Public Accounts Committee
Oral evidence: NHS Financial Sustainability: Progress Review, HC 1743
Monday 25 February 2019
Ordered by the House of Commons to be published on 25 February 2019.
Members present: Meg Hillier (Chair); Sir Geoffrey Clifton-Brown; Chris Evans; Nigel Mills; Layla Moran; Stephen Morgan; Anne Marie Morris; Bridget Phillipson; Lee Rowley; and Gareth Snell.
Sir Amyas Morse, Comptroller and Auditor General, Adrian Jenner, Director of Parliamentary Relations, National Audit Office, Robert White, Director, NAO, and Marius Gallaher, Alternate Treasury Officer of Accounts, HM Treasury, were in attendance.
Questions 1-119
Witnesses
I: Paula Clark, Chief Executive, University Hospitals of North Midlands NHS Trust, Alwen Williams, Chief Executive, Barts Health NHS Trust, Gavin Boyle, Chief Executive, University Hospitals of Derby and Burton NHS Foundation Trust, and Saffron Cordery, Deputy Chief Executive, NHS Providers.
II: Sir Chris Wormald, Permanent Secretary, Department of Health and Social Care, Simon Stevens, Chief Executive, NHS England, Ian Dalton, Chief Executive, NHS Improvement, and David Williams, Director General of Finance and Group Operations, DHSC.
Written evidence from witnesses:
Report by the Comptroller and Auditor General
NHS Financial Sustainability (HC 1867)
Witnesses: Paula Clark, Alwen Williams, Gavin Boyle and Saffron Cordery.
Chair: Welcome. We are here to examine the sustainability of NHS funding. This is bread and butter for our Committee, and for some time we have worked closely with our sister Health and Social Care Committee in looking at this. This year is slightly different, because we have had the 10-year plan and the financial settlement for the NHS—or, at least, some of the detail of it, with some details still to follow. It is a good time to revisit this. We will obviously want to probe not the bits that we know about, but the bits that we do not know about yet, including where the gaps in funding are. We are aware that it is still very tight in the sector.
As a pre-panel to warm up for our Government witnesses, we are delighted to welcome four frontline representatives, three of whom run hospitals with big challenges because of big PFI deals and so on. We will find out what it is like on the frontline. From my left to right, I welcome Saffron Cordery, the deputy chief executive of NHS Providers; Gavin Boyle, the chief executive of Derby Teaching Hospitals; Alwen Williams, the chief executive of Barts Health NHS Trust, which comprises four hospitals across east London; and Paula Clark, chief executive of University Hospitals of North Midlands NHS Trust.
You might have recognised that members of the Committee have a direct interest in your geographical areas. With that, I will ask the one who doesn’t, Anne Marie Morris, to kick off.
Q1 Anne Marie Morris: Welcome. Clearly, financial sustainability is a big challenge in your sector. For me, it is about digging down to understand the why. Ms Clark, you had problems agreeing your budget—is that right?
Paula Clark: Yes.
Q2 Anne Marie Morris: Will you explain why, and why there was a particular problem this year, as compared with last year?
Paula Clark: We went into financial special measures two years ago. We could not agree a control total. The history behind University Hospitals of North Midlands is that we have previously had a large subsidy from the integration with the Mid Staffordshire NHS Foundation Trust, but that stopped in 2017, at the end of the 2016-17 financial year. At that point, we were running a deficit of over £100 million, but our control total was actually a surplus for that year, so we were unable to agree the control total.
Q3 Anne Marie Morris: What happened in the end? How did we square the circle?
Paula Clark: We went into financial special measures, and we have been working on bringing the organisation back under financial control since then. We have obviously had non-recurrent help from running a deficit—we have had cash support.
Q4 Anne Marie Morris: If I were to ask you what two things were making getting back into surplus difficult—things that the Government could do something about—what would they be?
Paula Clark: One of the things that will help us is that we have now been given a control total that it looks as though we can achieve for the next financial year. That is helpful because it means that we will not be open to fines from our commissioners. It will also make it much easier to manage things like our PFI and to run the County Hospital in Stafford, which also runs at a deficit. Having some understanding in the control total that is being proposed for us for next year will help us in all those areas.
Q5 Anne Marie Morris: I am interested that you mention PFI. I think all three of you have PFI hospitals.
Paula Clark: Yes.
Q6 Anne Marie Morris: Mr Boyle and Ms Williams, do you think that the PFI challenge has been a significant problem? Could or should the Government do something about it?
Gavin Boyle: Royal Derby Hospital is a large, single-site PFI project. When the deal was signed in 2003, it was about £400 million. There are some issues with the deal’s structure that create additional financial pressure on the organisation. To give one example, we pay 4.6% interest on the loan for the hospital, but the interest covered through tariff is 3.5%, so an additional cost pressure is automatically built into the arrangements. The upside is that we have a fantastic facility, and patients and staff enjoy the benefits, but the downside is that it gives us that additional pressure.
Q7 Anne Marie Morris: Why is there a gap? Do you feel that the contract was not properly/fairly negotiated, in terms of where the risk lay?
Gavin Boyle: No. The deal was done in 2003, when I think the coverage for capital within tariff was 6%, so doing a deal at 4.6% probably seemed like a good idea at the time. But obviously things have moved on and the 6% rate has dropped to 3.5%, which has instantly created an additional pressure for us.
Q8 Anne Marie Morris: Ms Williams, what is your experience of PFI?
Alwen Williams: It is very similar. The Barts PFI deal, which is the largest in the country, was put in place in 2005. It has very similar issues to those that Gavin describes. Our analysis is that there is what we would call a structural issue in relation to excess PFI costs.
Q9 Anne Marie Morris: What do you mean by a structural issue?
Alwen Williams: These are costs that we would not be able to meet through the tariff, for the reasons that Gavin described: various assumptions were made back in 2005 about inflation and uplift in tariff, but have not been realised, which has given us an excess cost. There are a number of organisations—
Chair: Sorry, Ms Williams, but could you raise your voice?
Alwen Williams: In the new financial regime, the financial recovery fund has the potential to address some significant issues, in terms of structural deficits, that it would not be possible for us to resolve through the increase in tariff into ’19-20, which is also welcome.
Q10 Chair: What percentage of your annual budget is spent on PFI repayments?
Alwen Williams: We have a turnover of about £1.5 billion and an annual payment of £120 million.
Paula Clark: We have a turnover of about £720 million, and we pay about £40 million to £50 million to the PFI.
Gavin Boyle: We pay £50 million on a turnover of about £750 million, so about 7.5%.
Q11 Anne Marie Morris: The Government has renegotiated some of the PFI deals that it has done. Should it be having a look at some of yours, or is that not practical?
Chair: Could you all speak up? There is a lot of noise outside and it is very difficult to hear today.
Alwen Williams: We would certainly welcome a review of trusts such as ours that are incurring excess costs as a consequence of PFI agreements that were made some considerable time ago. I suspect that those PFI agreements will differ in their inherent nature, and in the extent to which one can renegotiate them or find a way to recognise the excess costs through some form of subsidy. We know that elsewhere in the NHS there are precedents for that happening, as a consequence of a review that was undertaken some six years ago.
Q12 Anne Marie Morris: Have any of the three of you asked the Government to look at this?
Alwen Williams, Gavin Boyle and Saffron Cordery indicated assent.
Anne Marie Morris: You have! Oh, good. Well done.
Paula Clark: I think we all have, at one time or another.
Q13 Anne Marie Morris: But what did you get in response?
Paula Clark: I think the difficulty is the funding and the way in which the PFIs have now gone into the market. Ours is out in the bond market; I think that most of them have gone out into the bond market. It is very difficult now to unpick the PFIs and the way they have been financed. Our PFI costs us around £21 million a year more than it would if it were a publicly funded building. As Gavin said, what we have as a result of the PFIs are superb facilities, which, under the PFI agreement, will continue to be maintained to the highest standard for the duration of the PFI life, so there are some benefits to having PFIs.
Q14 Chair: Ms Cordery, did you want to come in on this?
Saffron Cordery: Yes. I think that what this is showing us is some of the elements of inflexibility in PFI, which make it really difficult when we are thinking about driving through efficiencies and things like that. The nature of the contracts is inflexible, particularly because they have the service costs built in. When that is working well, it works well, but when it is not, it is impossible to shave off those savings that we need to see across the piece. Also, as you have heard, trusts are locked into very long contracts. When they are making large repayments on an asset that is not actually theirs at the end, that also has an impact.
One of the things that is worth bearing in mind is that trusts locked into these contracts 10 or 15 years ago, and they will last for two to three decades, sometimes. Although some of the assets can be really good, fit for purpose and last for a long time, I recently visited a mental health trust whose asset already is not fit for purpose. They are locked into a PFI, yet they need to make substantial changes, which will be very expensive for them.
PFI is problematic; that is something that we need to overcome, and we need to start think about it as part of the sustainability plans going forward. It is one element of a very complex picture. However, we also need alternative arrangements for capital to be put in place, so that trusts can invest where they need to. What we saw in the Budget was essentially the end of PFI/PF2, with no alternative route yet put out there, and without that, it is also very difficult—
Q15 Chair: You sound like a member of the Public Accounts Committee; we have been saying much the same thing.
Gareth Snell: That’s a compliment.
Chair: We mean that as a compliment, of course.
Saffron Cordery: I’m taking that as a badge of honour. However, we need to think of this in the round. Capital is a massively complex issue, and what was right for 10 or 15 years ago is not right now, because we are in such a difficult and different situation.
Q16 Anne Marie Morris: Ms Cordery, I have a couple of questions. First, do you think that when the Government look at negotiating with these trusts, they take enough account of their individual circumstances, and particularly the PFI issue? Secondly, we have heard about PFI being one of the killer problems. If I asked you to identify two others, what would they be?
Saffron Cordery: We have two things to remember here. One is that we have a job to do. We all—as the NHS, as Government, as Parliament—have the job of returning the NHS to financial sustainability, and an amount of money has been put forward for that. We will probably have wider discussions about whether that is the right amount of money. And of course, we need to see individual organisations being able to manage their debt locally. That is really important. The aggregate is made up, of course, of individual trusts, so we need to reach a solution that works for the three trusts here and many other trusts with big PFIs, but we also need to remember that there is a whole system. I don’t envy anyone the job of balancing those two things up. That is really important.
When we think about where we can make additional changes and savings, next year really will be one of the most important years for the NHS in some time, because we are thinking about this transitional year and how we refloat the NHS, in terms of its finances. We have some good proposals on the table that talk about reflating the tariff, so that trusts can deliver services affordably.
However, we have to remember that there are trusts in situations in which tariff alone will not work. There are trusts with substantial debt that is not just PFI debt; there are other debts as well. They can’t work their way out of debt just through tariff, because they have all sorts of local issues that they need to work out. If a local system—we are talking about STPs and ICSs now—inherits substantial debt through its provider trust, then it is in a very difficult—
Chair: We should just say that ICSs are integrated care systems, and STPs are single transformational—
Saffron Cordery: Sustainability and transformation partnerships.
Chair: Sorry, sustainability and transformation partnerships—I was running through my list of acronyms. That is just so people are clear what we are talking about.
Saffron Cordery: We need to help them with their cash flow, but there are other situations where trusts will have financial balance issues. The tariff will not always help with this, because they do not have the volume of patients to help with them, but we need to have a health service in that area. Some district general hospitals serve populations with particular needs—they might have a dispersed population or a particularly deprived or old population with very specific needs. They might have a coastal population and have half their catchment automatically taken away from them by the sea. We have to think about those situations, where trusts are in particular circumstances and the proposed approaches will not necessarily support them. That is not to say that the overall plan is not the right one. It is, but we also need to think about the individual groups within that who will need particular support and help.
