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NHS: Resources

Volume 691: debated on Thursday 26 April 2007

rose to call attention to budgetary reporting and the use of resources in the National Health Service; and to move for Papers.

The noble Lord said: My Lords, the title of our debate today indicates a concern with how the resources of the National Health Service are allocated, used and are subject to budgetary reporting. The debates on the National Health Service that I have attended so far contained wish lists similar to those that children send to Santa Claus at Christmas, which is all very well if Mummy and Daddy have the money to pay for the things asked for. In this case I have never been certain that the NHS either has the resources or is quite aware where they are.

I start with my concerns based on the published quarterly accounts, as filed in the Library here. I shall then explain how they are confirmed by the overall expenditure figures and conclude with a plea to the Government to present NHS accounts in a manner that would better allow us to monitor its solvency and financial performance.

The previous two published quarterly filings of the Department of Health report on the National Health Service show what looks to be a very encouraging trend: there is a forecast improvement from a £683 million deficit to a £13 million surplus in just six months. However, we should be a little cautious before we start to celebrate.

I have had an exchange of Written Questions and Answers with the noble Lord, Lord Hunt, from December 2006, and he has been very patient and tolerant in answering seven of my eight Questions. I have asked the eighth Question three times and received three Answers from him, but they were never responses to the question that I asked, which is rather surprising because it was not a particularly swervy ball. All I asked was the value of the deferred cost of the redundancy programme and the lost value of income expected from that programme, which will now occur in the middle of this year, and which I needed for my modelling exercise. In one of his Answers, the noble Lord emphasised that the new forecast surplus of £13 million for the current year is after deferral of the previously announced redundancy programme but also after utilising the last available contingency for the NHS this year, amounting to £350 million.

The noble Lord, Lord Hunt, also told me in a Written Answer in January that the strategic health authorities had,

“created one contingency through their management of central budgets”.

He went on to explain that SHAs had,

“reported their ability to create an additional £100 million through their continued management of the central budget programme”.—[Official Report, 29/1/07; col. WA 17.]

Such creationism is of some concern, as it is surely normally to be found only in the Book of Genesis. Are we now to believe that the Government are looking for divine intervention to save their National Health Service figures?

Finally, the Minister told me that costs and benefits arising from the reorganisation of strategic health authorities and PCTs should be included in their forecast outturn for 2006-07; yet he told me in his Answer of 27 February that the latest additional £100 million was not related to redundancies. So I have two questions: where is the benefit previously offered by the head-count reduction, and where did the allegedly created new £100 million come from? What previously budgeted expenditure has been cut? Which patients are going untreated this financial year for the sake of filling the hole from last year’s deficit? What drugs have been withdrawn? Which doctors and nurses have been laid off?

Armed with that partial information, I set out to follow an audit trail to explain an overall turnaround of £697 million in just six months. Your Lordships may relax, safe in the knowledge that I am not going to recount the torturous calculation, but I find the National Health Service filing unreasonably complex, lacking in reasonable transparency and raising far more questions than it answers. Try as I might, I cannot achieve a reconciliation.

I have two examples. First, I tried to see how the £94 million deficit now forecast in the latest report arises, consistent with the previous report. The November report states that gross deficits now stand at £1,179 million compared to the previous forecast of £683 million a quarter earlier. When you are talking about an improvement, it is strange to start by recording a deterioration of £296 million. That is also after offsetting the gross surpluses, stated to be running at £736 million. Looking for my audit trail, I deduct the £736 million from the £1,179 million deficit, which gives me the net deficit position of £443 million before contingencies.

If I deduct the £350 million contingency, I am left with a balance of £93 million, only £1 million different from the net deficit then forecast. If that is indeed what I am supposed to do, I have got there completely by luck not by any mathematical process known in the accountancy world. It is also of concern that that still leaves £1 million short. It could be a rounding error or, I suppose, the ministerial tea and biscuit fund. Am I to assume that the calculative process that I have followed is correct? In that case, I submit that it is almost impenetrable to general review and useless as a guideline to the financial standard to which the NHS is actually performing to.

Next, I tried to do a counter-check on those figures by looking at them from a completely different direction. I add the £94 million deficit forecast in November to the figure of £100 million, which is the Minister’s claim of “new capital” created by the National Health Service. Those figures together should explain £194 million of the forecast improvement, so I then deduct that from the forecast performance improvement of £697 million, and I now have £603 million left to explain the improvement, and there is not one single word of help on the subject in the NHS filing report. Reasonably, I should now add to that my guess of about £100 million for the revenue deterioration from deferring the redundancy programme, for which the Minister has not given me a figure, despite my thrice-asked Question. I now have a figure of £703 million unexplained improvement in NHS performance over some 26 weeks. That is a turnaround sufficient to represent a performance that would be the envy of nearly any of the top 100 companies on the London Stock Exchange.

The report says that NHS policy is to eliminate the 175 outstanding cash deficits still predicted in February. So how can it be that the net difference between gross deficits and gross surpluses of those trusts appears to be £147 million, when the claimed deficit for the entire National Health Service was then stated to be only £94 million? Has anyone ever heard of a parent company that can trade at less net funds worth than the value of its subsidiary companies previously? The obvious inference is that some trusts are not only currently in deficit but intended to remain continuously in deficit, which would raise very serious questions as to whether they represent a dangerous solvency problem both for themselves and for the NHS as a whole.

Mr Richard Douglas, director-general for finance and investment at the NHS, seems to give away the game in his contribution to the February report, in which he tells us three pieces of information. First, without the reserve, the deficit would still be £437 million—no change. Forecast gross deficits still total £1,318 million, which is up by £6 million. Finally, 35 per cent of organisations are forecasting deficits, compared with 33 per cent at quarter two. He has told us three pieces of information, two of which are worse and one of which reflects a standstill, and he is trying to explain an improvement.

When the Government claim that the number of trusts in deficit has fallen, we further learn that 71 trusts reported a deficit in 2005-06, and mergers have reduced the number of those in deficit from four to two. Some 108 PCTs reported a deficit in 2005-06. Following PCT configuration, whatever that might be, 80 have been reconfigured, thereby creating 38 PCTs that still report 2005-06 deficits.

Is the magic formula of NHS accountants simply to merge trusts in deficit to reduce the numbers reported, with no benefit to the health of patients? Of the 57 organisations reporting a deficit in 2005-06 and which were still in deficit in 2006-07, 43 are said to be in a turnaround programme. What did they do with the other 14? Are they to become invisible by the year end through further deft accounting mergers? Anyone wondering what happened to Baldrick after the Blackadder series ended should now rest happy in the knowledge that he is in charge of the National Health Service and using his cunning plans to present the accounts so that they appear to be in balance.

The February report has another strange feature, which puts a question mark over the perceived opinion that the south of England is the affluent part of the land that is keeping afloat our friends in the north. What friends they are, given that our friends in the north are keeping the southern parts of the NHS afloat. We hear of the north-south divide, but rarely do the Government tell us how the north-east, north-west and Yorkshire and Humber regions are sacrificing patient care to subsidise every strategic health authority south of Manchester—every one. Noble Lords may check the figures themselves. The good people of Islington should be most grateful to the people of Hull, including, of course, the Deputy Prime Minister, for achieving a generous £3 million surplus, enough to wipe out the deficit allowed for the residents of Islington, which was recently home to the Prime Minister, where the trust is in deficit by almost that amount.

I know that the Minister will have an immediate answer to that criticism, because the figures for the distribution of funds to the northern strategic health authorities have been loaded with extra value to provide them with extra resource, and that has been taken away in the balancing exercise. Against that, the north needed the money because it had been underprivileged in distribution terms in the past, and the time when it can be restored is merely being put back. Yet the Prime Minister seeks 24-hour surgery, although perhaps he should have mentioned that before the PFI contracts that guarantee only daytime operations with huge penalty costs for service out of hours were entered into.

I now turn to the overall expenditure figures. The shadow Secretary of State for Health in another place recently said that the Department of Health’s original near-cash resource limit—a phrase that I shall explain later—was £71.5 billion. However, the Treasury has since revealed that the Department of Health spent £74.3 billion of near-cash; that is a £2.7 billion overspend, which is almost five times worse than the department’s published figure. A Minister in the department admitted that that was directly caused by the deficits arising in trusts, stating that the NHS deficit was the main reason for additional near-cash expenditure.

The shadow Secretary of State added that the only way that the Department of Health had reduced its overspend from £2.7 billion to £580 million, the figure that I mentioned earlier, was by underspending on its non-cash resources. It did that by writing down the value of the future claims on the NHS for clinical negligence. However, underspending on non-cash has no immediate impact on the actual resources available to the NHS and so cannot mitigate the effects of overspend on near-cash—or, in plain English, it cannot prevent the sick going untreated.

Perhaps I may explain the Government’s concept of near and non-cash. Suppose that I say to my wife, “I will give you £100,000 for a dress account next year”, but she does not need that £100,000 for the whole of this year. That £100,000 cash then continues to my benefit, so I will offer it to my mortgage company or back to my wife for the housekeeping this year. In this example, the dress-purchasing account represents the non-money which I seek to use as an asset as near-money in the current year. I can raise money with my bank or whatever. The Government would call the money they have to spend in the current year near-money; that is why I regret so much the absence of a consolidated balance sheet for the NHS. In this example I will effectively have used the £100,000 offer of a dress account for my wife as non-money, and that is what the Government are doing, which has reduced the overspend from £2.7 billion to £580 million. That is an outrage and a totally unacceptable method of government financial accounting. It would be unfair even to call it an “Enron technique”. Not even Enron ever did anything as bad as that, and I would not insult it with a similar accusation.

The famously prudent Chancellor has a much-abused golden rule requiring any near-cash overspend to be repaid within a year. So that is another £1.5 billion of health cuts that we can confidently expect to be inflicted on everyone next year or in the rest of this year. Expect plenty more closures and redundancies in clinical services. At the end of the day, the Chancellor and his Department of Health accountants will learn, as Enron, Barings and WorldCom did, that creative accounting cannot create cash.

