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NHS Deficits

Volume 458: debated on Monday 12 March 2007

[Relevant documents: The First Report from the Health Committee, Session 2006-07, HC 73-I, National Health Service Deficits, and the Government Response thereto, Cm 7028; and the Department of Health Departmental Report 2006, Cm 6814.]

Motion made, and Question proposed,

That, for the year ending with 31st March 2007, for expenditure by the Department of Health—

(1) further resources, not exceeding £94,395,000, be authorised for use as set out in HC 293,

(2) a further sum, not exceeding £1,000, be granted to Her Majesty out of the Consolidated Fund to meet the costs as so set out, and

(3) limits as so set out be set on appropriations in aid.—[Huw Irranca-Davies.]

First, let me say how pleased I am that we have this opportunity to debate the Health Committee’s report on national health service deficits and the Government’s response. I thank the Liaison Committee and the scrutiny unit of the House of Commons for assisting us in this process. I thank members of the Health Committee, some of whom are in their places this afternoon. They have spent many weeks and months working on the report. I thank the secretariat and the special advisers who helped us to draw up the report, which we published before Christmas.

I would also like to thank the Department of Health. It published not only the response to our report on 20 February, but, by coincidence, its own examination into deficits—[Interruption.]

Order. An awful lot of private, loud conversations are taking place in the Chamber. That is unfair to the right hon. Gentleman.

The Department published a document to explain the national health service deficits. It was conducted by the chief economist of the Department’s corporate analytical team. Coincidentally again, on the same day that the Government response to our report was published, they also published quarter three of the NHS returns for this financial year.

I want to pick up some of the more serious points that we made in the report and consider the Government’s response to them. Let me begin with the introduction in 2004-05 of resource accounting and budgeting. The Health Committee considered that in great detail and took evidence from the Audit Commission, which had also examined the change in accounting in NHS bodies. It and the Health Committee were critical of resource accounting and budgeting.

I appreciate that the Minister of State, Department of Health, my hon. Friend the Member for Leigh (Andy Burnham) will doubtless speak about the matter at some length, but let me cite paragraph 25 of the Government response, which states:

“In this context, 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 and at the future application of the RAB regime for NHS trusts.”

Will my hon. Friend the Minister tell the House the Government’s exact thinking on the matter? It worried the Committee, the Audit Commission and many parts of the NHS.

The Select Committee sought the disapplication of resource accounting and budgeting to the NHS. For me—and, I suspect, for the Government—there is a good case for not applying it to NHS hospital trusts run as businesses, or, indeed, to NHS provider trusts. However, there is not a good case for not applying RAB to primary care trusts, which receive a given amount of public expenditure resources. They should live within the overall resource envelope.

As an individual, and not speaking on behalf of the Committee, I accept that all sectors of the NHS—primary or acute sector trusts—have the responsibility to the taxpayer to work within their budgets and their means. That has clearly been difficult for some of them in recent years because of the change to resource accounting and budgeting. The Committee and the Government’s analytical team have considered that in recent months.

Let me make my point clear. All provider trusts in the NHS are businesses. In the course of their normal business, they may well incur deficits and losses on their income and expenditure account one year and surpluses in others. There may be legitimate reasons for that. However, a primary care trust, in its proper role as a commissioner of services, receives a given amount of resources and has a responsibility not to spend more than the resources that are voted to it through the House. The discipline of RAB should therefore apply to primary care trusts but not to businesses that are trying to provide services year on year.

We need to extend the debate. I shall say a little about what the Committee found in some health communities, which told us, “Last year, we were the overspenders and we were the acute sector, so we’ll move it to the primary sector this year and they can be overspenders.” That is an unhealthy state of affairs and I shall mention it briefly again later. We cannot say that RAB is all right for one sector of the NHS but not another.

The hon. Member for South Cambridgeshire (Mr. Lansley), speaking from the Conservative Benches, raised a very important point. Does the Chairman of the Select Committee agree that there is an inherent contradiction between a primary care trust, which has a finite budget to manage, and foundation trusts within that PCT, which have a “payment by results”, more open-ended agenda? There are two conflicting arrangements there, which are certainly not conducive to balancing the books.

At this stage, I would say to the hon. Gentleman that we looked at the issue of payment by results, but whether or not it is a distorting factor has not yet been finalised. If the hon. Gentleman reads the report in detail, he will find that the Government put their hands up in some respects and brought in some elements of payment by results and some tariffs that were clearly off the mark. Some changes were made earlier in this financial year to try to get them back to a more sensible balance.

This has been and remains very much a moving picture. Once we start to make national health service expenditure transparent, as the Government have tried to do, all sorts of things are brought into play. That is not historical, but quite new in respect of payment by results. Other aspects, which I shall come on to in a few minutes if I can make some progress, have been more historical.

Yes, I have the honour of being a member of the Committee of which the right hon. Gentleman is the Chairman. Before he moves on, I agree that everyone should stick within the allotted budgets, but the problem is that the formula in many areas is so bad for trusts that they cannot both stay within budget and produce the care that our constituents deserve.

The hon. Gentleman uses the phrase “so bad”, which I am not sure I would use, but we tried to establish what it was in the formula that led to the problem. Indeed, that is what the Government’s own analytical department has been trying to do. I will refer both to what we found—or, in that particular case, what was not found—and how the Government responded to it in their own report of 20 February.

We all greatly respect how the right hon. Gentleman chairs the Select Committee. I have raised with him the serious problem of historic deficits where the Government order one trust to merge with another trust, which can often lead to a very substantial deficit that the newly created trust then finds it almost impossible to get out from under. The trust has no alternative but to deal with that. Does the right hon. Gentleman agree that the Government really need to find a more sympathetic understanding and a more coherent way to deal with those inherited deficits that does not cause such terrible difficulties later on in the trust’s life?

The hon. Gentleman will see exactly what we tried to do in the report. We dealt with how to manage the situation where deficits, historical or otherwise, are a very high percentage of the turnover of one organisation while at the same time being fair to other organisations in the NHS and to the taxpayer. Basically, deficits are about overspending. Whether historical or not, they are overspend against the budgets allotted to each individual constituent part of the NHS.

My own view—I have said it for many months now—is that that problem has to be addressed in the interest of the taxpayer and in the interest of the NHS. We cannot have all this extra money being invested only to find out that there is still overspending. Often we do not know exactly where the money has gone or whether it is improving productivity and so forth. Under those circumstances, these are big issues. I would not want to argue—neither did the Committee, to its good sense—that where there are massive overspends or deficits, we should not find some mechanism for dealing with them. It is up to the Government, who run the organisation, to find out how they can make people more responsible than they have been in health communities in the past where overspend has taken place.

One of the biggest issues for me—I speak from a personal level—was how the Government decided this current financial year to take on the matter of the overspend or deficits by seeking to balance the books nationally by the end of the financial year. They sought to do so on the basis of top-slicing. It certainly hurt my health community when more than £7 million was withheld from the Rotherham primary care trust, but I am pleased to say that that came out of growth money rather than current services. If it were not for that, I would have been even stronger in my criticism of top-slicing, which was done to bring back some discipline.

I have a question for my hon. Friend the Minister. Paragraph 26 of the Government’s response to the Select Committee report states:

“We agree that top-slicing of PCT allocations to create SHA reserves is a temporary expedient,”—

the Committee agreed with that—

“with 2006-07 contributions being returned to the originating organisations as soon as possible.”

According to the quarter three returns of the NHS finances that were published on 20 February, there is a suggestion that £300 million could be paid back from the top-slicing within the year in which the top-slicing has taken place. That is my understanding of the situation; if that is correct, will my hon. Friend tell me how that money will be paid back, and to which primary care trusts or NHS organisations?

Ministers have already told us that, in many instances, top-slicing has taken place in areas where there are high levels of health inequality. Those are the last places in which we should be holding back national health service expenditure, not the first. The top-slicing took place as a percentage across the board in SHA communities. If that money is to be repaid within the year, how will that be brought about? In Yorkshire and the Humber, for example, will a percentage be given back to all the NHS trusts? I will not bore the House with the details, but if we look at the health inequalities in that area, we see that there is great diversity there, although there was no diversity involved in the top-slicing. Perhaps my hon. Friend can respond to that point at some stage.

I should like to move on to the contingency plans. The Government had planned to set up what we called a buffer in relation to the present in-year problems. They said that it was not a buffer, but it related to the top-slicing. In paragraph 31 of their response to the Select Committee report, they state:

“No additional resources would be provided by Government for these purposes.—”

that is, for the purposes of dealing with the current overspend. Given that nowhere near all the deficits will be cleared by the end of this financial year, what action can we expect to be taken next year by SHAs? Will we see the repayment of the £300 million—if my analysis is correct—in this financial year, only for further top-slicing to take place in 2007-08? I would like my hon. Friend to answer that question as well.

The lack of a failure strategy to deal with in-year problems was not acted on quickly, but the Government are now talking about the implementation of a formal failure strategy in response to our criticisms. Will my hon. Friend tell the House what the situation is, in that regard?

The hon. Member for Hemel Hempstead (Mike Penning) mentioned the funding formula. The Committee took evidence from three professors for our report, and I think that we heard four different interpretations of the funding formula on that occasion. We were trying to determine whether the formula disadvantaged rural areas, and it would only be fair to say that that was denied by our witnesses. I note, however, that page 6 of the report that I mentioned earlier—which was placed on the website by the Department on 20 December—stated:

“Since deficits are found to be more prevalent in rural areas, further investigation of the costs and organisational aspects of servicing rural populations is recommended.”

In the report, the Government say that the formula is being considered by the relevant committee. How long is it likely to be before we get an explanation or interpretation of whether the funding formula impacts negatively on rural areas?

The individuals who gave evidence to the Select Committee were joined by the chief economist for the NHS, who said that the formula did have a detrimental effect on areas such as mine in Hemel Hempstead. In evidence on page 103 of the report, however, the Secretary of State said that the correlation was “very, very small”, which is contradicted by her own Department’s report.

The Department mentioned six areas in its executive summary in relation to the current deficits, and that is certainly one of them.

My hon. Friend the Minister will be familiar with the cuts in education and training budgets. Given the overspend in certain areas, those seemed to be easy targets. Effectively, budgets are held by SHAs and are consequently easy to hold back in order to balance national budgets. The Government said, in paragraph 65 of their response:

“Although…funding will not be ring fenced”—

for which we had asked, because of the raids, so to speak, in the current financial year—

“there will be a more robust service level agreement which will seek to ensure that SHA decisions on what training to fund and the level of commissions of training places required are made on the basis of long term workforce need.”

The Health Committee will, I hope, agree a report on work force planning later this week, and no doubt the House will debate the matter again. I would be interested, however, to know exactly what the Government mean by the phrase, “robust service level agreement”.

Cuts to vulnerable services were also criticised. Numerous witnesses suggested that mental health and public health expenditure were the easier targets in health care. Several organisations wrote to us to make that point. The Government effectively denied that in their response. They said:

“However, improving financial management does not mean compromising services for patients. To ensure that these services are not compromised the Department of Health has asked SHAs to ensure that local changes to spending plans are equitable across the local health economy, and that NHS organisations providing mental health and learning disability services should not be asked to contribute more in savings or cost improvement plans than any other service”.

I accept that entirely as it is written, but none of the three services that I have mentioned has national targets set. When services do have national targets, the NHS believes that those must be met. Under those circumstances, it is right and proper to say that matters should be equitable, but do we have equity when there are national targets and when some areas of the national health service have had such problems recently?

On the delay in recognising deficits, the analytical body said in its report that the NHS’s inability to recognise the implications of changes in resource accounting and budgeting and therefore what was likely to happen in the particular year was one of the major problems.

The Government responded, and I am pleased that they did. We had said:

“We are surprised that it took so long for the unsustainable financial commitments which trusts were undertaking to be recognised.”

The Government’s response was:

“We have changed this financial focus, and, in the context of greater transparency, now encourage the NHS to plan towards achieving surpluses.”

That represents a big change in the culture of the national health service:

I remember, many years ago when I was an Opposition health spokesman, reading Audit Commission reports showing that the priority of hospitals at this time of year was to spend their budgets immediately. If they did not do so, regardless of whether they needed the relevant equipment, the budget would be withheld from them in the following financial year. Has that changed? Rather than spending all its annual budget, can a part of the NHS—while not making a profit—keep some money that can be rolled over into the next financial year? That could help the NHS to plan for different departments.

Recommendation 29 of the Select Committee report expresses concern about short-term answers to some of the financial problems faced by acute trusts in particular. Does the right hon. Gentleman feel that the transfer of access to brokerage on deficits from acute trusts to strategic health authorities was a positive or a detrimental step?

I think it was a positive step. The hon. Gentleman will find “Explaining NHS Deficits, 2003/04 – 2005/06” on a Department of Health website. I do not think it has been published yet, but it appeared on 20 February. As it explains, the main reason for the deficits is the fact that in 2003-04, strategic health authorities were told that they could no longer move capital into revenue accounts, as the NHS had done for decades. Capital expenditure budgets were easy targets, because they were not as obvious as revenue budgets. When the practice stopped, the whole issue of deficits was brought to light.

I hope the House accepts that I am not being partisan when I say that that was a brave decision for any Government to make. Sir Humphrey would say “That was very brave, Minister.” It brought the House, as well as the Government, into the debate on whether enough money was going into the system. In the past, SHAs had covered up overspend by ensuring that other parts of the NHS effectively underspent. It is possible that there was underspending in areas where there was more need—no doubt examples will be produced—but that was not the intention. The intention was to ensure that an NHS organisation’s budget was the property of that organisation, to serve its health community. Until two years ago, that was not the case because of the brokerage that was taking place. I am very pleased that it has ended.

I am listening to the right hon. Gentleman’s speech with interest, because he is describing many of the factors that have disrupted local health services in my constituency. Earlier, he suggested that primary care trusts should be able to run up their own reserves to cushion the impact of changes and new targets issued by the Government. Is that recommendation in the Select Committee report? I cannot find it. If it is not, would the right hon. Gentleman consider making such a recommendation to the Government? That really would be about financial independence for PCTs and others.

Let me read out the Government’s response again:

“We have changed this financial focus, and, in the context of greater transparency, now encourage the NHS to plan towards achieving surpluses.”

That is very plain, and very specific. It is in paragraph 80 of the Government’s response. I think I know what the Government mean by it; all I want to know is whether organisations would lose any money that they did not spend in any one year. I do not think that that is necessarily wrong, but it is a major issue.