Q17 Anne Marie Morris: You get another gold star. I am running an inquiry into rural health and social care, because, for all the reasons you describe, I think their needs are different, so thank you—gold star duly awarded. However, there are other issues—it is not just about being rural—that distinguish particular need patterns, so, Ms Clark and Ms Williams, do you think the system sufficiently addresses your particular needs? If not—I suspect that is going to be the answer—how would you change the system so it better takes account of your needs?
Alwen Williams: Barts is a trust that has been in financial special measures, as a consequence of a significant deficit we had four years ago. We are making progress. Over the last three years, we have considerably reduced the underlying deficit in the organisation, and we are now relatively efficient compared with other organisations. We have made progress.
One of the benefits of working within the financial special measures regime—as you describe, we have had a whole plethora of issues to resolve—is that we have been able to build a financial recovery plan that very much speaks to the drivers of our own deficit. As colleagues have described, that will look different in different systems and different trusts. We have been able to make the progress that I describe as a consequence of being able, three years ago, to really get to the bottom of what was driving that deficit. We had issues then in terms of our ability to capture activity and income. We had considerable challenges in terms of constraining expenditure in the organisation. At that stage, we also called out some of the structural issues we have just been discussing.
Looking forward, we certainly welcome the new financial regime from this April, which allows us to continue to make the progress that we are committed to in terms of financial sustainability. That said, from a Barts Health perspective, it will very much require us to have a resolution to the structural deficit issue that we called out around PFI, and also to the interest burden issue that my colleague just described.
Q18 Anne Marie Morris: Ms Clark?
Paula Clark: The same, really, in terms of the structural deficit. Locally, we have two sites in our organisation. We have County Hospital at Stafford and the site up at Stoke. County Hospital still has the legacy issues from Mid Staffs. That is an issue for us, because we have a large site that is underutilised, and we have a very active private sector in the Stafford area, which actually is moving patients away from County Hospital. That is a real shame, because County Hospital is a very good provider of care for that local population.
We have the twin site issue that Gavin has, which is an issue for many of the acute trusts across the country where they operate across multiple sites. The funding is improving for our CCGs, but we have had long-standing financial problems in the Staffordshire and Stoke-on-Trent area. That will improve from April, and the new integrated care system approach will also help to take away some of the barriers and boundaries between organisations operating in the system.
Q19 Anne Marie Morris: Mr Boyle, we have rightly moved on to some of the challenges with the new structures, the STPs and the ICSs, which are trying to integrate the system. Do you think they have any chance of working, given the inherent problems of recruiting?
Gavin Boyle: Absolutely, yes. I have always believed that the best approach for the NHS is through organisations working together in partnership. The ICSs are fundamentally based on the principle that the healthcare organisations, together with local authority colleagues within a particular system, could work together to improve patient care, but also reduce cost. It is interesting for my organisation. We changed our name recently and became the University Hospitals of Derby and Burton. We merged with a neighbouring district general hospital recently, and the reason for doing that was to use the scale of the larger organisation to preserve important local services in Burton. It also gave Derby, which is a provider of specialist care—tertiary services, complex cancer surgery and those sorts of things—the opportunity to increase its catchment population to develop those services as well. It is a great example of how partnership can deliver real benefits for patients. Also, it resulted in £23 million of savings that are specifically related to the merger. Although we have talked about structural issues and challenges, there are ways you can work with your neighbours and other partners in the system to deliver better care at less cost.
Q20 Chair: The NHS has talked about changing the law for some of this. Can you quickly tell us—perhaps Ms Cordery can mop up at the end anything you have not said—where you think the law needs to change to make this more workable?
Gavin Boyle: Particularly in the context of the ICSs, one of the challenges is that the legal and regulatory framework at the moment holds sovereign organisations to account. When I talk to my board, they feel very conscious of that responsibility, yet if you are going to work as a system, sometimes you need to have to make decisions that might not be in the best interests of your organisation, but will be in the best interests of the system, and that is quite a hard issue to reconcile. Where we are at the moment is that we all recognise that the future is system-working, so regardless almost of the legal and regulatory framework, we are trying to work in that way. On the bringing together of NHS Improvement and NHS England from 1 April, although it is not a change to primary legislation, I think it will enable that to quite a considerable degree.
Paula Clark: I think the bringing together at a regional level will make a massive difference. Instead of pushing the deficit around, we will all own that deficit together and will find ways of working through to reduce it. Also, it will make it easier for us to network together as organisations, so networking outside of the STP boundaries and centralising services is another way of making us more efficient. That, along with the ICSs, is the way forward.
Q21 Chair: Ms Williams, you have got four institutions that became one, so presumably you had to overcome some legal hurdles. You have got a very wide footprint in a very wide catchment area.
Alwen Williams: Yes, Barts Health has a catchment in east London and, as you said, four hospitals. Certainly, there are many examples of where, as Gavin has described, we have been able to secure economies of scale, safeguarding the delivery of local services to local people. When we look at areas such as procurement and pathology services, we have been able to deliver those at scale and benchmark well when we look at the opportunity of working in groups of hospitals to provide more efficient care. What the integrated care systems also will allow us to do, in a collaborative way, is to derive those system efficiencies across our sector—so across acute community health services and primary care. In east London, there is a real appetite to be working in that way, to improve the quality of care and to improve efficiency across our population.
Q22 Chair: I am going to bring in Ms Cordery on this. We are hearing lots of nice things—I do not mean that pejoratively. Everyone wants to work together, but there are legal challenges, which NHS England has highlighted, and there are, as Mr Boyle highlighted, governance challenges. What is the solution to getting round those, and are you convinced that the Department and NHS England have got their head round them and will be able to deliver what is necessary to make it work?
Saffron Cordery: There are a number of challenges. What you are hearing about at the moment is a set of trusts that are working really hard to make it work no matter what. That takes a lot of time, effort and local relationship-building. Some of that you cannot legislate for, and even if the right legislation were in place it would be predicated on really good local relationships. That is the starting point. Where ICSs are working very well, they have had pre-existing relationships that go back 10, 20 or 25 years. Let’s remember that that is the starting point for collaborative working. It is in the name really—you cannot do it without a good relationship.
In terms of some of the changes I think we need to see, we cannot have a regulatory system that holds individual institutions to account while they are working across a system. The plates really start to grind there. One of the organisations that we have not mentioned yet is the CQC. Bringing in CQC quality regulation into this fold is fundamental, and we need to think really carefully about that.
The other bit that I would say we need to look at is how we focus on the difference between commissioning and contracting on the one hand, and strategic commissioning on the other hand. The ability for ICSs to have that oversight and to really understand what a local population needs is where I think the current commissioning arrangements that we have should sit. Organisations within ICSs need to be freed up to be able to deliver services from beginning to end in a different way. That does mean loosening what we have at the moment in terms of the commissioning arrangements. It is quite a challenge, but if we are going to get—
Q23 Chair: You say loosening; could you give us an example of what you mean?
Saffron Cordery: We need to have a situation where trusts, as they are doing on an exception basis at the moment, are, for example, commissioning and delivering certain specialist services. We are seeing that with new care models in mental health, for example. It is about being able to push out that kind of arrangement across a patch with an ICS. Those elements are really important.
People are working with what we have in place at the moment, and they are doing so in good faith. It is just taking a lot of time, and sometimes the workarounds put people in very difficult and invidious situations. That is the bit that we really have to sort out, but it is worth remembering that we are asking ICSs to do something when they themselves are not statutory organisations.
Q24 Nigel Mills: On this topic, would we be better off just collapsing all these separate trusts and having one organisation per county, or per suitable geography, or are we better off sticking with what we have?
Chair: Ms Cordery, you can start, but please keep it short.
Saffron Cordery: I will keep it super-brief. One of the things that we really need to remember is that in terms of delivery we have to think really carefully about what the unit of planning is and what the unit of delivery is. When you get too big the line of sight is very difficult, and we have that distance. I will leave it there—we need to think about those units.
Chair: Mr Boyle was nodding, so we will bring him in.
Gavin Boyle: No, it was just quite a radical idea.
Nigel Mills: It was a question, not an idea.
Gavin Boyle: In a sense it is the logical conclusion of where we are perhaps heading. If we are talking about a single system, the fewer organisational boundaries and obstacles there are to working as a system the better, perhaps, but I think we are a long way away from that. We have a 30-year legacy of working in quite a different way.
Q25 Nigel Mills: That might require some top-down NHS reorganising, which I do not think we are very keen on.
Gavin Boyle: It certainly would need some careful thought, that’s for sure.
Chair: Very diplomatic, Mr Boyle.
Paula Clark: I think it can be a distraction, in terms of formal reorganisation. Gavin and I sit at opposite ends of Staffordshire, east and west, and the relationships that I have in my organisation—Staffordshire and Stoke-on-Trent—are with Cheshire to the north, with Shrewsbury and Telford to the west, and with Wolverhampton to the south, all in different STP areas. There is never a neat way of organising ourselves, I’m afraid. It is about patient flows; that is the most important thing, I think, if you are thinking about the way you structure and organise yourselves.
Q26 Chair: Ms Williams, you are the biggest trust—and your reach is beyond east London, of course, because you have patients who come from Essex, don’t you?
Alwen Williams: Yes, and we offer specialised care as well. The question was making me smile because many, many years ago—having worked in the NHS for many years—we used to have integrated trusts that did exactly what you are describing. We perhaps ought to go back and understand why they didn’t work quite so well.
There is clearly an opportunity going forward for our current organisations to work in much more of a partnership way around the needs of our local population. It is difficult to predict where we might be in 10 or five years’ time, but given the imperative that we have now in terms of looking at transformation, service improvement and tackling health inequalities, the arrangements around the integrated care systems feel to me to be robust and very practical, as we stand now and as we move into the new financial year.
Q27 Nigel Mills: Ms Clark, did your playing of hardball around not agreeing a budget help you get the outcome you wanted? Is this a tactic that you would advise across the NHS?
Paula Clark: Sorry, I didn’t catch the first bit.
Nigel Mills: Is your playing hardball about not agreeing a budget with NHS Improvement a tactic that worked? Is that something that you would recommend across the system: if in doubt, just refuse?
Paula Clark: No, because that tactic got us into financial special measures two years ago.
Q28 Nigel Mills: But you got more money now.
Paula Clark: We could only accept a control total if we could realistically achieve it: that’s why we didn’t two years ago, and that’s why we’ve been working to improve things since. From the point of view of my organisation, we have been working very hard over the last two years to try to drive out costs and become more efficient. We have been successful at doing that; we still have a long way to go. Our deficit this year is likely to be around the £50 million mark, but that is way better than it was a couple of years ago.
What we have tried to do with the work that we have been doing, in the same way that Alwen has been doing with the financial recovery plan, is look at where the costs lie, what we can control and what is outside of our control—such as the PFI—and then have a sensible dialogue with NHS Improvement about a way of funding an improvement journey to get us back into financial balance. That is what we have been doing. I don’t think it’s hardball; I think we’ve been in productive dialogue.
Q29 Nigel Mills: One of the things that always confuses me when I get on to this level of detail about NHS funding is that I thought acute trusts were paid for the volume that you do—so, if you do a hip replacement, you get paid the tariff for a hip replacement. The trick for you was presumably predicting and managing the right volume—so you know how many hip replacement wards you need, and if you get it about right, you’re okay. If you have too much provision and too few hip replacements, you lose money; if you get it the other way around, presumably you—but I mean, is it about right, or am I horribly over-simplifying?
