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NHS Trust Debts

Thank you, Mrs. Humble, and good morning. It is a pleasure to serve under your chairmanship—for the first time, I think. NHS trust deficits have exercised me for a long time; I have a local interest in them, as will quickly become abundantly clear. I had intended in this debate to focus principally not on where the deficits came from, but on what we should do now that we have them. There are a variety of accounts of where the deficits havecome from; the Health Committee identified issuesof central Government policy and local financial management—a whole range of factors that have led to the deficits. However, we are where we are, and my key concern is that trusts should know where we are going. Normally, I am pleased when a public sector body in my constituency tops a league table. However, I regret that my local NHS trust—North Bristol NHS Trust—is at the top of a league table in which I should rather we did not feature at all. As at 31 March 2005—I am using figures cited by the Audit Commission in its June 2006 report—North Bristol NHS Trust features right at the top of the league table of NHS trusts with the largest cumulative deficits. I do not know whether the Minister will be able to give us the figures for March 2006; I have cited the latest cumulative deficit figures, based on audited NHS accounts, that I was able to obtain. However, I strongly suspect that North Bristol’s premier position in the league table will not have radically altered since the end of March 2005. Three of the league table’s top 10 trusts are local to my constituency; it is an interesting point that, when we think about NHS finances, it is in many ways sensible to think about what is known in the jargon as the local health economy, rather than about an individual NHS trust. So although the top spot went to the North Bristol NHS Trust, the Royal United Hospital NHS Trust at Bath came in at No. 4 and the trust in the centre of Bristol—United Bristol Healthcare NHS Trust—came in at No. 10. I want to focus briefly on the North Bristol trust, describing where its deficits came from and raising questions with the Minister on where that trust is going; that is really why I sought this debate. Then I should like to reflect more widely on the fact that such situations are not unique to my local trust; there are wider issues on which I am sure the respective Front Benchers will want to comment and on which I should like to make observations of my own. By way of background, North Bristol NHS Trust managed to accumulate a deficit of £52 million by 2003-04. I fully accept that local financial control had failed; there is no question about that. I remember one member of the board telling me how the finance director used to present the financial reports. Nobody really understood them, but he was a convincing sort of chap, and if he said that things were all right, they probably were. Clearly, in an era of a £70 billion or £80 billion national health service, we cannot begin to operate on that basis. I fully accept that the issue was particularly one of local control. Indeed, the then chairman and then chief executive are no longer in post—nor is the finance director, I believe. My comments about that period do not at all relate to the trust’s present management. Accountants were called in to investigate how the situation had got so out of hand. Early warning signs might have been registered much sooner before the huge £52 million deficit had been accumulated. That money was not written off, but added to what is known in the jargon as the public dividend capital of the trust. I shall come back to that. However, once that deficit had been run up, it was not going to be removed overnight. A recovery plan was put in place, but ineach of the succeeding years, deficits—falling deficits, but deficits none the less—carried on. During the succeeding years to 2005-06, a further £48 million was added to the deficit; £48 million more than the trust’s income was spent. Clearly, that money had to be loaned, or provided to the trust, from elsewhere in the NHS. Add the £52 million and the £48 million and we get an uncomfortably round figure of £100 million. The Department of Health used that figure in a letter to North Bristol NHS Trust that turned down its application for foundation status. The Department said that that was in part due to the £100 million debt. Indeed, the local south-west strategic health authority, NHS South West, opposed North Bristol NHS Trust’s bid for foundation status, partly—principally, I think—because of uncertainty about that £100 million debt. Interestingly, when one talks to the trust, one finds a rather different perspective. Although the letterfrom the Department of Health talked about a debt of £100 million, the trust denies that it has a debt or deficit at all. Semantics and the arcane niceties of NHS finances are involved in all that, but it is worth understanding how the Department of Health can think that there is a deficit or debt of £100 million and the trust can think that there is not one at all. The story is in two parts: the £52 million deficit run up in the years to 2003-04 was added, as I say, to the public dividend capital of the trust. I had not realised, until I spoke to representatives of the trust, that that was not the trust’s only public dividend capital. It has several hundred million pounds of public dividend capital. I have tried to get to the bottom of the issue, and it appears that a kind of fairly low-interest mortgage, a sort of long-term loan, is involved, a little bit akin to Treasury debt or gilts or bonds, except that—this is the crunch—nobody knows whether that £52 million will have to be repaid. My understanding of the trust’s position is that it is happy and able to continue servicing that public dividend capital—paying the Treasury, I assume, the interest, repayments or whatever label that money goes under. Paying the debt on that £52 