The principal institution in the Surrey and Sussex Healthcare NHS Trust is the East Surrey hospital in my constituency, hence the short title of this debate. It is a major NHS hospital, now serving some 450,000 people in Surrey and Sussex, which is more than three times the number it was designed to serve when it was built 20 years ago. Its location, which is adjacent to some of the busiest stretches of the motorway network, and particularly its proximity to Gatwick airport, with a daily transient population of 50,000, as well as a major incident risk, means that it serves far more than just the local population. It does so in one of the most pressured parts of the south-east, where providing public services on national frameworks has proved the most difficult. That is one of a combination of factors that has meant that the trust has accumulated a large deficit, and I understand that it is now the largest deficit in the country. The principal cause has been political, and I now seek a political solution.

Let me begin with the good news. The trust’s management have reduced the underlying operational deficit from about £27 million in 2004-5 and 2005-6 to £12 million in 2006-7, and expect to break even this year. That is a remarkable achievement. The accumulated deficit is no longer increasing, but the events of the past have left the trust with a £56 million debt to the Department of Health. At a cost of £2.7 million a year in interest, that loan is a serious burden on the trust, but capital repayments of the same order are also required. That will hold back the trust’s service provision, quite apart from removing any prospect of foundation status.

All that is set against a bleak assessment of patient care. The Healthcare Commission’s most recent appraisal of the trust was that it was weak in quality of services and in use of resources. Given where it was coming from in terms of finance, that seems little short of ungrateful, but I hope that it will change significantly this year.

My hon. Friend has taken a close interest in the matter for many years. Will he join me in paying tribute to the doctors, nurses, medical staff and all who work at the hospital, who have done so in very difficult circumstances in recent years?

I am extremely happy to do so. The medical staff have had to work in trying conditions, because the hospital has been in turnaround state for three years with the additional strains arising from that. I do not believe that that is the responsibility of the management, and far less of the doctors, nurses and important support staff who work there. I join my hon. Friend in paying tribute to them, and I should be grateful for his support, as I am to my hon. Friend the Member for Mole Valley (Sir Paul Beresford), whose constituents are also served by the East Surrey hospital.

During the three years of turnaround, the trust has had four chief executives, but now seems finally to be returning to annual financial balance. Happily, none of the Ministers in the Department of Health was party to the critical decisions on the reorganisation of the trust. The unnaturally high turnover of senior management also means that those who are looking to remedy East Surrey hospital's financial situation cannot be blamed for the circumstances in which they now find themselves, although I am inclined to acquit previous managers due to the impossible situation in which they found themselves.

The background is that in 1998 the Surrey and Sussex Healthcare NHS Trust was formed principally at the behest of the royal colleges’ drive for medical training requirements for a catchment area of 250,000 from the merger of Crawley and Horsham NHS Trust with East Surrey Healthcare NHS Trust.

My hon. Friend mentioned a number of constituencies, so this is probably the moment to emphasise to the Minister that a considerable number of constituencies, including my own, look to that trust. A number of hospitals serve my constituency, and two are under financial threat.

I am grateful to my hon. Friend, whose intervention refers to my previous comment that the provision of public services in Surrey has proved to be an enormous challenge under the financial settlement that all the institutions in the county have received.

On reflection, the merger between Crawley and Horsham NHS Trust and the East Surrey Healthcare NHS Trust was not a marriage made in heaven. As in many such mergers, reorganisation was required to provide the best services throughout the new trust's two district hospital sites and its other sites, but the principal sites were at Crawley and in east Surrey south of Redhill. The trust’s proposals for reorganisation were broadly supported by all local MPs.