Gavin Boyle: No. The funding regime at present, particularly for acute trusts, is something called payment by results, where effectively it is just that: there is a tariff for the work that you do, and that is what you get paid for. I think what we’ve been touching on, though, is that for some organisations, the way that the tariff is constructed does not cover all of the costs. There are things like the additional pressures of the PFI, for example, but there are other examples.
One of the things that we struggle with in the East Midlands, for example, is the distribution of junior medical staff. In the East Midlands, there are about 77 junior doctors per 100,000 population. In London, there are about 135 junior doctors per 100,000 population, so there is a sort of in-built inequality that gives trusts working in other places an additional challenge.
Q30 Nigel Mills: You’re £41 million in deficit from the previous financial year. I worked out that if you are losing 1% on the interest on a £400-million PFI, that would be £4 million. What was the other £37 million? How much of that was just the volume not being what you predicted, and how much of it was other costs being different?
Gavin Boyle: There are a few things.In terms of the PFI overall, we think the contribution to that position is probably about £16 million or £17 million. There is not just the interest difference; there are other things—for example, the inflation rate that is applied is CPI. It is basically NHS inflation, whereas the contract is based on RPI, so there are other things driving the cost. On the issue of junior medical staff that I just mentioned, it probably cost my trust £5 million or £6 million to make good those rotas with non-training grade posts, because of that inequality in the distribution of trainees.
The other thing worth mentioning is that organisations like mine, which has a financial deficit, need to borrow money from the centre to support that deficit, which comes at an interest cost as well. That adds about another £5 million-worth of pressure on the trust. I do not want to explain it all away. Part of that £40 million are things that we need to improve ourselves—for example, I mentioned the merger as a way of improving services and improving the economics of our organisation. I would not want to try to explain it all away. We have to take responsibility for that, but there are some things that we will have to grapple with.
Q31 Nigel Mills: So where’s the next merger when you have to find next year’s savings? To keep taking over the neighbours is not really a long-term solution, is it?
Saffron Cordery: Everything that Gavin said is absolutely right. You’ve got to remember that trusts have to have the capacity to meet the demand. It is not just about saying, “Okay, so we’ve got a tariff that pays for 45 hip replacements.” That is a ridiculous number, but you know what I’m saying. If the hospital—over winter, for example—is deluged by patients coming in through accident and emergency, and there is lots of emergency work going on, the flow of patients through the hospital can be substantially blocked, which means that trusts then do not have the capacity to carry out the elective work. They are focusing on emergency, non-elective work, which obviously impacts on their income and their bottom line. It is not just the factor of what costs more and what costs less; it is their capacity to actually meet the demand that is anticipated as well.
Q32 Nigel Mills: What’s the PFI solution? Should we just have back-to-back recontracts back through to NHS England and NHS Improvement and just fund you for what they cost, then give you the standard tariff for the work you do? Would that be a better system, or is it just moving the problem around and no one is managing it?
Paula Clark: It’s a problem that is not going away. Many of us would like some kind of central fund for PFI.
Alwen Williams: Clearly, there will be strings attached in terms of relative efficiency. We would absolutely concur that it is not a chequebook, but demonstrating that we are running efficient organisations that are comparable to other organisations without the PFI burden starts a sensible conversation about PFI subsidy. This is not entirely new, because that process has already been undertaken in a number of organisations in the country, and the subsidies are in the system.
Gavin Boyle: It is also worth recognising that some of the refinements to the financial regime this year—for example, I think Paula and Alwen have mentioned the financial recovery fund—do help. That gives us a little bit of room to think, but they are short, fixed-term measures. There needs to be a dialogue about what the lasting solution is to this problem.
Chair: Moving a bit off PFI, Mr Snell.
Q33 Gareth Snell: I have three quick questions for all four members of the panel. We have talked quite a bit about the tariff. I would welcome your views on how much of a help or a hindrance the market forces factor is in recognising the challenges that individual trusts face, which may not fit within that particular framework. Where individual trusts are struggling, how much have the changes to social care and things like the better care fund helped you to deal with that? Where do you think they will take the future sustainability of the NHS? I would welcome your explanation.
I think I might know the answer to this question for one of you: in terms of commissioners and relationships, the NAO Report shows that CCGs increasingly have financial deficits. Under how much pressure do you think that puts you, as providers, to make additional savings, simply because the CCGs want to keep themselves in balance by pushing you further into the red?
Chair: We will start with the three chief executives; then Ms Cordery can fill in any gaps from those not represented here.
Gavin Boyle: Taking the last question first, that is an example of the sort of split I was describing before. In your example, the commissioner is behaving in a way that is perhaps not in the interest of other parts of the system. That has been an issue, and I sometimes find myself involved in discussions that are really about where a particular risk sits, rather than improving the system or reducing its cost.
However, I am hopeful that the new arrangements, which will be in place from 1 April, with NHS Improvement and NHS England coming together, will help us to work through some of those things. We are trying to get to a much more productive discussion with commissioners about how we actually deliver services in a way that improves quality but reduces costs generally, rather than moving costs around.
Chair: Ms Williams?
Alwen Williams: I absolutely agree. The opportunity we have described around the ICS structures will be to look at the efficiency across the system, as well as—as we have been doing for years—clearly delivering on organisation-specific efficiencies. The opportunity through the integrated care systems will be to join up the agenda of improving health and improving services, and there is almost the triple aim of being able to deliver services more efficiently as well. That clearly requires very strong relationships and joint working across the system.
In our organisation, we have worked with our local GPs and colleagues on a particular piece of transformation in acute kidney injury services that has actually reduced referrals to the hospital sector quite considerably. Because GPs and the hospital renal clinicians are managing risk together, the clinicians are able to give telephone advice to the GPs. That means that if a patient really does need an out-patient appointment, we can offer one relatively quickly.
We have many examples from across our systems in which we have been looking at an allocative efficiency, rather than just the efficiency of our own organisations. I think ICS gives us the platform to do much more of that going forward.
Paula Clark: In Stoke-on-Trent and Staffordshire, the better care fund has been a real success. Stoke-on-Trent City Council has done some great work on that, and we have worked together with it. We all really value the better care fund because it has made a massive difference—particularly this winter—in making sure that patients are in the right place and not languishing in our beds, waiting for something to happen to them.
On the market forces factor, we are losing about £2 million on that over the next couple of years. It is a box of tricks that is very hard to fathom. It is one of those areas of complexity; many of us do not really fully understand how it is applied to our areas. We certainly cannot understand why it adversely affects us in our part of the world—the north midlands—compared with some of the leafy areas, which get better market forces factor funding, which affects the tariff.
On the CCGs, the integrated care systems must help. Certainly in my part of the world—and Gareth’s, at the other end of the patch—the idea of raising disputes for care that has been given to patients is not helpful. We have one pot of money. We should be using it for the patients. We should not be pushing bits of paper around and going into dispute with one another. It is not helpful.
I think having a control total in the next financial year will help us particularly. When you are in financial special measures, you can’t have a control total, but when you have one, you are immune from fines and penalties. But disputes are not helpful to us; working as one integrated team, and using the money where it should be used, rather than in disputes, is the way forward.
Q34 Chair: Ms Cordery, is there anything you want to add?
Saffron Cordery: On the breadth of representation, one of the things we should be aware of is that, obviously, there is a finite pot nationally and a finite pot locally, and there are many, many draws on the pot.
If you are a mental health trust or a community trust, there can be specific challenges. We know that mental health trusts should see the mental health investment standard passed through to them. We are seeing, in lots of places, that there is still not absolute evidence that that is getting through. Often that is about the gravitational pull—in some ways, the really important gravitational pull—towards urgent and emergency care and the acute system. But we have to remember that there are a range of other providers out there that also have the right to have their services funded. That is causing some tensions and challenges. So I think that that is a really important point to remember.
The other bit of this is the nature of procurement that comes from commissioners. It’s what they have to do, but if you are in a mental health or a community trust, you are subject to the retendering of your services much more frequently—
Q35 Chair: Have you done any analysis of how much that costs? My local mental health trust has to do it every three years, but if it were every five years, for example, there would presumably be a lot of savings.
Saffron Cordery: I can’t give you that off the top of my head, but we can certainly submit something to you, because it is an issue that comes up again and again.
Q36 Chair: Because these are quite specialist providers—it’s not as though there is a large market out there if you want to go down this route.
We are coming to the end of this panel’s evidence, and only Mr Boyle has mentioned staffing and the problems there. We did a mini survey last year, with the support of colleagues around the House, and we were told by finance directors that staffing—getting to the basic staff complement—was a problem. Of course, the settlement does not include training, and there are all sorts of issues about retention. I was wondering whether any of the three of you have particular issues about staffing. What do you think needs to be done nationally to resolve this, and how much of a deal breaker is it in terms of delivery of the 10-year plan?
Paula Clark: Staffing is the biggest challenge we face, and I think it’s one of the biggest threats to financial sustainability in the NHS.
Chair: The others are nodding—you agree.
Paula Clark: I don’t think I’m exaggerating when I say that, because we have real shortages of consultant staff and middle grades—particularly things like acute physicians, emergency physicians. Dermatology—there is a national shortage of dermatologists. We have not been able to take new referrals other than emergencies for months now, and we are not alone in that. Neurology, interventional radiology, oncology—the list goes on in terms of the shortages that we are seeing of consultant staff and in terms of the flow through from the juniors to the middle grades to the consultant staff.
Q37 Chair: I can see the other two nodding. We probably don’t need you to say the same if you agree, but of course one of the problems, as well as the retention of senior people, is the pension-pot issues. Is that affecting any of you particularly?
Gavin Boyle: It is a real issue. Many of the more senior clinical colleagues—people in long-established consultant roles—are getting incredibly anxious about the pension issues. We did a survey of our consultant body recently. We had 300 responses, and I think 50% of the consultants said that they were either considering not agreeing to do additional work in the future, which sometimes is helpful to us, or actively thinking about reducing the number of sessions they do in order to reduce their income to help manage their tax liability. That’s the perception. I think it is worth knowing that the consultant body are incredibly concerned about that.
Alwen Williams: I agree, and if we put that in the context of the workforce being the critical enabler of delivery of the transformation that we have been talking about today—
Q38 Chair: Do you think, Ms Williams, it is possible to deliver on the 10-year plan without sorting out the staffing issue, in terms of your sustainability?
Alwen Williams: This does come back to, I think, the way in which organisations will come together to work together, in terms of the ICSs. We are already looking at new roles, such as physician associates and nursing associates; in east London, as you know, we have an increasing population, so how can we increasingly draw that local population into public sector services, with the NHS clearly being—
Q39 Chair: But drawing people in is only going to be part of it; if you cannot keep people at the top, presumably this pipeline issue is a problem.
Alwen Williams: Certainly, to agree on the pension issue is critical for us, to ensure that we are able to retain very senior staff within the system. We also know that there is still some uncertainty within the 10-year plan on education and training and other investment in public health and social care; those will all be critical to ensuring that we can be successful.
Q40 Gareth Snell: On that point—I know this to be the case from my own experiences in north Staffordshire—A&Es, in particular, are always open, there is always somebody there and somebody will help you; that is the baseline of that service. But, from your experiences, how much has the reconfiguration of public services in the light of current financial spending plans driven people to A&E and therefore increased your costs—people who should not be there, who should be looked after by some other part of the public sector, but for whom that service is simply no longer there?
