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(c) any deficit inherited from a predecessor body," The noble Baroness said: The amendment deals with deficits, which the noble Lord, Lord Clement-Jones, referred to earlier. It would add a new paragraph to Section 97C(2) of the 1977 Act, as inserted by Clause 8. It may be convenient if I also speak to Amendment No. 79, which is grouped with Amendment No. 66, because it is in virtually identical terms but deals with the Welsh equivalent under Clause 9.

Amendment No. 66 allows but does not require the Secretary of State to take into account deficits inherited from a predecessor body in determining

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allotments to PCTs. The noble Lord, Lord Clement-Jones, has already referred to the concerns that have been expressed about this area, in particular by the BMA.

There was a time, which I am sure the Minister recalls, when I seemed to spend all of my time on National Health Service deficits. That might sound sad, but it is the truth. In the back end of the 1980s, deficits were spiralling out of control. As the then director of finance of the National Health Service Management Executive, it was my job to get them under control.

Health service deficits never go away. You may think you have them under control, but they pop up again. There are various levels at which deficits can exist. What we used to call income and expenditure deficits were met by brokerage at the year end—borrowing from other health authorities to get by. Nowadays, the language is more complicated with the introduction of resource accounting, but the basic principles remain the same.

Deficits do appear to be a topical issue. We heard earlier this year about a potential deficit of £60 million emerging in the south east region. The story was that brokerage would cover that, so the National Health Service overall would remain in balance. But there would still be deficits in some authorities and surpluses in others. That £60 million is a lot of money in patient care terms, although not a big percentage of the overall money in the National Health Service.

This is not confined to the South East. The Health Service Journal at the end of January said that other parts were struggling to the tune of £150 million. I see from a Written Answer given by the Minister on 25th February that the Department of Health's expenditure limit for 2001-02, has been increased by £230 million, of which £120 million relates to the take-up of flexibility for health authority allocations. If I understand the code correctly, it means that the National Health Service has borrowed £120 million from next year's allocations. There is a deficit of £120 million to start the new financial year.

I ask the Minister to say what the deficits for health authorities for 2001-02 are expected to be. I would ask him to state that on a gross basis and not net off the surpluses in those authorities that are fortunate enough not to be facing financial pressures.

If there are any which start with deficits, I repeat what the noble Lord, Lord Clement-Jones, asked. What will be done in respect of allocations to PCTs taking over the functions of health authorities with deficits? Will the new PCTs be starting with a clean slate?

I have talked about the simplest kind of deficits—the GCSE of deficits. The noble Lord, Lord Clement-Jones, is clearly on to the advanced levels of deficits. He talked about the revenue consequences of capital schemes which is of particular concern where funding does not exist to meet the revenue costs of capital schemes once commissioned. Underlying deficits occur when income and expenditure are in balance or

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resource limits are met, but non-recurrent moneys have been used to fund recurrent expenditure. There are hidden deficits which occur when spending commitments are deferred in the hope that money will emerge from somewhere before the project can be delayed no longer.

These advanced forms of deficits are likely to be even more important than the basic levels of deficit which get recorded year by year. Will the Minister say what the Secretary of State intends to do about these areas? They are just as important to PCTs starting life with a clean slate as anything else. I look forward to the Minister's comments. I beg to move.

Lord Hunt of Kings Heath: This is an important matter. We start from a position where the NHS is in receipt of record sums of resources as a result of the Government's policy on the NHS. That certainly provides a very good foundation on which we can discuss the issue of the transfer of resources to primary care trusts.

In the last financial year, all but one health authority achieved a balanced financial position. I know that the noble Baroness, Lady Noakes, asked me about the current position. She will understand that we are not yet at the conclusion of the financial year. We are in discussions with trust health authorities and PCTs about managing their end-of-year positions, but we cannot speculate about the year-end financial position before those discussions are complete.

By the end of this financial year we expect all health authorities to live within their agreed resource limits. Where they require support at the year-end, this will be provided principally through brokerage from elsewhere in the NHS. As the noble Baroness suggested, that is normal practice in managing the year-end financial position of individual bodies for the NHS overall.

In practical terms, one accepts that while brokerage can assist an organisation to manage its end-of-year position and avoid a breach of its statutory duty, it does not of itself cure the cause of the financial problem; it essentially rolls the issue over into the next financial year. In practical terms, that means that borrowing organisations must have plans in place not only to fund the replacement of brokerage the following year but also to ensure that the problem does not repeat itself—so the underlying cause of the financial overspend needs to be addressed.

Inevitably, that means that although there may have been high levels of growth, a greater proportion of it will be used to meet the cost of the previous year's over-spending and the recurrent effect in forward years of spending above the levels allocated. There is no getting away from that.

Where a health authority has been involved in a brokered situation and its responsibility then devolves down to a primary care trust, clearly the PCT has to pick up the consequences of that. It would not be feasible simply to say that we should wipe the slate clean so that primary care trusts can start from a position as if, within a local health community, there

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has not been a financial issue to be dealt with and there has not had to be brokerage. That would not be fair to the NHS as a whole, and it would not ensure that the proper disciplines were in place. The overall position is that, given the overall strengths of NHS finances, primary care trusts in general will have an immensely strong foundation on which to build in the future.

So far as concerns the general point, it is clear that in a situation where brokerage has had to be entered into to deal with some specific funding problems within a local health community, the primary care trust involved will need to take forward those issues when it takes over major responsibility for the budget of the local health service.

Lord Clement-Jones: Before the noble Baroness, Lady Noakes, replies—and she will no doubt have a far more penetrating set of questions—what information will the PCT have on the actual state of finances regarding the services that it will be assuming from the health authority? It seems to me that the state of the knowledge of the PCT in the circumstances described by the Minister is of crucial importance.

Lord Hunt of Kings Heath: Of course, the noble Lord is absolutely right, but the books will be open. I do not believe that there should be any situation where information is not available to primary care trusts taking on new financial responsibilities. I know of no reason why full information should not be available to those primary care trusts.

Lord Clement-Jones: If the strategic health authority retains certain functions carried out by the health authority, but the primary care trust assumes other functions, how transparent will the accounts of the former health authority be? How will the deficit be allocated between the strategic health authority and the primary care trust?

Lord Hunt of Kings Heath: Such matters will be as transparent as they can be. I am talking about a situation where financial pressures have been experienced, and brokerage has had to be entered into so as to enable a particular health authority to fulfil its statutory duty. I have already said that the point of brokerage is to allow time to enable the individual health authority to get its financial situation back into a viable position. Inevitably, as strategic health authorities come forward, and as primary care trusts have to take on the major responsibility for funding services at local level, they will have to take on their share of the brokerage arrangements.

Lord Clement-Jones: Is the brokerage allocated by function which is devolved to the primary care trust or retained by the strategic health authority?

Lord Hunt of Kings Heath: It is a matter of the NHS as a whole ensuring that we meet statutory obligations and it will enable the funding to be transferred from

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one part of the NHS to another. In essence, the money will have to be paid back. That would not be done by function; there would be a totality of a figure.

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