The plan presented to Ministers in 1999 was that acute services, including major accident and emergency services and in-patient maternity services, should be co-located at the newer and less constrained East Surrey hospital. The plans were presented to the Department in 1999, but it took a year for approval to be given in June 2000 by the then Minister, the hon. Member for Birmingham, Edgbaston (Ms Stuart). Ministers dictated that a review was to be established to produce recommendations on the long-term provision of secondary health care, including the prospect of a new hospital on another site at Pease Pottage, just outside Crawley, after 2020. That review was to be chaired by Peter Bagnall, and whatever its health merits, its overt political purpose was to address concerns in Crawley about the loss of the local accident and emergency department.

Those conclusions would have meant the transfer of acute services from Crawley to East Surrey hospital. The closing of Crawley hospital's accident and emergency department would inevitably have been unpopular, but the professional consensus was that those changes were necessary, and I recall that the hon. Member for Crawley (Laura Moffatt) was part of the consensus. However, the local papers in Crawley were not convinced and ran a strong campaign against Crawley hospital losing its acute services. In response, Ministers altered the terms of reference of Peter Bagnall’s review of future hospital services to consider changes to be made by 2010, holding out the prospect of a new hospital 10 years earlier than previously planned. That was still not enough to placate the residents of Crawley.

The hon. Member for Crawley lobbied the then Secretary of State, the right hon. Member for Darlington (Mr. Milburn), to postpone the transfer of services away from Crawley before the 2001 election. Meetings were held and a delegation taken to meet the Secretary of State for Health from which I and other local MPs were excluded. With weeks to go before the likely election in May 2001, which was later postponed to June 2001, the Secretary of State declared a moratorium on the clinical reconfiguration in March. That was despite that clinical configuration having commenced and maternity services having been moved. Paediatrics, ENT and gynaecology, all of which are associated with maternity, were left with twin-site working.

The political nature of the decision was made explicit in a letter dated 28 February from Sir William Wells, who was then chairman of the south-east regional office of the NHS, to the Secretary of State. He said:

“Although in practice there is little direct connection between the outcome of the Review and the need to move emergency services, in the short term this is not understood by the general public and in particular by Laura Moffatt's constituents and as a consequence she has asked whether there could be some moratorium on service moves until such time as the outcome of the review is known.”

In a draft statement, Sir William wrote:

“Laura Moffatt has agreed with the Secretary of State that, except on patient safety grounds, no further service reductions will take place at Crawley until the South East Surrey and North West Sussex Review is published in December 2001.”

It is indeed a novel departure for a Back-Bench MP and a Secretary of State to thrash out health policy, which will affect hundreds of thousands of people, in the interest of one constituency. I was not consulted, nor was I offered a meeting with Sir William Wells, despite the site of one of the two hospitals concerned being in my constituency; nor were my hon. Friends the Members for East Surrey (Mr. Ainsworth) and for Mole Valley and those with constituencies in the wider area, including my right hon. Friend the Member for Horsham (Mr. Maude), invited to agree the postponement with the Secretary of State. Let us not fool ourselves. We all know what was going on in the run-up to the 2001 general election. However, even if we accept that Ministers were entitled to make that decision to address local public concerns, it was a ministerial intervention.

The Bagnall review was finally published in 2002 and turned out to be an expensive diversion. Its initial political purpose was to hold open the prospect of a new hospital, but it was then used as a pretext to delay the closure of Crawley’s acute services. The continuation of twin-site working from 2001 came at an appalling cost both financially and in patient care. It cost the trust an estimated £10 million a year. That was not rectified until the end of 2004 or, arguably, September 2006 when Crawley hospital was finally taken off the books of the local hospital trust. The Secretary of State’s intervention cost some £40 million—or 1,600 heart transplants, 1,000 liver transplants or 50,000 cataract operations—which was a substantial majority of the deficit accumulated by the trust. Documents obtained through the Freedom of Information Act 2000 show that the trust believed that clinical safety would be imperilled by that suspension. I am very cautious about making specific links between cases and the moratorium, but coincidentally mortality rates in the borough of Reigate and Banstead rose during the suspension while they fell in Surrey as a whole.