I offer the Government suggestions for a six-point plan to deal with all this. Could they please consider a completely new accounting format that is transparent and allows us to see these things properly, without the invention of such phrases as “near cash” and “non-cash”, which have no place here? Could all the accounts please show a clear correlation between the NHS as an effective holding company and its structure of quasi-subsidiary trusts? May we have an urgent review of the budget process by which trusts have allocations, so that they are not required to carry huge concessions and contingencies into the year end to bail out the parent? May we please have a clear statement of what the audit committee procedure is through the whole structure?

As the Government will be aware, in any major commercial enterprise there may come a time when the shareholders—for whom, in this case, read taxpayers and electorate—force through and demand a change of management control from chairman down. A new board will be appointed and the first thing that it will need to do in any rescue strategy is to mount a full financial accounting investigation. Experience shows that this is far better done under the direction and control of the old board before it is ejected. This provides a better understanding to explain both in its own time and own words the account of its stewardship, while the incoming new board will have a better basis on which to start the task of putting everything together. The time for that investigative report from accountants is now. I beg to move for Papers.

My Lords, I have no interests to declare for speaking in this debate. I am not a doctor or an accountant, and, fortunately, at the moment I am not a patient. What I am is a supporter of the National Health Service. I am a supporter because the NHS makes for a fairer society, it makes our people healthier and, frankly, it makes Britain a better place to be. I congratulate the noble Lord, Lord James, on this debate, but I have some concerns about his approach to the NHS. He seems to be saying—or prescribing, if I may say so—that what the NHS needs is more accountancy.

So I must declare a prejudice, which has been confirmed by today’s debate. I am prejudiced against too much accountancy. That prejudice has been built up over many years working in business, where I learnt that too much accountancy kills enterprise and initiative, creates red tape and stands in the way of getting things done. Of course accountancy is important. It is important to give value for money, to spend money wisely, carefully and prudently and to stick to your budget. But that is the process; it is not the purpose. The purpose is to provide the nation with a National Health Service.

Quite rightly, the Government have moved away from the process towards the purpose, which is the health and well-being of the nation. They deserve our thanks for doing so. How have they done this? They have focused on the population and its healthcare needs and provided extra money to satisfy those needs. The extra money is certainly impressive. Allocations to the service increased by 6.7 per cent per annum in 1999 and 2000. In 2001 to 2004, there were even bigger increases: 9.4 per cent. Even this small increase of 2.7 percentage points provided an extra £13 billion over the three years to 2004.

It is a commonly held view that the NHS is in crisis because the money that was spent is not working and the funds have gone down a black hole with no perceptible improvements in patient care. Is this correct? A recent careful review by the corporate analytical team at the Department of Health, which was published in February of this year—the noble Lord, Lord James, mentioned it—looked at what happened to the extra money and its effect on patient care. It revealed a somewhat different picture.

What the money did not do was simply fund large salary increases for clinical staff—only 14 per cent of the extra money went that way—nor did it disappear down the route of more expensive drugs. In fact, the cost of pharmaceuticals was less than anticipated. Sixteen per cent of the money went on volume growth and the rest—70 per cent—went on extra nurses and doctors. Targets for extra nurses and doctors were not only met but exceeded by the enthusiasm of many trusts. The pre-existing rise in trend in clinical staff numbers was exceeded by 130,000 over a three-year period. By any standard, that rate of increase is large and impressive. It has not been seen previously and I doubt whether it will be seen again.

Has all this investment resulted in better care? That is always difficult to measure but, although some people regard indicators with suspicion, there is a hint that valuable gains have been made. Patients are undoubtedly being seen quicker. Waits for GP appointments are now very short. Time spent in A&E departments—the so-called trolley waits—have come down. In April 2004, 3,000 patients were waiting longer than three months for coronary artery bypass grafting or angioplasty. A year later—that is, by April 2005—no patient waited longer than three months, and this occurred despite the fact that the number of patients requiring these treatments had gone up considerably. So it seems that the extra staff have been doing something.

It is harder to measure the quality of care, but surveys of patients who have recently received some form of care show high levels of satisfaction. Of course, some people remain sceptical of these surveys but I think that they are pretty scientific. Perhaps the scepticism is fed by the media highlighting the failures of the health service and doctors, while ignoring the steady improvement in care that is obviously taking place. The fact is that the slope of life expectancy has remained steadily upward during the whole existence of the National Health Service and it shows no sign of levelling off. Some calculations estimate that at least 50 per cent of that life gain can be attributed to the advances in medical care.

There are problems facing the National Health Service—of course there are—but these are not problems that can be solved by better budgetary reporting and accounting of resources. Accountancy is an important tool in the process of resolving these problems, but it is not the purpose, because the problems have little to do with accountancy. In my opinion, the difficulties lie largely in the organisation of healthcare and the ways in which the system is operated, and they lie in the alienation of the medical and nursing staff who are charged with delivering care in the health service.

These problems have multiple causes, some of which are pretty well known; for example, the repeated reorganisation of the National Health Service that has occurred throughout its entire life. The cost to the service in the short and long term of these repeated reorganisations cannot be ignored. It certainly compromises any health service trust’s ability to implement a coherent financial strategy. Indeed, the overspending of the past two years has been attributed to this. These changes give rise to conflicting directives, which, in turn, provide considerable opportunities for confusion and conflict. According to an NHS Confederation publication, 56 regulatory and inspection bodies have been set up to check up on doctors and nurses. Yes, some of them do relate to accountancy but, as more changes, targets and directives descend on the National Health Service, surely the Minister will agree that inevitably there must be a general feeling of alienation.

However, these are not problems of accountancy; they are problems of management and problems of raised expectations. The solutions lie in local managers, doctors and nurses being empowered, taking power away from the centre and putting the patient into the driving seat. Then doctors, nurses and local managers will use their initiative. They will find ways of doing things better and cheaper. Leave it to them and not to accountants. I think that the noble Lord, Lord James, is looking in the wrong place and I hope the Minister agrees with me.

My Lords, I can see this will be a fun debate. I congratulate the noble Lord, Lord James of Blackheath, on initiating this debate. He is the most wonderful forensic pathologist of NHS accounting systems and very welcome for that. I find myself in agreement with much of his aspiration for NHS accounting systems—rather more than I do with my natural ally, the noble Lord, Lord Haskel.

I must declare an interest as a board member of Monitor, the independent regulator of NHS foundation trusts and I have had a long association with the NHS as an academic clinician and manager.

Let me start with the patients. Quality of care and value for money in healthcare depend crucially on the proper use of resources by clinicians. That means having devolved budgeting to clinical services and proper cash management, serious business planning across the multiple departments of an institution or service and the availability of timely and clinically relevant information, backed up by an effective board conducting a good business-like financial regime running the organisation as a going concern. That is the only way to engage clinicians in the task of improving healthcare. Without consultant clinical involvement and senior nurse management involvement we will never develop the continuously improving organisations that we, the public, want. We can tinker at the top, within the Department of Health, within the Government and within the structures to run it, but unless we get the local stuff right, it will not work.

We would all agree that historically the NHS financial regime has lacked transparency and accountability. It is not surprising that financial management has proved challenging. But I believe that the NHS foundation trust regime addresses these issues; that the foundation trusts are delivering better financial performance; that the Government are moving the NHS trust regime closer to that for foundation trusts, which is a good thing; and that achieving foundation trust status for all NHS providers is still the best way forward for existing NHS trusts.

The regime operated by Monitor incentivises NHS foundation trusts to be professionally managed and financially strong. The recent NHS Confederation report on what the NHS can learn from US not-for profit hospitals stresses the importance of running these organisations as proper businesses with an understanding of what is profitable and unprofitable and with the employment of a highly paid executive team with skills transferable to and from the independent business sector. We in the NHS should grasp this nettle and recognise that with increasing autonomy, finance director skills will need to be much more highly rewarded than they are in general in NHS organisations at present. Better financial acumen is needed in the NHS, which is why we at Monitor developed and launched a major finance director training programme with Cass Business School, at the heart of the City of London, to try to inculcate that culture.

We need clear incentives. Foundation trusts are required to operate as a going concern—after all, we, in Monitor, have no money to bail them out. Their income comes from legally binding contracts, with commissioners providing clear incentives to deliver the required services. Foundation trusts do not have access to brokerage or one-off payments from the department or from the SHAs, clarifying the responsibility of trusts to manage their own financial positions. As long as NHS trusts can be bailed out by raiding education budgets or diverting resources from community or mental health budgets, they will never learn to manage properly. As regards creating a break-even situation nationally, the constant moving of money around the system is so destructive on morale in local trusts.

Transparency is important. NHS foundation trusts use standard commercial accounting practice, making financial statements easier to understand and to analyse. They have clear accountability to their regulator based on a published compliance regime, and they know that intervention will follow if they breach their authorisation. This removes uncertainty and makes the regime more predictable.

Foundation trusts continue to deliver strong financial performance. In aggregate, 54 NHS FTs generated a £75 million surplus in the nine months to December 2007, which is £75 million more for investment in patient services. They are treating more patients than other NHS trusts and generating more income. Real autonomy and board accountability with an effective regulatory framework can deliver efficient and effective services.

We have demonstrated that it is possible to turn around poor performance in NHS foundation trusts. Only once, with Bradford Teaching Hospitals NHS Foundation Trust, has it been necessary to use formal powers of intervention to engineer a turnaround. However, Monitor’s compliance regime has identified and led to the resolution of poor financial or service performance on a further 10 occasions. The most significant was the fast and effective turnaround of UCLH, where a £36 million loss will became a small surplus in 2007-08. I pay tribute to the members of the board of that trust for the work they have done, but we did a good deal to support them.