Paula Clark: If you think about GPs, in particular—
Q41 Gareth Snell: GPs, social care, social services—even the police, to a lesser extent.
Paula Clark: It is difficult to say. One of the things we have been doing as a system and as a wider NHS is to look at how we can manage that demand and ensure it is in the right place, with better use of 111 and community services, streaming at the front door in A&E so that people can be streamed into GP services, and fast turnaround Home First services so that we can turn around elderly people, assess them and turn them back home quickly with services. I come back to the Better Care Fund, because that has helped us to make that rapid turnaround at the front door, particularly for older people. It is true to say that, in the more deprived areas, we see people pitching up at A&E who have not had contact with any other service. Their first contact with services is the NHS, and that is something that needs to be addressed in terms of other services for the local population.
Q42 Chair: Years ago there was an analysis of frequent visitors to A&E and where else they were connected—
Paula Clark: Sorry, just to say that that also affects things such as outcomes, because people are turning up who are quite seriously ill and that is their first contact with health services.
Alwen Williams: Certainly, in east London we have seen an increasing number of homeless people in A&E, and it is requiring us to think differently. We are working with a local charity and social care colleagues to find different responses to some of those issues. This feels to me like one of the most significant challenges for integrated care systems: how can we join up and deliver urgent and emergency care more effectively than seeing some of the increases that you describe? Certainly in Barts Health, we have seen a 13% increase in A&E attendances in recent years.
Q43 Chair: That is a 13% increase just at Barts?
Alwen Williams: That is across the three A&E departments. We need to work in a much more integrated way with our colleagues in community services, mental health and primary care to seek out those solutions for a more appropriate model of care to deal with that.
Q44 Chair: A final word on this from Ms Cordery, if you can be quick.
Saffron Cordery: Speaking to your point about the impact of wider public service challenges, that is absolutely the case. It is not just public service challenges; it is also policy challenges. We are about to publish a report on the impact on mental health trusts of various different types of demand going up. The causes of that demand include things such as housing, employment and the changes to benefits and universal credit, which came out as one of the highest issues. We are really looking at the wider socioeconomic impact on raw demand for services in trusts. I think that is really important.
The point about people coming later, in a more serious acute situation, is really important, because that is actually more expensive, in blunt terms, to deal with than someone when you are on the more preventive end of the spectrum.
It is also worth saying that the long-term plan has a big set of ambitions, which we wholeheartedly support, and the £20.5 billion-worth of investment in the NHS is very welcome, but we have to be able to drive the pure value out of all of those pounds, and at the moment we have got bits of the system going in different directions. So if we are not supporting public health, if we are not supporting social care, and if we are not investing in capital and in things like education and training, then we are not enabling the NHS, as one major bit of the public sector, to actually derive full value—
Chair: Which sounds like our agenda for our next panel. Thank you very much indeed for your time. You are very welcome to stay for the second panel. The transcript of this, and the next bit, will be up on the website in the next couple of days. It goes up uncorrected. Thank you very much indeed. We will obviously send you a copy of our report. I cannot give you the precise date it will come out, but it might be as early as March; but it will more likely be April.
Witnesses: Sir Chris Wormald, Simon Stevens, Ian Dalton and David Williams.
Chair: Welcome back to the Public Accounts Committee on Monday 25 February 2019. We are here today to look at the financial sustainability of the NHS, which, as I said earlier, is bread and butter for this Committee and our sister Committee, the Health Committee. Obviously, since we last discussed this in these terms, we have had the 10-year plan unveiled, at least in part, and the financial settlement for the NHS, so we are hoping to get into some of that today.
I would say from the beginning that we have read all your headlines and we know all the puff words and the press release stuff about the 10-year plan. We are not dismissing that it is a significant contribution to the future of the NHS, but we want to be focused in our questioning, so we would appreciate it if you answer questions tightly. We are all busy people—you more than us, arguably, or possibly—and I am sure you will want to get back to running your Departments, so the quicker we can be, the better.
I introduce—from my left to right—David Williams, director general of finance and chief operating officer at the Department of Health and Social Care, who does clever things with money every year, which we will touch on in a moment. We also have Ian Dalton—Sir Ian Dalton, forgive me—
Ian Dalton: No—unless you know something I don’t.
Chair: I have about three different versions of your name, and I chose the one that has you knighted. You are not yet, but I am sure it is coming. Ian Dalton is chief executive of NHS Improvement. There is also Sir Chris Wormald, permanent secretary at the Department of Health and Social Care, who is a knight of the realm, and Simon Stevens—
Simon Stevens: You can call me Simon.
Chair: Simon is chief executive of NHS England. Welcome to you all. I will hand straight over to Gareth Snell.
Q45 Gareth Snell: Starting with Sir Chris and Simon, the NAO Report is quite clear that there are significant challenges facing the finances of the NHS. Given that the Report’s title is about financial sustainability, is it your opinion that the NHS is financially sustainable?
Sir Chris Wormald: Yes.
Simon Stevens: Yes.
Q46 Gareth Snell: Can I ask what metrics you look at to back that up?
Simon Stevens: Delivery of the long-term plan, which is a sustainable course for improvement over the next decade.
Q47 Gareth Snell: Okay. Looking through the headline figures from the NAO, you had to pump in £3.2 billion-worth of loans, there has been £1 billion-worth of capital transferred to revenue, 75 CCGs have overspent and you have almost £0.5 billion-worth of deficit in the trust sector. Is that what you would call sustainable? Does it tick that box?
Simon Stevens: By definition, “sustainable” is a forward-looking statement. Figure 1 shows that, as a result of the financial settlement that accompanies the long-term plan, the financial prospects of the national health service are better over the next five years than they have been over the past five years.
Q48 Gareth Snell: So, better overall. Sir Chris, would you be happy if any other part of your Department saw the significant internal variations in deficits and surpluses that you see within NHS England?
Sir Chris Wormald: We want them to be better, as do the people to my left and right. What we have done in the long-term plan is set out a series of measures to move from our overarching goal that Parliament sets us—to financially balance the NHS—to a position, first, where the individual sectors of the NHS are balanced, and then over time to a position where every institution within the NHS is balanced. I am sure that Simon and Ian can add a lot more detail. That will take us time.
Over the last few years, as Simon and I have said repeatedly at these hearings, we have been doing things that we did not particularly want to do to meet the overall objective of balancing the NHS. The long-term plan, and the investment that sits with it, gives us the chance to move from that sub-optimal position to one of financial sustainability, in the way that you describe. I do not think there is any difference between us, the NAO or the Committee on either of these points.
Q49 Gareth Snell: I will pick up on two points there, Sir Chris. First, does the £1.1 billion underspend in NHS England worry you? Is the money granted by Parliament, through your Department, to NHS England getting to the right places? Secondly, you kind of reframed the answer that Simon gave. I am not trying to play you off, I promise—
Sir Chris Wormald: No, I don’t think so. I think we have been very consistent.
Q50 Gareth Snell: Hold on. Let me explain it, and then you can tell me why I am wrong—otherwise this will be dull. You said the situation is sub-optimal but moving towards sustainable. If you were to take a snapshot of the NHS now within your Department, would you still be confident in saying that it is sustainable, or would you say that it was sub-optimal?
Sir Chris Wormald: Those two things are not inconsistent, for the reason that Simon said: “sustainable” is a forward-looking statement. If we look at the things that we have all done to ensure that the NHS balances every year, as we have said consistently and the NAO has reported on, that includes a whole series of things we would rather not do. We want to move from that position to the forward-looking position of sustainability going forward—
Q51 Gareth Snell: So you are less sustainable today than you will be in five years’ time.
Sir Chris Wormald: No, because, as Simon says, sustainable is a forward-looking statement. Are we confident about the future on the basis of the new investments and the long-term plan? Yes, we are. Have we had to do things, in the last financial year and the financial years before that, that we would rather not have done? Yes, we have.
Q52 Gareth Snell: On the £600 million bail-out—there was a discussion with the Chair about what word we should use for that—that the Department of Health and Social Care had to have from the Treasury, as part of your future sustainability assessment, presumably you will not be looking for future bail-outs and stimulus, because it is not sustainable.
Sir Chris Wormald: It is not a bail-out—
Q53 Gareth Snell: The Chair wanted to use “bung”—
Sir Chris Wormald: It is only indirectly related to NHS budgets, so Mr Williams may want to add to some of this. As you know, at the beginning of a financial year, we predict in main estimates what we think we are going to spend, including a whole series of pieces of income that are not fixed. We then amend that at supplementary estimates time. In this case, for a variety of reasons, we did not get some of the income and other things that we were expecting. Therefore, we amended our position at final estimates. That actually relates, mainly, to the non-ring-fenced parts of our budget, so the non-mandate position. It is related to what goes into the mandate, because, of course, we invest in the mandate from a variety of sources, but it is mainly about—I think this is right, David—income that we were expecting that we did not receive.
David Williams: I prefer the description “supplementary estimate” to “bail-out” or “bung”. As Sir Chris says, we made some assumptions this year about income and receipts—some of it recurrent and some of it not recurrent. The timing of that money flowing into the Department has been delayed for a variety of reasons.
To give you one example, about the increase in the immigration health surcharge, a full year of the new rate is worth about £220 million to us. The regulations were passed by the House in the third week of November and came into force in December, so that gave us only a quarter’s-worth of income rather than a full year. I would expect either the recurrent aspects to come through in ’19-20 or, where we are undertaking one-off transactions, I expect them to complete this year. It is not really anything more than a timing issue.
Q54 Chair: But the timing issue is not insignificant, is it? To a degree, the Department has some say about when legislation goes through. I recognise it is not that straightforward—
Simon Stevens: Just to underline, unless David is about to give us a windfall live at the Public Accounts Committee, this is not a bail-out for the NHS. This is no extra money for the national health service over and above what was promised for this financial year. That is an important clarification.
Q55 Gareth Snell: So it is a bail-out for the Department of Health and Social Care, rather than the NHS itself. Is that what you are saying?
David Williams: It is not a bail-out.
Sir Chris Wormald: As he said, it is not a bail-out.
Q56 Gareth Snell: My reading of the situation, David and Sir Chris, is that if it had not been for the supplementary estimate, the transfer of capital budget to revenue, and the additional loans that were being put in, you would have had to come back to Parliament to ask for a significant excess vote, because you would have significantly overspent your Department’s allocation. Is that not correct?
David Williams: You are conflating three different types of money in the question. The first of those is about DEL on the timing of income, which is the primary issue that we have addressed through the supplementary estimate. Actually, the Department also got money through the supplementary estimate for the impact in 2018-19 of the agenda for change pay deal and of the change in the discount rate. It is a routine mechanism. The £600 million is about 0.5% of my overall revenue budget, just to put that in context.
On the capital to revenue switches, those decisions were taken at the time of the 2015 spending review, where collectively—this is one of the sub-optimal things that we have touched on—we concluded, both within the Department and with NHS colleagues, that prioritising day-to-day expenditure over an aspect of investment for the future through the capital budget was more important, as part of our stabilisation approach and our financial reset.
On the loans, those are essentially a cash flow within the ring fence and do not score to either of our DELs directly, though repayments of the loans or interest payments flow around the system. There are different elements to the question. They would not simply add up to pressure on the headline budget.
Sir Chris Wormald: These relate to the ’18-19 budget, not the ’17-18 budget. We have yet to do our audited accounts of that year. It is self-evident, however, that if we didn’t do any of the things that we do in order to come in within our parliamentary vote, then we wouldn’t come in within our parliamentary vote. In a way, that is self-evident. We have never disguised—the NAO would never let us disguise—that we do a series of things with the aim of delivering Parliament’s requirements.