Will the trust that has not been overspending—it might be spending up to the mark because it feels that it has to do so as the end of March is coming up—be able to save however many millions of pounds are involved and then take that into the next year with no consequences for the following year’s expenditure? That is important.

The Health Committee was very critical of what we call the failure of financial management inside the national health service. I am pleased that the Government have accepted that

“within the highly complex NHS system, day-to-day financial management practice has not always been of a consistently high standard.”

Many of us agree with that.

We also criticised the role of finance directors. Indeed, some NHS organisations—some with budgets of more than £200 million or £300 million per annum—did not have what would be called a finance director who is responsible to the board for the income and expenditure of the organisation. I am pleased that the Government have now said:

“A national training programme for Strategic Financial Leadership is in the process of being set up and every organisation will be expected to support their Finance Director in attending this programme.”

However, the end of that statement is a little thin, so I ask how far we have got now in setting that up. If we are to avoid the situation that has arisen in the last few years—and probably decades—in the national health service of there being overspending which is hidden by this type of brokerage, it is important that people have confidence that their finance directors know exactly what is happening and what should be happening and that they are looking after the interests of both the taxpayer and the people who use the national health service.

I shall not carry on much longer as I know that other Members wish to contribute. The whole issue of national health service deficits arose early last year, and question marks still hang over some aspects of it. I have posed a few questions this afternoon, to which I hope my hon. Friend the Minister will respond and I am sure that other Members will have other questions to ask. It is crucial that the taxpayer—and everybody else—knows exactly how their money is being spent inside the national health service.

When the Health Committee comes to report later this year, we will have further thoughts on how we have ended up in our current situation in respect of at least one other area that we shall look at. I hope that Members agree that some progress has been made in the past few weeks in explaining the history of national health service deficits and in finding a mechanism for tackling the problems that some trusts face. Some parts of the national health service still face deep problems because of their amounts of overspend, regardless of whether that overspend is historical—they have inherited it—or they have created it themselves. The Government need to address these issues soon.

I welcome the opportunity to discuss health service deficits. It is fair to put on record that nobody can deny the unprecedented levels of funding. [Interruption.] No, my next word is not a “but” exactly: many people are asking some legitimate and serious questions. They want to know where all the money has gone; has some of it been wasted and, if there is so much money in the system, why do things not seem better?

I accept the achievements gained, and I will let the Minister talk about them. However, because of the nature of the world, matters that cross the desks of Members of Parliament and therefore exercise our minds—and the minds of members of the public and the press—are those that are not going quite so well. At present, the sad reality is that it is thought that any reconfiguration—however well meant and however much it delivers for patients—is being done just because of the deficits. I find it hard to believe that the Government welcome that idea, because it makes their job that much harder. It is for that range of reasons that the Select Committee undertook to investigate those deficits. It was interesting, but, on occasions, quite hard to cope with the fact that we seemed to be undertaking an inquiry into work force planning at the same time. On numerous occasions, those matters seemed to be inextricably linked, because the lack of planning on staff numbers and wage decisions seemed to have contributed to the deficits.

As the report’s findings were explained comprehensively by the Chairman of the Committee, I will focus most of my comments on the Government’s response to the report. It was clear when we undertook the inquiry that there was no single reason for the deficits. We felt that several factors were significant, including the funding formula, which has been mentioned, and we spent some considerable time getting our heads around resource accounting and budgeting. It was clear that aspects of central and local management were poor. Government initiatives, private finance initiatives and wage bills were determined centrally and, to an extent, imposed locally, but local implementation and the way in which different trusts tried to achieve targets probably contributed to the current situation.

We had particular concerns about top-slicing, the cuts in education and training and the proposed contingency funds, but the Government’s response to some of those concerns was a little disappointing. The Committee recommended a review of the—I am sorry, I muddled up my notes.

I intend to. The Committee recommended a review of the funding formula. We took a host of evidence on that, but there was little agreement. The review is being undertaken by the Advisory Committee on Resource Allocation. It is useful to note that the change to practice-based commissioning might mean that we have to look at these matters a little differently. That was a positive response from the Government.

The Liberal Democrats welcome the news that the market forces factor will also be considered. It is clear that the cost of providing services in rural areas is particularly high, as is the cost of providing services in the south of England. While no one would argue that the areas of highest deprivation do not require some extra funding, there is a case for ring-fencing some of that funding for public health needs, so that we reduce the cycle of deprivation that is sometimes perpetuated from one generation to the next. It is disappointing to analyse the spending of spearhead primary care trusts, because there is such huge variation in the amounts of their budgets that they allocate to public health. If we are to help some of those areas to achieve better health outcomes in the longer term, surely greater attention needs to be devoted to the amount of money spent on public health.

Does the hon. Lady, like me, deprecate the fact that a significant number of PCTs across the country—this was found out under the Freedom of Information Act 2000—have significantly reduced, or even cut by 100 per cent., their sexual health education budgets to make up for deficits? Does she agree that that is a retrograde step?

I agree with the hon. Gentleman. I will return to that issue later.

When establishing a funding formula, nobody ever looks at how much it costs to deliver a similar service in different parts of the country. The costs in the south of England—the costs of living and accommodation—have an impact on what can be spent on front-line services. Many would agree that such costs are taken into account inadequately. It is no coincidence that the somewhat lengthy Government response that tried to explain NHS deficits mentioned that there was a triangular-shaped area in the south of England that was particularly prone to deficits in the latest financial year.

The hon. Lady mentions the market forces factor and indicates that there are increased costs in the south-east. Although I accept that, that is taken into account in people’s salaries, through the London weighting and south-east weighting.

Yes it is. People get paid that extra money. The market forces factor is not based on the closed economic cycle of the payments that are made to people in the national health service; it is based on private sector wages. It cannot be right that private sector wages in the south-east are used to decide money for hospitals, which are a public service. A nurse in the south-east gets paid exactly the same as a person in Wigan, with the London weighting factor added on, so why have a market forces factor that is based on private sector wages?

I am glad that the hon. Gentleman agrees. Services cost a different amount to deliver in different areas and some of the factors that influence how the calculations are made are clearly inappropriate for the model. To be fair, the Government have recognised that to a certain extent in their response, but they probably have not gone far enough.

Resource accounting and budgeting has exercised minds greatly. It has effectively led to what is known as the double deficit problem. Calculations have shown that, as a result of RAB, the in-year deficit for 2005-06 was exaggerated by £117 million. The Government response seemed slightly confused. A little clarification might be helpful, although it may just have been me who was confused. On the one hand, the response appears to agree that

“RAB is not a suitable accounting regime to use within the NHS.”

But on the other, it says:

“As a cross Government system RAB will continue to apply to the Department of Health, and, as confirmed by the Audit Commission, it remains appropriate for primary care trusts.”

It would be helpful if the Minister said whether that it is still the case as we move towards practice-based commissioning. Most NHS managers that I speak to say that they want to work within their financial constraints and within budget. Some of them admit that that has been done poorly in the past. However, it is a bit like fighting with one hand tied behind one’s back, because of the double whammy.

One of the reasons given for not scrapping RAB is:

“It needs to be demonstrated that NHS trusts have the financial discipline to operate outside the RAB regime and will respond appropriately to the incentives and disincentives created by cash controls similar to those applied to foundation trusts.”

That brings me to the problem of poor local management and poor financial management, which has bedevilled the NHS for far too long. When I worked in a retail environment, at the beginning of every week figures were scrutinised to see what was up and what was down. There was real attention to detail. Any trends involving overspending or something going wrong could be identified. The same is true for many businesses in the private sector. It was quite clear when the Committee took evidence from trusts that some managers did not have a clue. We interviewed some who had done well, and some who had done badly. The good ones clearly drilled down into the costs, and knew the financial situation at pretty much every stage. Their approach was more akin to that in the private sector. It was clear from taking evidence from those who experienced real problems that some of them simply did not have a clue from one month to the next about where the money was going and where it was coming from, or even whether all the income streams were going in the right direction. There seemed to be too few financial managers of the appropriate calibre. If we are to make the best use of NHS resources, it is important to get this right, so I fully endorse the comments of the Chairman of the Select Committee, the right hon. Member for Rother Valley (Mr. Barron).

I endorse what the hon. Lady said. I was taken aback by the comments of the director of Kensington and Chelsea primary care trust in the report about lack of leadership and management control.

May I tell the hon. Lady about St. George’s hospital in Tooting? Until 2003-04, whenever it overspent, it would simply get extra money from the strategic health authority. In 2003-04, it was given £15 million as a non-recurrent payment to bail it out of its overspend. Since then, it has reduced a budget deficit of £21 million to £4.4 million this year. Next year, the deficit will be nil, and there may even be a surplus, so will the hon. Lady join me in welcoming the Government’s attempts to ensure that trusts work within their budget rather than overspending and being frivolous in their expenditure?

The hon. Gentleman has probably got himself a press release out of that. I was about to say that I welcome the recent emphasis on financial scrutiny, but the problem is that that has been so long in coming. People may have thought that there was plenty of money in the system, but that reorganisation of many PCTs and probably too little expertise to go round contributed to the problems. However, it would be churlish not to recognise that some attempts at financial scrutiny are being made.

I thank the hon. Lady for being generous in accepting interventions. Does she agree that it ill behoves the Government to lecture trusts on financial propriety in terms of the skill mixes of their financial directors when the Secretary of State, questioned on 29 November, confirmed that the Government have no idea what the 230,000 administrative and clerical staff in the NHS do or what their contribution to the NHS is, because the data are not collected centrally? On that basis, how on earth can the Government lecture trusts?

I shall come to that point later. There has been a problem with cascading from national level to strategic health authority level to trust level exactly what is required at each level, and I will elaborate slightly on it later.

According to the report on the third quarter financial returns, the aim is to achieve recurrent monthly run-rate balance by the end of the financial year, so it is disappointing to learn that 17 trusts are still not in a position to deliver it. Can the Minister say what else is being done to help those trusts? Although turnaround teams have been sent into some areas at considerable cost, it seems that some trusts have specific problems that are still not being resolved if they cannot balance their books from one month to the next.

My next point is about strategic health authorities. At the last election, our policy was to scrap them, and it seems to have been well justified. What are strategic health authorities for? Let us consider the simple subject of staffing numbers. The Government had a NHS plan. It would have been fairly obvious to subdivide that into different areas so that each SHA would know the numbers of staff who should be taken on. It could then scrutinise the PCTs—given that the bodies were supposed to be strategic, I understood that they were supposed to scrutinise the PCTs. Instead, there was an absolute explosion in staff, with some trusts taking on staff whom they could not afford—the Committee heard evidence to that effect. In many cases, those staff were taken on simply to address a short-term problem or target. Nobody but nobody appeared to have an overview of the system, and no one put the brakes on before it ran completely out of control. We are where we are today as a result.

There have been national problems with the implementation of some policies. No hon. Member would deny any member of staff a pay increase or a decent wage. The Government reviewed the pay of health service staff through “Agenda for Change”. They also introduced the GP contract—it has become known as the “controversial” GP contract—and the consultant contract. Each of those went over budget by a considerable amount. “Agenda for Change” cost £220 million more than was expected. The GP contract cost £250 million and the consultant contract cost £90 million. The projected figures for 2006-07 suggest that “Agenda for Change” will cost an additional £394 million more than what was expected, while the consultant contract will cost £48 million. Again, it is strange that there was insufficient financial scrutiny at the heart of the Government to make the budgets more reflective of the reality.

Let me outline some particular concerns. The top-slicing of the budgets of PCTs and other trusts has been somewhat controversial. The simple fact remains that it has pushed some trusts into deficit. According to the third quarter financial review, 35 per cent. of organisations are forecasting deficits, but that figure would be only 24 per cent. if the impact of top-slicing and the previous year’s deficit could be ignored. The process seems to be a more formalised way of moving resources around the system than the old-fashioned approach, which the right hon. Member for Rother Valley mentioned, under which who should take the deficit each year was determined by Buggins’s turn.

I have a further concern about education and training. When the Secretary of State was questioned by the Committee about the raiding of the training budgets, she said:

“I am very reluctant to go down the ring fencing route.”

However, doctors who are halfway through their training cannot access courses and the intakes of schools of nursing have been drastically reduced. That has a long-term effect. That approach might seem like a simple one-year solution, but one cannot expect schools of nursing and midwifery to reduce the numbers on their courses by a third or a half in one year and then revert to the previous position a year later. It is not fair to expect a single organisation to deliver in such a way.

The Secretary of State did not appear to have an answer to the situation, although she referred repeatedly to difficult decisions. When the hon. Member for Staffordshire, Moorlands (Charlotte Atkins) said:

“Let us make sure that stealing money from the training budget does not become habit forming”,

the right hon. Lady said, “I would endorse that.” However, it is sad that she does not appear to want to do anything positive and concrete to try to ensure that such a situation does not arise in the future.

The right hon. Member for Rother Valley talked about vulnerable groups. Paragraph 76 of the Government’s response is a little helpful because it says:

“improving financial management does not mean compromising services to patients. To ensure that these services are not compromised the Department of Health has asked SHAs to ensure that local changes to spending plans are equitable across the local health economy, and that NHS organisations providing mental health and learning disability services should not be asked to contribute more in savings or cost improvement plans than any other service, unless the mental health or learning disability services contributed to the deficit.”

That is all very well, but it only covers the issues of mental health and learning difficulties. As the hon. Member for Peterborough (Mr. Jackson) said, other services have been cut dramatically, too.

The Terrence Higgins Trust has undertaken research that shows that much of the money earmarked for sexual health services has not reached its target destination. The problem, of course, is that not many Members of Parliament have people queuing up, or knocking on their door, to make a surgery appointment because they cannot get an appointment at the local sexual health services clinic. It does not happen; it is not something that people really want their MP to know about. Sexual health services are an easy target, and the Government should do more to ensure that the money for those services stays where it is. Removing that money is a short-term, unhelpful solution, because if people cannot access those services, they will carry on spreading disease, and we will end up with a bigger problem. Is that really what the Government want?

One group of people who are queuing up at the surgeries of every right hon. and hon. Member in the Chamber are those with concerns about NHS dentistry. Before my local primary care trust was absorbed into a larger, sub-regional NHS primary care trust, it had some £10 million allocated to dentistry-related activity, yet 10,000 people in my constituency are on a waiting list for NHS dentistry, because all that money has been siphoned off and sent somewhere else to try to limit deficits. Money is transferred between organisations so that we can try to make sure that we mask the problems, and that has a huge effect. [Interruption.] The hon. Member for Newcastle-under-Lyme (Paul Farrelly) says that the money is ring-fenced, but the reality is that it is not, because it is going elsewhere.

