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Department of Health

If the hon. Gentleman will allow me, I want to deal with the deficit. While it is small in relation to total expenditure, it is unacceptable and must be eliminated. The majority of the NHS is living within its means and delivering on target, but there is much more that some parts of it can do to eliminate inefficiencies and improve productivity. Let us take the example of University Hospital of North Staffordshire NHS Trust. In 1997, the trust had just under 3,900 staff. In September 2004, there were slightly more than 5,100. The number increased by 1,232, more than a third. I have observed statements from North Staffordshire with some concern, but let me tell my hon. Friends the Member for Newcastle-under-Lyme (Paul Farrelly) and for Staffordshire, Moorlands (Charlotte Atkins) what the trust is saying. It has benchmarked its work force costs against those of similar trusts and they were the highest for all staff groups except nursing staff, for whom they were the second highest. It will aim to reduce its work force costs towards the average for similar trusts. I realise that the issue of 1,000 redundancy notices is cause for concern and I appreciate the impact on morale. Nevertheless, I think that the steps that the trust is taking to restore its financial balance are worthy of support, especially where they will not worsen patient services and may even improve them in the long run. Certainly that is the intention. I am conscious of how quickly time passes. Our aim is to restore financial balance in the NHS by the end of 2006–07, and we have introduced a series of measures to achieve that. Achieving financial balance is not a book-keeping exercise; it is essential to the delivery of sustainable improvement in the future. As well as providing additional investment, we have increased the transparency of financial reporting so that financial problems are exposed and we can deal with them. It is true that we have brought this about by shining a light on deficits. Let me be clear about why we have introduced payment by results. It is a fair and transparent system for paying hospitals for the work that they do. We are putting record funding into the NHS and we want to see results. The experience of other countries that operate systems such as payment by results is that they can help to increase activity. My right hon. Friend the Member for Rother Valley questioned us about the tariff. He said that it is only as good as the data and that reference costs are not detailed enough. A lot of what he said I agree with and I welcome his comments; sight of the letter that he mentioned would be useful to us. We are keen to continue to learn lessons and to improve current systems. As they stand, the reference costs provide reasonable data for the purpose for which they were designed—getting average costs—but they are not sensitive enough to derive patient-level data and could be improved in that respect. That is why we have to make adjustments for specialist top-ups, for example. We have made some changes to the structure of the tariff to ensure that, for example, we manage the risk of growth in non-elective activity. As the House knows, the tariff was published on 31 January but withdrawn on 22 February because there were some material errors that meant that many prices were wrong. We have now made the necessary corrections, which have been road-tested by the NHS and other stakeholders. The corrected tariff was published on Friday 17 March and is now being used by NHS organisations to refine their plans for 2006–07. A review of the tariff-setting process has been commissioned by Sir Ian Carruthers, so that we can learn lessons for the future. I regret the fact that mistakes were made, but we believe that this was an operational problem and that we have fixed it. The review will tell us more.