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NHS: Finance

My Lords, I am grateful to my noble friend for initiating this short but passionate debate. It raises many questions that we must discuss, and I hope that we will have many more opportunities to do so. My noble friend was absolutely correct, and I start by stating categorically that we will never compromise on the fundamental principle of a health service funded through general taxation, available to each of us equally and free at the point of use, with care based on need and not on ability to pay. Those fundamental principles were the starting point for the NHS Plan, which we set out in 2000, and they have not changed. We will never compromise those values. Indeed, not only are the changes and reforms that we are making consistent with our traditional values, they are essential if we are to protect those values for another generation. Over the past five years, we have seen far-reaching improvements in the health service. They have been delivered thanks both to the dedication and commitment of NHS staff and to the record levels of investment that the NHS has received under this Government—from £33 billion in 1997 to £69 billion this year and £90 billion by 2008. All that money has been, and will be, spent on providing the healthcare that people want, whether provided directly by the NHS, by the independent and voluntary sector or by private companies, in hospitals, in specialist centres, in the community or in their homes. We are now six years into our 10-year programme of health reform, as set out in the NHS Plan, in which we also clearly set out our strategy and path for progress. We are not talking about a rushed set of reforms to produce short-term gain. Indeed, there are four key elements of health reform: more choice and a stronger voice for patients; money following the patient; a regulatory system that will guarantee quality; and a range of providers so that patients and commissioners can get the right services in the right place at the right time. It was one of the core principles of the NHS Plan, explicitly endorsed by many of the organisations which marched on Wednesday, that we would strengthen partnerships—as stressed by many noble Lords—with patients, their carers and families, NHS staff, and public sector, voluntary and private providers in supplying the highest quality, patient-centred services. The involvement of the independent sector is not a departure from NHS values—far from it. I emphasise three points. First, the NHS will always remain a provider because of the quality and commitment of its staff, in and outside hospitals. Secondly, as the noble Earl, Lord Howe, clearly stated, the NHS has always been a mixed economy of care. State-owned hospitals have worked happily with GPs—the majority of them private businesses dependent on the profits from their practices—since the founding of the NHS; and the private sector has been widely used to meet particular pressures—at a very high cost, as pointed out by the noble Baroness, Lady Barker. That is not new, and it has not happened only under this Government’s watch. When 40 per cent of secure mental health beds and nearly half of NHS abortions are provided in the private or not-for-profit sector, we should not try to set arbitrary targets or limits on one provider or another. Thirdly, where a particular service is not meeting the needs of local people, commissioners will be free to find the best organisation or partnership to provide the services that are needed. I stress at this point that it is not private sector commissioning—just advice and support to PCTs. PCTs remain responsible for all commissioning decisions. I know that that concern has been raised by many noble Lords. I now turn to the figures. Although information on the proportion of NHS finances currently spent on the private sector is not collected centrally, the department does collect fairly comprehensive information on the proportion of total NHS spend on non-NHS provision. However, as well as including the spend on private sector provision of healthcare services, this includes substantial expenditure on local authority and not-for-profit provision of healthcare services, as well as expenditure on public/private partnership capital investment schemes such as PFI and NHS LIFT. In 2004-05, the last year for which full figures are available, the NHS spent a total of £4.1 billion, 5.9 per cent of total NHS spend, on non-NHS provision. That figure excludes long-standing arrangements relating to the general medical, pharmaceutical and optical services and the purchasing of pharmaceutical products and medical devices from the private sector. It also, of course, excludes the cost of GPs, the majority of whom are, and have always been, private businesses dependent on the profits from their practices. As for future spend on the private sector, I draw attention to the fact that, where clinically appropriate, patients can choose in which hospital they would like to be treated. A great many will choose to go to their local NHS hospital; others will not. It would be injudicious to set an arbitrary limit on the proportion of NHS spend in the private sector in the future. Although 2004-05 is the last year for which I can provide a fairly definitive figure, at the end of 2005-06 expenditure on the first wave of independent sector treatment centres had reached £136 million; expenditure on PFI schemes for that year was£468 million; and expenditure on NHS LIFT, the public/private partnership to improve our primary healthcare infrastructure, was £100 million. Understandably, today there has been much interest in ISTCs. The total investment in wave 1 of that programme will be approximately £1.6 billion and in phase 2 we expect to invest £3 billion on elective services and a further £1 billion on diagnostics services. That expenditure is clearly to be made over a number of years. Concern has been expressed about possible destabilisation of existing service providers. In phase 2 of the procurement, there is a robust process to ensure that there is local support and a capacity need for each ISTC. That includes the SHA demonstrating how the ISTC will be integrated within the local health economy and how any impact on the activity levels and capacity of existing providers will be managed. We recognise the importance of the provision of training for NHS staff in ISTCs. Training pilots are now taking place in wave 1; for example, there is training for doctors and nurses in Brighton, York and Burton, as well as many other forms of training. In the second phase of ISTCs being procured at the moment, all schemes will have the capacity to offer clinical training experience. It will be a