Clearly, my hon. Friend feels passionately about the issue. When the contract was negotiated, there was an automatic 5 per cent. reduction in activity, and that contributed to the problem. It is difficult to understand how the Government are improving access to NHS dentistry when they have reduced the dental activity for which they are paying by 5 per cent. Clearly maths has changed since I was at school.

Is it the hon. Lady’s understanding, as it is mine, that the money for dentistry is ring-fenced and cannot be spent elsewhere?

The point that I was making was that the pot of money had been reduced. There are cases of people trying to get a dental appointment but being unable to do so because the PCT has run out of money and no extra funding is available.

I shall bring my remarks to a close so that other Members may speak. I welcome the improved attention to detail with regard to NHS finance. It is long overdue, but sadly it comes at a price; there have been hospital closures, reductions in service and redundancies for people who have worked long and hard to deliver some of the Government’s improvements. Those people have a bitter pill to swallow.

The Government have invested unprecedented levels of funding in the NHS since 1997. Funding will have trebled by the end of the coming financial year, but in times of such plenty, the money is sometimes not invested as wisely as it should be. Certainly, there have been significant improvements in patient care, there is improved access to health services, and waiting lists are no longer the issue that they were back in 1997, but it is vital that all NHS organisations look carefully at the way in which they provide services to patients to ensure that they are delivering the best possible value for money. For instance, it often does not make sense to send patients to accident and emergency, as better management of their condition at home would save money—going to A and E costs hundreds of pounds—and provide much better care and outcomes for them.

It has certainly been a difficult two years for the health economy of north Staffordshire, where my constituency is located. The Secretary of State frequently says that overspending is concentrated in the healthier and wealthier parts of the country, but that is not the case in north Staffordshire. We may be the exception that proves the rule, because north Staffordshire has been historically underfunded. That issue must be examined urgently, although I recognise that the historical underfunding is not the only problem that north Staffordshire faces. We saw great headlines about 1,000 redundancies at the University hospital of North Staffordshire, and stories about the way in which that would devastate the local economy. I checked the figures today, and the reality is somewhat different. The figures are, in fact, 150 redundancies, of which 45 are compulsory—that is a little bit different from the 1,000 redundancies that were headlined in the local paper.

Is my hon. Friend surprised to hear that last year a political party scared local communities about the number of redundancies, yet in the entire financial year, only four redundancies were made?

That would not surprise me at all, because as I said, only 45 of those 150 redundancies were compulsory. Eight nurses were made compulsorily redundant—other nurses took voluntary redundancy. However, I do not wish to underplay the seriousness of the situation. A number of nurses who, traditionally, could expect to be employed by the local hospital, could not secure jobs. Now the local hospital is taking more nurses from Keele university, but many nurses have decided, because they have had offers, to go to Australia. That might be a fantastic experience—I am not suggesting otherwise—but the situation has led to some soul searching in the area.

North Staffordshire is an area of low skills, and we cannot afford to lose that valuable skills base. However, what worries me most is that clear mismanagement at the hospital was not picked up. It is accountable to the strategic health authority, but to whom is the strategic health authority accountable? It is responsible for the performance management of trusts in its area, and it seems that it was asleep on the job. All the signs were there. The chief executive announced that he was leaving his job 13 months before he was due to go, but in all that time the hospital did not manage to find an adequate and effective replacement.

The report by the Select Committee on Health found that there is no failure strategy in the NHS. There should have been a strategy that kicked in at that point, and people should have said, “Hold on, there are alarm bells sounding here—we must take this in hand.” When the scale of the problem was finally revealed, members of the hospital’s management board resigned en masse. A new chief executive, Antony Sumara, was brought in, who made a very good job of sorting out the mess. He made much better use of theatres and day surgery. It is a sprawling hospital on three separate sites, and he rationalised activities on different sites to ensure that it worked more efficiently. However, even he could not do everything, because the hospital buildings are up to 150 years old, so there was a big challenge. We hoped that he would stay put after his year’s contract expired, and there certainly were suggestions that he would do so. But that has not happened. He was obviously headhunted to go elsewhere.

We now have an acting chief executive, who I am sure is doing all she can, but I do not know whether the management of the hospital is getting the support that it needs. Its task is not just to manage a dilapidated hospital. We are to have significant and very welcome investment in a new maternity and oncology block that is due to open in two years. It represents an investment of £71 million from the Department of Health. At the same time, the plans for building a new PFI hospital are well advanced. There are several balls in the air, and the acting chief executive may not be getting the support that she deserves. Because of past performance, I have no great faith in the strategic health authority to supply that support.

A real worry for everybody, especially patients, is the fact that infection rates remain stubbornly high. I know that much work has been done to reduce infection rates and meet Government targets, but I wonder whether the failure to get those rates down is a symptom of a wider problem. I hope not. When I talk to my constituents about their experience in the NHS, particularly in that hospital, by and large I get very good reports. It is only people who have not had recent experience of the NHS who say it is a shambles. However, experience in the hospital can vary from ward to ward. When my own daughter was in that hospital, her experience varied from ward to ward. She saw quite a few different wards, sadly.

The primary care trust in my area is doing much better. We merged two primary care trusts, and I am grateful to Ministers for overruling the strategic health authority and supporting local people in our fight for a local PCT. The record of that PCT has justified Ministers’ confidence in it. It is brilliantly led by the chief executive, Tony Bruce. As a result, the PCT is expected to be in balance this year, while achieving all the Government’s expectations and ambitions. It would have been in surplus if it had not been top-sliced. As Tony Bruce told me the other day, the next two years are crucial, not just because NHS finances will be tighter, but because we have to make the right investment decisions now to ensure that we improve the lives and reduce the dependency of patients.

I have been listening closely to my hon. Friend’s remarks. I recognise that the trust has been dealing with problems that have built up over many years, but does she agree that the announcement in the summer of last year—in the present financial year—that the PFI scheme for the trust would go ahead will give the trust confidence about the future? One of the problems has been that services have been provided over too many sites, often in poor and outdated accommodation.

Absolutely. The decision to ensure that the PFI hospital went ahead in a slightly smaller form was sensible, because we could have ended up with a white elephant—a huge hospital that would not have been fit for purpose in the 21st century because so many good things are going on in the local PCT area. We are sending far fewer people to hospital. Central out-patients has had a reduction of 20 per cent. in GP referrals because of the work that GPs and PCTs are doing locally to prevent the admission of patients to hospital.

The work that is being done locally to make sure that patients are less dependent and do not end up in the acute sector is to be praised, but there must be consistency. My local PCT, the North Staffordshire primary care trust, is doing a fantastic job in that respect, but I am not convinced that that is happening countrywide. We must resolve those issues. If we do not, the increasingly elderly population will mean that we find ourselves in another crisis.

The Department of Health cannot micro-manage the NHS; it has to be down to local organisations to do that. I am pleased that PCTs and trusts now have to achieve financial balance. The need to balance the books has driven much of the good change that we have seen. It has been necessary to drive down costs and deliver value for money, but in my area that has not been at the cost of patient care—in fact, it has improved patient care. We have introduced community matrons; I think that there was a financial incentive to do that, in the context of reducing acute admissions. We also have deep-vein thrombosis testing locally in Leek, the prevention of falls programme—again expertly led at the local Leek hospital—and PhysioDirect, which allows physiotherapists to treat people without a doctor’s appointment. All those services have ensured that care is delivered locally, where people want it, and not in the acute sector.

I very much welcome the transparency that has come with the tightening of the NHS financial regime. In the past, we had constant rumours about how Staffordshire had lent vast sums of money to, say, Shropshire, but it was never clear on what basis that was done and whether interest rates were paid; I do not think that they were. We were never really informed of what was going on. Now the financial position of each organisation is known. Many PCTs resent the top-slicing of their allocations, but I hope that that is only a short-term measure, and that PCTs will be able to manage their local budgets appropriately and not have to shore up the strategic health authority balances.

The Select Committee suggested that some deficits were down to the growth in staff costs. To some extent, that was a result of pay rises and GP and consultant contracts, but it was also a result of the vast increase in the number of staff. I have no particular difficulty with GPs being paid more, as long as they deliver more for patients. It cannot be right for doctors to claim payments for access to their services, in terms of appointments, when some are clearly not doing that. It is important for PCTs to police the contracts properly, so that where doctors are getting more money, they deliver the services well. Payments must bring results, and that has to be the case at every level, including the GP level.

I am concerned about the decision to stage the nurses’ pay award. The independent nurses pay review body has done a fantastic job for nurses ever since it was set up many years ago. By considering the evidence from the unions, employers and Department of Health, it bases an award on the careful consideration of the facts. The review body came up with a 2.5 per cent. settlement. It was not generous, but it was fair. No matter how we dress it up, however, staging the award means that the pay award has been reduced by 0.6 per cent.—a cut that many nurses cannot afford if they are trying to get on the property ladder or raise a family. In the Department’s response to the Select Committee’s report, it says that staff costs are not a main reason for deficits. I cannot understand, therefore, why we are paring down the nurses award.

I am particularly disappointed with the nurses’ pay award, because nurses have been through a lot. Even though there have not been a large number of nurse redundancies in my patch, there has been a great deal of anxiety among nurses about getting local jobs.

All hon. Members will have been bombarded by e-mails from nurses who naturally feel aggrieved by the pay award. Will the hon. Lady accept that the vast majority of nurses provide unpaid work, because they are not clock-watchers who go home immediately at the end of their shifts, and they work more hours than they are paid for? Does she regret the moves in some areas of the country to persuade nurses to work for an hour a week for no pay?

As a Unison member and someone who used to write evidence for the pay review body, I would not encourage nurses to work an hour unpaid. Nurses need to ensure that they are not too tired to do the job, and they already face enough pressure not only in the workplace, but, because many of them are women, family pressure and other extra responsibilities. Given that we have an expert pay review body, it should deliver the pay award and the Government should accept it in full.

I appreciate that “Agenda for Change” has delivered fantastic opportunities for nurses in terms not only of pay, but of promotion prospects and of the chance to work in different areas. The whole role of nurses has vastly expanded, which has been encouraged by “Agenda for Change”. The addition of 85,000 nurses to the NHS since 1997 has had a huge impact on patient care. From talking to my constituents, I know how much they value the work of nurses not only in the hospital but in the community. I certainly want to see the pay award honoured in full, and I hope that this will be the last time that it is staged.

Lastly, I want to discuss training, on which, as the hon. Member for Romsey (Sandra Gidley) has said, I have questioned the Secretary of State. I feel very strongly about taking money out of the training budget, which is the seed corn of the NHS. That is not acceptable. It may be an easy option to raid the training budget, but it will have an adverse effect on staff morale, and in particular, on development. Given that a major reason for the deficits is a lack of management expertise at all sorts of levels within the NHS, it is vital that we spend more on training, not less. I asked the Secretary of State whether she would ring-fence the training budget. She did not want to do so, but I suggested that it should be controlled by a body such as the Higher Education Funding Council, which would prevent the strategic health authorities from raiding it. I would certainly welcome a more robust regime, and we must not allow the easy option of raiding training budgets to be used again.

We now have a far more transparent system of NHS finances, but I still think that we lack sufficient management expertise in some areas. There appears to be a huge variation in quality, and we must find some way to ensure that the best-quality managers bring on the rest. From the evidence that we took in the Health Committee, it is clear that some managers are definitely getting it right and that others are definitely getting it wrong; unfortunately, north Staffordshire was one of the areas where management got it wrong. The situation needs to be urgently addressed, and if we do not address it, I fear that we will return to where we were a couple of years ago.

Let me start on a positive note by thanking the Minister for the tremendous work that he did over a considerable time at the back end of last year and early this year to help to ensure that Broomfield hospital private finance initiative scheme moved successfully to a positive conclusion. I am extremely grateful, as are my constituents, to him and to his right hon. Friend the Prime Minister for all the work that they did to help to achieve that.

I say that because it is relevant to what I want to say about Mid Essex Hospital Services NHS Trust and Mid Essex—formerly Chelmsford—primary care trust, which are both in deficit with a turnaround team trying to sort them out. I should like to pick up some of the points in the Health Committee’s report warning against short-term remedies to try to solve longer-term problems. Mid Essex PCT has a deficit of what was thought to be about £11 million but is in fact somewhat more than that, and Mid Essex Hospital Services NHS Trust has a deficit of £13 million. They are both trying to meet the Government’s requirements over the last financial year and for the forthcoming financial year and are having to take some tough decisions to break even and fit Department of Health requirements.

The problem is that short-term decisions are being taken to reduce deficits. In the case of the PCT, for example, there is the closure of the only intermediate care wards at St. John’s hospital, which were brought in by the Government five years ago with a special grant to help to overcome the problem of delayed discharges at Broomfield hospital. I suspect that in the coming months the closure of those two wards will have the knock-on effect of increasing the pressures and problems of delayed discharges, so it is a false economy.

In both organisations, there have been redundancies, most of which have been voluntary or achieved through not replacing unfilled posts. Again, that has a knock-on effect in causing problems for existing staff who have to do extra work under extra pressure. On top of that, 50 nurses are being made compulsorily redundant. During questions before Christmas, the Minister gave the figure of 20 or 22 compulsory redundancies, but by the end of this financial year it will have increased to 50. Those are not long-term realistic views but short-term decisions to meet an immediate problem, and the adverse knock-on effect will not be helpful for the hospitals concerned.

I should like to make a special plea on behalf of Broomfield hospital, which I visited last Friday. I went to see an ophthalmic surgeon who is extremely concerned about the Government’s proposal to create three independent sector treatment centres in Essex—in Southend, Basildon and Braintree, about eight miles from Broomfield hospital. If that decision had been taken five or six years ago, when there was a particular problem with waiting times and waiting numbers in Mid Essex Hospital Services NHS Trust—the figures show that in the first four years of this Government, the trust faced an inexorable increase in the number of people waiting for treatment, although there may have been falling numbers elsewhere—it could have played a very positive role in helping to deal with the problems at the hospital by providing extra capacity. As its record shows, Broomfield hospital is meeting the key targets that the Government set. My fear, and that of many at Mid Essex Hospital Services NHS Trust, is that if, on top of the trust’s deficit, about which it is taking tough decisions, an independent treatment centre goes ahead at Braintree, it will siphon off patients because it will undertake some of the work that Broomfield does. Although the price will be the same, there is a fear that patients will be siphoned off to the Braintree ITC. That has significant and serious implications for the funding streams and finances of Broomfield hospital.