Q57 Chair: As we have been watching closely over the last three years with great interest.
Sir Chris Wormald: We are not attempting to hide that this is what we do.
Chair: Mr Williams is a deft magician in that respect.
Q58 Gareth Snell: I think the answer to my question is—if I am wrong, I will be corrected—had it not been for the additional, supplementary estimate, you would have overspent your parliamentary-approved total. Is that correct? It is a very simple question.
Sir Chris Wormald: We only seek parliamentary estimates when we need them to not exceed our parliamentary vote, so by definition that is the case. We are saying that that is not an unusual thing, but what supplementary estimates are for.
Q59 Gareth Snell: Simon, can I turn to you, to ask about the underspend in the NHS England budget? Could you briefly—I stress, briefly—tell me, given that both CCGs and trust providers were reporting deficits across the piece, why there was a relatively large underspend in NHS England’s expenditure?
Simon Stevens: Well, because we created a managed underspend to help offset some of those pressures that were arising elsewhere in the NHS, so that overall the group could, for all intents and purposes, balance its books across the NHS in 2017-18, as indeed we did.
Q60 Gareth Snell: On the deficits that have arisen in both the commissioners and the providers, at any point were there conversations about using the underspend to meet those particular deficits directly, rather than simply netting off across the sector?
Simon Stevens: We did that to some degree, in that CCGs in 2017-18 collectively ended up with a small overspend, which is—if you want a parsimonious explanation—more than accounted for by the extra pressures worth £349 million in gross terms of the generic drug pricing issue, which I think the Committee has looked at previously. Were it not for that, the CCG sector in aggregate would have balanced its books. The approach we are taking going forward is a different one and we will probably come on to talk about that. In the context of this excellent Report, we are not discussing the current year, we are discussing a year before the current year. Obviously, the NHS is really focussed on finishing up this year, and getting itself shipshape for next year and the five years that follow.
Sir Chris Wormald: If I could add, it was a contentious issue. When we did the financial reset in 2016, Simon, Ian’s predecessor and I all agreed that the strategy at the time was to have managed deficits in trusts— indeed, the targets we set trusts were to have deficits—and to hold money back elsewhere in the system, both through the sustainability fund and NHS England, to offset those deficits. That was the financial strategy we agreed. To that extent, there was a conscious decision to manage the finances in that way. As Simon says, what we want is to move away from that financial strategy, which was necessary at the time to balance the NHS but, as I think we have described before, puts a series of perverse incentives into the system. While it was effective in meeting our overall goal of a balanced budget, we recognise that it put perverse incentives into the system, particularly on the provider side. That is why, through the long-term plan, we want to move to the situation Simon and I have described.
Simon Stevens: For next year, as you may have heard from the earlier witnesses or seen in the long-term plan, we are putting £1 billion of the provider sustainability fund into tariff prices for emergency care, and we are putting in just over £1 billion additional up front to fund the cost pressures that sit in trust deficits. That means, by the way, that there will not be a central reserve held back for ’19-20, and therefore it is vitally important, given that the money is going up front, that people—
Gareth Snell: You are trying to pre-empt my question now, aren’t you?
Simon Stevens: I know you are a syllogistic logician, so we are just working our way down the logic chain here.
Q61 Gareth Snell: That means I have to change my routine for future meetings, doesn’t it? That was the point I was going to raise: if you are looking to deplete that central fund and put that money out into CCGs, how worried are you both that there is a huge variation both in the deficits and surpluses being reported by clinical commissioning groups, and equally in the deficits and surpluses reported by provider trusts, and there seems to be no correlation between where the money is in the system and where the demand is in the system?
Simon Stevens: I am sure Ian will want to come in as well, but the £1 billion that is going into the financial recovery fund for trusts specifically takes account of what is a reasonable stretch improvement goal for an individual organisation next year. It is also linked to a re-baselining of the trust-specific control totals. Together with the extra £1 billion flowing into the emergency care tariff across the board, the view that I am sure Ian will represent is that that means a much more realistic task for individual organisations.
Ian Dalton: Let me add to that. I sat before this Committee to talk to you for the sixth iteration of financial sustainability in the NHS, and we described a situation in which deficits were effectively endemic across the provider sector, particularly the acute sector; in which the average tariff payment received for an episode of care was significantly less than the cost of providing it and in which deficit loans were becoming the norm for a number of trusts. I could go on, but I think we concluded that those measures were part of a financial reset, as Chris and Simon have outlined, but were fundamentally not the way we wanted to manage the NHS going forward. If I may finish, the injection of new resource gives us an opportunity to create an entirely new financial regime, which will have two big effects.
The first is that we are making a decisive, definitive move to end deficits across the provider sector, and during ’19-20 we expect to see the number of trusts reporting a deficit fall by over 50%. At the same time, there are enough funds at the end of that to invest in the new models of care over the five years that we will need to be clinically sustainable. The three of us are together in the sense that the long-term plan, together with the new resources and the new financial regime that we have put in place, sets a stretching but achievable task for trusts, gives people skin in the game and an opportunity to improve, and will move us away from a situation where even efficient trusts are ending up in deficit year in, year out, which is not in the ultimate interest of patients even if, for the reasons that were outlined, the mechanisms adopted three or four years ago, when the provider deficit ballooned out to £2.45 billion, I think, were undoubtedly necessary at the time.
Q62 Gareth Snell: Can we pause the trust side for one second? I will come back to that. I am sorry to come to you on this, Simon; if Ian can tell us there will be a 50% reduction in the number of trusts reporting deficits at the end of this year—
Ian Dalton: For ’19-20.
Q63 Gareth Snell: Sorry, next year. Can you give us an equivalent figure, or at least a trajectory, that CCGs will find themselves in with this new money that is flowing toward them?
Simon Stevens: Yes, it’s similar. My prediction is that we are going to see around about a 50% reduction in the number of CCGs in deficit this year compared with last year, so I think we will make progress in ’18-19 on that front as well.
Q64 Gareth Snell: That is the number of CCGs with a deficit. In terms of the overall net deficit of the sector as a whole, is that figure going to come down as well?
Simon Stevens: Of the CCG sector? Yes.
Q65 Gareth Snell: And will you see a reduction in the variations between the most extreme in deficit and in surplus—more standardisation?
Simon Stevens: Over time, yes. We have a lot of moving parts here and we have also changed the resource allocation—our formulae, as you know—to our individual CCGs. The number of CCGs itself is coming down. But yes—look, we’re going to have around about half the number of CCGs in deficit this year that we had last year, and we expect to see further progress next year.
Q66 Gareth Snell: And you will see a reduction in the total deficit associated with the whole CCG sector?
Simon Stevens: That is the basis on which their control totals are being set for next year.
Q67 Gareth Snell: Could I ask this, then? We heard from the previous panel about the way in which trusts with structural deficits and legacy debts as a result of structural deficits struggle to work their way out of that debt because of the way the tariff is structured and because the MfA has an indication in some parts, where deprivation is higher. What is the plan to help to deal with those trusts that have both a structural deficit and a legacy debt, so that they can be both deficit-free and debt-free?
Ian Dalton: Let me start by very briefly explaining—and, I think, building on the earlier evidence—the reasons for a deficit. The first can be an underfunding of care. We know that in the current arrangement, emergency care is underfunded. We know that has been increasing year on year. That is being fixed in the tariff: we are putting £1 billion into urgent and emergency care prices, to make sure that that element of deficits going forward is limited.
The second area is about efficiency. We have, as part of the long-term plan deal, a tariff deflator of 1.1%. That compares with the current 2%, and the 4% previously, so the opportunity for trusts to cover their costs is significantly increased at the same time as we want to see real efficiency. The third element is—I think your witnesses referred to some examples of this—some relatively rare cases where there are structural issues in a health economy.
Those are the causes of deficits. The new financial recovery approach that we will be putting in place from 2021 onwards is a deal with every hospital in the country that is in deficit. Funds will be targeted at deficit trusts in return for a multi-year financial recovery plan that will enable them to cover their essential service costs while they make the underlying improvements in efficiency that they need, dealing with the addressable issues that they have.
We will fix the tariff. We will fix the addressable issues. If, exceptionally, at the end of that, as part of that conversation, there is a discussion to have about the amount of debt on the balance sheets—there is now £11 billion in distressed loans on the provider balance sheet, and that costs £215 million a year in repayments—and if there is an issue in rare cases—some particular PFIs and other examples, rare examples, of structural problems—then as part of the deal we will do, we will have to have that conversation. But I think the important thing is that we are funding many of the problem areas and we are asking for a deal with trusts that takes a view of the long-term underlying financial improvement that they need, rather than taking the approach that we have had to adopt to date, which looks at annualised cost targets, which tends to lead to a focus on non-recurrent improvement, which I know this Committee has had some problems with. I think we are in a fundamentally different place now than we have been anywhere in the last six years or so.
Sir Chris Wormald: The only thing I would add to that is that we distinguish very clearly between deficits, and trusts that have financial rigour and financial management issues.
Q68 Chair: The difference between a structural and a management—
Sir Chris Wormald: Exactly. You can be in deficit and be a very well run organisation. You could also be not in deficit and have financial management problems. And it’s the financial special measures regime that targets the latter.
Chair: That is a perfectly fair point to make.
Sir Chris Wormald: Just on loans, I think all the loan repayments are recycled back into the NHS, so they go back into the mandate. The challenge is that, again, it provides a perverse incentive at provider level, even though it washes out overall.
Q69 Chair: But figure 10 shows how they peak. The loan repayments are enormous up to 2020; well, they suddenly drop at 2022. Is it sustainable for them to pay back those loans, or are you looking at any debt restructuring?
David Williams: Again, we are talking about two slightly different things. Ian and Chris are talking about the annual level of interest payments on the loans, and those are recycled within the system. The figure that you referred to is about when the current loans in the system come to maturity and are due for repayment. The spike that you see, we will need to manage, either by refinancing or extending current terms—
Q70 Chair: So you will be doing a debt restructuring.
David Williams: I think we will need to do that. We then need to come up with a system of interim funding loans that matches the financial situation that we expect to pertain through the long-term plan. That is a consequence of a period where the income generated by a trust has not routinely covered the costs of their operations, for the reasons that Ian has set out. As we move into the long-term plan and see the provider sector return to balance, and in some cases surplus, we do not want to design a new loan mechanism for the problems of the last four years. We want to make sure we are designing it as part of the financial architecture moving forwards.
Q71 Gareth Snell: That sounds like a significant reorganisation of the financial regime that CCGs and providers will find themselves in. Should that go ahead, what confidence do you have that the issues that led to structural deficits in individual trusts will be addressed, so that having rebalanced their books, they do not just start to build up and accrue deficits and debts over time?
Ian Dalton: Should I kick off? The reality is that for the reasons that I have talked about, the new financial regime fixes the very issues that cause the problem. What we are looking for, frankly, is a something-for-something deal with our trusts that enables an efficient trust to break even, regardless of whether it is a mental health, a community, an acute or an ambulance trust. That situation has not pertained in the NHS for many years. That is a fundamentally new opportunity.
On how we hold people to account, I should be really clear that while we are targeting an additional £1 billion or so at trusts in deficit to help them to get out of deficit, this is completely a something-for-something deal. We will require those trusts to operate at high levels of efficiency to make their component of the deal. In return, we will support them to move towards a break-even situation.