Peter Bagnall’s team considered six options and, after an exhaustive process, recommended a new hospital at Pease Pottage. Bagnall’s recommendation came with capital cost of £278 million and an annual additional revenue requirement of £42.9 million. His second choice, which was effectively the proposals put to ministers in 1999, envisaged a rise in the running costs of £24.5 million and a capital cost of £105 million. The strategic health authorities were then established by the Government and they immediately instructed health economists to review the Bagnall recommendations. In 2003, the recommendations were confirmed as unaffordable. The trust continued with the burden of a district general hospital that it did not want or need. In 2006, Crawley hospital was transferred to the local primary care trust.

Finally, the board was in a position to do what it had wanted to do all along, which was to operate with one district general hospital. Robin Eve, an excellent non-executive director at the time, has made that clear in public. However, the board was prevented from managing the trust as it wished by the politics of Crawley and ministerial decisions.

Today, we have arrived at Peter Bagnall’s option 2, namely single site operation at East Surrey. That was the cheapest option in revenue terms, but it still required, on Bagnall’s analysis, an enhancement of £21.5 million in revenue and a capital enhancement of £117 million by 2010. As far as I am aware, that capital expenditure has not been made despite it being the product of Bagnall’s detailed review.

Let me return to the management of the hospital after the imposition of the moratorium in 2001. The financial position deteriorated over the next four years until 2005 when the trust was in the worst financial position in the country. The management had undoubtedly been demoralised by the intervention in 2001, but it had the benefit of a talented and experienced chief executive, Ken Cunningham, who had been hand-picked to replace Isabel Gowan, who had herself been removed in 2000 when her accounting to meet Government performance targets had been rather too creative. The Minister will recall that in this period of the management of the health service, deficits were an increasing problem as managers tried to balance the imperative of meeting their performance targets with sustaining a balanced budget. The costs of providing public services in the south-east are well documented and those pressures, overlaid with this ministerial decision, made the trust impossible to manage, and led to the deficit running out of control.

In February 2005, Ken Cunningham and his board agreed to leave, and Robin Eve had to be dismissed. They were replaced by an interim administration from the private sector under Anthony McKeever. His successor, Gary Walker from the private sector, was still dealing with a £20-million-a-year deficit in January 2006, and it had become clear that it was not reasonable to expect the hospital to resolve this deficit alone. That position was shared by his successor, Gail Wannell, who took over in August of that year. By October, the principle cause of the deficit had been removed, as Crawley hospital was placed in the hands of Crawley PCT.

Now, it could be the case that that string of NHS managers were all equally incapable of handling the crisis at the trust, and it could be that the turnaround teams brought in by the then Secretary of State, the right hon. Member for Leicester, West (Ms Hewitt) were stymied by the incompetence or obstruction of the management, but that stretches coincidence too far. Ministerial decisions had caused the crisis, and no manager could balance the performance targets and the budget in those circumstances.

The good news is that the trust is forecast to break even this year. However, there remains a debt of £54.9 million to the Department. I would like the Minister to address that figure when she responds. The interest on this loan is currently costing the trust £2.7 million. The trust’s financial managers are also in the position of having to find £2 million-plus every year from their budget to repay the loan, and they have to do that in the knowledge that for every year the loan remains, more money that should be invested in patient care is being used to pay interest.

In seeking this debate, my hope is to ask the Minister to look into the very particular history of the debt incurred by the Surrey and Sussex Healthcare NHS Trust. If she does so, she will see that costly reorganisations were punctuated with costly delays—for reasons far outside the control of the trust. Ministers could have enabled the reorganisation to begin in 1999, but the Department took a year to consider plans that had taken a year to create. Ministers suspended the reorganisation in progress in 2001. Previous ministerial decisions have contributed directly to the highest deficit in the country. Today’s management should satisfy the Minister that the trust is becoming financially sound. The current management are bringing the trust on to a solid financial footing. The financial improvement, however, has come at a price. My constituents and I and my hon. Friends the Members for East Surrey and for Mole Valley are beginning to see a rising tide of concern about the clinical care and performance of the hospital. My impression is that the obsessive concentration on achieving financial goals has taken the current management’s eye off the performance goals in a way that runs counter to the position that was developed under Ken Cunningham. That is the area in which I would like the Minister to show real faith in the trust, and to put the needs of patients first.