I therefore ask the Minister to consider what could be a serious problem and possibly think again, even at this late stage. He may not yet be aware that I faxed a letter to his private office at approximately 7 o’clock this morning. I hope that he will agree to meet me and the senior management of Mid Essex Hospital Services NHS Trust in the near future—because of the time scale—to discuss the matter.

I should like briefly to consider another matter. Several people who gave evidence about recovery plans to the Select Committee, including Mr. Everett, the director of recovery at Kensington and Chelsea primary care trust, made the point that it was important to deal not only with capacity but improving clinical and administrative efficiency in running hospitals. Any sane person wants to remove excess bureaucracy. I am the first to admit that, given the size and scale of the work that the NHS does, one has to have a first-rate management team to ensure effectiveness and efficiency, but one has to guard against going beyond that to a bloated administrative system. Management teams should seek, in administering hospital procedures, to get an effective, cost-efficient system.

In that context, I draw the Minister’s attention to something that I discovered personally in the past week that appears to run contrary to the Select Committee’s report on effectiveness and efficiency and the evidence that it was given. Most people would agree wholeheartedly with the concept of offering patients choice. My party has advocated it for some time, and we always welcome converts to the cause, so we are delighted that the Government have embraced the concept.

However, before choose and book was introduced, there would be a consultation when patients visited their GPs, who determined the best way forward. If they could not treat the patients, they would recommend that the patients went to their local hospital to see the local consultant who was a specialist in the relevant condition. In my experience and that of my children in the past, one would usually get a letter in a week or so from the local hospital trust to say that one had been referred to Mr. Bloggs the consultant and to set a specific time on a certain date to see the consultant, who would then determine the required treatment and book one into the hospital for an operation or other treatment. That was an efficient, swift and sensible way to proceed.

Under choose and book, the process is no longer sensible, efficient and cost effective. I do not know whether the system is unique to Mid Essex—if so, someone should explain to the trust that it is the wrong way to proceed when trying to be cost effective, efficient and to save money to plough more into patient treatment. Patients now go to their GPs, who identify a problem and say that they will refer them to a consultant. It is the first time that I have come across choose and book because I fortunately do not visit my doctor often. I was given a choice of five hospitals. I chose my hospital and off I went.

Six days later, a letter arrived. It was not from the hospital that I had chosen but the GP’s practice. It stated that, following my recent appointment, an assessment of the GP’s decision to refer the patient to a consultant had to be conducted. If I passed the assessment and it was decided that I should see the consultant, I would have to wait seven days from receipt of the letter and ring a telephone number at the hospital trust to make an appointment to go to the hospital of my choice and see the consultant. It is odd that a committee—presumably—assesses and second-guesses whether the GP has made the right decision.

The letter was four pages long and included some gobbledegook. By the by, it told me that the location that I had chosen was not the location that I chose. If we are trying to be more effective and efficient, why cannot we retain the tried and tested old system?

The hon. Gentleman mentions efficiency and effectiveness. Does he accept that it might be more efficient to ensure that, if patients do not need to go to hospital for an out-patient appointment, they have the appointment in a community setting?

I completely accept that, but it is not the point that I am making. A GP is qualified to decide whether patients need to be seen in a community setting or whether they should see a consultant at the local hospital. The GP has the expertise, training and capabilities to make that decision.

Does my hon. Friend know that, even if one sees a consultant, and the consultant, who is much more qualified than a GP, decides that one needs to see another consultant because the ailment requires the opinion of two consultants, one has to be referred back to the committee? It appears that even consultants are not qualified to refer.

I knew about that, although I confess that I had forgotten my hon. Friend’s valid point. After many years of GPs throughout the country working well, I do not understand the need for them to be second-guessed now. I should like the Minister to intervene because he could also tell me who conducts the assessment.

Does not the hon. Gentleman accept that many such services throughout the country are clinically led? They ensure that, if possible, someone can be treated outside a hospital setting, at less cost to the whole local health economy and the potential benefit of the individual patient, who will not have to go into the hospital system, with all the inconvenience that that can cause. That makes sense for everybody. Will not the hon. Gentleman balance his remarks and consider for a moment that there may be a positive outcome all round?

The Minister and I may have to agree to differ because I have more faith in the judgment of GPs to cut out bureaucracy, but let us not argue about it. Even if one takes the Minister’s view that there should be an assessment committee—

All right, an assessment group—[Interruption.] Let us not quibble about figures and simply say an assessment. Even if one agrees with the Minister that there should be an assessment, why does a four-page letter have to be sent from the GP’s practice, not the hospital? If the assessment confirms the GP’s decision, why cannot the hospital chosen by the patient simply write, as happened before choose and book, to accept the patient’s need to see a consultant and to invite them to turn up at the hospital on whatever day and time is suitable? That would cut out a lot of inefficiency. Of course, one then has the joy—I cannot tell the House about it today because the seven days have not expired—of finding out how many times I will have to ring this number to get through to the appointments people.

In conclusion, I ask for more thought to be given before bringing in unnecessary assessments, extra paperwork, extra costs and extra time-consuming demands. What will happen is that one will not get an appointment for 13 days at the earliest, whereas under the old system one had an appointment within seven days—although when one actually saw the consultant and treatment started was indeterminate. That is my simple point. I ask for the House’s forgiveness because I am due to attend a meeting and have to leave now, but I certainly hope to return to hear the winding-up speeches.

It is appropriate to examine the financial and political context of our debate on NHS deficits. I concede that there has been a 7.5 per cent. real-terms increase in funding over the last 10 years under this Government. Indeed, the only promise that the Prime Minister has kept is that our spending on health is now at the European average. By the end of the financial year 2008, we are looking at spending £92.6 billion on health care. There have been some successes, as I say, with improvements in mortality rates in cancer, coronary heart disease and in-patient waiting times.

There have also been significant areas of failure, however. Mental health services and stroke care have deteriorated and obesity has gone up by 500 per cent. since 1980. Last week, we were quizzing the Under-Secretary of State for Health on audiology services—a major area of failure by the Government, who have done nothing to alleviate the problem in the last 10 years.

I believe that the Government have tested to destruction the idea that it is possible to transform the NHS by spending money—without fully costed, comprehensive reform of how the NHS works. The notion that increased funding was all that was needed certainly held sway under the calamitous stewardship of the right hon. Member for Holborn and St. Pancras (Frank Dobson) at the end of the 1990s. It was a theory completely without foundation. Between 1979 and 1997, real expenditure on the NHS went up by 74 per cent.; nurses’ pay went up 79 per cent. between 1988 to 1995 when the economy grew by only 54 per cent.; and infant mortality in the first 12 months was more than halved between 1979 and 1997. As the hon. Member for Romsey (Sandra Gidley) said, the taxpayer is entitled to ask where all the money has gone.

As we enter the period of the comprehensive spending review, one third of NHS organisations are in deficit—a gross deficit of £1.33 billion and a net deficit of £600 million. A wider question is why the NHS is not delivering more wide-ranging reforms and is doing so relatively badly by international comparisons. The most recent Organisation for Economic Co-operation and Development data—published last year—on mortality rates and potential years of lives lost that are a priori preventable show that we rank 22nd out of 26 OECD countries and that we have fallen two places in the period between 1999 and 2003. In fact, the UK has seen no real improvement on mortality rates in respect of stroke care, for instance, and deaths from heart disease are significantly in excess of other OECD members—with the exception, I concede, of the United States.

Where has all the money gone? The King’s Fund found that in the financial year 2005-06, almost half the growth in spending had gone on higher pay for general practitioners and consultants. Indeed, the Secretary of State confirmed in her oral evidence that in the three years to 2005, GP salaries had gone up by 50 per cent. and hospital consultant salaries by 27 per cent.

At the Select Committee hearings in November, the Secretary of State also conceded that administrative and clerical staff had risen by 72,695 posts since 1997 and that there are now 230,000 administrative and clerical staff employed in the NHS. As I mentioned earlier to the hon. Member for Romsey, Ministers are unable to tell us what contribution they are making to wider strategic plans in the NHS because they do not collect such data. We await with interest the Select Committee report on work force planning, which I am sure will be a smorgasbord of similarly disobliging data.

The Select Committee learned that the total capital cost of 54 major PFI projects was more than £25 million—we are not talking about loose change here—and had risen by an average of 31 per cent. after the outline business case. No wonder nurses feel aggrieved about being forced to accept a derisory 1.9 per cent. pay rise to fund this incompetence on an epic scale. The working time directive, “Agenda for Change”, GP consultant contracts have all contributed to significant cost pressures.

Is the hon. Gentleman suggesting that he and his party would favour repealing elements of “Agenda for Change”?

I am merely saying that the Government’s incompetence when it comes to executing “Agenda for Change” is awe-inspiring. A Conservative Government would not have gone about it in such a cack-handed and incompetent manner.

We have seen no evidence of increased productivity over the last 10 years. The Government have preferred to focus on endless reorganisations, which have had little or no impact on patient care. Forty central NHS agencies have been created since 1997; and 400 or more performance targets mean a constant between balancing the books and meeting centralised targets. As we know, targets can be manipulated. In 2004, the Audit Commission cited evidence that in some trusts patients were removed from waiting lists once they had been provided with a future date for an appointment. They were given immediate appointments that they were not able to attend and then classed as refusing treatment or having treatment inappropriately suspended.

Anyone who genuinely believes in real reform of the NHS would welcome the Government’s moves in that direction over the next few years. Conservative Members agree with patient choice and plurality of providers. We believe that independent sector treatment centres are a good development, as are payment by results and practice-based commissioning, but where is the commitment to support the development of care networks and integrated services and why the palpable failure to develop community hospitals, which was a manifesto commitment in May 2005?

While my hon. Friend is discussing independent treatment centres, may I ask him whether he saw the written answer that the Minister—in his place there on the Treasury Bench—gave me on Tuesday 6 March? It said:

“Independent sector treatment centres (ISTCs) are paid contract prices, which reflect the outcome of a competitive tendering exercise conducted at national level. NHS trusts and foundation trusts continue to be paid for activity at the national tariff, which is based on national average costs reported by NHS organisations.”—[Official Report, 6 March 2007; Vol. 457, c. 1964W.]

Does my hon. Friend agree that ISTCs will get the less costly more straightforward cases to deal with—and deal with them very well, I am sure—leaving the NHS trusts with the more complex, more costly cases, yet without unit price increases to reflect that change? Is it not another disaster in the making for NHS funding?

My hon. Friend makes a valid point. It would have helped if the Government had introduced the new tariff on time and given trusts the ability to make the appropriate provision in that regard.

I share the concern of the right hon. Member for Rother Valley (Mr. Barron) that funding increases in the post-2008 era might be as little as 2 to 2.5 per cent. up to 2011, yet evidence-based outcome measurement barely features in Department of Health policies. Activity does not, of itself, mean improved outcome productivity. Professor Alan Maynard of York university has observed that patient reported outcome measures—PROM—barely register in respect of incentives for GPs and consultants and that, at present, we are talking about a cultural issue. He states:

“Clinicians do not regulate each other’s activities explicitly and professionally. Non-clinical managers remain anxious not to antagonise clinicians, whose goodwill is essential to meet Government targets.”

Regrettably, we are a long way from the example of Kaiser Permanente, which delivers better quality care to patients through close alignment between managers and clinicians in acute hospitals and primary care, as reported in an article in the British Medical Journal by C. Ham in 2003 entitled “Hospital bed utilisation in the NHS, Kaiser Permanente and the US Medicare Programme”.

In its most recent paper on the issue, published in February 2006, entitled “Public Sector Productivity”, the Office for National Statistics found that productivity in the NHS lies anywhere on a continuum between an increase of 0.2 per cent. per annum in 1999-2004 and a decrease of 0.5 per cent. in the same period. That is set against a background of unprecedented spending and output and activity levels.

Does my hon. Friend know from his experience before entering the House whether any chief executive would have kept his job if he had doubled spending while seeing no increase—and, in all likelihood, a decrease—in productivity?

The Select Committee heard significant evidence from many people in the private and public sectors. There was a huge amount of anecdotal and empirical evidence pointing to an enormous amount of mismanagement, mainly at Government level through the Department, but also—I have to say, in fairness—at local level. The answer to my hon. Friend’s question is an emphatic no.

In their paper for the King’s Fund, Appleby and Harrison found that the benefits of the extra funding would probably not outweigh the costs, if a traditional cost-benefit analysis were carried out. That is a damning finding. Unfortunately, that is the record of this Government.

I would like to focus on three key areas arising from the Select Committee report: the funding formula and the link to deficits; resource accounting and budgeting, and the target culture; and the impact on patient care, training and development of the cuts resulting from trusts’ deficits.

The Chairman of the Select Committee said that the funding formula dated roughly from 2003. Justified concern has been expressed over the fairness and accuracy—or otherwise—of the formula, and particularly over its static nature and the lack of proper accounting relating to rurality and to multi-site hospitals, particularly in acute trusts. In regard to methodological failings, I would draw to the House’s attention the comments of Professor Mervyn Stone of University college London, who described the methodology as based on “questionable” statistical methods, no less. He highlighted the fact that the present formula is based on the current use of health services and indirect measures of health care need. North East London strategic health authority made the point that the formula was

“poorly evidenced and insensitive to local factors”.

The Department’s chief economic adviser found only a

“moderate correlation…between the needs and age index and deficits in health economies in 2004/2005”,

but it cannot be a coincidence that Professor Asthana told the Committee that there was a clear link between the level of growth in funding and deficits, with 34 out of 60 PCTs in deficit having received a smaller than average increase in funding. Only four receiving the biggest increases were in deficit.

Age is also a factor. Witnesses appearing before the Committee made the point that the funding formula makes no weighting provision for areas with a high proportion of older adults, such as the south-east and the east of England—my area—where the burden of disease is naturally higher among older people. In fairness, I am pleased to acknowledge that the Department has promised, in its response, a thorough review of the funding formula, including the market forces factor, rurality, and practice-level formulae. We look forward to seeing the results of the research being undertaken by the advisory committee, but I hope that it will act with a degree of alacrity that has not been present hitherto.