matter for educationalists locally to take this up and, if they do so, there will be no additional cost. Like the noble Baroness, Lady Murphy, I hope that the deans will ensure that that becomes practice. Do ISTCs cherry-pick? No. They were established precisely to offer dedicated facilities for specific types of planned surgery. Similarly, units have been established by NHS hospitals, and the number of places in NHS treatment centres far exceeds those in ISTCs. The noble Baronesses, Lady Turner and Lady Barker, spoke of the premium to ISTC providers. Premiums recognise that ISTCs face costs that are not borne by the NHS, such as staff recruitment, the cost of financing new buildings and many other things. We do not expect to pay the same premium in the next phase of procurement. That is important. Noble Lords have rightly stated that the Select Committee in the other place was told that the department is still negotiating contracts for the next phase of ISTCs and, therefore, the committee was unable to receive all the information that it required. That is absolutely right, because to have provided all the figures could have adversely affected the department’s ability to achieve best value for money for taxpayers in these negotiations. However, a point often missed is that the Select Committee was offered—it took up the offer—a private meeting with Ken Anderson, director-general of the department’s commercial directorate, to discuss these matters. The department and the NHS are committed to evaluating the impact of the reform programme so that the lessons of the current reforms can be used for policy development in future. The noble Earl, learned Lord Howe, made a point about referral management centres which, it is alleged, are being used by PCTs to intercept GP referrals and divert them to private providers. The most recent guidance issued by the department to the NHS made clear that referral management centres must not be imposed on GP practices. They must abide by clear protocols that provide tangible clinical benefits to patients and should provide feedback to practices on referrals, thus enabling GPs to review the appropriateness of their referrals. The noble Lord, Lord Rea, asked whether inspections of ISTCs are as rigorous as those of NHS trusts. The quality of treatment must be paramount, and ISTCs are subject to inspection and audit by the Healthcare Commission, as is the NHS. In addition, providers of ISTCs are subject to a rigorous contractual performance regime to ensure that they provide the high level quality of care that we expect for NHS patients. Like the noble Baroness, Lady Murphy, I believe it is clear that ISTCs are having an effect on practice in the NHS and the private sector. Many noble Lords raised questions about the private finance initiative. The way in which the Opposition and many others have chosen to use government figures is wrong and grossly misleading. The relevant figures are £8 billion for the capital cost of PFI hospitals open or under construction and£53 billion for subsequent annual payments to the private sector partners over the next 30 years. The annual payments made by NHS trusts to their private sector partners cover financing charges, building maintenance and, in most cases, all the non-clinical support services such as cleaning, laundry, catering, portering and security, which can account for between 40 per cent and 50 per cent of the annual payments. Pure capital cost accounts for as little as one-fifth of the overall total paid by the trust. The £53 billion figure also includes inflation compounded over30 years, whereas the £8 billion figure for capital costs only includes inflation for the build period, which is usually two or three years. Therefore, the figures are simply not comparable. At the end of a typical PFI contract period, the NHS trust always exercises a first option on the property in the interests of the NHS. At that point, the private sector partner has recovered all its costs and leases automatically fall away at the same time, leaving the trust free to run the hospital itself, retender the PFI contract or realise the investment potential of the site. I will write to the noble Lord with a breakdown of costs and interest rates to the noble Lord in writing and will place a copy in the Library for the information of all noble Lords. For users of the National Health Service to have a real choice and a real say in their healthcare, there must be real diversity of provision. That means that commissioners of services must have the freedom to make decisions and exercise options for action. It also means regulated access to the private and voluntary sectors, but it does not mean privatisation. Most noble Lords in the Chamber agree on that point. We have always procured services from the private sector, and we always will. The difference is that we are now doing it rationally within clear regulatory and financial frameworks for the benefit of all of us who use the NHS. Whether services are provided by NHS hospitals, privately owned ISTCs, not-for-profit social enterprises or voluntary bodies, they will be commissioned and paid for by a publicly funded NHS. If independent providers can help the NHS provide even better care and value for patients, we should use them. If they cannot, we should not. That is the bottom line. I am pleased to report to the noble Lord, Lord Selsdon, that we are on target to reach 18 weeks by 2008 and the target will cover the whole patient pathway from GP referral to main treatment by a consultant. It was designed in order to get rid of the so-called ““hidden waits”” that he so graphically demonstrated. My noble friend Lady Turner mentioned the primary care sector and innovation. We have an obligation to patients, who deserve the best quality services. It is crucial in under-doctored areas or where existing practices fail to meet the needs of their population that PCTs commission new services from different providers, whether existing high-quality practices or new providers. That is why we are taking that action. The noble Baroness, Lady Murphy, asked: when will we provide a level playing field of tariffs? We will do that once centrally procured contracts have ended. All providers will then be required to operate at tariff. How broad is our notion of providers? By the end of 2008, patients will be able to choose to go to any provider that can meet the NHS quality and tariff. The NHS does not have a monopoly on values, and the private sector certainly does not have a monopoly on efficiency. What we are looking and working for is a partnership, delivering quality care that brings together values, best value and efficiency for the benefit of all of us who use and pay for the NHS.