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NHS Trust Debts

It is a pleasure, Mrs. Humble, to serve under your chairmanship for the first time. I congratulate my hon. Friend the Member for Northavon (Steve Webb) on securing this debate. The subject is clearly central when it comes to delivering good-quality health care, both now and in the years ahead. Of all the points that my hon. Friend drew to our attention, one of the most important seems to be that health trusts are rightly expected to demonstrate clear financial discipline. We can only go forward if trusts delivering health services do so, but it is extremely difficult if they are operating in an uncertain financial climate—and the financial climate is provided by the Government. My hon. Friend used as a case study his local North Bristol NHS Trust, which has a deficit of £100 million. He made interesting and important points about the public dividend capital of £52 million—the first part of the debt. The trust is able to make the repayments, but—this is one of the examples of uncertainty—it appears to be unsure whether it will ever have to repay the money. That is an impossible position for such an organisation, and not one that any private company would suffer. That position reminds me of the problems of the Norfolk and Norwich University Hospital NHS Trust which were brought to my attention. Just before the start of the financial year, the trust received the full details of the financial package within which it would have to work during the coming financial year. When it came to managing its resources effectively, it said that it had heard about the package far too late. When planning for the year ahead, it was faced with an extremely challenging financial position and unexpectedly had to make cutbacks of several million pounds because the settlement was worse than expected. On the current deficits of trusts around the country, the figures for the third quarter were published recently. The forecast gross deficit across the NHS for that quarter is £1.3 billion. The deficit at the end of the second quarter was £1.179 billion. The position has worsened, and those figures were higher than those for 2005-06. The commentary that accompanied the figures confirmed that 35 per cent. of organisations are in deficit—a high total. We keep hearing that we will secure a financial balance across the NHS, but the fact that 35 per cent. of organisations are in deficit is clearly a cause for concern. Again, that figure was up on the second quarter, when it was only 33 per cent. The commentary also reported a sharp increase in the number of primary care trusts in deficit in the current financial year, when it is supposed that things were starting to be sorted out. Richard Douglas, who wrote the commentary—he is the Department of Health’s director of finance and investment—said that the problem remains a ““cause for concern””. I understand that the figures take account of top-slicing. I shall return to that, but it is clear that the process has plunged more trusts into deficit. Many feel a sense of grievance that they have managed to operate in surplus, but then an arbitrary decision is suddenly taken to slice off some of their funding. I appreciate that, in theory, the funding comes back later, but not all trusts believe that it will be refunded in full. They feel that their position has been made a lot more difficult. I spoke over the weekend to the chairman of a primary care trust in an impoverished part of London. He explained that it gets extra funding because of the community that it serves but that it then suffers top-slicing, which takes away some money and makes its position more difficult. I accept that the Department said in its commentary that there was an expectation that £300 million of that top-slicing could be repaid. That is about a quarter of the total money taken from trusts, but it would still leave a gross deficit of a little over £1 billion. The position is clearly different in various partsof the country. The Select Committee on Health considered where the deficits were occurring and their cause. It is hard to define any clear link, as there are many causes, and I shall return to that. In some parts of the country the position is very bleak. I come from the east of England, where the situation is extremely challenging and, most important, getting worse. There is no sense of improvement. I met the acting chief executive of the newly formed Norfolk primary care trust in October last year. Incidentally, she has now gone—forced out, it seems, by the strategic health authority. The Norfolk PCT talked about significantly reducing the deficit in this financial year and suggested that it could cut £9 million off the deficit and then clear the rest in the next financial year. The reality is that it is now forecasting a deficit, which, if anything, is slightly higher than that inherited when it took over at the beginning of October. No progress has been made with that at all. London and the south-east continue to suffer substantial deficits within strategic health authority regions. London contains many deeply impoverished boroughs, and the anxiety that I hear when colleagues talk about the impact on local health services is disturbing. On individual trusts, the point that my hon. Friend has made is that some are clearly in an impossible position. Most people concede that it is impossible for trusts to ever clear the total deficit that they face. Trusts must carry the burden of deficitsat