I do not think you should read anything I am saying as meaning a lessening of accountability, or any lack of focus on efficiency, because at the end of the day, one of the ways that trusts stay out of financial problems is by ensuring that they run their operations very efficiently. Given that this is taxpayers’ money, the Committee will understand that it is important to us as well.
Chair: We would hope so.
Sir Chris Wormald: The other component that is important is that we will have to monitor extremely carefully whether it is working, for exactly the reasons that you point out. The bringing together of the NHSE and NHSI operations ought to allow us to do that considerably more effectively.
Chair: I see that the director of submarines has come over to deal with that for you—an interesting transition.
Sir Chris Wormald: Very welcome he will be.
Q72 Gareth Snell: Can I ask, briefly, Sir Chris, about paragraph 8 of the Report? It talks about the long-term funding settlement not covering other key aspects of the health service, particularly public health or capital investments.
Sir Chris Wormald: Yes, that is a statement of fact. The settlement—
Gareth Snell: I have not asked the question yet. Given that the long-term plan money will focus on the NHS, not those key areas, what plans are in place to make sure that any necessity for spending in those areas does not detract from the additional investment being put into the NHS through the plan?
Sir Chris Wormald: All those budgets will be settled as part of the spending review. We have always made that clear. The answers to your question will be in the detail of the spending review.
Q73 Gareth Snell: So the spending review, as far as you can tell us, will carefully explain what the capital investment in the NHS will be, how public health will be funded, and those sorts of things.
Sir Chris Wormald: Yes. We have always been clear about this. We settled the NHS mandate, but we did not settle the rest of the Department’s budgets that cover the areas that the NAO reported on. Those will all be settled as part of the spending review.
Q74 Gareth Snell: Last question from me. Given that that is the case, and given that the date of the comprehensive spending review may be pushed further and further away—this is all circumspect, of course—how can you be confident that NHS trusts or the parts of the NHS estate requiring access to capital now will be able to get that, in order to facilitate and support the investment going in via NHS England?
Sir Chris Wormald: I might ask David to add to this. We already have considerable capital resources, and trusts have their own capital resources. Obviously I cannot prejudge either the timing or the result of the spending review, so the assurances that we can give are limited, because they are dependent on spending review outcomes. However, we already invest a considerable amount. David?
David Williams: We do. The 2017 Budget set out an additional £3.9 billion of capital investment for the Department over a number of years. The capital budget in 2018-19, as I think the Report says, is £1.3 billion higher than in 2016-17. Until we get into the spending review, I would expect that higher level of investment to be maintained. We will make our case in the spending review in the normal way, should we want to spend more.
Q75 Gareth Snell: Just one quick follow-up. Given that the NAO Report says that capital budgets have repeatedly been used to support revenue spending, how will you act on the demands on the capital that you will have against your desire to move that money to the revenue, to shore up shortfalls in other areas of Department spending?
David Williams: There are two things at play here. We made a set of assumptions at the time of the 2015 spending review about a range of capital-to-revenue switches, which peaked at £1.2 billion in 2016-17, with £1 billion in the year covered by the Report and £500 million in 2018-19. We expect to see that removed by the end of the SR15 period, so that will decline in its call on the capital budget, alongside an injection of additional investment in the 2017 Budget, particularly for STP-led schemes and an element of backlog maintenance.
Q76 Gareth Snell: That £1 billion is just shy of one fifth of the total budget you have available for capital. Either you had to stop doing things in order to put that money into the revenue side, or the money that has gone into the revenue side was not really doing a great deal to start with. Which was it?
David Williams: I think, as we have discussed previously, it was primarily an opportunity cost; the budget has not grown in the way in which it might otherwise have done. Obviously the impact on individual trusts, depending on their circumstances and their cash reserves, will vary, in the same way as the variation in the revenue positions that we have talked about. Some projects will have been deferred, some will have been de-scoped and some will not have been taken forward as previously planned.
Q77 Gareth Snell: How much impact has there been, in terms of the Department’s overall plan for the provision of healthcare for the country, on deferring or de-scoping projects that equate to one fifth of your capital budget?
David Williams: I can’t give you a neat metric answer for that.
Q78 Gareth Snell: On neat metrics, what do you measure? Presumably capital costs being put into your revenue account has an immediate effect on other parts of the service; you may have revenue costs lined up to service that capital, or linked into other capital projects. How are you keeping track of that impact if you do not have a neat metric?
David Williams: On that point, although it is given effect each year through the supplementary estimates process at the end of the financial year, it has actually been planned in, as it were, on the capital allocations that we have been making from the beginning. It is not that people were expecting progress on projects and then suddenly finding out that they had been stopped.
Q79 Gareth Snell: So in your own planning, you plan to transfer roughly £1 billion from capital to revenue every year? It is £1.2 billion in 2016-17; £950 million in 2015-16; and £1 billion this year. Is that part of the Department of Health’s economic strategy—to take £1 billion of capital every year and stick it in reserves, to make up for shortfalls elsewhere?
David Williams: Not every year, but as we have said it is indeed part of our strategy, coming out of SR15—
Q80 Chair: We know that, so let’s just get to the nub of Mr Snell’s question. You are good at your sophistry, Mr Williams, but there is an opportunity cost, because there is equipment that is not updated.
David Williams: Yes, there is an opportunity cost.
Chair: There are buildings that are not maintained, so there is a knock-on, or build-up of that. Can Mr Dalton give us an idea of the latent demand for that sort of improvement? The scanner in the hospital, say?
Ian Dalton: Yes, I can, and you have covered some of those areas. I have some facts that might be worth disclosing at this point. Year in and year out over recent years, the NHS provider sector has spent around £3 billion of self-generated and granted capital. Obviously, that brings new services, new schemes, new scanners and new equipment into existence, and it is all very important.
I think it’s also fair to say that, as I think the NAO comments in its Report, we have seen a significant increase in backlog maintenance across this period. I think it is also true to say that, to give an international comparison, we are investing relatively little, compared with OECD averages, as a percentage of overall revenues.
I think it is understandable that on occasions a strategy is necessary to transfer capital to revenue; I think we all understand the need for that, to ensure financial balance. I think it’s also fair to say that world-class services require world-class facilities, and going forward I hope that we can move beyond capital-to-revenue transfers, and invest the amounts of capital that the NHS will need.
Chair: So who is deciding how and when trusts can bid for capital investment? The bigger trusts are being particularly targeted to turn their capital into resource.
Ian Dalton: I am sorry; I didn’t hear the question.
Q81 Chair: Which of your bodies will decide the criteria by which trusts can bid for that additional capital funding? Will you look at which ones couldn’t invest, or didn’t invest, in the years since the 2015 settlement, where there is a particular backlog of capital investment?
David Williams: As I think I have said to the Committee before, the capital landscape is a mix of bottom-up, self-generated funding—around £2 billion of the £3 billion that providers spend themselves they generate themselves, and you would expect a return to financial balance to allow individual providers to have access to more capital, because they will be generating cash that they can then invest—alongside a process of top-down allocation. We announced tranche 4 of that just before Christmas; we have a set of criteria for weighting and judging the relative priority of individual schemes with colleagues from NHS England and NHS Improvement.
The long-term plan sets out, as one of the responses to one of the five financial tests, capital review work that we will be taking forward jointly in the run-up to the spending review, to think about how we can simplify the sort of fragmentation of funding sources for capital, and make the process more transparent and responsive.
Sir Chris Wormald: Just to be clear on the process, NHSE and NSHI come to the Department and the Treasury with a set of agreed proposals, which are then agreed by us, for that slab of money—
Q82 Chair: Can I just ask a question, and then I will go back to Mr Snell quickly, because I think it is worth pursuing this? I will come to Ms Morris in a moment. The House is agreeing a capital supplementary estimate, but you’re already talking about not using it for capital. I’m a bit confused here about what you are asking Parliament to support. If it’s not for capital funding, why is it a capital supplementary estimate? Maybe I’ve missed something here, Mr Williams.
David Williams: The supplementary estimate on capital primarily does two things. It formalises the transfer of £500 million from capital to revenue, which has been baked into the NHS mandate since SR2015. But it also allows us additional capital in-year from the Treasury, which is just under £100 million, to offset some of the balance sheet consequences of the collapse of the two part-built Carillion hospitals. So, in bringing Midland Metropolitan and Royal Liverpool on to our balance sheet—
Chair: So there is another outfall of Carillion. We will add that to the little tally.
Q83 Gareth Snell: I have three very short questions. When do you anticipate that your capital allocations will go back to being spent entirely on capital, as opposed to any part of them being transferred to revenue? By how much do you expect the backlog maintenance to grow next year, and who is responsible for that £6 billion in the overall, grand view of things? I suppose the question for you, Simon, really is: where there is a backlog of capital allocations of maintenance and equipment, what impact, if any, is that having on patient care?
Simon Stevens: Without stealing David’s thunder on the first part of the question, I think he said earlier that the aim was to have weaned off capital revenue transfers certainly over the course of the first half of the long-term plan period, and we will taper that over the next several years. It is obviously tied up a bit with the result of the spending review as regards the amount of overall capital we are able to secure to deal with the backlog maintenance and other issues you have mentioned.
On what impact it has on patient care, it is all the things the Chair and Ian talked about. I think that both Ian’s and my view is that the critical backlog maintenance is now getting to such a point that we will have to address it. It is no longer a discretionary deferral in many cases. Part of the question that individual hospitals—this is true for the mental health sector as well—are facing is whether it is sensible to do tactical backlog maintenance fixes, or whether, if people can see this located in the context of a bigger five-year or 10-year capital plan, there might be a more fundamental change in the investment profile in a given health geography that means that you would not put the money in just to fix what you currently had. Those are the sort of judgments that will have to be made in the light of the spending review.
David Williams: Just as a gloss, I have also said to the Committee previously that the sort of tactical fixes that Simon mentions are often revenue rather than capital, so addressing the backlog maintenance is a mix of capital and revenue, and therefore not entirely dependent on where the SR comes out on the capital settlement.
Simon Stevens: Our priorities for capital investment in the next spending review are partly dealing with these day-to-day pressures, and partly dealing with some of the capacity gaps in the system. In particular, for example, we have had a successful £130 million upgrade to radiotherapy services—LINAC—across the country, and we need a big investment programme in diagnostics to deal with some of the bottlenecks, particularly for cancer services as we expand early diagnosis. Thirdly, there are a series of investments that will improve trend productivity in the national health service, be they in technology or new ways of working, and which would enable us to use our workforce differently. Those are the three main cases that we will be making in the spending review.
Q84 Chair: The spending review has been mentioned often. Sir Chris, what would be a very serious delay? We have heard lots of talk about it being delayed, and I have heard the suggestion that it might not happen—that there might just be a roll-over from next year. Would either of those cause a real crisis in the NHS? How would you cope?
Sir Chris Wormald: Sorry?
Chair: We hear lots of discussion about the spending review being at least delayed—we hear spring, but that depends on what happens in the next month. I have also heard that there is an option of rolling over last year’s settlement to this, of not having a full-blown spending review. What would the impact on your Department be?
Sir Chris Wormald: I am not going to comment on any of the things that are matters for the Chancellor, unless my colleague from the Treasury—
Q85 Chair: But what would the impact be, were there to be a delay?
Sir Chris Wormald: Clearly, we are in a vastly advantageous position compared with any other Department that comes in front of you.
Q86 Chair: So it’s okay.
Sir Chris Wormald: No. Clearly, that would cause challenges across the whole Government. What I am saying is that, because of what the Chancellor did, we are in a very advantageous position, because a large chunk of our—
Q87 Chair: So you are better off than other Departments. Simon Stevens, what would the impact on NHS England be?