With respect to the resource accounting and budgeting system, I am disappointed that the Department is unwilling to offer assurances that the problem of double deficits caused by the RAB system, which has a direct impact on patient care, will be addressed. I hope that the Minister will be able to comment on that later, particularly as the Audit Commission and the Select Committee have found the RAB system to be an unsuitable and unsustainable accounting regime.

The Secretary of State’s pledge to bring the NHS into break-even or surplus by this month is built on assumptions that entail widespread underspends, recourse to contingency reserves and other smoke-and-mirrors accounting practices. I want to quote the Committee’s finding in this respect:

“Top-slicing is a temporary expedient, but it must not become a permanent part of NHS funding. We recommend that a time limit be set on its use…Continued top-slicing and the establishment of a contingency fund would be an admission by the Department that it accepted that individual trusts would remain in deficit”.

That is an important point.

We also know that targets for emergency admissions, accident and emergency services and waiting times have had a huge impact and resulted in a huge commitment of scarce resources, without the commensurate improvement in patient care. Indeed, a Healthcare Commission patient survey in 2005 found that 32 per cent. of patients were admitted to A and E within an hour in 2005, compared with 43 per cent. in 2004. That was within the four-hour target, but the service had none the less been reduced.

Deficits have clearly had a major impact and serious consequences, not least in the constituency of my hon. Friend the Member for Hemel Hempstead (Mike Penning) and those of other Members across Hertfordshire.

As a Member representing a Hertfordshire seat, I must point out that the deficits are being addressed in a completely brutal way, putting financial requirements ahead of clinical needs. We have been given two years to pay off a £55 million deficit. That will involve a significant reduction in services to my constituents in Hertfordshire.

I sympathise greatly with my hon. Friend. My own trust has seen a £7.7 million deficit resulting in the loss of 185 posts and many bed and ward closures. I commend to the House the sterling efforts of all the Members of Parliament representing the Hertfordshire constituencies on behalf of their constituents to fight the Government’s wrong-headed plans.

The impact of double deficits, of the European working time directive, of the “Agenda for Change”, of the mismanaged consultant and GP contracts, of the ongoing IT debacle and of the many other examples of poor central management is best summed up by the hon. Member for Stroud (Mr. Drew), who is not in his place at the moment. He has fought a brave battle against reductions in services in his Gloucestershire constituency. In his evidence to the Committee, he said:

“The reality is that our area is having to unfairly carry the burden for the high levels of historic overspend…The result is that the SHA area is being asked to make savings amounting to a staggering 5.3 per cent. of turnover”.

Across the country, more than 17,000 posts have been lost, operations have been delayed with the imposition of minimum waiting targets in at least 43 per cent. of acute trusts, funding has been reduced for soft targets such as public health, mental health and sexual health, and there has been a freeze or real terms cut in training and development and staffing posts, as evidenced by the contribution of the hon. Member for Staffordshire, Moorlands (Charlotte Atkins). Sadly, the Government have made no commitment as to when cuts in training budgets will end; that is as we enter an era of potential health spending famine, not feast. The Government have failed to make use of unprecedented and generous spending on health to deliver real and long-lasting reform—which is the basis of better health outcomes—and to achieve the target of reaching European levels of health care. As the report makes abundantly clear, they have missed an historic opportunity to do so.

I feel that the gist of the Health Committee report was more critical than speeches so far have reflected. Not being a member of a major party, I can voice such criticisms more strongly, without being accused of political intent.

My first criticism is of the form of the Government’s response. On Sunday afternoon, I set about trying to make sense of it. I plead with the Minister at least to include some cross-referencing in his Department’s next response, so that we can see what number recommendation and paragraph the Government response is addressing. It is incredibly difficult to do that without cross-referencing.

I also make a plea for the Government response to be complete. There is no mention at all of several recommendations. Recommendations 3 and 4—the Minister will probably not know what they were, given the numbering system—refer to the underlying deficits and the large inherited deficits. I would like to have seen more about those in the response. A whole chunk is missing from recommendation 15 in its reprinted version in the response. The missing phrase is,

“The requirement that a hospital trust pay back a deficit while operating on reduced income is inappropriate for a healthcare service and in some cases impossible to achieve.”

That strong point was agreed by the cross-party Committee. Many hon. Members have mentioned the double deficit, but the matter was not adequately addressed.

I shall abbreviate many of my comments, because lots of points have already been made.

In relation to education budgets, at least the Government have admitted the severity of the attack. They promise that the cuts will only be short-term. In paragraph 64 of their response, with regard to the transfer of the multi-professional education and training money to SHAs, the Government say:

“This was done to allow SHAs greater flexibility to use resources to address local priorities including financial deficits.”

It is a real worry that financial deficits, rather than clinical need, have almost become the first driver, as many Members have said. I absolutely support the aim for financial balance, but the speed with which it is apparently being pursued will cause disadvantages in terms of clinical need.

There are real worries about the funding formula. Our recommendation 25 states:

“There is concern about the fairness of the funding formula. We do not consider ourselves qualified to judge whether these concerns are justified. We recommend that the formula be reviewed. Consideration should be given to basing the formula on actual need rather than proxies of need.”

In a recent article in the British Medical Journal, headed “Time to face up to ‘scandal’ of funding formula: The government is in denial about the effects of funding inequities on primary care trust deficits”, Nigel Hawkes writes that the Health Committee report

“rather glossed over the effects of the funding formula”.

He also made a definite criticism:

“A government dedicated to reducing health inequalities, and with most of its MPs elected from areas favoured by the formula, has brushed these criticisms aside.”

I am trying to follow the logic of the hon. Gentleman’s comments. Over the next two years, however, the lowest-growth PCTs will receive a minimum of 16.8 per cent. under the formula, and the average growth for all PCTs will be 19.5 per cent. His argument would have more weight were it not for that hugely increasing tide of spending. Does he not accept that? How can he say that problems are linked to the formula when the evidence is that all PCTs in the country have enjoyed not just a significant but a generous increase under that formula over the past three years?

That is why the Committee said in its inquiry that it could not come to a firm resolution. I welcome the reviews that other Members have mentioned, so that we can get at the truth. The funding for my county, however, is below the national average, and £13.6 million below even the capitation target. There must be some connection with the formula. I hope that the Minister will tell us when the Advisory Committee on Resource Allocation will report. Expressions of interest on the review of the need formula were supposed to be in by 8 March, so I hope that progress will be made.

Does not the hon. Gentleman’s concern have much more urgency, given that increases in NHS expenditure over the coming years are likely to be much tighter than in preceding years? The discrepancies in the formula allocation, if they exist, will therefore have a much more detrimental effect on underfunded authorities.

That is why the inquiries instituted—one of which is supposed to report by autumn this year, and the tenders for the others are out—need to be completed as quickly as possible.

On staff costs and reductions, it is not surprising that the Department does not agree with the Health Committee about the role that the underestimated costs of contracts played in the deficits. Obviously, it minimised the figures that other sources have emphasised. The Department has a marvellous way of deflecting criticism. Paragraph 57 of the Government’s response states:

“Each of the pay reforms addressed fundamental weaknesses in the previous pay contracts, including recruitment and retention problems, poor control over outputs provided by doctors and other staff, poor control over earnings growth, low productivity growth and significant exposure to equal pay risks. The fact that the contracts address these inherent weaknesses is evidence of good long-run financial management.”

The only way in which to reduce spending in an NHS that is very labour-intensive is obviously to reduce staff. Paragraph 61 of the Government’s response states:

“As Trusts become more efficient, they can continue to provide high quality care with fewer staff. We know from individual Trusts and SHAs that reductions in posts are being managed in ways that minimise the needs for redundancies—for instance through recruitment freezes, natural wastage, and redeployment.”

That does not take account of the fact that, although the number of redundancies is not very great, because of those effective vacancy factor measures, the reduction in staff numbers is really quite extensive.

A Health Service Journal survey of 100 chief executives, published a week or so ago, revealed that more than two thirds believed that patient care would suffer as a result of short-term financial decisions. My own trust has a freeze on about 10 per cent. of its staff, and it is hard to see how that will not affect the quality of care. It told the Health Committee, referring to staff cuts:

“This will involve a comprehensive review of services across the three sites and serious questions about their sustainability.”

Important recommendations that have been rather brushed aside concern collective responsibility and value for money. In respect of collective responsibility, recommendation 22 speaks of the importance of including clinical staff, as spenders and as deciders of the way in which money is spent. The Government’s response to that is rather thin. In respect of value for money, recommendation 21 mentions a very good Department of Health paper, “Better Care, Better Value Indicators”; but I wonder what the Department is doing about recommendations that could, if publicised, produce dramatic savings.

Notwithstanding the Government’s response, my overall view remains that the Department of Health is largely responsible for the deficits. Following its interviews with health service chief executives, the Health Service Journal came up with some pretty strong quotations. One chief executive said of Ministers

“they never once stopped to find out what it would cost to implement the latest good idea.”

Another spoke of

“Blind panic as ever. No consistency of approach”.

I absolve this Minister, because I know that he was not around at the time. The chief executive went on:

“Bear in mind much of the financial challenges arise from centrally conceived pay schemes… which were ineptly designed and criminally costed by the Department of Health—despite warnings and advice from the service.”

I believe, and the Health Committee report emphasises, that the Department of Health must bear much of the blame for the state we are in.

I congratulate Members on both sides of the House on their contributions to the debate on a report by a Committee of which I had the honour of being a member. In particular, I congratulate other members of the Committee.

It was slightly disturbing to note that some Labour speakers had obviously not read the report. One Member, who is no longer present, asked “Where are these job losses?” Had he read the report he would have seen evidence given by Mr. David Law, chief executive of West Hertfordshire Hospitals NHS Trust in my constituency. He admitted—although he did not want to do so, probably because he was worried for his staff and for his own position—that 750 jobs in the trust would go. The evidence is in the report, and it is a shame that Members should make such comments without reading it.

On a lighter note, I can tell the House that Sir Humphrey is alive and kicking in the Department of Health, because he is clearly responsible for the Government’s response to the report. I agree with my hon. Friend the Member for Wyre Forest (Dr. Taylor) that half the response is gobbledegook: anyone who can make sense of it must work in the Department of Health. It gives no cross-references, and does not refer to half the conclusions of the report. That too is a shame, because it is a very good report, and it is not a minority report. Members did not drop out, feeling that they could not put their names to it; everyone worked hard to establish a consensus that would help the NHS to make progress. The House has already heard about the quality of the evidence that we received, and the Minister is well aware of some of it. It is a pity that the Secretary of State is not present so that the Minister need not take the flak for her, as he often does. Certainly she would have had some flak from me had she been present, as she probably knows.

Many of the comments that I was going to make have been made by other Members, but I want to say something about the funding formula. That will not surprise the Minister, because—over many years, to be fair—it has had a hugely adverse effect in my constituency, and on the future of the acute hospital trust there. That is why I was so proud of the chief executive when he gave evidence to the Committee.

Some trusts are in such a difficult position that documents are being leaked to Members under threat. As I have said to the Minister before, it cannot be right that NHS staff are scared to blow the whistle on what is going on in the NHS. They are in the NHS because they care for their patients and for the community, and they should not have to worry about their jobs and look over their shoulders every five minutes. In the West Hertfordshire trust, notes are being issued telling all staff that it is a disciplinary offence to order temporary staff, or to order non-pay items.

The fact that the PCT and the acute hospital trust in my constituency are in such a terrible state has a great deal to do with the funding formula. I raised the issue in the Select Committee when the Secretary of State was giving evidence, and I have raised it in the House, but I am not ashamed to raise it again. In my constituency, the acute trust and the PCT receive about £970 a year to look after the health care of my constituents. The Secretary of State’s constituency receives roughly £400 a year more. I am not saying that every constituency in the country should receive exactly the same under the funding formula, because there are clearly areas of social deprivation, but the deficits in my constituency could be wiped out, not with £400—or £300, or £200—but with £100.

Members have asked why the discrepancy is so great. The position is particularly bad in constituencies such as mine. My constituency was a new town: indeed, we still call it a new town, although it was built in the 1950s. At that time, a huge amount of the work force left north London and other London areas, and went to work in the new towns. There were hardly any members of the older generation in the towns, because very few retired people went there. Now all the working people have retired, and we have a huge pensioner population. It is fantastic news for my family and those of my constituents that people are living longer, but the burden on the NHS is phenomenal. The formula does not address that.

The Secretary of State told the Committee many times, as the Minister has told us today—and I accept it entirely—that a huge amount of money has been invested in the NHS. That is taxpayers’ money: not the Government’s personal money, but revenue raised with promises that the NHS would improve. The state of my constituency, and other constituencies mentioned in the Committee’s report, clearly shows that it has improved in some areas and worsened in others.

When I asked the Secretary of State to explain why my acute trust was suffering so much in comparison with her constituency, she said “Your constituents are healthier than mine.” I raised that in a debate the other day. I had much less time to speak in it—I was restricted to six minutes—than I do today, so I have a little longer to elaborate. The Secretary of State said, “Your constituents are healthier than mine; that’s why I get £400 a year more than you do.” However, we are talking about an acute trust with an accident and emergency department, a cardiac unit, a stroke unit, and until recently a brand new birthing unit, which is now being used as offices because we cannot pay for any midwives to staff it. The Secretary of State completely misses the point.

What will happen to those who are in most desperate need? One of the most dangerous parts of the M1 runs through my constituency—it is to be hoped that the road-widening project will reduce the number of fatalities. All the people who are involved in road crashes and other road traffic accidents on that stretch of the M1 come to Hemel Hempstead’s accident and emergency department, which is now to close. It will therefore be necessary for every single one of them to be driven past my hospital—if anything is left of it—and to be taken to Watford up the A41, which will cause huge delays. I am afraid that people will die. There is no argument about that—all the experts agree that will happen. That is why local GPs in my area have sent a letter of no confidence in the Government’s proposals.

Does my hon. Friend agree that in respect of funding we are currently using proxies of health need rather than health need itself? Does he also agree that if we are to use a crude proxy, the most accurate crude proxy of health need is age, not prosperity? This Government are deliberately using deprivation as the key determinant of health need, whereas if a crude proxy is wanted, age is a better one. The most important thing that the Government can do is to take lessons from this cross-party report, which says that we must get rid of proxies of need and use actual health need as the future funding determinant. I hope that we shall hear that that is the case from the Minister today. [Interruption.] If that were to happen, instead of mere barracking from those on the Labour Benches, positive steps would be taken as real health need would be made the basis of the funding formula for health care in the future.