I am very pleased to see the Government ending the practice of year-end brokerage and moving to a system of repayable loans; that is, ending the detested RAB regime—the system of resource accounting and budgeting imposed in 2001, a double-deficit programme that was so detested—and moving to a loans-based capital regime with access based on affordability. This is in line with the Audit Commission’s recommendations arising from its review last year. We support that. These changes should help to drive improved financial performance in NHS trusts. However, the full benefits will be delivered only as we move more trusts to foundation trust status.

I return to where I began; that is to patient care. Focus on finance does not come at the expense of quality. Indeed, organisations that have proved themselves competent in financial management are also competent at getting to grips with clinical governance issues within their trust. They are simply better managers and 68 per cent of NHS foundation trusts are rated excellent or good compared with only 50 per cent for NHS trusts.

I have gone banging on about the Monitor regime because the process of becoming an FT is very rigorous and only those fit for purpose get through. The process leads to better governance and financial management. We take corporate boards and their governance capacity very seriously through our board-to-board meetings. As a result of the process, East Somerset NHS Trust recently completely reshaped its capital plans and South Devon Healthcare NHS Foundation Trust dropped its over-ambitious PFI scheme to go for an incremental build approach; these two decisions have saved the taxpayer millions. I could quote many other examples.

The process has also led to NEDs with greater financial experience being recruited than was the case in 2004, which is crucial for support. So I am optimistic that if the Government stick with their intention to devolve care to autonomous providers, add the spice of competition generated by the independent sector and press on with their personal choice agenda for patients and their families, NHS finances will get healthier and healthier. That is the way forward, rather than carping on about the endless inadequacies of the NHS accounting regime.

My Lords, I congratulate my noble friend Lord James of Blackheath on so ably introducing this debate. The Minister will confirm the diligence and zeal with which he has pursued detailed information about the funding of the NHS. The fact that his researches have, finally, led him to describe the NHS accounting system as critically as he did today should be a matter of concern to all of us.

It is beyond doubt that more resources are going into the NHS. I am totally at one with the noble Lord, Lord Haskel, on that. The Government have, rightly, frequently been congratulated in this House on that fact and, indeed, on the number of initiatives they have introduced to improve patient care.

At least as important as the amount going into the NHS is the way in which the money is spent and the quality of ministerial decision-making. Even more important—and I really have to say this—is that without transparency in the use of resources there can be no democratic accountability. That is one of the really grave criticisms highlighted today by my noble friend. I hope, as do we all, that the Minister, who is rightly well respected and admired in this House, will be able to answer clearly my noble friend’s detailed questions—although possibly not all of them—when he concludes the debate.

The lack of financial transparency in some parts of the NHS causes the public to question whether the Government’s claims of increased funding are true. That is why transparency matters. Certainly, more money has gone into medical staffing. However, it seems also to be the case—and this is widely the public perception—that GPs and consultants are being paid a great deal more for doing less. It is also the perception that that has come as a surprise to Ministers. Of course there is public support for our doctors to be well paid, but there is this perception that there are cuts in GP services as a result of the pay and structural changes. That leads to, at least, puzzlement that taxes appear to have gone up to provide less service.

While we must accept, as it is the case, that more money is going into medical staffing, what should we make of the extraordinary saga of MMC; the Modernising Medical Careers initiative? That has been described by the Royal College of Physicians as:

“The worst episode in the history of medical training in the UK in living memory”.

How could the Government have created a situation where, as Michael Jack pointed out last week in another place, there is a misfit between the 30,000 junior doctors aspiring to reach higher posts—in other words, people who have been trained—and the 22,000 job opportunities that exist for them? Are the Government now attempting to reallocate the surplus of doctors to Voluntary Service Overseas? Are our precious resources being devoted to this attempt? It is hard to believe that that could be so. It is certainly true that you could not overstate the effect the situation has had on doctors’ morale, not to mention their respect for ministerial planning.

However, I assume that there was also some sort of financial effect. What has it cost? What services may have to suffer as a result? I am sure that the noble Lord will be able to tell us something about that in his concluding remarks today. Perhaps he will give us a bit of comfort because everybody is concerned.

I have at least twice in this House raised the contrast between the reality of people’s experience of the NHS at local level and claims sometimes made by the Government. I make no excuse for doing so again today since we are debating the use of resources in the NHS. As I said earlier, what matters to people is not only the amount of money going into the NHS, but also how it is spent. Indeed, in the light of the points made by my noble friend, I raise the clarity or otherwise of the accounts—in other words; where is the money going?

I again raise an example from Norfolk where people, as elsewhere in the country, know that more money is going into the NHS. The people in Norfolk have been told that the Norfolk PCT is in debt to the tune of £50 million. For that reason, cuts in services have to be made across the board. I need hardly add that the people of Norfolk do not feel responsible for this debt of £50 million. We cannot establish who ran up the debt or who should be held responsible—we apparently cannot be told. There is no accountability. Of course, in the light of what my noble friend said, I wonder whether there is a debt; could it be an accounting devise? We do not know. But whether or not the debt is real, the effects of meeting it most certainly are. They are causing universal fury across the whole community. Because of the real or imagined debt, all nine of Norfolk's community hospitals are being considered for closure or cuts in services.

The Minister will know how unpopular such proposals are, not least because his ministerial colleague, Ivan Lewis, has been demonstrating against them in his constituency. Ivan Lewis has been joined by a clutch of other Ministers, not least Jacqui Smith, the Government Chief Whip in another place, and Hazel Blears, the chairman of the Labour Party, in demonstrating against the changes in their constituencies. Part of the reason for people’s fury and resentment at such changes is that they are being implemented and local services reduced while they are being told that the NHS is improving. People find it hard to equate their experience with what they are being told. Opaque funding mechanisms, highlighted today by my noble friend, do not help.

I accept that the structures described by the noble Baroness, Lady Murphy, may help, because there will seem to be more local accountability and, perhaps, more local flexibility. If that is the way that things are to go, there will be a greater feeling of ownership locally. That will certainly help.

It has not gone unnoticed in Norfolk that the PCT has spent thousands of pounds on consultation. Local people have themselves organised huge public meetings. There have been petitions to Downing Street, delegations to Ministers, and so on. The current proposals have resulted in universal ironic hilarity. They suggest that the whole of the western half of the county of Norfolk—the half which, according to government definitions, has the largest number of deprived wards—is to be left with no community beds at all. It has not been possible to explain to the PCT that such a proposal will not do and that it sits ill with assertions from the centre that community-based services are to be developed and brought closer to the people. It has been received with consternation by the county council, which is hard pressed to provide even exiguous domiciliary services already and knows that it will bear the brunt of the cuts.

That seems to be curiously divorced from the announcement a year ago that £750 million of extra funding was to be devoted to community hospitals. The Minister kindly answered me when I last raised this in the House. What is a puzzle is that the Norfolk PCT, which is in deficit, possibly to the tune of £50 million, made no application to the fund of £750 million. Why not? Did it not know about the deficit at the time? Perhaps it did not. More sinisterly, perhaps it had already made up its mind on the future of those community hospitals—in which case the consultation is a sham and the money devoted to it a waste of resources. Who can say?

I am sad today to appear to be attacking the Minister. I greatly respect him, his knowledge and the way that he tackles his job—which, in all conscience, is enormously difficult. Complexity in NHS funding certainly did not start with him. All of us know that and we admire what he tries to do, but I cannot believe that he can be happy about what is being presented locally as government policy—that these cuts have to be made and these hospitals closed because the Government say so. We understand that the finances are complex, but I feel that the Minister will understand our concern that that complexity may be denying the Government legitimate credit for what they are attempting to do. I hope that he will be able to reassure us later.

My Lords, I also congratulate the noble Lord, Lord James, on his opening speech. I tried very carefully to follow his audit trail through accounting in the National Health Service—not totally successfully, but I certainly heard the word Manchester used. I shall concentrate my short remarks on the city of Manchester and on what has been achieved in the past 10 years.

Although I entirely agree that there needs to be transparent accountability for expenditure in the National Health Service, the improvements in the quality of care in the city and city region of Manchester have been dramatic during the past 10 years. Those dramatic improvements have been based on the considerable investment, both capital and revenue, achieved under this Government. In the city, we now have a much clearer pathway, as a result of that investment, to high-quality primary and community care; clear routes into secondary care with significant investment in our district general hospitals; and further massive investment in tertiary services, which enable the highest quality specialist care to be provided in central Manchester and other specialist hospitals.

That is against the background of huge health problems in urban centres such as Manchester, huge inequalities in health and huge problems with late referral, because people in urban centres do not always recognise their health problems. That means that investment is needed not only in hospital services but in primary community services to ensure that health problems are detected at the earliest opportunity.

I should declare an interest both as a non-executive director of a hospital trust, now a foundation hospital, Christie Hospital, a subject to which I shall return, and as non-executive chair of a local improvement finance trust—LIFT—company, which is responsible for the development of health centres, clinics and service centres for Manchester, Salford and Trafford. I start there because where we are dealing with areas of high deprivation and poor health, investment in primary services is crucial.

During the past two or three years, at least 13 new health centres have been developed and built through the LIFT company, not only to provide high-quality GP practices in those centres but to enable a much wider range of screening and community services to be developed to ensure that we start to tackle inequalities of health. That is in partnership with local authorities. Although we may need clear accountability within the National Health Service, we must work in partnership with other providers, especially local authorities. With the reconfiguration of primary care trusts and consultation with local authorities, it will be crucial to have a strategic plan that drills down to the real needs of local communities.

In south Manchester, for example, there has been huge investment in the South Manchester University Hospital and performance has been dramatically improved in recent years. Although statistics and targets are not everyone’s preferred method of assessing the success of the National Health Service, they give clear indicators of progress. They also enable the organisation to see its direction of travel. To pick out one or two statistics in south Manchester, 97 per cent of all elective patients were able to book their appointments at a time convenient to them. That could not happen without the investment in our hospitals. Also, 97.8 per cent of patients were seen, treated and discharged from accident and emergency within four hours of arrival. That is a huge improvement on how accident and emergency units operated in the past.