million of public dividend capital is sustainable; what is not sustainable is paying back that £52 million, plus the £48 million. Paying back £100 million—getting on for a third of the trust’s entire annual income—is not sustainable in my view. It would be exceptionally helpful if the Minister could say anything about the status of that £52 million. I believe that the Government are thinking about it and that some sort of announcement may be imminent. If the Minister made an announcement to the House in the first instance, rather than our having to read about it first in the columns of the local newspapers, that would be particularly welcome. There is the £52 million of deficit; then there is the £48 million, which, as I said, is the further deficit run up during the recovery period. No one blames the hospital for the fact that it could not turn a huge deficit around overnight. It did what happens whenever a trust is in deficit: it did more day-case surgery, got people out quicker and cut down on the use of agency nurses. Many such things are not at all exceptionable. Interestingly, the trust was failing, back in those days, lamentably to cut its agency spend. It had a huge buying power in the regional health economy as a buyer-in of agency nursing services and was paying over the odds for them. Owing to poor management of resources, it was using too many agency and temporary staff at a very high premium. In a sense, the financial crisis that it was clearly in prompted a more efficient way of working, and that is entirely proper. As much as anybody else in this Chamber, I want to see NHS resources well spent; when changes are about greater efficiency, I applaud and support them. Again, however, the status of that £48 million bail-out over three years to 2005-06 is not clear. Incidentally and for the record, my understanding is that North Bristol NHS Trust will receive no bail-out of any description for the current financial year; its current expectation is that its income will exceed its expenditure without any bail-out from the rest of the NHS. That is a salute to the work done by the hard-working staff—and also, although I am not always their greatest fan, to that of the trust’s management for getting it into ongoing financial balance. Somebody had to mention resource accounting and budgeting in the debate, and I suppose it ought to be me. Part of the problem that I have been describing is that, once a trust is in a downward spiral, it is very difficult to get out of it. I shall quote a sentence from the June 2006 joint Audit Commission and National Audit Office report:"““Experience indicates that once an NHS body incurs a significant deficit, it becomes increasingly difficult to return to financial balance, particularly where management’s attention is focused on resultant short-term pressures rather than longer-term financial balance.””" That is part of the problem. If a trust spends more than its income, the deficit is knocked off its income for the following year, so that if it has a structural deficit in year one, it will have a double structural deficit in year two. Unless it can get things under control, that double deficit is deducted from the income in year three, and so the downward spiral continues. I think that the Government recognise—the Audit Commission certainly does—that although resource accounting and budgeting has some merits at a national accounts level, it is not working for the NHS. That would seem to be the view of the chief executive of the NHS, who was quoted in The Guardian in December 2006 as saying that the NHS accounting system was ““unsustainable and inconsistent””. He said that the way in which resource accounting and budgeting"““is applied to NHS trusts, although providing a strong disincentive to overspend, will become increasingly unsustainable as we move forward with the programme of reform.””" In a sense, even the chief executive of the NHS and the Audit Commission—balanced, sane voices—are saying that something has to change and that something has to give. So what do we do about the £100 million debt? Hundreds of local people have signed an online petition on my website for some of the debt to be written off. In a sense, one would imagine that that is a no-brainer—an MP asks local people whether they want their hospital trust debts written off, and one would think that people would just say, ““Yes please, it’s free money””. However, some of my constituents did not respond in that way, such was the problem with the financial management at the trust. Some contacted me and said that they wanted the debt written off only if the trust could prove that it had its financial house in order. That is my view, too. We cannot simply write a blank cheque for trusts that have got into a complete mess. One of the conditions for any financial assistance needs to be a requirement that good money is not merely being poured after bad and that financial discipline has been restored. I believe that to be the case at North Bristol NHS Trust. It has its financial house in order subject to one caveat, which I shall come on to. That condition is met, but I want to stress that we are not simply rewarding failure in any sense. That brings us on to a slightly wider question that would apply to all the deficit trusts. There is a paradox. If a trust gets in to a mess, do we let it sink or do we bail it out? If we bail out trusts that are in a mess, are we rewarding failure? If the money used to bail out failing and struggling trusts is taken from trusts that are doing well, have made a surplus and have managed well, is that penalising and disincentivising success? I would be the first to recognise the trade-off that is at work. There is not a free lunch, although there are issues about incentives. My view is that we do not need to take an extreme position. At one extreme we could say, ““The trust is in a mess; it needs bailing out; give us some cash””, and at the other we could say, as Ministers are fond of saying, ““Trusts