RT HON PATRICIA HEWITT MP, MR DAVID NICHOLSON AND MR HUGH TAYLOR

29 NOVEMBER 2006

  Q143 Chairman: Good morning. Could I welcome you to our second session on our Public Expenditure Questionnaire? I wonder if, for the record, I could ask you to introduce yourselves and the position you hold.

  Mr Nicholson: David Nicholson, NHS Chief Executive.

  Ms Hewitt: Patricia Hewitt, Health Secretary.

  Mr Taylor: Hugh Taylor, Acting Permanent Secretary.

  Q144  Chairman: I have to say welcome back. I think all three of you have a better attendance than members of the committee in the last fortnight, which is probably somewhat of a record! Could I start by asking a couple of questions on general expenditure of the National Health Service? We heard last week that 47% of extra resources were spent on pay increases last year because of Agenda for Change and the consultant contract. Now that these reforms are in place, do you expect the amount spent on wage increases to go back down next year and, if so, by how much?

  Ms Hewitt: I do expect the share of growth that is spent on staff pay increases to be lower next year than it was last year, but until we get the final settlement from the Pay Review Body I cannot really estimate what it will be next year.

  Q145  Chairman: Your written answers show that medical consultants and GPs have received pay rises of 27% and 50% respectively over the past three years. Over the same period, doctors in training have received only a 5% pay rise. Was this intended and do you think it is fair?

  Ms Hewitt: I think, though David will correct me if I am wrong, that we are not comparing like with like, because doctors in training, of course, change jobs and move up each year as they move through their training programme. Therefore, when one looks at the pay comparisons, although it looks as if junior doctors' pay has scarcely increased, individual junior doctors, as they move through the training programme, see quite significant increases in their pay.

  Mr Nicholson: There has also been a significant reduction in their hours.

  Q146  Chairman: So we could assume that they have been the beneficiaries of the increases that hospital doctors have had.

  Ms Hewitt: That is correct.

  Q147  Chairman: It is not great, but there has obviously been an increase. You have argued for a pay rise of just 1.5% for nurses and other professionals next year. Is this your current strategy for controlling costs?

  Ms Hewitt: In the evidence that we gave to the Pay Review Body we set out, first of all, the evidence about general levels of pay rises across the economy and the general level of inflation. Obviously the over-arching context for the Pay Review Body is the Government's macro-economic strategy and our commitment to low inflation. Secondly, we have to take account of what actually happens to NHS staff pay, which is made up not only of the headline pay rise but also of the increments, the so-called pay drift, so that a headline settlement of 1.5%, which is what we have proposed, actually results in an average increase for staff of about 4.5% because of the effect of increments. Thirdly, of course we have to take account of the financial pressures in the service, and now that Agenda for Change is fully implemented, given the very significant rises that staff will continue to get as a result of Agenda for Change, we think a headline pay settlement of 1.5% is both fair and affordable.

  Q148  Chairman: The problem with averages is that people fall below the average. It seems, under those circumstances, if I was working in nursing, I would want to know how long it is likely to carry on, whether we are going to be having increases below inflation. Do you have any idea on that?

  Ms Hewitt: We are only proposing a one-year settlement, this is not a proposal for a multi-year settlement, Chairman, but, as I say, one does have to look at the total increase in pay for staff. The great majority of NHS staff are not at the top of their incremental pay scale and, therefore, continue to get annual increments on top of the headline pay award. Generally speaking, pay settlements, not only in the NHS but across the public sector, have been running ahead of pay growth in the private sector; so there is a real danger, not only of public sector staff continuing over time to get faster increases than people in the rest of the economy, but of that then feeding through into inflation.

  Q149  Mike Penning: Secretary of State, I am sure we can agree that we have had an increase of excellent dedicated staff within the NHS, and yet that has been followed by redundancies. We have had an increase in training places, which has been followed by cuts, pay rises have been followed by effective pay cuts and international recruitment was expanded rapidly but has now been frozen. Is it not the case that the department allowed costs to spiral out of control and now you are using short-term measures to address this situation?

  Ms Hewitt: I think what has happened is that there has been a period of very, very fast growth, unprecedented fast growth, in NHS budgets and that, in turn, has meant we have been able to increase staff very rapidly indeed, as I was saying last week, for many categories beyond what we had originally planned with the 2003 spending settlement. We have put in place pay reforms and new pay contracts which has meant very significant pay rises right across all staff, including, obviously, consultants and GPs as well. In some cases the NHS has grown too fast and has grown beyond what it can actually afford, and that is why we are having to support the NHS in making some difficult decisions now to ensure that they do go on giving patients the best possible care but they do it within the available resources. That has always been the requirement on the NHS, it has always been a cash limited system. There is more cash than there has ever been before, and that will continue to increase, but if a hospital has taken on more staff than it can actually afford, it does now have to look at how it becomes more efficient, uses its staff better and, in some cases, uses fewer staff.