Turning to central Manchester, there has again been huge investment: a £600 million investment in a new hospital, with a new children’s hospital under way as we speak and a £1 billion investment along the Oxford Road corridor linking the hospital more closely to the university—I should obviously declare an interest as an employee of the university. At the end of March 2006, no patient in central Manchester waited longer than 13 weeks for a GP out-patient appointment. Thirteen weeks is too long but is still a significant improvement on previous waiting times. No patient waited longer than six months for in-patient or day-case treatment—again, a huge improvement and, again, 98 per cent of all A&E attendees were seen within four hours. This must be seen against a backdrop of a continuing year-on-year increase in the demand for these services; they cannot be seen in isolation from the healthcare needs of the local population.

In central Manchester, the trust performed outstandingly well in cancer treatment. At the financial year-end in March 2006, 100 per cent of patients received their treatment in 31 days after a diagnosis of cancer, against a national target of 98 per cent. In addition, 97 per cent of patients received their first treatment within 62 days of a first referral from a GP, against a national target of 95 per cent.

I am proud that this Government have highlighted cancer as a key area for investment, because one in three people in this country is diagnosed with cancer, and one in four people actually dies from it. Unless we look at the investment in that area, we will not tackle one of the real killers in this country. Christie Hospital, of which I am a non-executive director, as I said, achieved foundation status on 1 April. I strongly agree with the noble Baroness, Lady Murphy, about the role of monitoring in that process. The process by which the hospital trust had to comply with the requirements, particularly the accounting and other financial requirements, which the noble Lord, Lord James, identified, was extremely hard and rigorous.

The way in which the hospital’s executive team moved the hospital forward so that it could comply with foundation-trust status should be a model for all hospitals. That status would be achieved at different speeds, but the model ensures the rigorous analysis of resources, accounting and governance in those hospitals to achieve real improvements, not to make profit but to make surpluses that can be reinvested in patient care in such hospitals. That is the crucial point.

In the past financial year, Christie Hospital managed to create a surplus of £3.6 million, all of which will go back into improving clinical care in the hospital for the benefit of patients. The monitoring process should be commended for that. The surplus will enable Christie Hospital to expand its services in radiotherapy and chemotherapy, and to move services away from one site into the local community so that they are much more accessible to patients. It will also enable the hospital to develop its surgical expertise further and, crucially, its clinical trials expertise, which needs to be expanded for the benefit of all patients. The hospital will work closely to develop the Manchester Cancer Research Centre.

I hope that the Minister will be able comment on the 62-day target for cancer treatment from first point through to referral and treatment in a specialist centre such as Christie Hospital. Ninety-six per cent of patients are treated within 31 days of referral. The problem arises downstream in the 31 days that it should take from initial GP referral to the patient’s arrival at Christie Hospital.

The hospital does not receive patients directly from GPs; it receives them from district general hospitals. There is a difficulty if those district hospitals do not identify the cancer needs of that patient in a timely way to enable Christie to comply with the 62-day target. I know that work is being done with the Healthcare Commission to look at this issue, but I hope that the Minister will recognise the complicated pathways from first referral by the GP to treatment in a specialist centre, and that this will be carefully monitored to analyse whether hospitals such as Christie are performing to the high standards to which we clearly believe we are.

All these improvements in healthcare in a city such as Manchester could not have been achieved without the huge investment that has been made or without the continuing dedication of the staff and management of those hospitals to use those resources with rigour. I believe, as I have stated, that that rigour is now being applied to the National Health Service through the monitoring process for the benefit of patients. Such investment must continue year on year, otherwise those improvements will not be maintained. The direction of travel that has been achieved in recent years, together with the investment—both revenue and capital—has enabled a higher quality of healthcare service to be created in this country, and patients appreciate those improvements.

My Lords, it is a great pleasure to follow the noble Lord, with his Sutton Coldfield roots, although he spoke almost exclusively about Manchester on this occasion. I congratulate my noble friend Lord James on leading the debate and on his speech. We look forward with delight to hearing the detailed reply that we know the Minister will give.

I shall deal with the issue a little more generally. My noble friend reminds us that resources in the health service are rationed. However much you spend, you will never have enough instantly to meet public need. As Enoch Powell once put it, you have infinite demand meeting finite resources. That is why my noble friend is so right that the use of resources is of the essence. That is why every pound must be made to count. Doubtless, the Minister will remind us, as we have been reminded already, of the increased resources that are being devoted to health. I am glad that, in the past 25 years, the economy has strengthened so that that can happen. The Government are on much less firm ground on the use of resources. The negotiations with the general practitioners and the consultants do not inspire confidence that the Government have made every pound count in providing extra healthcare. The National Audit Office found that only 19 per cent of trusts and 12 per cent of consultants agreed that patient care had improved due to the consultants’ new contract.

I want to pursue another aspect of resource management. If the Government decide that a particular service in the National Health Service is a priority and deserves extra resources, clearly those resources should follow that decision, otherwise it is an entirely pointless exercise involving the kind of funny money about which my noble friend Lord James has been speaking. The Government said, with good reason, that sexual health services and HIV were a priority for 2006. Here, I declare an interest as a trustee of the Terrence Higgins Trust. Sadly, there is no doubt that the position has deteriorated over the lifetime of the Government. Some 70,000 people are now living with HIV and, on present trends, that number will go through the 100,000 mark in three or perhaps four years’ time. We have seen a threefold increase in the number of people accessing HIV treatment and care services, and new diagnoses have increased by 165 per cent over the same period. Where our position was once the best in western Europe, it is now one of the worst.

The Health Protection Agency identifies HIV as one of the most serious infectious diseases facing the UK. However, we are not only dealing with HIV but are confronted by the danger, the risk and the suffering caused by increases in other sexual diseases. The latest figures show that there were 110,000 new diagnoses of chlamydia in 2005—an increase of 125 per cent since 1998. Using the same 1998 base, there have also been big increases in both gonorrhoea and syphilis. So the story continues. The result is that the sexual health clinics and GUM clinics are under severe pressure. The premises are often outdated and crowded, and we know from a recent report that the consultants on the ground are often frustrated by the lack of priority that is being given to this area.

The report in an annual survey of primary care trusts and sexual health/HIV clinicians was appropriately called Disturbing Symptoms. Its most disturbing finding was that, although sexual health was intended to be the national priority that we had been told about, two-thirds of clinicians reported that it was not sufficiently prioritised at the local level. The service was deficient not because of a lack of commitment on the ground but because resources intended to reach the front line simply did not do that.

When the Government published their White Paper, Choosing Health, they said that an extra £300 million would be put into the services. Following that, in July 2005, Caroline Flint, the Minister with responsibility for public health, said that,

“we remain committed to improving the sexual health of the nation and continue to make it a government priority. We have already invested £300m as part of our Public Health Paper—the largest amount ever for this area”.

Of course, the trouble was that they had not already invested £300 million: they had said that they would invest it. They said that they would allocate £130 million for modernising the clinics, £80 million for accelerated implementation of chlamydia screening and £40 million for contraceptive services, and that they would spend £50 million on a new national advertising campaign. How welcome those steps would have been.

Let us take just the £50 million national advertising campaign. A campaign was launched at the end of last year. It did not cost £50 million—or even £20 million or £10 million. It cost £3.6 million. So far there has been no guarantee of any kind that the remaining £46 million will be spent, although we know—I stress this—that advertising can work very effectively. Incidentally—I say this to the Minister directly—I am not arguing, as he seems to believe in responding to a question of mine, for a simple replica of the campaign I ran 21 years ago. The conditions for campaigns and the threats change. Today, there may be a need for a national, general campaign aimed at sexual health generally and not just at HIV. But I do argue that there is absolutely no point whatever in having a high-profile campaign and then going off the air for the next 21 years.

What of the other money intended for front-line services, much of which was not spent either? Surveys carried out by a range of bodies showed that primary care trusts diverted the money to meet the financial deficits in the health service. The Disturbing Symptoms report stated:

“Just under two thirds of responding PCTs indicated that all or part of their Choosing Health money had been diverted away from sexual health services”.

Of course, the irony and tragedy of this is that it is simply not possible to argue that the financial problems of the National Health Service have been caused by extravagance in sexual health services. The prospect is laughable as consultants and staff struggle on meeting an ever increasing demand in all too often inadequate clinics. My noble friend Lady Shephard made a similar point about the position on the ground that she was talking about in different circumstances.

However, I fear that one of the problems is that HIV, sexual health and preventing disease does not and never has rated very highly in opinion polls on health spending. A focus group would not make HIV the first priority. If you have to make economies, it is therefore safer to cut spending in this area. It will not produce the same public outcry as cutting some of the more popular medical services. There will be no demonstrations of patients. But we should be under no illusion because greater pressure will result on already overstretched services, infection will spread as patients remain untreated and the eventual cost to the health service will be much greater.

Nor do I think that the position will simply bounce back and that 2006 was an exception to the rule. The Minister knows as well as I do that HIV/sexual health is not likely to get local priority throughout the country, which is why when I was Secretary of State I ring-fenced and secured the money being devoted to AIDS. I accept that this is a dilemma for the health service. Like every Health Secretary over the past 20 years, I am in favour of the maximum of devolution. The Department of Health cannot run everything even if it wanted to. Many decisions are best taken locally. Equally, it would be foolish to say that everything should be devolved, just as it would be foolish to say that everything should be centralised. A balance is needed.