need to learn to live within their means—no bail-outs, no help, period.”” Somewhere between those two extremes lies common sense and sanity. It has to, because some of the trusts will never recover from their debts. I want to quote from the Select Committee on Health’s first report of the 2006-07 Session. It states:"““While the NHS may be in overall surplus by the end of March 2007, not all trusts will be in surplus by then””—" this is the key point—"““and it is unlikely that trusts with the biggest deficits will be able to repay their accumulated deficits in 5 years.””" Obviously, that is a significant period because it covers the statutory requirement to achieve financial balance. The report continues:"““It is important that as a first step they achieve ‘in-year balance’.””" That is what North Bristol NHS Trust has done. The report then states:"““Where there is no realistic chance of recovering the deficit over the 3- to 5-year period without severely affecting services, consideration should be given to allowing a longer period to pay off historic deficits.””" The Select Committee, with a Labour majority, is saying that in respect of a subset of trusts—perhaps a small number—for which things have gone too far for the normal rules to be applied. I believe that North Bristol NHS Trust falls into that category. To stick with the example of the North Bristol NHS Trust, why is all this particularly important? As the Minister will know, the trust applied for foundation status, which the Government want every trust to have by the end of next year. It was turned down because of the uncertainty about the debt. I find that puzzling. As I understand it, the status of the whole £100 million is uncertain: the status of the £52 million public dividend capital is uncertain, as we do not know whether it is time-limited or indefinite—infinite, as it were—and the status of the £48 million is uncertain, because we do not know what will happen to that. Much of the debt was accumulated some four years ago, so why do not we know? That is one of my key questions to the Minister. In the NAO and Audit Commission league table that I cited, there is a column for cumulative deficit as at March 2005, one for the number of years of cumulative deficit—at that point, North Bristol NHS Trust had four years in that column—and a final column for the anticipated year of recovery. For five of the 10 trusts in the list, that final column does not give a date, but says, ““To be agreed””. Nearly a year on from the publication of the report in June of last year, that date is still to be agreed. The trust was encouraged to make an application for foundation trust status, not knowing whether it will have to pay off the £100 million deficit, how much of it will have to be paid off and over what time. Let us imagine someone who applies for a mortgage and explains that they might or might not have to pay back a third of their income. The mortgage company might well be a little reluctant to take that person on. They would want a bit more clarity. That is the problem. How have the Government allowed North Bristol NHS Trust to be left in limbo for so long, without an answer about how much of the debt must be repaid, on what terms and in what form? I hope that the Minister can answer that question. As the Minister announced last Monday or Tuesday, North Bristol NHS Trust is about to embark on a private finance initiative worth some £350 million. The investment is welcome—the way in which it is funded is not, and neither is the place where it is going, but apart from that, it is fine. However, that £350 million will incur a substantial liability for decades to come, with creditors who will be near, if not at, the front of the queue. How will that work? Would a private finance company be willing to build a hospital for North Bristol NHS Trust, anticipating a future stream of revenue from the trust, if it does not know whether the trust has a £100 million hole in its balance sheet? I hope the Minister will say that all that will be resolved soon, but until it is, the process cannot move forward. Although I would like to see the new hospital somewhere else, we are in limbo in terms of the money that is being spent on modernising our local NHS, because the PFI cannot go any further without certainty about the debt. There is a linked issue, because we all know that servicing PFI debts can place a severe burden on some trusts. My hon. Friend the Member for North Norfolk (Norman Lamb), who speaks for our party on such matters, has constituency experience of the sometimes adverse impact of PFI projects on NHS trust finances. How can a trust budget for the coming years, with all the uncertainties that every other trust has to deal with, as well as a PFI commitment that will not go away, a debt that the trust will have to service for decades to come and uncertainty about debt servicing costs? We are just a few weeks from the start of a new financial year. I have no doubt that North Bristol NHS Trust has already planned its finances for 2007-08, but has it done so with or without knowledge of what the Government will decide about the repayment of any or all of the £100 million? My impression from the trust is that it does not know. There might have been nods and winks, and conversations that I have not been privy to, but as far as information in the public domain is concerned, we do not know. For example, what if it had to pay back a 10th of the deficit next year? That does not sound much; it is £10 million. Let us imagine what it would be like for a body to discover two weeks into the financial year that it had to find £10 million. That would be crazy, but it is absolutely typical of the way in which NHS finances are managed. Indeed, it is something of a privilege to find out about financial change in the NHS before the year starts; it is normal to find out halfway through. I hope that the Minister can assure us that, whatever decision he comes to about the repayment of any