  Q150  Mike Penning: So you admit that your department allowed overall costs to spiral out of control, which is why we are in this position of having to make redundancies and cuts?

  Ms Hewitt: If the NHS was a country, it would be the thirty-third largest economy in the world and, therefore, I think it was my predecessor who said, managing NHS finances is like trying to land a jumbo jet on a postage stamp. We were criticised three or four years ago, I think it was, by this Committee for underspending, and the pressure on the NHS was to use the resources, bring in more staff, do more operations, treat more patients and treat them faster. In some cases the NHS overshot the mark, and that is why difficult decisions are having to be made now. Of course, it would be better if we were not in that position, but we are having to make those decisions in order to ensure that we get the NHS back on financial track and give the best value for money to the public.

  Q151  Mike Penning: So you agree that your department allowed overall costs to spiral out of control?

  Ms Hewitt: I have answered the question already.

  Mike Penning: You agree then.

  Q152  Dr Taylor: Secretary of State, last week we talked quite a bit about cost-effectiveness, and we were rather staggered. It was Mr Douglas who told us that three or four years ago there were 14 different measures of activity, but I think now there are about 1,900 different measures of activity. I tried to ask how many of those actually attempted to measure patient outcomes. Have you any thoughts about moving forward on actually measuring patient outcomes: because it is not only the amount of work that is done, it is the outcome that we desperately need to know?

  Ms Hewitt: I completely agree with that and I do think we need to move right across the NHS to a much more accurate measure of outcomes rather than simply relying on what the inputs and the outputs were. The Quality and Outcomes Framework, of course, for GPs operates to a large extent on that basis. Part of the work that has been done with the Office of National Statistics on productivity has been to look at, for instance, the additional lives saved, in part because of the massively increased use of statins, as well as the increased value of those lives saved and a more accurate measure of real quality and productivity that the NHS is giving.

  Mr Nicholson: The other thing that I would say is that we are trying to measure different things now, particularly when we are trying to move services from secondary to primary care. We have not always been very good at measuring that, and I think that is why the Quality and Outcomes Framework is so important because it does give you a real handle on potential outcome; but there is a group working together with the department and the royal colleges at the moment to look at this whole issue about how we measure outcomes and the shift from secondary to primary care, and they will be reporting early next year, which I think will give us a much better grounding and understanding of what is happening.

  Q153  Dr Taylor: I am glad that you have recognised the amount of waste going on, and the paper Better Care, Better Value indicators, we were told, if it was implemented, is going to save something like two billion. Had you thought of ways of pushing this? One thought that occurred to me is that I would have thought it would be useful to send a copy of that to every MP and ask them to go to their Primary Care Trusts, their Acute Trusts and ask them why they are not in the top quartile for each of these measures. Had you thought of that, or had you thought of any other way of using what should be an incredibly powerful tool to save two billion? Just think, if we saved two billion, NICE could afford Alzheimer's drugs, they could afford to treat wet Age-Related Macular Degeneration (AMD). You have got the answer. How are you going to push it?

  Ms Hewitt: I have been saying for the last 18 months, there is a productivity pot of gold in the hands of the NHS and the quality and value indicators that have just been published by the NHS Institute, I think, demonstrate that amply. Indeed, they are only looking at about 20 key activities across the acute sector. Even then, it is only a partial assessment of the continuing improvements that can be made in the NHS, partly as a result of hospitals benchmarking themselves and moving up to where the top quarter and then the top 10% already are but partly also as a result of changes in medical technology and clinical practice. We think it is a very good idea to share these with members of Parliament in relation to their own hospital trusts with the benchmarking data. What we have focused on and what the institute has focused on just in the last month has been ensuring that every hospital trust is looking at their own position on this benchmark and then looking at where their priorities are, whether it is day-case surgery, average length of stay, or whatever, to really make big efficiency savings that will actually sustain or improve patient care and release savings that, as you rightly say, need to be used not just for new drugs but to improve mental health services and a whole range of other services as well.

  Q154  Dr Taylor: It would have to be a carefully edited, shortened paper for MPs to read it, but it would give them a tremendous opportunity to get into their trusts, I think, and point things out.

  Ms Hewitt: My own trust, the University Hospitals of Leicester Trust, was recently rated by the Healthcare Commission as excellent on their quality of care, and that was a well deserved tribute, but, as the Chief Executive told me, they are well below the average in terms of, for instance, average length of stay for hip fractures, and that is an area where they are already making improvements and still have more to do. Of course, this a web-based tool, it is interactive, it is a very powerful tool for trusts themselves to use, so perhaps we could e-mail parliamentary colleagues with it and invite them to look at it that way as well.

  Q155  Dr Taylor: I am sure you probably know that two of your ministerial colleagues' PCTs are in the worst 10 as far as statin prescription goes?

  Ms Hewitt: Thank you for drawing that to my attention. I am sure they are already looking at it.

