ways of ensuring that fairness is achieved, and is seen to be achieved, is for all the parties on the receiving end to know exactly where they stand and what they are expected to do with the scheme. That is why it is strange--indeed, quite disappointing--that Clause 2 of the Bill suggests the exact opposite of that. It says that the Secretary of State may increase the amount of money allocated to a health authority if it appears to him that it performed well against any of the criteria notified to it,

    "whether or not the method of measuring their performance against those criteria was also notified to them".

That is an extraordinary provision. It suggests a kind of measure first and manage second approach. If one takes the wording at face value, the Secretary of State could set, for example, patient satisfaction outcomes as a criteria, but then not set the way in which it is to be measured. That would leave the managers flying blind. It would be rather like saying to Members of the Committee that the Peers will be rewarded for their contribution to the work of the House, without saying how that contribution is to be measured. Noble Lords' contribution might be measured according to the number, the length or even the brevity of their speeches. The point is meant to be serious. There is a maxim of management theory which says that you cannot manage what you cannot measure. This is an example.

The Explanatory Notes say that the Secretary of State may need to see how well bodies have done the previous year before setting performance measures for the coming year. All right, but why not notify the method of measurement as soon as it is known? The wording in the clause smacks very much of thinking of the answer first and then setting the question. I do not believe that is acceptable.

There is another way to approach the whole issue. That is the way that is set out in my Amendment No. 17. I should have said at the outset that I am speaking to Amendments Nos. 17, 18 and 21. What concerns me about the whole concept of supplementary payments, as presented by the Government, is the ability of the Secretary of State to micro-manage the NHS. We have already had a graphic illustration with the operation of the waiting list initiative of how disastrous that can be in practice. Waiting list targets have been set by Ministers, so the only option for managers is to try to meet those targets if they are to access certain funds available to them, but, in doing so, they find that they have no alternative but to distort clinical priorities.

It is a way of proceeding that is the very opposite to being assessed on the quality of outcomes. In a real sense Clause 2 sets that dangerous syndrome in concrete.

Although in Clause 2 we are not dealing with trusts but with health authorities, the point still holds good. I suggest to the Minister that we can retain the worthy idea of rewarding good performance from the centre, but should do it with a light touch. The amendment would leave it to health authorities to set their own

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objectives so that local knowledge and clinical needs are properly catered for. However, it would also provide for Ministers to approve and make sure that the objectives were soundly based. There would doubtless be scope for Ministers to urge local health authorities to adopt targets which were slightly more ambitious than the ones they had first thought of. But one distinct advantage would be that, because it would have set the assessment criteria, there would be no possibility of a health authority being ignorant of the way in which its performance was to be assessed.

I look forward to hearing what the Minister has to say on these issues. I beg to move.

Lord Clement-Jones: I rise briefly to support these amendments. I have worked as a professional manager for something like 30 years--I had to pause to recall how long it has been. I must say that if you are going to move the goalposts after setting the original performance criteria and not notify someone about how it is proposed to measure whether they have ultimately succeeded, you are in a pretty arbitrary employment situation. It seems to me that the same principle would apply in this clause.

The amendment has been drafted extremely well. It would make the clause a far less arbitrary instrument in terms of resource allocation. I commend that to the Minister.

Baroness Carnegy of Lour: I should like to make a small point. I am not a professional manager, but I have been involved in management for a long time. One of the main tasks of the management process is to set objectives. Furthermore, having been on the receiving end--while serving on a university governing body--of something rather like this system--in my case, concerning the allocation of money for research--it does not take long for intelligent managers to begin to play the system. That means that the system then quite often has to be changed, or the managers get the better of those setting the objectives. I believe that there may be an enormous trap here.

I may be over-simplifying the case a little, but this is a basic principle which I am rather surprised that the Government think will operate successfully.

9.45 p.m.

Lord Hunt of Kings Heath: I suspect that we shall debate the question of central/local relationships in the National Health Service in a number of clauses. The debate generated in relation to this clause very much reflects the need to get right the balance between national direction--which is appropriate in view of the Secretary of State's accountability to Parliament for the running of the NHS--and the need for local managers to be given sufficient room to lead and to make any necessary changes.