Public health provides a particular and an urgent challenge. The position is that we need urgently to reduce the demands on the National Health Service by tackling the root causes of some of the illnesses that can be prevented—not just sexual disease or HIV, but also alcohol, drugs and obesity. We do not need just clinics, but we need to find ways to influence behaviour. Unless we can change behaviour the burdens on the health service will continue to grow. That is a central task for the Government. Of course, they should work with the local trusts, but responsibility should rest with the Department of Health, advised by the excellent professional advisers in the department, including Chief Medical Officers who, in my experience, have been first class.

One result of such a change would be independent ring-fenced budgets. A major benefit of that would be that at last we could make progress in tackling the ever-increasing incidence of HIV and sexual disease. Frankly, the present position does this country no credit. Reform is overdue.

My Lords, I, too, congratulate the noble Lord, Lord James, on his illuminating introduction to NHS budgetary reporting systems. But, speaking as a non-accountant, I have to say that the noble Lord’s analysis of the accounts has left me better informed but perhaps none the wiser. However, the debate is also about the use of resources in the National Health Service, so I shall limit my comments to that and to my experience as a user of the NHS.

The evidence from every conceivable source shows that the NHS has improved immensely since 1997. I think that there is a consensus, not just in your Lordships’ House, but in the nation, if we look at the picture in its macro-dimensions. The pledge to fund the National Health Service to the level of the European average has been met. Spending in cash terms has nearly doubled over the past 10 years. It is also a fact that since 1997, the NHS has received the longest sustainable period of increased spending since its creation in 1948. In plain terms, that adds up to more resources being provided; that is, more nurses and doctors delivering more, faster and better care. Today, the NHS is seeing the biggest building programme in its history. If there are doubts about the quantitative value of the input, I suspect that we can address them to, for example, the Public Accounts Committee or the Audit Commission.

Funding the NHS is also about choice. I want to say, strictly within the spirit of this debate, that the funding arrangements which have just been outlined in most parts of this House could never be achieved by sharing out the proceeds of economic growth. That funding formula begs the question of what happens in the years when growth is neutral, or indeed negative. What sort of budgetary reporting systems, ones providing democratic and managerial accountability, would be used in those circumstances? Taken in the objective round, when British people are called on to make a choice between tax cuts and adequate funding for the NHS, I have little doubt about the choice they will make. I believe that they will continue to support the NHS being adequately funded.

We already have a clear indication of the thoughts of British people on the National Health Service. Some interesting facts have emerged from a recent YouGov poll commissioned by the Royal College of Nursing. The poll revealed that nine out of 10 members of the public value the NHS as an essential and free public service. More than three-quarters believe that the Government were right to increase NHS spending since 1997. Almost 60 per cent want Ministers to increase spending even further, while 72 per cent believe that patient care will suffer if NHS spending is cut. What conclusions can be drawn from this survey? I take the view that the public believe in and value the National Health Service, and that they want politicians to do the same.

In this debate about budgetary systems, let us not forget the experience of patients. After all, that is what it is all about. As a user, I value the change regime. I value the fact that at long last the NHS, as a public service, has woken up to the recognition that the customer must come first. I acknowledge reduced waiting times and walk-in centres. I have the unique privilege—not unique to me, but unique in the experience of many people—of being able to telephone my GP practice at eight o’clock in the morning to book a return call before nine so that my consultation can be conducted over the telephone. That is a truly responsive service. In short, it is customer service at its very best. I like the focus on local community health care, so that patients can be seen and treated closer to home. Health services are not just about patients, but their families, employers and all the other obligations we must meet in the social environment. We have one-stop shops where health and social services providers work closely as integrated disciplines. All these developments are of immeasurable value, and they are all about the use of resources. None of them would find any intelligible expression in the kind of budgetary accounting proposals that have been outlined today, but for the patient at the receiving end, they are as important as any concept of macro-economic accounting.

In my view, there is a new bond of confidence between patients and NHS professionals, and we must never forget that health service staff are playing their part. They have delivered on the change programme, Agenda for Change. Therefore, as we take the debate forward, we must endeavour not to demoralise staff by indicating that NHS resources are shrouded in mystique and could never be understood, thus casting doubts on those in the front line with responsibility for managing people and resources, and for delivering a good service. I hope that the debate can move us away from a consideration of who has the deepest wallet towards tackling the root causes of health inequality and poverty.

It is a fact that you are likely to suffer poor health if you live in a damp and draughty house, and if you cannot afford a decent diet. It is a fact that you are likely to suffer ill health if you are among the long-term unemployed. I look to the Government to continue with their robust programme of health education around diet, exercise and a new regime to introduce nationally changes in our lifestyle. All that will impact positively on the National Health Service and should be encouraged. As a non-smoker, I welcome the soon to be implemented ban on smoking in public places. It may be only a minute contribution, but nevertheless it should be said that nothing is at the margins when it comes to health.

While our healthcare professionals must deal with the effects of the causes of ill health, I say that the Government have a responsibility to make a difference and deal with those underlying causes.

My Lords, I join other noble Lords in congratulating my noble friend Lord James of Blackheath on securing this important debate. My noble friend’s knowledge and attention to detail is substantial and very difficult to match. It is incredible that after 10 years of a Labour Government and billions of pounds spent on the NHS, it is facing a financial crisis on an unprecedented scale. How on Earth are medical practitioners supposed to work with uncertainty, cutbacks and ward closures? It is clear that the Government, steered by the Chancellor, have concentrated on processes such as the length of time patients wait for their first treatment rather than on outcomes such as cancer survival rates, whether they are improving and if patients are happy with their treatment.

Year on year since 2002, the NHS has finished each financial year in a worse state than the previous one. PCTs have fared equally badly, and it would appear that the combined deficits of all the NHS organisations are forecast to reach £1,318 million. Twinned with that is the fact that since 1997, productivity has fallen by 1.3 per cent each year. As has already been said, the Chancellor’s decision that public sector organisations should adopt a system of financial accounting known as RAB—resource accounting and budgeting—but which he has now reversed, has led NHS trusts which are in deficit in one financial year having not only to face budget reductions in the next financial year but also to repay the deficit of the previous one. That is a ridiculous situation for any trust to find itself in. It has become something of a trademark for this Chancellor and a rod for the back of any incoming one.

The Government have top-sliced allocations to PCTs in order to create a central reserve. This has left trusts with £1.1 billion less for their budgets. It is therefore hardly surprising that many members of the Government are openly campaigning against government policies—for example, Labour Party chairman Hazel Blears in her Salford constituency and Tessa Jowell in her south London constituency.

The NHS has been reorganised nine times under Labour. Each reorganisation has cost millions of pounds. The Department of Health’s own chief economist has recommended that workforce targets now be abandoned. The more one digs, the more incredible the figures appear. The NHS has 175,646 beds and decreasing, while it has 264,012 administrators. Just imagine the cost to the service of these extra people. If that is not bad enough, look at the Government's use of the private sector through the independent sector treatment centre programme. The Government have committed to paying for treatments at prices well over 11 per cent above the NHS cost.

I live in the city of Leicester, where the Secretary of State for Health is our constituency MP. I assure your Lordships that feelings are running high among both NHS staff and the public, who see budget deficits and ward closures as a direct cut to their services. Hundreds of staff at the three Leicester hospitals have signed petitions to halt cuts in jobs at the hospitals, where 900 jobs are under threat with wider implications of more job cuts each year over the next 10 years. The Secretary of State’s response was to say that the cuts were not for financial reasons but a result of listening to staff and patients. Can the Minister ask the Secretary of State which staff and what patients she spoke to? If it was a proper consultation, are the papers available for public reading?

In Leicester, we have seen closures of mental health wards, and two hospital wards are also being closed. The closure of the mental health wards, which operated at almost 100 per cent occupancy, is a worrying sign to patients, particularly the elderly—who suffer from dementia and other age-related mental health issues—that they will now have to seek treatment elsewhere. While hospital wards are closed and bed numbers reduced in cities such as Leicester where there is an ageing population, can the Minister give the House proper assurances that social care budgets will be fully funded to meet the demands of patient care in the community? It is really worrying. As someone with a business in the healthcare sector—for which I declare an interest—my experience has been that social care budgets are unacceptably under-funded, especially with increasing demands of social and primary care taking place in the community.

In Leicester, we have seen huge changes in how people needing health and social care provision have been recategorised. With an increasing rate of reduction in the number of beds and hospital staff, how can patient care be met with the confidence for which the NHS used to be known? Does the Minister agree with me that all those working in the health service are right to feel unsure about their future? They feel demoralised, and are absolutely right to feel angry at the Health Secretary’s arrogance in ignoring their concerns. Can the Minister assure the House that, before further cuts take place in Leicester’s pathway programme—which is vigorously supported by the Leicester East MP, Keith Vaz—the £200 million cuts will be further and properly reviewed before taking place, so that all services for the people of Leicester are properly resourced?

My Lords, I am grateful to the noble Lord, Lord James of Blackheath, for securing this debate and giving us an opportunity to discuss a subject very close to my heart. From what we know of the noble Lord from his previous contributions to your Lordships’ House, we would not have expected a paean of praise for the NHS, but he has exceeded my wildest expectations.

It is customary at the start of a debate to declare relevant interests. My first is that I am not an accountant and scarcely understand a balance sheet. I am concerned about the performance of the NHS in responding to patient need, about which I shall speak today. I declare an interest as chair of the Specialised Healthcare Alliance and interim chair of the National Voices working group. My chief interest, however, is as a huge admirer of the NHS and, much more than that, someone who literally owes her life to it. That I am here today in good health, having made a miraculous recovery from almost certain death, is due partly to the devotion of my family and friends, who simply would not let me go, partly to my own determination to survive but overwhelmingly to the skill of the best surgeons, the best equipped intensive care units, the most able nurses and most committed ancillary staff that any gravely ill person could wish for. So your Lordships will not be surprised to know that I am a passionate supporter of the NHS and proud to serve in a Government who are similarly passionate about it and who have shown their commitment by the resources they have put in and by constantly improving their performance.