My hon. Friend makes a good point. Evidence to our inquiry brought to light the fact that my constituency is in an interesting situation because it has not only a very large pensioner and retired population, but two of the most deprived estates in south-east England. Therefore, it meets the funding criteria in terms of both age and deprivation, so, in theory, we should benefit as a result, but we do not.

The Government’s decision to spearhead—to borrow the terminology that is used—money into areas of social deprivation has not been addressed much in our debate. I could not find any reference in the Government response to how those amounts of money are calculated. Their response suggests why that happens, and I understand it—although I do not agree. How is each individual pound calculated in respect of the money that goes into those spearhead areas? It is worth noting that there are few spearhead areas in the south-east where most of the deficits occur, which is a surprise.

The hon. Member for Staffordshire, Moorlands (Charlotte Atkins), who is no longer present, said that when the financial crisis in her area was exposed, the board concerned resigned en bloc. I wish that that was the case in my constituency, because perhaps we would then get to the bottom of why we have such a bad management structure in my area, and why we are in our current position. I say that because, although I am critical of the Government on account of the deficits that have been caused by the funding formula, there has also been acute bad management, as the report highlights. We cannot just blame local management: the Secretary of State is responsible for appointments—for signing off the appointments of chairs and chief executives of all health trusts in this country. That is her responsibility. I intend shortly to ask how on earth the Government failed to notice some of the problems that arose.

It is true that the Government ploughed huge amounts of money in, but they set narrow targets for how the money could be spent. That was highlighted in detail in evidence to the Committee. What clearly happened is that the targets were set—“You must reduce this, or else”—and the money was spent willy-nilly. As has been said, no other organisation would be allowed to get away with that. No other organisation would be allowed to have an open cheque book and to spend money, and just carry on spending it—taxpayers’ money—in that manner. I am particularly concerned about something that is not mentioned in the report: not only did the strategic health authorities not realise what was going on, nor did the Department of Health and its Ministers. On this occasion, I am not blaming the Minister, he will be pleased to know, because he was not around when most of that was going on, but the Secretary of State and some of the other current Ministers most certainly were.

There have been huge increases in taxpayers’ expenditure on the NHS. The relevant sum is £100 billion—we have almost reached that amount this year. How on earth have we got into what is probably the biggest financial crisis since the NHS was established? In evidence, the Government were continually dismissive. The problem is not that bad, they said. I think that the phrase that the Secretary of State used was that it was merely a pebble in the pool. “This is just a tiny ripple of a problem,” they said, but every Committee member agreed that it was not a tiny problem, but a huge one.

It is a problem that has arisen for lots of different reasons, not least inept financial management throughout the NHS, including right at the very top. How can one day the head economist of the Department of Health say in evidence that the funding formula is a major contributor to the deficits, and, at the following evidence session, the Secretary of State say, “No, it’s not”? When I pointed out to the Secretary of State that her own economist had given evidence to the contrary to the Committee, she fobbed us off. Evidence to support my point is in the report. [Interruption.] Is the Minister agreeing with me from a sedentary position? If he is, he should have addressed that issue in the Government’s response to the report.

The report is important, and the Government response does not do it justice. If Sir Humphrey is still wandering the corridors of the Department of Health when the current Conservative leadership is elected to government, he will get the bullet.

I am not a Health Committee member, but I was particularly interested in the report and I congratulate the right hon. Member for Rother Valley (Mr. Barron) not only on introducing an exceptionally interesting report, but on engaging a wide range of opinions on it and the Government response. That is highly commendable.

I am glad that the hon. Member for West Chelmsford (Mr. Burns) has returned to his seat. It was interesting to listen to a Conservative party member talking about his opposition to plurality of providers within the NHS, because I thought that that was standard policy. To have treatment centres offering different approaches seems to me to be absolutely right.

Not at present. I also listened to the remarks of the hon. Member for Castle Point (Bob Spink).

Order. This is a serious matter. Perhaps we can conduct our affairs with a little more decorum.

Thank you, Mr. Deputy Speaker. It is also interesting that the hon. Member for Castle Point, who sits on my Committee—the Science and Technology Committee—recognised that when contracts are offered to the private sector it is not surprising if private companies cherry-pick business. That is why our hospital trusts are left with the more expensive and involved cases. I say that in order to make an observation on the remarks of the hon. Members for West Chelmsford and for Castle Point.

I am extremely grateful to the hon. Gentleman for giving way. I am aware that the Liberal Democrats are skilled at misrepresenting people, but may I explain to the hon. Gentleman—who obviously was not intelligent enough to understand what I said earlier—that I was not complaining about the plurality of provision but suggesting to the Minister that having an independent treatment centre so near to a hospital that was doing well might have an adverse affect on it? I was not saying that there should be no plurality of provision in the health service.

I am delighted that I have been able to give the hon. Gentleman an opportunity to clarify that. We now know that we can have plurality, provided that providers are not too near to other providers. That is a clear position for the Conservative party to adopt.

Let me tell the Minister and the right hon. Member for Rother Valley, who is no longer in his place, that I agree—indeed, my hon. Friend the Member for Romsey (Sandra Gidley) made it clear that the Liberal Democrats agree on this as a party—with the general principles that the Government are trying to follow with their health service reforms, in that what matters is the treatment that individual patients receive. We are all trying to reach the same point. When the NHS was founded, its purpose was to treat individuals according to their clinical needs. We are strongly in favour of that. There might be different journeys on the way to that point, but I would like to think that the whole House would coalesce around that specific objective.

The real issue is that we cannot allow primary care trusts, individual hospital trusts or any other trusts that provide care to be told that they must control their budgets and manage within them, but then to be given directions from the centre, over which they have no control, that impact on their budget decisions. Government targets and new initiatives have already been mentioned in that regard. Local PCTs have absolutely no control over initiatives that come from the Department, but they have to treat them as priorities. In many cases, that will distort their budgets.

PCTs have also changed. In the almost 10 years that I have been an MP, there have been four changes to the organisation of PCTs and their predecessor bodies. That does not give the necessary firm foundation on which to take long-term decisions about health care needs within a particular area. All those decisions have had an impact on the budgets that were to be given to front-line providers, yet they had no control over those decisions.

The latest decision to affect North Yorkshire and York is the huge reorganisation of PCTs that has left our area with the largest deficits of any PCT in the country. In Harrogate and Knaresborough, the PCT and the hospital were in balance, but they had a 2.5 per cent. budget cut, through top-slicing, and we have had to pick up the huge problems from the Selby and York—the hon. Member for City of York (Hugh Bayley), who is in the Chamber, will know about that—and Scarborough PCTs. It is wholly wrong to tell my local hospital trust that it has to pay the penalty for mismanagement elsewhere or for centrally driven targets and initiatives. The Government cannot have it both ways—but that is the effect of their argument.

Like most areas, ours has received significant rises in health budgets. Conservative Members have admitted that getting to the European average was a significant Government initiative. I congratulate the Minister and his colleagues on that. This year, North Yorkshire and York has received a 9.5 per cent. increase in budget, which is £69 million extra, but we have had to address a £43 million deficit. Last week the PCT told us that it had made significant inroads into that deficit, which is now only £35 million. However, those reductions include a reduction in the money available for redundancies, which is purely a paper transaction, and in other transactions and capital costs. The reality is that constituents across my patch face significant cuts to services.

The trust at Harrogate district hospital is not only a three-star trust, but the highest-performing trust in the country. That is down to the work of its brilliant chief executive and good clinical staff, but it now has to cut back on treatments. What is the effect of that? Something that has not been mentioned much today is the effect that such changes have on people. The hon. Member for West Chelmsford—I hope that he does not shout at me again—rightly mentioned choose and book, and the complications that came with it, particularly with the intervention of an assessment panel; I do not know what the correct terminology is, but I shall call it an assessment panel. I hope that the Minister will sort out that interface between GPs, consultants and the PCT. I believe that he is committed to resolving these problems,

The problem is not just about money; it is the imposition of organisation from the top. I shall give hon. Members a few examples, the first of which is an excerpt from a GP’s submission to what is known in our area as the exceptions panel—an interesting name—about a lady in my constituency who has significant bilateral knee pain. He wrote:

“Clinically I suspect she has a cartilage tear. I referred her to Orthopaedics on the 27th of December 2006 and received a reply from the referral and clinical advice service dated the 10th of January, suggesting that I refer her for MRI imaging, rather than an immediate orthopaedic referral.”

He goes on to say that after discussing the matter with the patient, he did as he was asked, only to get a letter back refusing the MRI request because he now, apparently, needs prior approval from the PCT’s referral panel. That is absolute nonsense. That GP has made a clear clinical assessment—the very purpose of the NHS—and someone else is second-guessing that assessment.

I particularly want to discuss the case of a three-year-old boy in my constituency called Elliot Isaacs. I suspect that many right hon. and hon. Members will have similar cases in their constituencies. Elliot has major hearing problems. After a long fight, he was fitted with grommets in both ears last summer. That made a huge difference to him, and he suddenly began to communicate more effectively. His speech improved, and obviously his hearing had improved significantly. He was making substantial progress—until the grommets came out in October because of a related illness. That is quite common; it certainly is not unusual. He is now being refused—not by his consultant or GP, but by the faceless interface between the GP and consultants—the opportunity to have grommets refitted and to be able to hear again and develop.

All hon. Members who have young children know that those early years are the most critical age for the development of language and everything else that goes with it, but that decision was made by that impersonal interface. The irony of it is that Harrogate hospital, which carried out the first operation, performs grommet operations on a daily basis for patients from Leeds, because the PCT there has the money to send its patients to Harrogate to have those operations. If that is a local care system responding to the needs of local people, I am a Conservative—or a Dutchman, or whatever.

That is the principal issue to which I would like the Minister to respond. His response to the Select Committee report does not address some of its core recommendations. There has to be a two-way street between organisation and local autonomy. Yes, financial prudence and good financial management are necessary, but so is independent decision making, and local trusts must have the right to make those decisions.

I follow the hon. Member for Harrogate and Knaresborough (Mr. Willis), and I share some of his dilemmas, in that I come from an area in which the health authority was running things in line with the financial restraints imposed on it and is being punished for the sins of others, as we try to bail them out. I commend the Chairman and Members of the Select Committee that produced the report. I agree with the hon. Member for Wyre Forest (Dr. Taylor): this is a seriously hard-hitting report. It explains why, fundamentally, all the extra money that has gone into the health service has had so little beneficial effect. The money has cushioned the health service against the need to reform, when the reforms should have been prepared in advance of the extra money going in. Unfortunately, we have seen a huge increase in budgets and little reform.

The report does not pull its punches. I invite hon. Members to look at paragraph 63 onwards. The headings tell the story: “Poor local management”, “Poor accounting and financial management”, “Lack of leadership and loss of management control”, “Poor central management by the Department of Health”, and “Badly-costed work contracts”. Those are just the headings for the litany of management and financial failure in the health service, which has affected it at every single level. The East of England strategic health authority, my local strategic health authority, is cited in paragraph 24 as one of

“the four areas…in greatest difficulty”.

Colchester and Tendring primary care trusts, which are now called the North East Essex primary care trust, are paying the price for the financial failures of other areas. We have to recover a deficit of £6 million in the current financial year, because the East of England strategic health authority appears to have removed £7.8 million of our spending capacity in the present financial year. Next year it will take another £5 million of our spending capacity. That is because of deficits in Suffolk of £30 million, in Cambridgeshire of £52 million, and in Hertfordshire of, I was told, £42 million, although I now hear that it is £55 million.

The impact of those deficits on the health care in my constituency is considerable. I have hospital consultants telling their patients and me that they have been instructed by their management to lengthen the waiting times to the maximum period—not to shorten them or reduce suffering—in order to delay expenditure until the following financial year. I have a LIFT, or local improvement finance trust, programme—a GP surgery improvement programme—that is being thrown into suspense. A number of substandard surgeries in my constituency, in West Mersea and other areas such as Wivenhoe, have been told that they have to wait even though their expectation was, years ago, that they were going to be given new modern surgeries.

I cannot let the moment pass without adding my voice to the concerns about some of the private finance initiatives that we have seen in the area. They have turned out significantly more expensive and significantly wrongly specified. Whether that is the fault of the contractors or the health authorities is a matter of dispute. They have locked in a degree of expenditure that is therefore not available for spending on other things.

The solutions are obvious: much stronger financial management, much less central Government interference, and fewer initiatives and short-term targets from the centre. I commend the Government’s endorsement of reserves, which is set out in paragraph 80 of their response. They say that they wish to

“now encourage the NHS to plan towards achieving surpluses”.

Particularly where there is to be increased volatility in trusts as a result of payment by results, a more businesslike approach to cash management and cash reserves will be a necessity. The funding of the NHS will have to reflect that.

I conclude my brief remarks by simply saying that the past 10 years of management of the health service reflect not so much the Prime Minister’s intentions for the direction of the health service as the Chancellor of the Exchequer’s control of the health service. The present mess is the Chancellor of the Exchequer’s mess. Like us all, he will have to confront the truth of why, as the country nears a European average spend on health, health outcomes in this country are still so inferior to those in so many of our European partners.

That has much to do with the whole concept of the NHS as presently conceived, with too much central direction and control and not nearly enough local management and control. Unless we all embrace that, more money will be wasted, more patients left untreated and more misery inflicted on our constituents. I know who my voters will blame. After all the promises that the Government made about improving and saving the NHS, my voters, and I guess voters all over the country, are more bitterly disappointed and disillusioned with all politicians—as a result of the Government’s failure on the NHS—than I have ever known them.

I am glad to follow my hon. Friend the Member for North Essex (Mr. Jenkin), who was admirably brief but very much to the point. He, like others in the debate, was speaking from experience of the impact of deficits on his constituents. As he said, not only will voters hold the Labour party responsible—comparing the situation with all the promises that they were given 10 years ago—but it is the Chancellor of the Exchequer’s responsibility. People say, “How can it be? He’s not in charge of the Department of Health”, but when one looks at the report and sees the way in which accounting changes and things such as the abolition of capital-to-revenue transfer, the abolition of brokerage, and resource accounting and budgeting are affecting NHS trusts, one realises that such things are the responsibility of not only the Government, but the Treasury. The Chancellor of the Exchequer will not be able to escape responsibility.