Q88 Simon Stevens: For 2019-20, the year we are about to go into, we have a working assumption as to what the capital budget and spending will be. What we are talking about is the position from April 2020. That gives us 13 months in which to address these questions, and there is no reason to think that that cannot be done.
Q89 Chair: It is 13 months, but if it was seriously delayed, there would be little time for planning for new services and—
Simon Stevens: I am sure that within 13 months, it is possible to answer these questions.
Q90 Chair: A final one before we move on. PFI was obviously a big concern for our pre-panellists. We had three pre-panellists from trusts with large PFI contracts—well, relatively sized, but for them significant—including, of course, Barts trust. We talked about debt restructuring for the loans. Has there been any consideration of looking at how PFI could be dealt with so that the day-to-day costs of running those trusts that have large PFIs are mitigated?
David Williams: The Chancellor announced in Budget 2018 the establishment of a sort of PFI centre of excellence in the Department, working very closely with expertise already present in NHS Improvement, working for Ian. We are building that up now, engaging with NHSI and the sector, both on individual PFI deals that would be worth us going over and on some themes.
To start off with, it is more likely that we will be looking at how we can help providers to manage PFI contracts tautly and make sure they are getting what it is that the deal was meant to deliver, looking at areas where contract variations might help. Barts, for instance, has changed the way in which it approaches soft FM within its PFI deal. There may be some lessons there for others. Wholesale refinancing or buying out of PFI deals is—
Chair: Very expensive.
David Williams: Unlikely to be value for money or affordable, so I do not know if we will be looking at that.
Q91 Chair: For some of those trusts, PFI repayments in staffing take a very large chunk of the day-to-day, because they do not have the capacity to deal with that. They did not actually argue it too hard themselves, but there is an issue about capacity for the rest of the budget. Is it about spreading the payments for longer, or some support from the Department?
David Williams: We will want to look at that, and it plays slightly to the conversation we had earlier about where there are structural deficits. Again, if you look at Barts, who were here on the pre-panel, there is always going to be about £25 million of pressure from that PFI. The question is how far we expect the trust to manage that, or how far we aim off from that in our thinking about what a realistic financial position for them is.
Q92 Chair: So you are thinking about it. When will the centre of excellence actually be operating? When will there be change, Mr Dalton?
Ian Dalton: Shall I just pick up on that latter point? Assuming we are going to identify those particular PFIs—because this is not necessarily a generic issue relating to any funding system; this is a scheme-by-scheme, trust-by-trust issue—once the trust board understands the drivers of its deficit into the categories I talked about of what is funding, what is addressable, and what ultimately is structural, as part of the deal that we will do with them in the 2021 year and beyond to return them to financial balance, they will be given a long-term allocation from the financial recovery fund to trusts to help them to do just that.
However, at the end of the day, the deal has to be that the trust fully understands the causes of its deficit and can convince us that it is doing all it can to balance its own books to deal with the addressable efficiencies. I should say, because it has not come up in the discussion yet, that as you will see in the long-term plan, despite the billions we have saved each year, there are still significant variations in efficiency across the NHS that we would expect to see as the trust’s contribution to that.
Q93 Chair: So it is a strings attached—
Ian Dalton: It is a something-for-something deal.
Chair: But you will be looking at that structural—
Simon Stevens: Building on his point, if you look at the 10 trusts that the NAO Report points out accounted for 69% of the deficit in 2017-18, there is no correlation between having a PFI or not, or having an expensive PFI or not. Indeed, a number of hospitals look with some envy at organisations that have had the benefit of upgraded capital investment, delivered through whichever route, and would argue that that capital investment has enabled them to lower their running costs.
Some organisations argue that precisely because they have not had that capital investment, their running costs are higher, whether it is the heating costs of the building, the soft FM costs, the staffing and so forth. As Ian says, we have to look at this organisation by organisation, rather than just assuming that one category of investment automatically explains the underlying financial pressures.
Q94 Sir Geoffrey Clifton-Brown: Mr Dalton, have I understood this PFI question correctly? It seems that in some of these extreme cases where the PFI is causing great structural deficits year on year, you will bake in that problem, because you will not buy out the PFI. You are accepting that there is an extreme deficit. You will of course manage it, and you will see where costs can be put back with the PFI provider, but basically you are baking in the structural deficit caused by the PFI in some cases.
Ian Dalton: We are creating a financial recovery fund targeted exclusively at trusts in deficit. From ’20-21 onwards, that is part of a deal to return those trusts to financial balance. Where there are exceptional structural issues that cannot be dealt with—a subset of PFIs might form part of that—we will look to see how we bake that into the conversation, but I suggest that we are a way off from that yet. We are working with trusts this year to understand fully the magnitude of the addressable savings, and what is ultimately not addressable. At the end of the day, this is a trust-by-trust calculation.
Q95 Chair: When will we see a change? Will it be 2020-21?
Ian Dalton: 2020-21 should see us being able to enter multi-year agreements with trusts where they have not done the work—some in financial special measures already have, with our funding—to fully understand the drivers of those deficits, whether they are funding levels, efficiency, or, in rare cases, structural. Then we can have a conversation about that, so we can take a multi-year view.
Sir Chris Wormald: There is just one other key thing on Sir Geoffrey’s question. As David Williams said, when we are looking at a PFI, we are not taking in-principle decisions about baking in or not; we are taking the solution that is the best value for money going forward. The point that Mr Williams was making is that very frequently that is not buying out the PFI.
Q96 Chair: Sorry, we were not discussing buying out PFI. We have covered that as a Committee.
Sir Chris Wormald: It is just that on Sir Geoffrey’s question, we want to be very clear on this. We are looking trust by trust, and coming to a VFM decision.
Chair: We have looked at PFI a lot, and we recognise that it is pretty much impossible to buy out of it in any financial sustainable way; there is another political debate there.
Q97 Anne Marie Morris: Mr Stevens, would you agree that the financial sustainability of the NHS and of social care are interdependent?
Simon Stevens: Yes.
Q98 Anne Marie Morris: In which case, Mr Williams, what assumptions have you baked in, with regard to social care, that enable you to make the statement that you believe that the NHS is financially sustainable?
David Williams: It is a bit like the other evidence on the NHS budget: the social care spend will be determined in the spending review as part of the local government funding settlement. Social care funding does not flow through the Department of Health and Social Care directly. The commitment from the Government as part of the long-term plan is that that spend will be set at a level that does not add to pressure on the NHS; that is the test for us as we move into the spending review.
Q99 Anne Marie Morris: Doesn’t that sound a little bit woolly to you as a promise, particularly as we still have not seen the Green Paper?
Simon Stevens: I think it is very important—
Q100 Chair: We are not saying it is not important; Ms Morris said it was a bit woolly.
Simon Stevens: Well, it needs cashing out in pounds, shillings and pence, clearly, but it is a different commitment from those we have had over the prior five years. Without in any way being reductionist about the hugely important impact that social care has beyond this, or about the impact of an absence of social care on older people who are stuck in a hospital and not able to come home and live independently—we recognise that social care is a lot more than the interface with the health service—the fact is that it is a very important commitment to have been made. It is about ensuring that that commitment is given life through the judgments made on social care. Funding will be integrally important in delivering the long-term plan.
Q101 Anne Marie Morris: I agree. Great aspiration; I welcome it. My concern is that I do not quite see how you get the numbers—you have not got a workforce plan, either—to determine whether your NHS plan delivers financial sustainability when you have neither of those pieces.
Simon Stevens: The Green Paper will hopefully be a substantive and important move forward, but it will not in itself be the answer to the funding pressures on social care next year, the year after, and the year after that. By definition—I said the same thing at the Health and Social Care Committee—it is a Green Paper. Even if it were then turned into concrete proposals, and Parliament subsequently legislated, that is still some years off. We are going to need an answer for properly funding, publicly eligible adult social care over the next several years come what may.
Sir Chris Wormald: Simon draws an important distinction here. The Green Paper is about social care as a public service in its own right. There is then a separate, but related, question about the pressure created on the NHS, which is why the Government, because it agrees with your question, made the specific commitment that it did at the point of the long-term plan that we would set the social care budget so that it did not put additional pressure on the NHS budget. It was drawing that distinction between, as Simon has described, a public service in its own right and its inter-relationship, which, as you say, is extremely important, with the NHS as a public service.
Q102 Anne Marie Morris: I do not think that really helps me. It is a nice idea, but it does not really help, because I am still thinking about how you are then going to put numbers to it. I hear the good wishes. I hear the distinction between future plans and current plans, but on the Government promise that it will do as you say, which sounds very wonderful, and make sure that everything is all right on the night, effectively, so that you can actually work out what your funding should be—
Sir Chris Wormald: It is a Government promise. You can make of that what you will. We believe it.
Chair: Mr Stevens’ face is a picture.
Sir Chris Wormald: It is up to you. The process we go through in any spending review for the local government settlement is we work very closely with our colleagues at MHCLG and the other Departments that have services that are delivered by local government. We do an assessment of what the requirement is for local government to deliver its statutory and other functions, and then the spending review for local government is set on that basis—with, of course, the huge proviso that, as you know, an increasing component of local government expenditure is raised through local taxation rather than national taxation.
Then the eventual spend is, of course, related to the individual spending decisions of, in this case, the 150-odd top-tier authorities. That is, as I know you know, a very complicated system which makes it very difficult to say, “The number will be x,” in advance. That is why the Government made the commitment that it did. As I say, we trust that commitment.
Anne Marie Morris: I am interested in the process. It still does not answer the question, but let us move on. I hear what you say about Government policy—
Sir Chris Wormald: The Government have come as far as it can in the circumstances.
Q103 Anne Marie Morris: Let us move on. Clearly one of the things that is mega-important is that you have to understand supply and demand. We have heard from the Report and others that most of the trusts do not really have a handle on demand. Does that not surely affect the sustainability of the NHS? What are you going to do to help local trusts get an answer to that?
Sir Chris Wormald: I will leave Ian and Simon to talk in more detail, but of course the relationship between the supply and demand for health is completely crucial to this. Just like in every health economy in the whole of the western world, demand has tended to outstrip supply.
Q104 Anne Marie Morris: So what are you going to do about it? That is my question, Sir Chris.
Sir Chris Wormald: As you will see in the long-term plan, there are a whole series of measures that are both about demand in the classic sense—in terms of the prevention of illness—and about the management of demand within the health system. Absolutely crucial is dealing with more of the demand that we see in primary and community care, while maintaining the services that we need to provide in acute care. Bluntly, we need to see fewer people getting ill, on the prevention side, and then of the people who get ill—
Q105 Anne Marie Morris: I agree. We have got the process, but my question to you, Sir Chris, is not about the theory but the practice. The long-term plan is short on detail and spans over five years, for which only the first five years has, to any extent, been detailed. Let’s go back to the plot. We are looking at supply and demand. What are you going to do, working with the local trusts, to look at their specific needs?
Let me give you a case in point. On the last panel that we had, we had NHS providers here. One of the things that we looked at was those 10 trusts that are doing particularly badly—to look at commonality. You are right, Mr Stevens, that it is not PFI. There were some interesting rural aspects to that and, interestingly, in the inquiry that, as you know, I am running, the Department of Health and Social Care is sending an employee, because they are looking at the issue of rurality. I ask you again, what help are you going to give these areas to look at what their real need is? It is not just rurality; there are a whole bundle of other things, too. What are you going to do, because that will affect their sustainability and yours?