I do not believe that anyone, when looking back over 52 years of the NHS, would ever say that this balance has been entirely right. Indeed, I give due notice that I can cite plenty of examples of undue centralisation conducted by the last government which

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I intend to bring to the attention of noble Lords at various stages of our debate. However, if we are serious about this matter, we must acknowledge that it is never easy to get the balance exactly right in a service like the NHS. That is why I am optimistic that, through earned autonomy and the traffic light system, we have found a way to achieve it. We shall reward the good performers by intervening less, but we shall intervene more on those who are not up to the task. The clause is designed precisely to achieve that. It is not concerned with micro-management, nor is it concerned with moving goalposts during the financial year.

Perhaps I may turn first to Amendment No. 17 which, essentially, would allow health authorities to set their own objectives to secure the release of the performance fund. I suggest that it would also allow health authorities separately to define the performance criteria and how they are to be measured prior to the release of the fund. Much as I admire health authorities and uphold their honesty and decency, I have to say that I believe that there is a real danger that the amendment would create a perverse incentive. It could encourage health authorities to define objectives that would release the performance fund which they knew that they could achieve. That might not be consistent with the priorities set out in the NHS Plan.

It is wholly consistent with the purpose of the performance fund, tied into the NHS Plan, for national targets to be set. However, that does not mean that we should set unrealistic objectives. The whole process of NHS planning involves Department of Health regional offices negotiating individual objectives and targets with health communities that define their contribution to nationally set objectives. I should also make it clear that it does not mean that an overly prescriptive approach will be adopted as to how the performance fund is spent.

The system of earned autonomy outlined in the NHS Plan gives complete freedom to better-performing green light NHS bodies over how they will spend their share of the fund, while yellow light bodies will negotiate and agree their spending with regional offices. It is only in the case of the minority--I very much hope that it will be a small minority--of poor-performing red light bodies that the new modernisation agency will determine how the share of the fund will be spent.

We sent out a consultation document on 18th January with ideas about how the performance fund might be developed. We have received from the health service a large number of very helpful comments. We shall issue guidance shortly to the NHS on how the performance fund will work. At the end of the day it is right that the essential framework should be set by the Secretary of State.

I now turn to Amendment No. 18 and the suggestion that the goal-posts can be moved during the financial year. Let me make it clear that in all cases the criteria against which a health authority's performance will be measured must be notified in advance. There is no suggestion, and this power would

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not make it possible, that we should make additional payments to health authorities based on their performance when the criteria against which they would be measured had not been notified to them in advance. For example, we could not inform health authorities of additional criteria halfway through the year and then make payments based on their performance against those criteria during the year.

This is not a question of moving the goal-posts. It is simply a question of practicalities. The annual assessment of traffic light status will not be available until some time into the new year, because it reflects performance over the whole of the previous financial year. So it would not be sensible for us to set the precise method of measuring performance against the notified criteria for the coming year without seeing the results for the previous year, and in particular how individual performance indicators have worked.

I can assure the Committee that we intend to consult the NHS each year on the introduction of new performance indicators or the amendment of existing ones. We should want to avoid, for example, introducing indicators which might produce perverse incentives. It would not always be possible to conduct a consultation process and assess the results before the start of the assessment period.

Amendment No. 21 reflects a point that the noble Earl has made previously in relation to transparency. As I said in response to earlier amendments, I believe that sufficient arrangements exist for demonstrating overall accountability to Parliament for NHS allocations and expenditure. The process begins with a parliamentary vote on the estimated expenditure for the NHS prior to the start of the financial year. The actual expenditure of the department funded through allocations to the NHS is provided at the end of the financial year in the published appropriation accounts of the department. The financial accounts of NHS bodies are published after the financial year ends. These include details of income and expenditure. As I have indicated, central budgets allocated to the health service are announced. These arrangements have been in place for many years. They were used by the previous government as well as by this Government and they clearly demonstrate an acceptable level of accountability to Parliament.

Overall, I believe that this is a very sensible approach. It gives the right incentive to enable health authorities and the whole of the NHS to wish to improve their performance. I believe that as a result of the consultation process on the new performance system we shall produce a system which will be seen to be fair and which will operate well, and one which the health service will feel ownership of.

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