A number of Members were generous to the Minister who will respond to the debate, but when the time comes he is not going to escape responsibility either. If one wants to know how complacent the Government were, one has only to go back to March 2005, in the run-up to the general election, when we raised the difficulties with the emerging deficits in the 2004-05 financial year. What was the response of the Minister’s predecessor, the right hon. Member for Barrow and Furness (Mr. Hutton)? It was, “Oh, they always say that there are going to be deficits at this time of the year and it always gets sorted out.” The whole point is—the Select Committee’s report is perfectly correct in this respect—that it was in 2004-05 that capital-to-revenue transfers were eliminated. So, of course, the situation was not sorted out in the way that it always had been in previous years.

Before I turn to the deficits, I want to say a word of commendation to colleagues who have spoken. The right hon. Member for Rother Valley (Mr. Barron) did justice to what is a good, robust report. As my hon. Friend the Member for Hemel Hempstead (Mike Penning) rightly said, it was agreed on a consensus basis, as I think that all Health Committee reports have been. Rightly, the report made some trenchant criticisms and I hope that, when the Minister replies, he will accept them. When senior officials in the Department of Health were asked last year whether the Department was good at managing change, 81 per cent. disagreed or disagreed strongly with that proposition. The Department does not believe that it is managing change well; it knows that it is getting these things wrong. We know from the Healthcare Commission that primary care trusts that have been plunging into deficit have poor financial management. None was given an excellent rating and 124 were given a weak rating. Weak means that they need immediate action to remedy their financial failings.

Some important points were made during the debate. My hon. Friend the Member for West Chelmsford (Mr. Burns) made an important point about the nature of choose and book, and referral management. There are a number of Members from north Yorkshire present. I was talking to a GP in north Yorkshire who put things extremely well. He said, “What is the point of having a system that allows us to exercise choice if I sit down with a patient and look at the waiting times and he can choose to be seen at Leeds, which is quicker than being seen in York, and we put that into the system and the information goes off to a referral management centre, only for him to be told that he can be seen at Leeds, but he’s going to have to wait 20 weeks anyway?” As my hon. Friend the Member for North Essex said, the week before last the BBC found that 43 per cent. of primary care trusts throughout the country are imposing minimum, not maximum, waiting times, and saying that patients cannot be seen before a certain date.

A question that I keep asking the Minister and to which I never receive a satisfactory reply is why, in the latter part of this financial year, have not the Government allowed primary care trusts and local hospital trusts to arrive at marginal pricing deals, whereby they say, “We have capacity, you have limited resources; we can estimate our marginal cost of sustaining that capacity and treating patients, so let us treat more patients for a given budget.” The tariff and the Government’s determination that it should only ever be a uniform price are damaging patients’ prospects.

The hon. Member for Staffordshire, Moorlands (Charlotte Atkins) was the only other Labour Back Bencher who supported the Select Committee, which surprised me. There were many contributions from the Opposition Benches, but it is all too predictable that Labour Members will not come here to defend their record, even when a cross-party Select Committee is exposing the problems.

The hon. Lady made an important point about nurses’ pay, which the Minister might want to explain. Since 1984, Governments have had independent pay reviews, and it has always been understood that one of the constraints on pay reviews is affordability. The Government went to the pay review body and said that 4 per cent. was the maximum affordable and that a 4 per cent. increase in average earnings for nurses in particular was consistent only with a 1.5 per cent. basic pay increase. The Committee then asked the Department for evidence that pay drift would be 2.5 per cent. so that it could see the justification for the case. If Labour Members read the relevant paragraphs of the report, they will see that the pay review body says that the Department could not produce the evidence and could not justify its case. The Department’s financial mismanagement is so profound that it cannot even justify its own arguments on pay. The Department ignored the pay review body and substituted its own belief, which is one reason nurses are angry. They were promised an independent pay review on the basis that it would not be overridden, but it is being overridden.

Is it not an insult that the Government claim that nurses are getting a higher increase on the basis that they will receive seniority increases? The Government are pretending that the pay increase is higher than it is because the average nurse will receive incremental increases, which they deserve anyway.

My hon. Friend is absolutely right, and the pay review body used robust language, both this year and last year, when it said that the Government had tried to treat the framework for rewarding proper changes in knowledge and skills, increases in overtime, incremental progress through scales, and so on as a justification for a low basic pay award, but if the basic pay award does not keep pace with the need to ensure recruitment and retention there will be serious problems in years ahead.

I have not done justice to the debate, but I want to turn to some specific points. It does not make sense to spend a long time examining why we have arrived at the situation we are in, not least because the Government do not know. On 20 February, the chief economic adviser to the Department published the report to which the Chairman of the Select Committee referred. He said that he was asked to complete it within 20 weeks, so it should not be supposed that analysis of the various issues is definitive and complete in any sense. His report does not complete the conclusions, and he made some peculiar comments. He seemed to say that it does not matter whether some money was wasted because it might have been spent on something else, so it would not have had an impact on the budget overall. I shall offer Ministers an example, because it does matter if money is wasted.

I am not being unfair. I shall quote exactly what the chief economic adviser said:

“We shall not, however, engage in lines of analysis which put deficits down to expenditure which turned out, in the estimate of the protagonist, to be ‘wasteful’. Had this expenditure not been undertaken, some other expenditure, hopefully less wasteful would have replaced it, and with identical consequences for the budget”.

I am not being unfair.

We talked about independent sector treatment centres. We are not against using the independent sector, but we object to using it in this way, because it does not make sense that the independent sector receives 11 per cent. above the tariff and is paid for 100 per cent. of treatments even if it is not delivering them. The last answer that I received from Ministers was that treatments were running at 83 per cent., yet centres are paid for 100 per cent. Some of that money, instead of buying treatments that are not being provided by independent sector treatment centres, could have been used to buy additional capacity in NHS hospitals, which clearly exists. That would not have been wasteful and would have made a difference to budgets because PCTs would not have had to spend so much on them.

A number of hon. Friends said that the issue comes down to productivity. The chief economic adviser to the Department of Health referred, interestingly, to

“the disappointingly flat trend in NHS productivity over recent years.”

We all know that that is true, but that was the first time I heard such an admission from the Department.

One of the lessons that the chief economic adviser said should be taken is that enthusiasm for making productivity improvements is diminished in an environment of rapid growth and resources. That is bureau-speak for saying that if people are given a load of money, they will not have to try so hard. He continued to say that, therefore, mechanisms for driving through productivity improvements should specifically be strengthened at the time extra resources are made available. Yes. Absolutely. Where were they? The point is that enormous amounts of money were coming in, rightly so—9 per cent. real terms increase, including next year—and payment by results is a valid means of ensuring that resources are deployed to buy additional activity, but it must be in a context of genuine competition for those resources, which it was not, and of effective demand management in commissioning them, which it was not. In places such as south Yorkshire, where a foundation trust economy was established and where PCTs had not previously had a problem with deficits, the hospitals were incentivised to undertake activity and to do more, as in 2004 and again in 2005, with no effective demand management. What is happening throughout the country is not effective demand management but financial crisis management. Instead of GP commissioning—much more effective demand management—deals such as marginal pricing to use hospital capacity are ignored.

Where do we go now? What about the review of resource allocation? Ministers, particularly the hon. Member for Leigh (Andy Burnham), are trying to escape from the fact that was clear in evidence to the Select Committee, which rightly had a long discussion about it: the present resource allocation formula does not accurately reflect the real incidence of need. That is why the Committee said that the Government should look at actual need rather than proxies of need. That is our view. We are not arguing for a specific formula. We are arguing for a formula that more accurately and fairly reflects actual need, not a formula that tries to deal with health inequalities through ever larger distortions in the availability of NHS services, as though inequalities in health outcomes were principally the result of changes in NHS expenditure. Everyone knows that that is not true—we have debated the matter in detail—and everyone knows that it is about relative economic deprivation, environmental circumstances, housing, poor education, diet and so many things that are unconnected with the level of NHS services. We should make NHS allocations relate to need. That will, of course, include a consideration of deprivation, but deprivation and health inequalities are not principally dealt with by NHS allocations, because a separate allocation is needed for that purpose. When will the Minister deliver the review of resource allocation? Why cannot that be done sufficiently quickly to try to influence resource allocation before April 2008?

We talked earlier about resource accounting and budgeting. Clearly, it must be in the interest of NHS trusts that action is taken in time for the 2007-08 financial year, but Ministers are still not explaining why they cannot achieve that. I am told that the Government were going to include a measure in the operating framework for 2007-08, but that it was taken out at the last minute. Why will they not do so?

Does the Minister think that NHS trusts that are not yet foundation trusts, but meet the criteria under Monitor for becoming a foundation trust, should have their historical debt turned into public dividend capital? We could then give them, at least, all the advantages of escaping from their historical debt, which they could manage as equity on their balance sheets. Of course, they would escape from RAB if they were to become foundation trusts.

Will the Minister tell us the top-slicing proposals for 2007-08? We heard, not least from my hon. Friend the Member for North Essex, that top-slicing is going to happen, and it will continue to penalise primary care trusts that have managed their finances well. This year and next will be the last two years of the Government’s planned major increase in NHS funding, yet all the resources for growth are being taken away to deal with the problems of deficits. There are problems due to cuts in some parts of the country, but the problem in most places is that the expected improvements in services cannot be funded at all. Will the Minister restore to PCTs that are in good financial health the ability to spend their resources on improvements in services in their areas?

We have bitterly criticised Ministers on several occasions for the scale of the cuts in education and training. If one asks any normal business how it gets out of its financial problems, one will always hear, “People are our most important resource, and investing in our people will be one of our priorities to enable us to escape from the problem.” However, that does not apply to the Government or, apparently, the NHS under them. Will the Minister tell us that the cuts in the education and training budgets in 2006-07—some £350 million, or thereabouts—will not happen again in 2007-08? Will he thus, by extension, make it clear that the options for the future to deal with unemployment after graduation among nurses, midwives, physiotherapists and other therapists can be implemented with those resources? At the moment, the problem is not being tackled because of cuts in the budgets. Ministers will not come to the House to explain themselves about modernising medical careers. However, the budgets clearly will matter next year to the ability of the multi-profession education and training budget to support additional training posts to ensure that the junior doctors who have been supported up to now in this country can continue to fulfil their vocation by entering training posts in the NHS. Will the Minister give a commitment on that?

We have had a good debate in which important points have been made. However, the robust nature of the Select Committee’s report was not reflected in the nature of the Government’s response. The response was not robust but a response from a Department that is still in confusion with Ministers who have no idea about how to move the situation forward, except by simply cutting budgets to try to save their jobs, even if that is at the expense of the jobs of NHS staff. That is not acceptable to the people of this country. The Government should be setting out as a response how they will achieve not only financial stability, but the improvements in the NHS for which people have been paying through their taxes. We will hold the Government to account on that.

It says in my notes that I should congratulate my right hon. Friend the Member for Rother Valley (Mr. Barron) on securing the debate. However, when I settled down yesterday afternoon with a file on NHS deficits, I nearly scored that bit out. However, he did save me from Watford versus Plymouth, so perhaps he did me a favour in the end.

We have had a very good debate. The Health Committee, which is chaired by my right hon. Friend, has produced an extremely comprehensive report on deficits in the national health service. I put on record the fact that we value his contribution and that of his colleagues on the Committee, many of whom are in the Chamber and have contributed intelligently to the debate. As we said in our official response to the report, we are pleased that many of the Committee’s recommendations resonate firmly with the actions that the Department already has in hand to improve financial management both centrally and throughout the NHS. We believe that those actions will lead to a sustained return to financial health by the end of this year.

May I begin by answering a question put by several hon. Members? We have heard the refrain, “Where has the money gone?” from the hon. Members for Hemel Hempstead (Mike Penning), for Romsey (Sandra Gidley), for Peterborough (Mr. Jackson) and for South Cambridgeshire (Mr. Lansley), so let us talk about where the money has gone. I accept that Health Ministers often speak at the Dispatch Box about the new buildings that we have put in place in the NHS, but I noted that during the long contribution made by the hon. Member for Peterborough, he did not mention once the new private finance initiative scheme that is going forward in his constituency. It seemed that the good things were miles from the thoughts of Conservative Members and that they did not want to give credit for anything that had happened.

We often talk about more staff, better pay for staff and more operations. All those things are justified, but the crucial thing that matters is the relative improvement that we are securing to the health of people not only in the more deprived parts of the country, but throughout the whole country. Let us consider the coronary heart disease mortality rate among males. When we came into government, 126.6 people per 100,000 population died from CHD before they were 75. The rate in England is now 74.5. That represents a huge improvement throughout the country, and the improvements in some of the more deprived parts of the country have been even greater—[Interruption.] Conservative Members should listen before dishing out criticisms and comments.

Will the Minister tell us what the trend was before the Government came to power and what it has been since?

If the hon. Gentleman is arguing that the national service frameworks on the big killer diseases and the money that has followed them have had no impact at all on the acceleration of health improvement, he is mistaken, even though he takes such an interest in health matters.

In 1997, the death rate from stroke among males in England was 29 per 100,000 population, yet the figure today is 18.2. Cancer mortality among males was 155 people per 100,000 population in 1997, yet the rate today is 129. I cite those figures because they are not just statistics on a page. One cannot put a price on the lives saved and the improvements made due to the investment. Conservative Members dismissively say, “Where has the money gone?”—that is where the money has gone, and I am proud of that fact.

May I invite the Minister to come and speak to one of the 6,000 people—my constituents and those of other south-west London Members—who have had endoscopies over the past year thanks to a £4.6 million new unit in St. George’s hospital? Would he say to them that that £4.6 million could have been better spent or spent elsewhere?

Clearly, I would not do that. My hon. Friend is right to raise that point because the consequences of the Conservative party’s policy of sharing the proceeds of growth would be to take money out of the national health service. Conservative Members do not want to talk about that, but that is clear from their position. My hon. Friend is right to cite a real improvement in people’s lives about which we are deeply proud.

I want to make some progress, so I will not give way. We are 19 days away from the end of what I accept, and what everyone in the Department would acknowledge, has been a difficult year for the national health service. Painful decisions have been made, but it is clear to us that the NHS will be stronger as a result. The NHS has grasped the nettle on overspending, which has been tolerated for far too long. Despite that, and despite our having brought more rigour to the health service’s financial system, key financial objectives will be met this year, and I will mention those in a moment. Key service standards will not be jeopardised, and as a result of the action taken, the NHS is in a much firmer position for the next financial year. It is building on a much stronger platform as a result of the changes made.