  Q156  Mr Amess: The answer to Public Expenditure Question 22 shows us that since 1997 full-time NHS staff have grown by 250,000. Again, it shows that the fastest rate of growth has been amongst managers, 75%, and clerical staff 45%. Of course, the general public always say there are lots more managers, lots more clerical staff, and you have demonstrated that because that contrasts with the growth in doctors of 35% and nurses at 25%; so it does appear very clear that the impression that there are plenty of managers and plenty of clerical staff in terms of the contrast with front-line staff is true. The Committee are a bit surprised that, given that there are 230,000 admin and clerical staff working within the NHS, when we asked for a breakdown of the different roles we were told, "We cannot provide information on the numbers of administrative and clerical staff broken down by job role as this information is not collected centrally." It seems absolutely crazy to me that it is not collected. Perhaps it has always been like that, but why change it? Surely the department should be interested in analysing what these 230,000 people do?

  Ms Hewitt: I think, if I may say so, simply looking at the percentage increase rather than the actual numbers of staff in each category is very misleading indeed. People are very fond of saying there are more managers than beds. This is absolute nonsense. There are five beds to every manager and 10 nurses to every manager. Actually, if you look at the total NHS workforce, fewer than 3% of the NHS workforce are managers, front-line staff are over 80%. In other words, we have about 1.145 million frontline staff and, of those, about six out of 10 are professionally qualified clinical staff, in other words doctors and nurses, about 404,000 nurses. The NHS has a lower proportion of staff who are managers than private healthcare, lower than public industries generally and considerably lower than in private industry. There are areas where I think we can reduce management numbers. We made a commitment in our Manifesto last year that we would reduce management administrative costs in the NHS by some quarter of a billion and put that straight into frontline care. That was one of the reasons why we invited Primary Care Trusts and Strategic Health Authorities to look at whether we had the right organisational structure. Therefore, in the coming months there will be a significant number of job losses, and redundancies in some cases, amongst management staff in Primary Care Trusts and Strategic Health Authorities. It is very difficult for those individuals, but absolutely essential so that we put the maximum amount of money into frontline staff and patient care. On the administrative staff, the most detailed breakdown we have comes from the workforce census, and this relates to the 230,000 administrative and clerical staff. This includes medical secretaries, ward clerks, patient records officers and also, not the more senior management staff, but people in human resources and finance, clerical and administrative assistance. They are essential to the daily running of the NHS, and when they are used really effectively, of course, they release nurses, in particular, from wasting their time on clerical duties, worrying about paper work and so on.

  Q157  Mr Amess: Given everything you have said, since 1997 we now understand that an extra 70,000 administrative and clerical staff have been employed. The suspicion is that these are mainly accountants and clerical staff who are really being employed now to manage the market culture that is within the NHS. Is not that the reality, and presumably the department is slightly embarrassed in highlighting the reality, that there are lots of accountants and lots of clerical staff now to administer all these market arrangements?

  Ms Hewitt: The increase since 1997 has been just under 60,000 in administrative and clerical staff, which was the category you were referring to—59,669. I think it is most unlikely that there are lots of accountants employed. I think there is some evidence to suggest we possibly could do with a few more accountants in the NHS, and certainly we are bringing some of them in through the turnaround teams, but it may well be that there has been an increase in, for instance, clerical staff who are coding hospital activity in order that both the hospital and the Primary Care Trust who is paying for it actually knows what is being done in the hospital. I do not think it is a bad thing for hospitals to know what they are doing, and I think it is much better that hospitals should be paid for what they do rather than simply given a block contract with an inflation or above inflation uplift every year and no regard paid to what is actually being delivered in return for that money. I think in the past people have rightly criticised the NHS as being under-managed, and think that does relate to the issues about value for money that Dr Taylor was referring to.

  Chairman: Could we move on to agency costs now.

  Q158  Mike Penning: Secretary of State, last week your officials seemed completely unable to explain why the amount of money spent on "non-agency staff" continues to rise. In the week since then have we managed to come up with an answer?

  Ms Hewitt: I think we have. David.

  Mr Nicholson: Yes. When you count in the actual Foundation Trusts, you can see that the non-nursing agency staffing has, in fact, gone down now, so we can confirm it has gone down, but it is going down at a smaller rate than nursing. What we have done is focused our attention over the last couple of years on reducing the amount of agency staffing going into nursing by using a whole series of measures which now we are going to start to use and are beginning to use with some effect in the non-nursing areas. For example, NHS employers have set out a best practice guide on how to manage agency staff; PASA (the Purchasing and Supplies Agency) are currently negotiating a series of framework deals with the agencies to reduce costs. Already in nursing we have reduced costs between 18 and 25%, and we would expect that to be delivered in the non-nursing area over the next year.

  Q159  Mike Penning: By the sounds of that, you admit that you took your eye off the ball when it came to non-nursing and clinical agency staff. You concentrated on that side but did not concentrate on the other area?

  Mr Nicholson: We certainly started, and PASA and NHS employers certainly started their work in nursing because that was the area that we were particularly concerned about, and we have learned lots of lessons now that we can now introduce in the other areas.