Without this loan, the trust would be in a position to address the problems in its accident and emergency department that have played such a part in the weak scores ascribed to it by the Healthcare Commission. If the Department writes off this debt, the Trust can at last move on after nearly a decade of instability and uncertainty. The alternative is that my constituents, those of my hon. Friends, and those of the hon. Member for Crawley will continue to be served by a hospital that is paying debts imposed on it by political decisions. I have seen the very debilitating effects of a management being constrained from doing the right thing. The consequences today are that the patients served by this hospital could be enjoying nearly £5 million a year invested in improving services and the prospect of a management delivering further improvements under foundation status. That is quite apart from the £117 million of capital investment that was identified as required by Peter Bagnall in 2002.

Timing is everything. This year the health service is in surplus. I urge the Minister to use this opportunity to examine the case and to write off the deficit of this trust, which was imposed in unique and not very creditable circumstances.

I congratulate the hon. Member for Reigate (Mr. Blunt) on securing this debate about the financial position of East Surrey hospital, which is part of the Surrey and Sussex Healthcare NHS Trust. It is a matter of great concern to him and his constituents. I certainly appreciate the comments that he has made today about the quality and commitment of the hospital staff.

One of the key responsibilities of an NHS trust is to live within its resources. However, the Surrey and Sussex trust is currently in a deficit position of £2.6 million for the 2007-08 financial year. I appreciate that the trust has more work to do but, like the hon. Gentleman, I commend the efforts of the staff and management in reducing the forecast deficit from almost £30 million in 2004-05.

I understand the points that the hon. Gentleman was trying to make, but the fact of the matter is that the deficit is a result of the trust spending more than its income, which was in part due to not meeting its savings plan. I understand from the South East Coast strategic health authority that a full restructuring—the hon. Gentleman touched on that—of the executive team, clinical directorates, governance, finance, work force and estates and facilities has been completed at the trust to strengthen accountability and to focus on delivery and performance.

I want to deal with the hon. Gentleman’s concern about the trust’s loan. In March 2006 the trust received a working capital loan of £56 million, repayable over 25 years. The loan was provided to cover the cash consequences of historical overspending that had previously been managed through an informal brokerage system, which was not transparent and often was not fair to the rest of the health service. The hon. Gentleman puts a straight question to me: why do I not simply write off the debt? I cannot write off the debt, for the following reasons.

NHS organisations must live within their means. The deficits of NHS trusts cannot simply be erased, not least because overspends in one part of the system must be covered by underspends in another. We are transferring money from elsewhere. The money loaned to the Surrey and Sussex trust by the Department has been provided by other parts of the NHS that have underspent. The trust needs to repay its loan so that the cash can be returned. Simply to write off the loan would be fundamentally unfair to organisations that have a firm grip on their finances.

Will the right hon. Lady give way?

I would like to go a little further, but I will give way before I conclude. I want to reassure the hon. Gentleman that mechanisms in place with regard to the loan will address his specific fear that unreasonable financial pressure will somehow be exerted in respect of the loan and, therefore, that patient care will suffer. That goes to the heart of the matter.

A number of trusts, including Surrey and Sussex, are in challenging positions because of historical debts, but our first reaction cannot be simply to write off those debts. None the less, given the size of the loan and the length of the repayment period, it was agreed that the trust be classified as one of the financially challenged trusts that would go into a new formal review process. I want to talk about that to reassure the hon. Gentleman.