or all of the money, the trust will be given plenty of forewarning and not be expected to make substantial repayments early and in a way that would affect front-line patient care. In a sense, that brings us to an important facet of the issue. Ultimately, it is not about an accounting or technical matter, but about the impact that deficits have on the effective functioning of the NHS. I wish to discuss why deficits matter so much, again drawing on the excellent report of the Audit Commission and NAO, which highlighted four important reasons why deficits matter. The first reason is the impact of cost-cutting on service delivery. The Minister will say that we are treating more people, that we are hitting the targets and that waiting times are coming down, and so on. There is a lot of truth in that, but anything that does not have a target attached to it is affected by cost-cutting. Anything that does not involve a performance indicator or that is not monitored in respect of targets gets cut. There are things that trusts can do to deal with cost-cutting. For example, the introduction of minimum waiting times—treating people later than is necessary—happens because trusts are trying to make ends meet, and that affects front-line patient care. I fully accept that it does not take us back to the extraordinary waiting times of 10 years ago, but it is clear that trusts that are trying to make ends meet sometimes make short-term decisions that may not be optimal for the long term. That is one of the worries that the Audit Commission and the NAO rightly highlight. Some trusts make ends meet in the short term by doing entirely short-termist things that have a damaging long-term impact. For example, in the past—I believe that the rules have changed now—capital investment was deferred, to the long-term detriment of the trust, and funds were switched into trying to make the revenue budget add up. Again, I urge the Minister to ensure that any schedule of repayment that is announced for the North Bristol trust will allow its long-term stability to be preserved. It must be able to make decisions based on the long term, not just on desperately scrabbling around to try to make the budget add up by the end of Wednesday fortnight. Obviously, the fundamental concern is the impact of cost-cutting on service delivery, but the second is cash shortages, from which the North Bristol trust has suffered. Even towards the end of last year—a year in which the trust was on the brink of financial balance—it had to borrow money to pay its bills. That seems a ridiculous situation. Cash shortages can have serious effects. The NAO provides a case study of the Queen Elizabeth Hospital NHS Trust, which was struggling financially in 2005-06. Some of the things that it considered withholding were tax and national insurance payments on behalf of its staff, payments to PFI partners and general payments to creditors. Each of those would have had a worrying consequence. In the end, the trust was bailed out through a sort of emergency cash brokerage. But imagine what could have happened. Non-payment of PFI partners would increase the cost to everybody in the NHS for future PFI projects. If people who are involved in PFI projects in the health service were to realise that cash-strapped trusts might default on or delay payment, it would be more expensive to do things through PFI. There is a cost implication. What if trusts were to delay paying bills from private suppliers and small businesses? They are doing that. The public sector is supposed to set standards in prompt payment, but NHS trusts are some of the worst for paying bills, and that of course leads to a premium. If I want to do business with an NHS trust, I will build into my price the cost of a delay in payment. The cash crisis has a consequence. Should Revenue and Customs—the general taxpayer—have to wait for NHS employees’ national insurance payments because trusts are broke? Short-term cash shortages have real impacts, and too many trusts are facing them. The third thing that the NAO and Audit Commission report highlights is how management resources are diverted. The chances are that the finance director, not the clinical director, will get the most attention in a trust with a cumulative deficit of £100 million, and that is a real worry. That is not to say that there is not first-rate clinical care at the North Bristol trust. In many cases, there is such care, but it is human nature that managers wrestling with such a debt without knowing when it has to be repaid will devote much of their energy to trying to save money, and will make short-term economies that, inevitably, will be at the expense of a focus on patient care. The last concern highlighted by the NAO is about future foundation status, to which I referred earlier. How will trusts with accumulated deficits ever become foundation trusts? It is clear that there is a different regime, as foundation trusts can fail, although I believe that the failure mechanism is not yet well worked out. Could the Minister clarify whether his timetable for making all NHS trusts foundation trusts is still on track? Does he still expect that to happen by the end of 2008? I cannot see how the North Bristol trust, with an accumulated deficit of £100 million, can become a foundation trust without a write-off of some of the debt, and a clear and affordable repayment schedule—even coupled with the PFI liability that it is about to take on. Are we on for 2008, and how is that compatible with wider Government policy? The issue is local and specific, but the effects of deficits are also more general. I mentioned that the North Bristol trust does not believe that it actually has any debts at all, as they do not formally appear on the balance sheet in the normal way. I mentioned the private dividend capital, but I would like some clarification on the other slice, the £48 million. The way that the North Bristol trust tells the story is that in any year that it was bailed out—it does