Some among us remember the National Health Service under the previous Government, and were unfortunate enough to be patients under it. We remember the crumbling hospitals, the puddles of water in the corridors, the curtains that did not meet around the bed, people waiting well over 18 months—although that was the pledge—for surgery, and that there was almost no connection between social, primary and secondary care.

NHS budgets have doubled since 1997 and will almost have tripled by 2008. The money has, as we have heard, employed more doctors and nurses, built new hospitals and primary care services, and totally transformed patient care. Of course, we have heard a great deal about deficits but let us remember that the net deficit was in fact only 1 per cent of the total income, and we are now returning it to balance with the latest figures predicting a surplus—although I know that the noble Lord, Lord James, would cast doubt on that.

This has not been easy. Like any long-standing institution, the most difficult thing to change is the culture, especially when it involves getting to grips with long-standing and deep-rooted financial challenges and addressing the fact that, though we are one NHS and support all the different parts, we cannot reward inefficiency or allow high performing areas to subsidise those whose performance must be improved. Moreover, we should remember that there is more openness and transparency about the publication of NHS accounts at all levels under this Government than we have ever known. Meanwhile, patient care continues to improve.

As noble Lords will remember, waiting lists are at a record low. In 1997, there were 1.1 million people waiting for treatment—some, as I have said, for well over 18 months. In November 2006 the figure was 769,000, the lowest number ever, with most treated in an average of seven weeks. The NHS is on track to deliver a reduction in deaths from cardiovascular disease, having saved almost 150,000 lives since 1996. Deaths from cancer in those under 75 fell by 16 per cent between 1996 and 2004, saving an estimated 50,000 lives. More people diagnosed with cancer begin their treatment within one month of diagnosis than ever before. Premature deaths from coronary heart disease have fallen by almost 36 per cent, and the estimated number of lives saved through the use of statins has tripled: 9,700 in 2005. The latest accident and emergency statistics show that patients are continuing to be seen and treated in line with targets. All of that is without the peripheral strides made in things like introducing the five-a-day regime, the fruit in schools regime and, as my noble friend Lord Morris has mentioned, the ban on smoking.

We must also remember the context in which these huge improvements are being made. We have an ageing population, whose illnesses are increasingly complex; treatments which were once pioneering have become commonplace; new drugs are constantly being developed; access to technology has transformed all our lives; above all, patients are no longer content to be passive recipients of whatever the NHS is prepared to provide but are increasingly well informed and demanding.

It is quite possible that, of the countless improvements the Government have made and can be proud of, one of the most important is the recognition that the most important resource available to the NHS is its patients, as my noble friend Lord Morris mentioned. Welcome as the NHS was in 1948, no one could pretend that it put the needs of patients first. That continued until a Labour Government were willing to say boldly and firmly, against a lot of opposition, that the interests of patients must come before those of others—consultants, doctors, nurses or administrators. Their commitment to patient and public involvement, to shaping services around the individual patient, his or her family and carers, will in the end bring about more cultural change than anything else. That is encapsulated for me in my different experiences of the NHS, 14 years apart. I make no apology for sharing this personal experience with your Lordships.

In the mid-1980s I was diagnosed, suddenly and shockingly, with a malignant tumour, for which I needed emergency surgery. Shortly after coming around from the anaesthetic, I was visited by a consultant who said that I was not to worry because 40 per cent of his patients made a complete recovery. I tried to keep calm and asked what I could do to ensure that I was not among the 60 per cent of patients who died. The consultant leaned towards me and said, “There’s nothing you can do, my dear. Just leave it all to us”. I felt that I got better despite him.

Let me compare that with my treatment during a seven-month stay in hospital, five years into a Labour Government. I can honestly say that no treatment or procedure was carried out and no drug given to me without someone consulting me about how I felt about it and telling me how I could contribute. It could be said that that was because of my position—they do not get many baronesses on a public ward—but it happened to every other patient on the ward, including those for whom English was a second language and who were much less articulate than I. When I was not conscious, the consultation took place with my family. That is a huge turnaround in the culture and attitudes of the NHS.

When you aim to provide a universal service, free at the point of use, you will never be able to get it totally right. Massive investment, even of the scale we have seen, cannot rectify decades of underfunding; professional attitudes may take a generation, or even longer, to change completely. There will always be more to do, but a huge amount has been done, and the result is an improved, more efficient and, most importantly, more patient-centred health service, in which the whole population, like me, can have confidence and trust.

My Lords, I, too, am grateful to my noble friend Lord James of Blackheath for initiating this debate. Although I was once a Whip for the Department of Health and Social Security when my noble friend Lord Fowler was Secretary of State, this is not a subject on which I usually speak, thus I venture forth a little more gingerly than usual.

I wish to draw your Lordships’ attention to pathology, in particular the cost of pathology testing and the savings that could be made in this field of medicine. My information comes from the Durham and Bishop Auckland hospitals, where considerable research has been undertaken, including in the Prime Minister’s constituency. Although the problems of demand control are acknowledged by the Department of Health and the Pathology Modernisation Steering Group, there is no organised structure to address the problem and no evidence that the department is grasping the nettle.

Large inequalities exist in testing activity between general practices and between hospital laboratories. These are not explained by patient or practice factors such as the number of practitioners, age or sex distribution of the patient list or deprivation index. It is a failing in the healthcare system due to repetition of tests by GPs and hospitals. This is due to IT limitations and poor technology; uncertainty about best practice for repeating monitoring tests in chronic illness; the absence of any best practice standards or evidence of test levels; the increase in the complexity of tests; and increased patient expectation from tests, a point made by the noble Baroness, Lady Pitkeathley.

The inappropriate use of tests leads to unnecessary expenditure and opportunity costs, avoidable further investigation and referrals. Conversely, the underuse of certain tests leaves patients with suboptimal management and potentially missed diagnosis. The noble Lord, Lord Bradley, referred to this with regard to his hospital, particularly the cancer patients referred there who did not have the right information with them. That is a very good example of how what I am recommending could change people’s lives and save money.

The expenditure on pathology in the NHS was estimated by Bandolier in 1998 at £1.6 billion; this year the figure is more like £1.8 billion. While demand for pathology tests has been rising at about 10 per cent per annum, the NHS has been lucky that some of the marginal costs, such as that of reagents and tubes, has fallen, thus masking the potential problem. However, recent tendering experience indicates that this fall is slowing significantly and could even be reversing. Marginal costs make up about 80 per cent of non-staff costs, which make up about 50 per cent of the budget, so they are a very important component, at roughly 40 per cent. Thus, with demand continuing to rise and costs stable, let alone rising, there is going to be a marked increase in the cost of pathology testing in the immediate future. Under the present haphazard system, this increase can be paid for only by a substantial rise in the budget, which is unlikely, or by reducing clinical activity.

Equally important are fixed costs such as capital and staff/opportunity costs, which, if released through better management, can be used for alternative purposes. Most labs now operate on tight staffing numbers, with the result that little capacity remains to increase output without incurring step-up staff costs. To release some of those hard-pressed people to quality aspects of laboratory practice would enable work to be done that is not undertaken at present or that requires extra staff.

The Royal College of Pathologists has highlighted the problem of pathology services struggling under the current workload. There is no doubt that a co-ordinated plan for better management and education will lead to superior clinical practice and improved application of appropriate treatment.

The Government are considering encouraging the private sector to become involved in the simpler clinical cases or routine pathology tests, leaving the NHS units with the more complicated case mix. Although that will lead to some savings, they will be limited as the acute service facility must be maintained. This will raise unit costs and make the NHS appear more costly. The private sector provides little or no acute services so it will be saved those costs. Furthermore, it is not in the private sector’s interests, however well meaning it might be, to reduce the number of tests, so the route the Government are considering is probably the worst way in which to use the private sector. Another cost the Government need to consider is training. This needs to be maintained and increased to meet the rising demand, but the NHS is the only facility providing it.

All these arguments lead to one conclusion: there is not only a good reason but also an urgency to take action now. Estimates of inappropriate pathology testing range from more than 15 per cent to more than 50 per cent of tests depending on the study. What does the Minister think the figure is and why? If one takes a median of, let us say, 30 per cent, which is acknowledged by both Bandolier and Health Trends, will he agree with me that this figure not only exceeds that of unnecessary medical procedures elsewhere in the NHS, prescribing or surgery, but also varies enormously between general practices?

Without question, there is a prima facie case for a system of demand control of pathology tests. A lot of work has been undertaken in the past seven years to analyse this and estimate the savings. Of course, in any case such as this, much depends on the data used and assumptions made, but after five years of development work it is estimated that, with a web-based management system of demand control as introduced in Bishop Auckland and Durham hospitals, savings of £30 million to £180 million could easily be achieved. That is equivalent to between 1.7 per cent and 10 per cent of this year’s health expenditure. The best example that I have been given, which allows for a rigorous demand control regime, is £540 million, which could reduce costs by one third. This would save more than 1 per cent of the NHS budget. Whatever way one looks at it, there is huge potential here, and it is an area in which the Government should take action.

Is the Minister aware that local primary healthcare trusts are extremely keen to obtain support from the Government in implementing on a wider scale the improved practices that have been pioneered? There is the added advantage that any savings made by a PCT can be kept and reused by that trust. Following the publication of the Carter report, what action are the Government proposing in this area? What proportion of inappropriate testing does the Minister think can be abolished? Most importantly, when will the Government start to grip this problem and opportunity?

My Lords, I am most grateful to my noble friend Lord James. I found it very difficult to understand his objectives. He reminded me of one of those surgeons that you see on television, scalpel in hand going to the gut of the matter, but one is not sure whether he is a pathologist or trying to perform some elective surgery.

If we are talking about money, I am competent to some extent to speak about these things. For some strange reason, the health sector has become more and more interesting to me during the past few years, because I knew so little about it. It is extraordinarily valuable to meet someone who assumes that you know something about a subject, when you know nothing—I have no knowledge of medical terms.

