---

NHS Trust Debts

I add my congratulations to those that have been offered to the hon. Member for Northavon (Steve Webb). It is good to have him back on health matters. Like the hon. Member for Eddisbury (Mr. O'Brien), I think that we have had a rare treat this morning, with the finest brains of the Liberal Democrats givingus their thoughts: Liberal Democrats and NHS finances—an enticing prospect. The hon. Member for Northavon spent much of his speech describing the details pertaining to North Bristol NHS Trust, and I shall deal specifically with some of the questions that he raised about it, but I hope that he will permit me, given the ambit of the debate, to go more broadly and discuss some more general points about the treatment of debt in the NHS. I am pleased that my hon. Friend the Member for Bristol, North-West (Dr. Naysmith) has joined us, as he takes a close interest in the future of the trust and its plans. We are 25 days away from the end of the financial year, and I readily accept that it has not been an easy financial year for parts of the NHS. All three hon. Members who have spoken have tempted me to pre-empt some of the decisions that the Government might take when reviewing the financial year. They will have to forgive me if I do not accept their invitation to do that, but I shall try to give a greater flavour of our thinking on those matters and share some of our thoughts about where that will lead us. As the hon. Member for Northavon anticipated, it is right to set out some context for this debate about the treatment of debt in the NHS. The Government have injected unprecedented funding into the NHS and, in doing so, have improved the quality of patient care and access to health services beyond all recognition. NHS funding has doubled in the years between the Government’s first taking office and the current financial year, and it will effectively treble by the end of 2007-08—the financial year that is just about to begin. In fact, under our stewardship, the NHS has enjoyed the benefit of average annual real terms growth of6.3 per cent., which is more than double the historic annual growth before 1997. Those figures should be put in context. Demands on the health service rise every year, but nevertheless the figures speak for themselves. Perhaps I may answer just one of the comments of the hon. Member for Eddisbury: he said that the deficit at the end of the 2005-06 financial year represented the biggest in the history of the NHS. I think that those were his words. The audited year-end net deficit of £547 million needs to be set against the final accounts for 1996-97, when the deficit was £459 million. Granted, that was lower than last year’s deficit, but £547 million represented 0.7 per cent. of total NHS revenue spend. The 1996-97 deficit represented 1.5 per cent. of NHS total revenue spend. I am pretty confident in saying that that was a far larger percentage than had ever been seen in the NHS previously. The hon. Gentleman should reflect on that before handing out the lessons. Every primary care trust received an above-inflation increase in funding in 2006-07 and will do so again next year. That is an average of 9.4 per cent. acrossthe NHS. By far the majority of NHS organisations have also continued to deliver the high quality improvements to patient care that we have asked for, while remaining in financial balance or better. Moreover, we believe that allocating the vast majority of central NHS programme funds to strategic health authorities much earlier in the year, and thereby devolving significantly more control over funding to local decision making, has given the NHS much greater local flexibility to balance local needs and the delivery of national targets. I want to say something about the announcement last week on the North Bristol PFI scheme. For the hon. Member for Northavon, that is a matter of some controversy, whereas my hon. Friend the Member for Bristol, North-West considers it a very welcome announcement. I picked up from the hon. Gentleman a kind of grudging pleasure that the decision was finally taken and that the trust could move forward. On that matter, and on finances, I accept his point that clarity is the important thing for that hospital trust at this time. It needs to know its future, where it is heading and how it can go from a cycle of difficult decisions into a cycle of improvement and clarity about the future. I accept that general point and I hope that we can begin to provide more of that certainty as the weeks go by. I believe that the scheme that was put forward—a £347 million PFI for North Bristol NHS Trust—is exciting and financially viable, and I am led to believe that it will transform acute services in the area. I pay tribute to my hon. Friend the Member for Bristol, North-West for the persistence with which he pressed the case for the trust and the need for an announcement. In the end, I was happy to meet him and make that announcement for the benefit of the trust. I hope that the hon. Member for Northavon will accept that, having regard to the management of finance in the long term, it makes more sense—although he may disagree about the location of the scheme—for the trust to benefit from modern facilities in which to provide health care, and that the facilities should not be spread over multiple sites. The arrangements will give the trust financial and running cost benefits in the long term, and there will also be the benefits that come from a larger, integrated clinical team sharing experience and knowledge. That is part of the background to the hon. Gentleman’s debate, but I shall come on to some of the questions that he asked me about the trust’s financial certainty. That is the other side of the equation, now that we have more clarity on the estates question. We do not underestimate the very real financial and, in some cases, operational challenges faced by some organisations in 2006-07. The hon. Member for North Norfolk (Norman Lamb) referred to some of them. We have always been clear that the priority for this year would be to return the NHS to financial balance overall. For that reason, as the current year got under way, my right hon. Friend the Secretary of State for Health set out three clear financial objectives to be delivered by the NHS without compromising progress against public service agreement targets. Those objectives were to deliver net financial balance across the whole NHS by31 March 2007; to see an improvement in the financial performance of all organisations that reported a deficit in 2005-06; and to achieve recurrent monthly run-rate balance across as many NHS organisations as possible by the end of the financial year. The hon. Member for Eddisbury asked what we would take responsibility for: we will take responsibility for the delivery of those objectives, alongside the commitment that they will not lead to the breach of key public service agreement targets. I am confident that we shall be held to those promises, and the NHS is well placed to deliver on them. As we reported in our third quarterly report on NHS finances, the NHS has made considerable progress in delivering against each of our key financial objectives, and remains on course to end the year in net financial balance. Taking account of the £450 million savings that strategic health authorities have identified by their continued good management of central NHS programme funds, the NHS overall recorded a forecast year-end surplus of some £13 million at the end of the third quarter of the year. That is a remarkable achievement and bears witness to the hard work of NHS staff across the country in seeking to deliver savings, increase the efficiency of working practices and reduce deficits. I thank the hon. Member for Northavon for saying that he did not demur from the principle that people should be constantly challenged to provide more efficient and productive ways of working. The magnitude of the improvement is perhaps best understood by looking at the movement in net deficit in the past couple of years. It stood at £221 million at the end of 2004-05, and had increased to £547 million in the 2005-06 final accounts. If that trend had continued on a simple linear basis, we might have expected a net deficit of around £750 million by the end of the current year. Instead, the forecast surplus of £13 million at quarter three, coupled with our expectation at least to achieve financial balance by the end of the year, illustrates very clearly just what a significant improvement has been achieved and creates a platform of stability from which the NHS can move on. We should consider organisations that were in deficit at the end of the last financial year in terms of their current in-year financial position, when the impact of deductions for prior overspending is ignored. There has been a significant improvement in those organisations. Our analysis shows that 82 per cent. of trusts and69 per cent. of PCTs are forecasting an improved in-year position compared with 2005-06. Deficits continue to be concentrated in a small minority of organisations, with 50 per cent. of the gross deficit being attributable to just 5 per cent. of organisations. By far the majority of organisations are in balance, or better, and continue to deliver quality services and improvements. On achieving run-rate balance, I am pleased to say that a healthy majority of NHS organisations reported a positive monthly run-rate balance at quarter three. Indeed, our analysis indicates that only a small number of organisations—17, to be precise—are not likely to achieve that objective by the end of March. It is right to pay tribute to the trust that serves the constituents of the hon. Member for Northavon and my hon. Friend the Member for Bristol, North-West, because it has made a clear and obvious improvement since its difficulties a few years ago and is now in run-rate balance, hence its wish to push on and achieve foundation trust status. There has been clear improvement, and I am sure that the hon. Gentleman and my hon. Friend will join me in welcoming that.