not use those words, but that is obviously what happened—there was a freestanding transaction and no clear reciprocal obligation arising from it. There was never a deadline for paying back money that was handed over. That situation, which increases the uncertainty that trusts face, is not clear to me. If the North Bristol trust, as well as simply breaking even were to start to make surpluses, and if a hypothetical neighbouring trust that had no historic deficit were also to start to make surpluses, would there be, in effect, a North Bristol trust tax to match the North Bristol trust subsidy? I do not want to be hysterical about this, but I hope that the Minister will respond on that specific point. In other words, if two identical trusts next door to each other—one with an accumulated deficit, one without—both make a small surplus, will they be equally required to put money into the national pot to deal with deficit trusts, or will the North Bristol trust have more of a handicap because of the help that it received in the past? Will there be more of a penalty on financial recovery if a trust has historic deficits? How will that work with foundation status? Presumably, once a trust is a foundation trust, it can dispose of surpluses as it sees fit. Perhaps the Minister will say that that will be resolved before the trust becomes a foundation trust, but if the time scale is the end of 2008, the North Bristol trust will not be able to pay the money back. It may never be able to do so, but certainly not by the end of 2008. Some deficit must be carried forward into a trust’s existence as a foundation trust, so how will that work? Will there be a first claim on surpluses, if a trust makes them? It would be helpful if the Minister could clarify that. To draw the threads together, there have been improvements in the NHS. I supported the extra investment, which was entirely welcome. But one of the things that has bedevilled the NHS in recent years has been financial uncertainty and in-year changes—I believe that some primary care trusts have been top-sliced three times within a year—and now acute trusts are expected to plan for new hospitals and a new generation but still do not really know where they stand. As I said, the issue does not affect North Bristol NHS Trust only. In the piece in The Guardian that I referred to earlier, the chief executive of the NHS ““did not dispute””—I am not quite sure what that means—reports that"““at least a dozen trusts were in an irrecoverable financial predicament.””" I am aware of the statutory duty to break even. The letter from the Department to the North Bristol trust said that the trust was in breach of its statutory duty to break even because it had failed to recover within five years. I would not want to be reported as saying that the chief executive of North Bristol NHS Trust shouldbe clapped in irons and dragged away to Horfield prison, but what does breaching a statutory duty mean? If it is statutory, if a law has been broken, what should happen? I am not clear that the statutory duty has any force. The letter spoke of a breach of statutory duty, but life appears to be going on pretty much as before. Will the Minister clarify what force it has? Four of the 10 trusts mentioned in the league table had,at that point, four years of cumulative deficit, so several of them are on course to breach their statutory duty. At one level, we could have spent the entire debate talking about the deficits in NHS trusts in any given year, but my focus has been on accumulated deficits. It is my perception that those deficits are like millstones around the necks of those trusts and their hardworking staff, North Bristol NHS Trust being the exemplar. I am sure that the Minister will properly pay credit to the people who work at North Bristol NHS Trust, who do an outstanding job. Inevitably, Members of Parliament are contacted when things go wrong, but I receive a good flow of information from people saying what a good experience they have had. Nothing that I have said this morning was designed to say anything other than that. Those people and the patients of the North Bristol trust need to know where they stand. I draw those threads together. My first plea, for my constituents and my trust but also for trusts across the land, is for certainty. They need to know where they stand, and they need plenty of warning if they are going to have to repay some or all the money. My second plea is for those trusts that, in everyone’s words, are in an unrecoverable position as regards their historic deficits. The current position may be recovered, but the historic position is a millstone. Action needs to be taken. I realise that it must be conditional on the trusts getting their financial houses in order—which the North Bristol trust has now done. The uncertainty has continued for far too long. I believe that the Government may be about to make a decision on the matter, which I would welcome; but in recognition of the achievements and the progress that has been made, I urge that the debt does not remain as a millstone. I would particularly value an assurance that the public dividend capital will be allowed to roll on indefinitely, because the most sustainable way to deal with the problem is to allow the trust to continue servicing the debt but without having to repay the capital. I would be grateful for the Minister’s clarification on what future liabilities have been incurred by the North Bristol trust, either implicitly or explicitly, in respect of the help that it has had since the lump-sum bail out—in other words, when it was helped during the past three years. Is there now an expectation that the money will be paid back; or as the trust goes into surplus, will some or all of that money go into the pot for those parts of NHS that are no longer in surplus? It is a privilege to have had the opportunity to raise such an important issue in this Chamber, and I look forward to hearing the contributions of other hon. Members.