Let me remind the House of the three clear objectives that my right hon. Friend the Secretary of State set for the national health service this year. The first is to deliver a net financial balance across the NHS as a whole by 31 March 2007, the second is to ensure an improvement in the financial performance of all organisations that reported a deficit in 2005-06, and the third is to achieve recurrent monthly run rate balances across as many organisations as possible by the end of the financial year. 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 it remains firmly on course to end the year in net financial balance. In fact, taking account of the £450 million in savings that strategic health authorities have identified, overall, the NHS forecasts a year-end surplus of £13 million at the end of the third quarter of the year.

On the in-year position for this financial year, when the impact of deductions for prior overspending is ignored, the NHS forecasts an in-year surplus of some £269 million. That is a remarkable achievement, and it bears witness to the hard work of NHS staff across the country who have sought to deliver savings, increase the efficiency of working practices, and reduce deficits.

The Minister is talking about getting the NHS into financial balance, but in paragraph 107 of the Select Committee report, the Secretary of State is reported as having

“told us that overspending was concentrated in the ‘healthier, wealthier parts of the country’.”

What did she mean by that, and what are the implications of that for Government policy?

The hon. Gentleman should look at the detail of the Select Committee’s report. It is clear, as everybody acknowledges, that the overspending is concentrated among a minority of organisations, and they are predominantly in the east of England, London and the south-east. Those are facts.

I thank the Department for the assistance that it has given north Yorkshire in getting to grips with its deficit. It is worth noting that in north Yorkshire, the waiting time for in-patient and out-patient treatment, as well as diagnostic tests, is less than the average for the region, but a number of GPs in York have pointed out to me that most of the PCT deficits are in rural or mixed rural areas. The Select Committee on Health examined the issue and called for the funding formula to be reviewed. The Government are reviewing it, but will they specifically consider the costs of providing health services in rural areas, so that the formula fully reflects those costs?

I can give my hon. Friend an assurance that we will. We keep the formula under constant review, and I will deal with some of the specific points that my right hon. Friend the Member for Rother Valley made in a moment.

Our analysis shows that 82 per cent. of trusts and 69 per cent. of PCTs are forecasting an improved in-year position compared to 2005-06. As I say, deficits continue to be concentrated among a small minority of organisations. The great majority are in balance or better and continue to deliver service and quality improvements. On achieving run rate balance—that is the third of our key financial objectives for this year—I am pleased to say that a healthy majority of all NHS organisations reported a positive run rate balance in the third quarter. In fact, our analysis indicates that only a small number of organisations—some 17 of them—are not likely to achieve that objective by the end of March.

I will not give way. I shall now turn to the points raised by my right hon. Friend the Member for Rother Valley and will deal with some of the important issues that the Committee raised. He began by mentioning the overall effects of RAB, or resource accounting and budgeting. If I heard the hon. Member for South Cambridgeshire correctly, I think that he began his remarks by saying that the Treasury must take responsibility for the effects of stopping planned support and for brokerage; he used that exact word. Am I right to take that as an indication that the Conservatives would not follow the disciplines of the resource accounting system?

Well, I have set out what the hon. Gentleman said. Let me quote the very beginning of the Select Committee’s report:

“There have been hidden underlying deficits for many years, but they were revealed by policy changes which increased transparency, in particular the switch in accounting procedures associated with the introduction of the Resource Accounting and Budgeting (RAB) regime. For example, as a result, it was no longer possible to underspend on capital expenditure and use the money to subsidise current spending.”

That system provided the transparency that enabled us to debate the issues as we have done today.

If I may, I should like to come on to the points that my right hon. Friend the Member for Rother Valley raised. He commented on the effect of RAB on NHS trusts; in our reply to the Committee’s report, we said that we would look into the issue in detail. We said that, in principle, we accepted the logic of what the Audit Commission’s report had to say about the effects of RAB as applied to national health service trusts. The resources needed to bring about a situation in which that issue could be addressed would have to be drawn from the NHS, but I can give him the assurance that, in principle, the Department accepts the logic of what he, the Committee, and the Audit Commission have said. We will say more in due course, as the financial year comes to a close.

My right hon. Friend asked about top-slicing. He asked how much money will be paid back, and what arrangements would be put in place to make sure that it was paid back. Of course, under the logic of the RAB system, the money can be paid back as soon as financial recovery allows. The issue is how quickly all organisations in a particular region come back into balance and tackle overspending; that will allow the resource in the region to be paid back more quickly.

I am grateful for that but the Minister has highlighted that after the fourth quarter there may be an underspend of £270 million. We do not know that yet; there are a few months to go before we get the figures for that quarter. However, the third quarter report suggests that there could effectively be £300 million of underspend nationally. I am trying to probe the Minister on whether that amount will go to PCTs such as my local PCT, which has been top-sliced because of overspending in other areas. How will the money be redistributed, or will it be kept centrally, and then used to get rid of RAB?

I can tell my right hon. Friend that all organisations are in the process of finalising their financial plans for 2007-08.

Order. I appreciate that it is difficult for the Minister when he is asked a question by someone who is behind him, but he must address the Chair.

I apologise, Mr. Deputy Speaker. I was about to say to my right hon. Friend that we made it clear in the operating framework for the coming financial year that strategic health authorities will not generally require contributions to the SHA reserves of the scale seen in 2006-07 because of the NHS’s return to overall financial balance this year. It is because of the steps that we have taken to return the NHS to that balance that we will not require such a top slice to be taken next year.

Does the Minister accept that in pursuing a financial balance, decisions and actions can be taken that make perfect financial sense, but are economically illogical? For instance, if the mega-doughnut around the city of Leicester places a veto on a particular practice in the north of the county, and it prevents Derbyshire royal infirmary from receiving referrals for elective treatment for a two-month period towards the end of the financial year, the DRI, which would otherwise have provided that treatment, lies partly idle for want of those referrals. That is not economic sense, is it?

What makes sense for the NHS as a whole is to ensure that it does not have loose priorities. The hon. Member for Harrogate and Knaresborough (Mr. Willis), for whom I have great respect, said that we should aim to achieve a financial balance, but that it should not be the be all and end all. However, it is crucial for the future stability of the NHS that in the system there is rigour and discipline that perhaps have not been evident in the past.

I shall give way to the hon. Gentleman in a moment. That is the best way to serve all health economies in the long term. It does not help the NHS in the long term to take a lax or loose approach to those matters, because the problems will come back and hit either that health economy or a different one in years to come. One economy would have to put its plans on hold while another economy came back into balance.

I thank the Minister, and I shall not hold it against him that he has given way to his hon. Friends and colleagues, some of whom have not been present for the entire debate. He talked quite rightly about priorities in the funding stream. West Hertfordshire NHS Hospitals Trust has a brand new, 18-month-old birthing unit that taxpayers paid for. That important unit has been closed. We have an award-winning cardiac unit—cardiac health is a Government priority—that is going to close. There is a stroke unit—strokes are another priority for the Government—that is going to close. How does that bring health care to my constituents?

At the beginning of my contribution, I gave the figures on relative health improvement in the country, which has taken place in all constituencies. If the hon. Gentleman claims that that is not the case in his constituency, I can tell him that there has been huge improvement and that his constituents can look forward to a maximum 18-week wait from GP referral for treatment by the end of 2008. Decisions have to be taken to balance expenditure on the ground, which sometimes means that services have to be changed. If he considered the outcomes in his constituency, I hope he would agree that waiting lists are at their lowest-ever level, and that the NHS’s service to patients is as good as it has ever been.

I should like to make progress, because there are some serious issues that my right hon. Friend the Member for Rother Valley and others have raised. I have accepted a number of interventions, and I wish to deal with education and training.

My right hon. Friend the Member for Rother Valley asked what the service level agreement between strategic health authorities and the Department means. We believe that is right that at SHA level there should be flexibility to manage the future work force needs in any region, and that is precisely what the service level agreement will require. In making decisions about centrally allocated budgets, provision must be made to plan for the medium and long-term work force needs of that particular area. The hon. Member for South Cambridgeshire asked me whether I could confirm that there would not be any take from the 2007-08 education and training budget. I turn the question back on him: how will he square an independent NHS, where all supposed interference will allegedly disappear, with his plans to take all the decisions out of the hands of politicians? We will put decisions in the hands of the strategic health authority, but we will require it to plan for the medium and long term.

My right hon. Friend the Member for Rother Valley asked about vulnerable services. He is right that in the past, the casualty of NHS budgeting was more vulnerable services such as mental health—[Interruption.]—or learning disability services, as the Minister of State, Department of Health, my right hon. Friend the Member for Doncaster, Central (Ms Winterton) says. It is precisely because of the transparency of the regime that such a situation will not be tolerated in future. It will not be possible for the budgets for services to some of the most vulnerable people in our society to be raided to backfill deficits elsewhere. That is another virtue of the—

I am afraid that I must conclude, because I have taken too much time.

I should like to do justice to some of the points that have been made in our debate. My right hon. Friend the Member for Rother Valley asked about planning for surplus. It is obviously better to plan for surplus than to plan for break-even and just miss, but we will soon provide more details about the issue that he raised—giving people incentives to carry over budgets from one year to the next—and I hope that he will be reassured when we do so. I have taken more time than I planned, but it is important that I deal with a couple of points that several Opposition Members made. Many hon. Members raised the funding formula, and sought—I believe—to attribute problems in some parts of the country to the issue. On several occasions, that conclusion was ascribed to the chief economist in his evidence to the Health Committee, but he did nothing of the sort. Indeed, backing up the Department’s view, he said that there is no single simple cause of deficits in the health service, nor is there any single simple way of dealing with them.

As for the question of the funding formula, the hon. Member for South Cambridgeshire and his hon. Friends asked why we should have proxies for health care need, and suggested we use direct measures of health care need measures such as age, but why is age anything other—

The hon. Gentleman should read the letter that his hon. Friend the Member for South Cambridgeshire sent me, in which he said that the Conservative position is to allocate resources in the health service according to “burden of disease”. A key driver would therefore be age. The hon. Member for Beverley and Holderness (Mr. Stuart) has just accepted that age is a proxy of need, not a real driver of need. On several occasions, I have put it to the hon. Member for South Cambridgeshire that there are much clearer measures of the burden of disease in the NHS, such as those that I listed at the beginning of the debate, including the mortality rate per 100,000 of the population under 75 from cancer, coronary heart disease and stroke, and the prevalence of diabetes in under-75s throughout the population. Those are measures of the burden of disease. [Interruption.]

Order. We cannot have these continual interruptions from a sedentary position. If hon. Members want to intervene, they may attempt to do so, but they are disrupting the debate.

When one questions, probes and pulls at Conservative party policy, it is interesting to see just how defensive Opposition Members become. They realise that the consequence of the policy of allocating resources according to the burden of disease, as stated in the policy document issued at last year’s Conservative party conference, if the hon. Member for Beverley and Holderness remembers that, is to take more money out of his hon. Friends’ constituencies. All the bleating that we hear about the funding formula does not fit with the Opposition’s party policy on the allocation of health resources. On top of that, money will be taken from the health budget by pursuing the policy—

I shall not give way, because I am about to finish my remarks. If we couple that policy with the effect of sharing the proceeds of growth—[Interruption.] If the hon. Member for Hemel Hempstead (Mike Penning) believes that his constituency will be better off under that policy, I am afraid that he is sorely mistaken.

We have had a good debate. As I said at the outset, we accept much of the Select Committee’s logic and many of its recommendations, and it can take heart that the Department has taken action to address some of the matters raised by my right hon. Friend the Member for Rother Valley. As a result, the NHS is in a much firmer position from which to address the next two years so that, by the end of 2008, we will be on course to deliver a maximum 18-week wait for treatment after GP referral. That is a huge achievement, and it is a complete vindication of the changes that the Government have made to cut waiting lists and improve the service that the NHS offers not just to the constituents of Government Members but to the constituents of every single Opposition Member. The Opposition did not make any acknowledgement of the improvements in the health service in their constituencies, but we are proud of those improvements, and we will continue to invest in the NHS which, we can now say with absolute clarity, can proceed from a position of financial strength.

With the leave of the House, I thank Members in all parts of the House who have taken part in the debate, particularly the five members of the Health Committee—or rather, four members; the hon. Member for Peterborough (Mr. Jackson) was not with us when we agreed the report on the national health service deficits. Their work over the weeks and months has contributed to today’s debate. Although it got rather noisy towards the end, as debates tend to do, it was a welcome attempt to explain what has happened in the funding of the national health service and why, over the past 18 months, the overspend has been greater than in the preceding 50 years. The transparency of the examination of NHS expenditure has highlighted that.

I told the hon. Member for South Cambridgeshire (Mr. Lansley) that the criticism of the report explaining the NHS deficit was not fair. The document is available on the web and the six points by the Government’s main adviser in the executive summary are worth reading. It goes much further than the Health Committee did in examining the current deficit, as it was written by people inside the institution who have access to more information and more time than we had.

The document highlights problems in many areas, such as productivity issues. Because there is extra money coming into the system, more people can carry on with what they are doing, as opposed to being asked to get more out of the available funding or to achieve better outputs from increased funding. Anybody who is interested in NHS deficits should read it.

In their response, the Government take into account some of the blindingly obvious problems that we identified in the NHS. I hope the service level agreement in relation to education and training will be published, so that everyone, including strategic health authorities, understands what is expected. I should warn my hon. Friend the Minister that later this week we hope to agree a report on work force planning, so we may return to several of the matters that were covered in the debate.

My hon. Friend said that it was likely that third quarter publications would not reveal the overspend predicted at the beginning of the financial year, and consequently that there would be some moneys in the system that are not needed to match the overspend. I, together with other members of the Committee and other Members of the House, will be watching carefully what happens to that money between now, the end of the financial year and the beginning of the next financial year.

I am pleased to hear my hon. Friend say that he does not expect the top-slicing exercise to be as large as it has been in this financial year. I hope not. In my constituency top-slicing has not taken up the growth money that was put into the system, so it has not hurt services at this stage. The reason for budgets of the level that we get in south Yorkshire is the health inequalities that we face, so it is important that that is recognised.

I welcome the Government’s attitude to the funding formula. In autumn this year we should find out whether rurality is a big issue and whether it should be addressed. I look forward to a debate on estimates that covers the wider issues of our work as a Committee and the work of the national health service.

Question deferred until Ten o’clock, pursuant to Standing Order No. 54(4) (Consideration of estimates &c.).