Sir Chris Wormald: I will leave Simon, at the end, to describe what we will do with individual areas, but we are expecting the health service to do all the things set out in the long-term plan. Do you want to comment on the individual trusts, Ian?
Ian Dalton: Yes, let me give a short and a medium term to this. What the plan aims to do is deal with the rising and changing demand from an ageing population that we know we will face now and over the next 10 years. That is a good thing; people are living longer. We shouldn’t be disappointed about that; we should be really pleased about that. However, the health service, as with other health services around the world, has to now respond to that. There are a range of measures we are taking now, and will continue to take into ’19-20, to improve the way we deal with patients. One tangible example is we are looking for the further roll-out of same-day emergency care across our hospitals. We know that a significant number of patients admitted to hospital as an emergency, with the appropriate organisation of clinical services within the hospital, can be better managed and sent home.
Q106 Anne Marie Morris: Can I just stop you there? That is more process again. I know what you try to do. I know what the processes are. They are commendable. I don’t have a problem with that. I have a problem with what you are going to do with each individual trust to ensure they fully understand their demands.
Ian Dalton: We are asking each trust, working with its neighbours in the integrated care system or STP, because this ultimately is not just a trust issue, to plan together for ’19-20, to manage to ensure that there is enough capacity to look after the needs of the patient, but—and I think it is an important “but”—also to make some practical changes to continue the reform process that we have undertaken and that is already producing results. If you look at the way we look after emergency patients now, if it had not been for the reforms to emergency care, the health service would be struggling significantly more, so we need to see those actions continue and increase.
Then, in the medium term, we are asking every patch to come together and take a five-year look at the needs of its population, and to set out very clearly how they martial their resources—including delivering the models of care, for older people particularly, that are outlined in the long-term plan, which we believe, and the experts who advised us believe, will be the right way to look after patients over the next five years. If we did not do that, we would be in a rather strange counterfactual, because the basic rise in demand each year would require us to build somewhere between 35 and 40 new hospitals, if we carried on with the same care model. So I think I would answer your question by saying: continued practical reform this year, based on proper patch-based plans, together with the new models of care built over the next five years across the country as a whole. I think that would be a radical improvement on how we look after people today.
Q107 Anne Marie Morris: It would. You still haven’t answered my question in terms of the differences. I am still frustrated that many pilots are being run across the country but best practice is not being shared, but let’s move on. There is another piece to this: there is not just the demand but also the supply, and right now we have not seen a workforce plan, so how do you know whether or not you are going to have the staff at a particular figure—because clearly employing is cheaper than bringing them in contractually?
Chair: Mr Dalton, you heard from our pre-panel, but we also surveyed finance directors of hospitals. Staffing is one of their biggest concerns.
Ian Dalton: Yes, staffing is one of the key enablers of success for the long-term plan.
Q108 Chair: Enablers—but it is not funded, is it? That is the problem.
Ian Dalton: Can I come to the magnitude of the issue and what we are doing about it? Then I am happy to move on, obviously, if that is where you want to go. What we have been doing—I am pleased about this—is having a very open debate in the health service. Certainly it is one I have been keen to engender. We have been publishing what trusts are telling us openly about their vacancies for the best part of a year, since I started in this role. It says we have got 100,000 vacancies, and around 40,000 nursing vacancies. It is really important for the Committee to understand that that does not mean that those shifts are not being covered. The vast bulk of them are being covered. It is important to fix that over the future, for sustainability. We are not the only health economy that needs to expand its clinical workforce further and faster. We have actually expanded our clinical workforces significantly over the last few years; it is just that the demand has risen even faster.
The workforce plan is currently being prepared, with an interim plan due to come out before ’19-20 identifying actions for ’19-20. The substantive plan will be when we have had the spending review later in the year. It will identify the means by which we increase the supply, particularly of nurses, but of other professionals too; how we change professional roles; how we retain staff, because the best way to ensure we have the right number of staff is to retain those we have—I could say much more about that—and how we address some of the aspects in the NHS that we know we need to do better on.
The NHS demonstrates some excellent employers, but we need to ensure that we are looking after our staff really well, too. There is excessive variation there. The workforce plan will be important. I would suggest that we are not letting ourselves off the hook for ’19-20, because ’19-20 starts very soon. We have already asked the NHS to look at areas such as retention. We will be asking them more formally to do that in the interim workforce plan, because the work that NHS Improvement has done with some of the most challenged mental health, ambulance and acute trusts that have particular retention problems demonstrates that you can retain more of your staff by looking after them better, and giving them more flexibility. There are actions we can do to increase the supply from next year while we wait for the full plan.
Q109 Anne Marie Morris: I understand what you are trying to do, but unfortunately that still does not give me comfort. In terms of the numbers to enable you to say that the NHS is financially sustainable, that doesn’t equate, but let’s move on. The new integrated care systems are an excellent idea—you will be pleased to know the pre-panel agrees—and are moving in the right direction, but we have a system that does not have a legal entity. You recognised in the 10-year forward plan that there will have to be some legislative changes. Mr Stevens, what changes are you looking to make?
Simon Stevens: We set out our proposals in the long-term plan itself—
Q110 Anne Marie Morris: But that is for 10 years.
Simon Stevens: The joint boards of NHS England and NHS Improvement will be meeting in public on Thursday this week and considering the public engagement document that we will be sharing with the NHS for debate on the detail of those legislative changes.
Q111 Anne Marie Morris: So what sort of pace would you see this moving at?
Simon Stevens: By definition, if we are recommending them, we would like to see them as soon as Parliament is able to give them to us. On what timetable that might be, we defer to you.
Sir Chris Wormald: Some of those questions may be for your side of the table rather than ours. We also expect that both this Committee and the Health Committee will want to look at the legislative proposals that come forward. We are expecting that sort of input as well. Ultimately, Government will need to take a decision about the content of the legislation and its timing, as part of the normal process of planning parliamentary time, which I know is quite exciting at the moment.
Q112 Anne Marie Morris: It is very exciting, and I am glad this is on the road. That is fantastic. Can I ask you, Mr Stevens, how bold you are prepared to be? Are you prepared to re-organise the regulators, because there is duplication? Are you prepared to look at truly integrating across the system? At the moment, there is a huge amount of wastage in reporting and measuring. How brave and bold are you prepared to be to get the system working? In our pre-panel, the comment made by NHS Providers was that the integration was working fastest where bodies had been working together for 20, 30 or 40 years. We ain’t got 20, 30 or 40 years.
Simon Stevens: No. To be fair, I did not have the benefit of their testimony, but it would not be quite right to say 20, 30 or 40 years. Some have changed their operating rhythm much more rapidly than that. We are prepared to be as bold, but as pragmatic, as we have set out in the long-term plan. We are not trying to throw all our cards up in the air just for the sake of it. We are trying to make some practical proposals for well-targeted changes that would deal with the actual pressure points that people around the frontline of the NHS are experiencing. As part of that, as a national body, you have to be the change you want to see. We recognise that NHS England and NHS Improvement have to come together in new ways. There could be statutory support for that.
Anne Marie Morris: Fantastic. I am looking forward to some really bold moves, which might look at integrating all sorts of things, including regulators, the way budgets are run and systems. I wish you luck. All power to your elbow. Be as bold as you can be, and let Parliament then have options to be bold itself.
Q113 Chair: Thank you. I just want to add one last question on the staffing, retention and recruitment issue. It is a particular issue in London constituencies, such as mine. If you are required to live close to the hospital in which you work, housing costs are a really big issue. I know that many low-paid staff, in particular, will travel a couple of hours to work. Not everyone can live nearby. For example, some years ago, Barts sold some land, and it could not understand why MPs locally were saying, “Why aren’t you selling this for housing?” It had sold it for the capital receipt, but actually for their needs, in staffing terms, a better, long-term solution might have been to invest in it as housing stock close to the hospital sites that it operates. Who is looking at that element, given that the NHS is a big landowner, and it could make a big impact on retaining experienced staff who will otherwise move out of the high-cost areas to lower-cost areas, if they stay in the NHS at all?
David Williams: Let me start. The Government have previously announced that where NHS land is sold for housing developments, there is normally a planning condition that a proportion of those houses should be affordable housing.
Q114 Chair: Affordable housing doesn’t mean that it goes to those local NHS staff, because of all the rules about allocating affordable housing. You have to be on the waiting list.
David Williams: Our policy, on which we are engaging with colleagues in MHCLG—I can update the Committee in writing on how far we have got—is a first refusal on that affordable housing allocation for NHS staff as one element of our approach. But it needs to be looked at in terms of estates disposals and housing build, and broader approaches to staff accommodation, support for travel and so on.
Q115 Chair: So you are looking at it. The ship has sailed for a lot of these sites, but there are physical sites owned by NHS Property Services, which I know the National Audit Office is looking at for an inquiry, that are still owned by the central NHS and could be released for housing. Is that something that is in the plan? Mr Williams, no doubt you have your beady eye on the capital receipt—understandably, given your position—but there is a long-term benefit if they could become long-term, affordable homes for NHS workers.
David Williams: Our approach is to ensure that where affordable housing is built, it is offered in the first instance to NHS staff, but we are looking at ways in which that approach can be broadened.
Chair: Mr Snell will come in on this point, because we are a bit sceptical about how you can achieve that.
Q116 Gareth Snell: I cannot fathom how you, in the Department of Health and Social Care, could write a planning policy, or even a housing allocation policy, for a private provider that would allow you to indicate that you wish to have health workers prioritised over the rest of the waiting list in any given area, unless, of course, MHCLG is going to have a massive power grab against local planning authorities.
David Williams: The bit that I want to check is whether we included it in the planning Bill that came before the House last year. Let me write to you about where this policy has got to. It would need to be a planning condition.
Q117 Chair: I don’t want to go down this squirrel hole, but we have key worker housing in my constituency—namely the Crown Estate, which went to the Peabody housing trust—which is still problematic for key workers, because of costs. There are a number of NHS bodies that have allocation rights to that, but many of those workers still cannot afford to live in something that is 80% of local rents in east London. That is just the reality. It is quite late in the day to get into this. Maybe we can take this offline and I can write to you further, because I think it is a real concern locally.
David Williams: Yes, let’s bring that up by correspondence.
Q118 Chair: Okay. Thank you very much for your time. [Interruption.] Simon Stevens has an answer to housing.
Simon Stevens: No, not an answer to housing, but just an uplifting thought as we conclude this hearing.
Chair: Mr Stevens always has the last word.
Simon Stevens: We have been spending a lot of time on the financial sustainability of the national health service. I think it is worth reminding ourselves of the piece in the Financial Times on 9 January, looking at the UK productivity figures, which said: “One part of the economy bucked the disappointing trend, according to the ONS. National Health Service productivity for the financial year ending in 2017 grew by 3 per cent in England, more than treble the rate achieved across the wider UK economy”. I would like to place on record our thanks to all the staff of the national health service for delivering that fantastic result.
Chair: We always agree to thank the staff, who work hard and long, and those vacancies have been filled by many people working long hours.
Gareth Snell: That was a party broadcast from Simon Stevens on behalf of the NHS.
Q119 Chair: I will just say to the panel that in the last hour and a bit, you have mentioned the long-term plan 17 times.
Gareth Snell: Eighteen.
Chair: Forgive me; I missed one. I have just mentioned it again, so that makes 19. Congratulations on limiting yourselves to only 18 mentions.
Simon Stevens: Chair, “Health service productivity in England also outpaced that achieved in health services elsewhere in the UK”.
Chair: Thank you very much for your time. The transcript will be up on the website, uncorrected, in the next couple of days.