I shall approach today’s subject differently. The National Health Service is an asset. Healthcare accounts for 10 per cent of GDP worldwide. We are beginning to see a shift in the political balance whereby one side does not believe that healthcare should be public and the other is not sure whether other people should be allowed in from the outside. My own experience is unfortunately rather strange. I have just passed the average age of your Lordships' House; I have outlived every male member of my family for 750 years; I have never been in hospital; and I have not spent a day in bed. However, your Lordships could not count the number of people whom I have taken to hospitals and the number of ways in which I have been told to cure particular diseases and respond to disasters. I warn your Lordships that, next year, there will be 13 moons in the month—I had always thought that it was called l’année bisexuelle, but it is l’année bisextielle—so they must be careful.

There are cures for almost everything. My favourite for this month is: if you step on a sea urchin, do not go to doctor but pee in a bucket and put your foot in it. The ammonia in your pee will dissolve it, and then you can eat it. Cures and medicine are strange things.

I shall talk about death, because death is the end and we are working backwards. We are of course living longer. The average age of death for a man is 76 and, for a woman, 81—it could be higher. The average age in your Lordships’ House is 84.5 and rising. Within the age ranges, the older group is perhaps the most important in the health sector. There are approximately 14.2 million people in this country over the age of 60. After the age of 60, the life expectancy for a man is 20.6 years and, for a woman, 23.6 years. Why do men marry younger women? Surely we should all work backwards and marry someone three years older or three years younger—it does not make any difference. Age becomes important, because at age 60 a man has a life expectancy of 20 years and a woman a life expectancy of 23 years, and you are entering a period of your life when, as a man, you will have nine years of ill health and, as a woman, 10.3 years. Moreover, as a man you will have disabilities for 15 years and, as a woman, it will be for 17 years. Therefore, the biggest single market for healthcare in almost any country is the elderly. By chance, because of inflation worldwide and investment, they tend to be the richest members of the nation in terms of assets but some of the poorest in terms of income.

In the National Health Service or any health service, savings can be made and issues tackled if you can to some extent work backwards. In most of my interventions, I have asked about and concentrated on waiting times. The noble Lord, Lord Hunt of Kings Heath, was kind enough to answer my previous Written Question very quickly, but he did not give a proper and full Answer because he was unable so to do. Naturally, therefore, I spoke only yesterday with his good friend John Appleby of the King’s Fund, who is meant to be the best expert on waiting lists. He and I, coming from different points of view, agreed that the mean waiting time from start to finish—when one reaches hospital—is probably six months. It has of course dropped. Noble Lords opposite will take 1997 as the beginning of their calculation period, whereas health service papers usually start at 1971. Some fantastic improvements have been made since 1971. Waiting lists have shortened, but 733,000 people are still waiting. Waiting times for cancer, which, according to 2005 figures, kills 228,000 people a year, have come down quite dramatically, and the ability to fast-track is amazing. Death rates for cancer, other than for prostate cancer, have fallen steadily over time, but diagnosis is difficult. Rates for the bigger killer, known as circulatory diseases, have come down pretty dramatically—I will not give noble Lords the number in thousands—and everybody can take credit for that, because hardly anyone was working full time in the health service in 1971.

One of the key factors in this area is time. Time is money; the longer the delay in seeing and treating a patient, the more costly it will be for the health service. If there is an inherent disease therein, it will be worse, and more hospitalisation and time will be needed. I have from time to time declared my interest in health. At the moment, I am interested in absolutely anything new in the health service and terribly keen to find the money or investors for it.

I shall compare this country, as I have done in the past, with Germany and France. Perhaps the noble Lord, Lord Hunt of Kings Heath, will answer the question with which I shall end: why? We have 192,000 hospital beds in this country and 60 million people. Germany and France together have 142 million people and 900,000 beds. However, for our 192,000 beds, we employ 1.2 million people and they employ fewer people than that. Is it that we are overemployed or underactive, or does the system that we have introduced require so much bureaucracy and delay that it takes six months to get to the point?

In most other countries, it is the GP or doctor who sends someone off for screening, a scan or a diagnosis straightaway, and probably within 24 hours an MRI scan, a CT scan, a blood test and everything else will be done by the GP. If the radiologist has found something wrong, the patient will be sent off to the relevant specialist and operations or work will happen very quickly. Could diagnosis and screening not be in the hands of a GP in England and consultants allowed more time to operate? The delay between seeing a senior consultant, after seeing a GP, getting an appointment for a scan and getting the results back can be 10 to 12 weeks. I should like to talk separately with the noble Lord, Lord Hunt of Kings Heath, about this, because it is particularly important.

Within the asset that we have, what is the value of the real estate? I have never approved of PFI because the investor has a very sound reliable covenant from a very sound reliable body over a period, and I still regard it as a mortgage for the future. With the capital cost of funding those assets comes the problem of where the revenue stream is that is sufficient to permit the hospitals to undertake operations. Here I have another thought. If 23 per cent of the population are over 60 and they have wealth, when they reach 75 their pension is converted into an annuity. Why cannot we look at the taxation methods by which some people at a certain age may well be able to make a contribution to buy future health protection and care for themselves, even if it comes out of their estate duty?

The Government seem to take money away from people when they get older and older and their income gets lower and lower, although I do not think that they are doing that intentionally. I have the highest regard possible for medical professionals in this country, but every consultant I know works far fewer hours on operations in hospitals than do his continental rivals. And why do we need to keep importing people? When I was president of the British Exporters’ Association and on the British Overseas Trade Board one of the main areas that we concentrated on was the invisible export of our health services and the export of our equipment, when we were at the forefront of providing most modern equipment.

I have a few seconds in which to say that other things are possible now. In ophthalmic surgery, now that everyone can have laser surgery on their eyes, ophthalmists are probably trying to get more business by saying that people need it earlier. Previously, eye tests were complicated; now people try to sell you them. You wonder whether, with the cost of hearing aids, opticians might be able to do ear tests.

So many thoughts have come out of all this, and I am very happy about the NHS’s prospects now that we have got rid of the idea that there are two sides of the fence. The NHS is a national asset and it could have a higher value than it has today.

My Lords, the noble Lord, Lord Selsdon, always makes extremely interesting speeches, and I am sure that we are grateful to him, not least for those international comparisons that he made in showing how well resourced and run are the health service equivalents in France and Germany. Because of the contributions of other noble Lords today, it has been an interesting debate, loaded with a lot of information, statistics and ideas from extremely talented and well informed speakers. I, too, add my thanks to the noble Lord, Lord James, for initiating it.

I am very glad of this opportunity to take part from these Benches, not least because of our traditional staunch support for the National Health Service over the years. Should one live too much in the past? No, but if we have long enough memories it is worth recalling that back in 1948 the Tories, in contrast to now, were traditionally bitterly opposed to the creation of the National Health Service and anxious to ensure that the doctors at that stage had rather too favourable a deal for the commencement of the service. I exempt the noble Lord, Lord Fowler, from any connection with those long historical and distant events, and pay tribute to him as having been an outstanding Secretary of State for Health. He concentrated on a particular theme, which was one of his great and outstanding campaigns, and we thank him for that. I agreed with him in his exhortation that we should be balanced on these matters and speak in a more equilibrated way about the National Health Service, its pluses and minuses.

The noble Baroness, Lady Thatcher, then Mrs Thatcher, as Prime Minister famously claimed that the National Health Service would be safe in Tory hands. However, even as that was uttered as an assertion that reassured many members of the public, the Tories had already started to undermine the basic stability and strength of our unique National Health Service with a foolish internal market system that looked as if it had been designed by eccentric right-wing economists and perhaps accountants lurking in caves in the hills. What they really liked deep down was a sinkhole service with a luxurious private sector alongside chipping away at its reputation as an amazing universal service of high quality. So let us keep these matters in perspective.

We are told that there is severe cash crisis in the service at present, which has been much discussed today. However, that does not detract from the basic reality, even if one accepts that description. The vast majority of transactions in the health service are carried out effectively and well for the patients and the vast majority of those “customers”—to use the trendy modern word—are very satisfied with the service levels. That is, they are satisfied as far as we know, because most people who receive a good service do not then ring the press and tell them all about it; that is understandable. However, from time to time at the margin the service goes wrong, and there are now deficits in too many of the trust entities. But those are tiny amounts of money, even if they are important as deficits and even if they seem large in newspaper headlines. They are trivial, for example, in comparison with the huge amounts of money wasted foolishly and illegally in military adventures in Iraq by this Government and the colossal waste of human and financial resources in this shaming continuing war in Iraq. We opposed it right from the beginning, I am proud to say, and we urge the withdrawal of British forces by October this year.

On the deficit, I believe that the most recent figure quoted in the Select Committee report and by Ministers was around 0.7 per cent of the total budget figures, which is hardly a huge enough figure for us to get into a frenzied hysteria over accounting correctness. Furthermore, the aim is to return to a financial balance in 2006-07 and to a surplus of £250 million subsequently—which is an even smaller percentage, but it would at least be a surplus if it could be achieved, and I wish the Government well in trying to do that.

No organisation either public or private should be exempt from the need for strict financial discipline and efficient management as well as full accountability and visibility both to its stakeholders in the direct and wider sense and to Parliament and the Department of Health. The criteria for a giant public behemoth such as the NHS should be the same as for other entities, not more severe because of latent prejudice against the National Health Service officials or staff, most of whom are hard-working, conscientious and bewildered by some of the Government’s suggestion about reform and modernisation.

The report at the end of February from the Public Accounts Committee in the other place did an excellent job in highlighting some of the salient problems. With the rigorousness of that committee, I think that I prefer its conclusions to those of the noble Lord, Lord James. We on these Benches emphasise the need to study all the recommendations and suggestions clearly. We are grateful for the work put in by two of our own colleagues on the committee and the other members, aided and abetted as they were by the high-quality input of the Comptroller and Auditor-General. The committee concluded that the reasons for operating deficits in different NHS trusts were varied.