the same time as a rapid pace of reform is imposed by the Government and must cope with substantial deficits and an imperative to clear those deficits in a tight time scale. By implication, much of the Government’s rhetoric puts the blame for large historic deficits purely on the local trust organisations that face such deficits. As my hon. Friend mentioned, there has been a lack of financial discipline in the past—we all recognise that. Part of the problem is that many trusts have been starved of investment for so long that when the extra investment was suddenly made, it was difficult to handle such a significant and sudden inflow of additional resources. There has been much discussion of how money went into employing more staff. Trusts now find that they must cut back on staff and that that creates a boom-and-bust effect. Staff are brought in and then must be cut again because of the financial crisis faced by many trusts. In his commentary, Richard Douglas refers to the"““previous overspending that they will need to address””." His rhetoric points to responsibility simply resting with the local trusts concerned. However, in the Health Committee report published before Christmas, a far more complex picture emerges about how deficits have developed. It is harsh to suggest that there is a unique concentration of financial incompetence in the east of England. If that is really what the Government are saying, I certainly take offence, and I am sure that people working in the NHS in the east of England would too. As we know, the position is far more complex. The third quarter report acknowledges that"““there will remain a number of individual organisations with significant problems””." On the complex pattern of how such deficits have built up, my hon. Friend discussed the rather pernicious effect of resource accounting and budgeting and the double deficit. The Health Committee highlighted how that could lead to a rapid worsening of accumulated deficit and create a downward spiral. The Committee’s conclusions were stark:"““As presently operating RAB is not a suitable accounting regime to use within the NHS.””" It could not be any clearer than that. As my hon. Friend said, David Nicholson—chief executive of the NHS—used the phraseology ““unsustainable and inconsistent”” in relation to the principles of fair funding for hospitals. On the one hand, he accepted the logic of the Audit Commission’s proposal to exempt trusts from the resource accounting and budgeting regime. On the other hand, he said that no change was likely in the near future. While such a regime continues, the problems continue to stack up. The Government’s response, published a fortnight ago, to the Health Committee’s report confirmed the view that the RAB accounting regime was becoming increasingly unsustainable. The response states:"““At this stage, it is not possible to commit to changing the RAB regime””." Tantalisingly, the response goes on to say:"““the Department is looking seriously at the case for reversing the impact of past RAB deductions for NHS trusts for delivery of financial balance in 2006-07””—" this financial year—"““and at the future application of the RAB regime for NHS trusts.””" The Government are considering that issue, but, as my hon. Friend asked, will the Minister make an announcement today about the financial uncertainly that trusts face? Trusts still do not to know whether ultimately the rules will change, even though they are required to behave in a way that will clear deficits and make tough, difficult decisions about local health services. What is the time scale for the review and when will the Government know whether a change will occur? On other causes for the problems which go beyond RAB, the Health Committee referred to the funding formula. A funding formula from central Government will always lead to complaints that certain parts of the country are unfairly penalised compared with others. The Committee highlighted concerns that the formula had an unfair effect—for example, on rural areas. I do not know what the conclusions were, but there is clearly a continuing concern in the health service that resources are not fairly allocated from the centre. The Committee referred to the effect of Government policies in terms of the development and build-up of deficits—particularly the accident and emergency department four-hour target. I readily accept that the four-hour target has, in many cases, transformed how hospitals operate. When I recently visited the Norfolk and Norwich accident and emergency department, people were broadly positive about the effects of the target. However, the financial consequences for trusts already in some financial difficulty have been tough. The Committee’s report refers specifically to poor management by the Department and the fact that it went over budget on the ““Agenda for Change”” and on the GP and consultant contracts. The Committee refers to the cost estimates as ““hopelessly unrealistic””, which is a fairly damning indictment from an all-party Committee and highlighted poor local financial management, which is clearly part of the overall cause. The Committee specifically mentions the impact of private finance initiative schemes—as raised by my hon. Friend—and also refers to the impact of the independent sector treatment centres on finances. My hon. Friend referred to a matter that relates to the Norfolk and Norwich University hospital. In that case, the local chief executives and chairs of the previous primary care