As a result of introducing the new loans scheme in 2006-07, there were 17 NHS trusts in which the financial challenges were such that either the Department could not give a loan because the trust could not afford to meet the repayments, or a loan was agreed but the amount could be repaid only over an extended time scale. One element of the review of each of the financially challenged trusts—the Surrey and Sussex trust is in that category—is a close examination of the ongoing impact of debt and the associated costs of repayment, which is exactly the point the hon. Gentleman talks about. That will ensure that a sustainable outcome is delivered that both provides financial stability and maintains quality of care. For the Surrey and Sussex trust, that means that if the repayment of the loan leads to problems, they will be identified and addressed through the performance management process in agreement with the strategic health authority.

The reviews of all financially challenged trusts have been completed, and strategic health authorities have made proposals in respect of them. Those proposals are being discussed with the Department, and acceptable solutions will be released as they are agreed. I shall ensure that the hon. Gentleman and his colleagues are kept fully informed of those developments.

The hon. Gentleman will acknowledge that, since 1997, funding for the national health service has tripled and that as we move towards 2010-11, when we will have gone from expenditure of £33 billion in 1996-97 to £110 billion, it has also been necessary to ensure that we have a financial management system that is transparent and fair to all—to ensure that all health service trusts are treated in the same way. He referred to the deficits of the health service as a whole. He will know that we ended 2005-06 with a £547 million deficit and we needed to take rigorous action, but he will also know that the audited results for 2006-07 show that the NHS as a whole reported a net surplus of £515 million, and at the end of the second quarter of 2007-08 the surplus has risen. That represents 2.3 per cent. of total NHS revenue expenditure. The hon. Gentleman asked why we do not use that money, but I am sure he recognises that, in fairness to the whole health service, particularly those parts that are underspending—

Will the right hon. Lady give way on that point?

I will give way in a moment. Locally generated surpluses are giving NHS organisations in all areas much more flexibility to respond to patient need, and giving clinicians and managers the necessary headroom to plan better for new services and to manage risks. I absolutely accept that the hon. Gentleman has identified one of them.

I am grateful to the right hon. Lady for giving way. She has yet to acknowledge that ministerial decisions played any role at all in the deficits of the trust. That is what happened. We all know why. It is because of ministerial intervention that I now seek her ministerial intervention, in the circumstances of the surplus that she has just described, to help the trust.

I simply do not accept the hon. Gentleman’s proposition. He should look at the reconfigurations that have taken place in different parts of the country. He and his hon. Friends happen to have supported this one, but others have been held up where he and his hon. Friends do not support them. Each one is recommended on the basis of clinical need.

I have a tiny bit of familiarity with the areas that the hon. Gentleman talked about, because I lived in Crawley as a youngster. My mother was treated at Redhill. I know the Crawley site reasonably well and I certainly know and have some understanding of the demands of the widespread community that he identified. However, to say that the matter we are discussing is the result only of the Secretary of State or Ministers cutting across local accountability and clinical recommendations is simply incorrect. Any trust, including Surrey and Sussex, that has received a loan has a duty to repay it—a duty to the rest of the health service that is in balance. None the less, because of the status of the 17 trusts designated as financially challenged, there is a positive process in place to watch over the developments.

The Surrey and Sussex trust is one of four organisations nationally that received a Healthcare Commission rating of weak in both use of resources and quality of services for 2006-07 and 2005-06. As a result, David Nicholson, the chief executive of the NHS, is meeting the organisations and their strategic health authorities to consider and agree a recovery action plan, and consider whether further support is required. The Healthcare Commission will inspect the organisations, assess the problems and make recommendations for action, reporting back nationally on any common traits in weak organisations. That puts in place a thorough review to address the hon. Gentleman’s fears and the risks he has identified. His contribution to today’s debate will form part of that consideration and I am grateful to have been able to respond.

Very well timed, Minister. I thank you, the hon. Member for Reigate (Mr. Blunt) and other Members who contributed. We now move to the next debate.