trusts in Norfolk warned, at the time, that there would be substantial refinancing. They also warned that the costs of the hospital were excessive and had a damaging effect on the finances of local primary care trusts. That warning was given to the Government and I subsequently referred the issue to the National Audit Office, which confirmed in a parliamentary report that, through PFI, we were paying over the odds for the hospital, one of the earliest to pioneer PFI. That has had a damaging effect on the finances of the Norfolk health economy, but do the Government help? No, they do not. Norfolk PCT has a £47 million deficit, which it is expected to clear by the end of the next financial year. The people and patients of Norfolk will ultimately pay the pricefor those deficits unless the Government are prepared to consider how to resolve accumulated historic deficits. On the impact of how the Government have tackled the debt problem, it is worth noting that substantial debt existed before the 2005 general election. However, then there was a different approach to how to deal with the problem. More time was given, which got trusts through the difficult period of the general election, but once we were through the election, the position started to change, and of course the Secretary of State gave the infamous commitment that by the end of this financial year the NHS ““as a whole”” would break even. That seems to me to have driven the policy—the political imperative to ensure at all costs that the NHS as a whole breaks even. What has suffered? My hon. Friend the Member for Northavon referred to cash shortages and the perverse consequences of those, but in terms of the health services that have suffered, the Health Committee referred to soft targets, including voluntary organisations, often doing incredible work on a shoestring, which suddenly find that their funding has been cut. Soft targets also include hospital chaplaincies and mental health services. There is lots of evidence from around the country that critical mental health services have been cut. Another soft target is public health and, in particular, sexual health services. Money allocated to those services has been diverted to clear deficits. There was reference to out-of-hours services. In Norfolk, when the contract goes out to tender this summer, there will be a reduced specification, and the out-of-hours service will decline. As we saw this week in the report relating to ambulance trusts, that has knock-on effects. It is the law of unintended consequences: the out-of hours service is reduced, suddenly more people are calling ambulances, at great cost, more people are admitted to A and E, and the overall cost to the NHS ends up increasing. Large numbers of posts have been deleted. It is great to avoid the particular damage caused by compulsory redundancies. No one wants individuals to lose their jobs, but if posts are simply deleted when people retire or leave their employment, that is totally arbitrary in its effect. Some departments can be affected far more than others. Trusts have found the impact of lost posts very damaging. Training budgets held by SHAs have been cut by, I think, £350 million. My hon. Friend referred to short-term measures having long-term damaging consequences. What is happening with training budgets is one such short-term measure. There is also the impact of top slicing, which I have mentioned. Management resources are diverted to trying to cope with an endless financial crisis, rather than an attempt being made to deal properly and objectively with Government reforms. I want to say a few words about the role of strategic health authorities. I have witnessed in the east of England that SHAs are in an incredibly powerful position. From what I hear off the record, they are dictating how PCTs clear their deficits. We have ended up losing the acting chief executive, we understand, because of pressure from the SHA. SHAs seem to operate entirely without public accountability. They operate in the shadows and are accountable only to the Secretary of State. That needs to be examined. There ought to be transparency in the operation of SHAs and the directions that they give to local health trusts. What is to be done? We all accept that as we go forward, there should be strict financial disciplines. Simply to remove deficits or clear deficits without requiring trusts to demonstrate that they are achieving in-year financial balance and are likely to continue to do that into the future on a sustainable basis would be ludicrous. However, there are reports of turmoil from all over the country and massive opposition is building up, because people are, rightly, protective of their local health services. When some trusts are in such deep financial difficulty that objective reports from the outside recognise that they are in an impossible position when it comes to clearing those deficits, something has to be done. I repeat my hon. Friend’s plea that, above all else, there has to be certainty and clarity so that trusts can demonstrate financial discipline. People cannot demonstrate financial discipline when they are operating in a vacuum in terms of what the Government expect from them. Therefore, will the Minister provide clarity about the review that is apparently under way and particularly about the impact of the RAB accounting regime, and can he give any reassurance to those trusts and those parts of the country that are currently seeing fairly savage cuts to their local health services?