Our preference on these Benches has been to avoid hasty and, perhaps, ill thought-out cuts if there is a good prospect of a return to balance and more over a reasonable period. I hope that the Minister will assure us that that is the Government’s view. Over a longer time frame, measures to produce greater financial stability as well as efficiency measures on a greater scale are still required in this unique and special service. There has been constant tinkering by the department to get centrally mandated and often gimmicky reforms in place to assuage the tabloid comics that masquerade as newspapers, with their lurid stories, just as there has been endless tinkering with schools. The same mistakes have been made by Ministers in the Labour Government. Meddling by politicians and officials who do not know much about it should be resisted.

Long-term strategic planning is often inadequate, especially in terms of work for specification changes and new building programmes. We also favour creating smaller blocks or units within the monolith so that local people participate in deciding where the money goes in a much more scientific and measured way. This party says to the Government: “Stop meddling so much in a way that causes morale either to fall sharply or even collapse in some trusts. Let the trusts themselves devise more efficient accountability and oversight steps within the regular management activity based on their own experiences, plus access to new capital expenditure funds”.

The department surely needs to stop meddling in the sense of chucking valuable and scarce money at silly experimental wheezes which otherwise can go into front-line care. Everybody in this wicked world needs sharp accountants; don’t we all? The more desiccated, the better. Did I hear someone say, “What a pity”? We accept that as a logical proposition but they have to be part of the picture, not the total exclusion zone on these matters that they sometimes want to be. It is necessary for them to focus on these matters if they have the right sense of proportion in making suggestions. It would not be right for them to advise against the background of reducing the silly and superficial mania for market forces and balance-sheet obsessiveness for its own sake, just because Ministers have perhaps recently attended a trendy seminar on so-called NHS reform. The private medical lobbies that organise those really want greater financial manipulation for shareholders with more and more private inputs into the health service.

Letting hospitals go bust is not a good approach—I deliberately put that mildly—and I hope that is not the Government’s intention. Nor is large scale redundancies in what is inevitably a people business. It is bound to be so in future, too. We have to accept this labour-intensive background as a reality.

I ask the Government to stop this horrendous nagging of front-line staff which deters quality people from even applying, although nowadays, as we know, the recruitment opportunities are sadly much more limited. We certainly need also to develop community hospitals and the widening of the service and clinical care range they can provide. We believe that modernisation of the financial and accounting procedures can definitely go hand in hand with the reality that the National Health Service, a unique one-off jewel in the crown of this country—we need to remember that; frequently the envy of the world, particularly of other large-population countries of 60 million people and more—is a public sector socio-humanitarian medical service paid directly from taxpayers’ resources for the most part, with a significant stake in third-party contract returns becoming a more important factor at the margin in the future. I am not referring to PFI per se.

I strongly support the recommendations in the Public Accounts Committee report, especially Nos. 1 and 3. If I had time, I would quote at length from paragraphs 4 and 5 of its conclusions and recommendations, which make serious and important reading for accountants and others. The report reminded us starkly that the department was able to provide information on closures, layoffs, redundancies and stalled financial investment programmes only after—I stress “after”—the evidence-taking hearing. That is bizarre when one thinks about it. I should be grateful if the Minister could refer to it, if he has time. Perhaps the Department of Health needs more reform than the National Health Service. Some people consider that is the case. However, it should not be split into two like the Home Office.

We need therefore to keep these dramas in severe perspective and not worry too much about the frenzied battle of circulation between the tabloids producing lurid stories when things often go badly wrong, with patients genuinely suffering and being frustrated, and sometimes much worse. That probably occurs in a small minority of cases so far as we can estimate.

Most of the deficits occur more than once in the same trusts, which offers interesting lessons. It is perverse and ominous and needs special attention, which I hope the Government will give. As has been said several times in this debate, the figures are worse because of the pay deals that the department had not costed properly. Those constitute very large amounts of money. Both Houses need to be reassured that the individual financial recovery plans are realistic, allowing time if necessary for them to be fulfilled completely. The present day accounting rules seem out of date and excessively punishing and severe.

Let us also all decide once and for all to abandon the foolish culture of permanent revolution in the National Health Service—a great device for appeasing ignorant right-wing journalists and their political pals who have often never even been inside an NHS hospital. As one of my colleagues in the mid-March debate in the Commons said, the way things are going we shall have three-week budgets in an already demoralised service just because some self-important special adviser in No. 10 or among the ministerial departmental advisers wants some policy spin at short notice.

In that same debate, Steve Webb gave some good examples of the many functional disutilities that now harass National Health Service managers and staffers on the spot because of this childish hyperbolic reform frenzy, instead of a steady long-term modernisation and improvement programme which helps patients and enables staff and ancillaries to enjoy their work more. What a sinful suggestion I am making—to say that that would be a good thing. I hope that the Daily Mail and the Sun do not hear what I am saying.

Mr David Nicholson, the chief executive of the NHS, in his complex evidence to Mr. Edward Leigh’s important committee, conceded finally that 0.5 per cent might be all right and a good figure to aim for as a surplus over all. These figures are very much at the margin. I hope that the Government will keep that in perspective.

My Lords, in his comparatively short time in your Lordships’ House my noble friend Lord James has revealed himself to be a man of exceptional forensic and analytical skills, which, combined with his terrier-like qualities, make him a formidable man with whom to deal across the Chamber. I congratulate him on the remarkable filleting job which he has performed on the NHS accounts and cannot say that I envy the Minister having to reply to him. However, a reply will, I trust, be forthcoming.

Like my noble friend Lady Shephard, I am struck by the ironies permeating the NHS today. Unprecedented sums of money are going in, yet there are extraordinary financial constraints at almost every level of the organisation, leading to cuts in services to patients. The pay of doctors and nurses is at an all-time high, yet morale among the professional workforce is at rock bottom. It is something approaching a political tragedy, because nobody doubts the Government’s good intentions for the NHS. What we find ourselves doubting is their competence, which is the point at which, sadly for them, the sympathy of the average voter tends to dwindle with remarkable rapidity. I shall highlight several areas of the Government’s record which I believe show why those doubts are well founded.

In recent months, the Health Select Committee and the department’s own chief economic adviser have attempted to answer the question why NHS deficits are occurring at trust level. Over the past six years, we have seen a steadily worsening financial position in an increasing number of NHS organisations. The deficits have not just suddenly happened. Many of us have felt instinctively that the degree to which individual PCTs around the country find themselves struggling to make ends meet is not so much a function of weak local management as of forces largely beyond their control.

We should consider the funding formula. The chief economic adviser appeared to be at pains to absolve the funding formula of any major blame for the difficulties experienced by PCTs but his arguments for doing so are threadbare. The Select Committee was quite clear that the funding formula has a great deal to do with the problem of deficits. It is quite extraordinary that Islington PCT should receive a per capita allocation of £1,824, yet Melton, Rutland and Harborough PCT should receive half that amount, or just over. How can a trust possibly survive on half the funding of another trust? I have said before, and will say again, that the Government need to look afresh at the funding formula to give greater emphasis to the burden of disease. In that way, older populations in particular, where the burden of disease is higher, will receive a fairer share of resources. I say to my noble friend Lady Shephard that the Government also need to look afresh at the extent to which the rural nature of a PCT imposes unavoidable costs which do not arise in urban areas.

The Select Committee also pointed to poor central management. The Government are great ones for loading the blame for inadequate financial control on to local managers, but we know that organisational change in the NHS has led to massive disruption. When local managers find the goalposts being changed by Richmond House midway through a year, when at short notice they are told to meet new targets, and when money is suddenly removed from one trust to feed another, financial control becomes exceedingly difficult.

That difficulty is compounded by uncosted or badly costed centrally driven initiatives. Only in the past week, we have seen the report from the NAO about the impact of the new consultants’ contract. The report makes heavy criticism of the department, and by implication Ministers, for the way in which the deal was negotiated in 2002. At the time, we were told by Alan Milburn that it was,

“a something for something deal, where consultants earn more, but only if they do more for NHS patients”.

Trusts were encouraged to roll it out, but the NAO found that there was no emphasis on productivity in the contract at all. In fact, the Government made completely wrong assumptions about what consultants were already doing in the NHS and based the contract on those false premises. The purpose of the contract was not properly explained to trusts, and finance managers were not in the driving seat. As a result, consultants are now being paid more for doing the same or less work. The conclusion of the NAO is that the contract is not yet delivering value for money or a better level of services for patients.

Some commentators have pointed to wasteful expenditure in the NHS as a part cause of its troubles. I am not going to get into the weeds of that debate, but I will mention one rather wonderful comment on waste made by the department’s chief economic adviser. He does not dispute that it exists, but he discounts it. He says, about wasteful expenditure:

“Had this expenditure not been undertaken, some other expenditure, hopefully less wasteful would have replaced it, and with identical consequences for the budget”.

That is pure sophistry. What organisation that is losing money and that manages to eliminate wasteful expenditure would continue to spend money that it does not have? What loss-making business that had succeeded in becoming more efficient by cutting out cost would deliberately impose different costs on itself elsewhere? The argument is most extraordinary.

To be more generous to the chief economic adviser, he makes some very cogent comments on workforce planning. The trouble with workforce planning is that it turns into targets. Centrally imposed workforce targets, he finds, prejudice the optimal mix of inputs at local level and, as a result, contribute to,

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

It would be useful to hear from the Minister whether the Government are now considering abandoning workforce input targets, particularly since the department’s own pay and workforce strategy predicts an oversupply of consultants, therapists and scientists from this year onwards.

Hearing the chief economic adviser describe the productivity changes in the NHS as “disappointingly flat” implies one thing. It implies that the extra resources being poured into the health service have been used increasingly unproductively relative to the previous trend of financial growth. That is quite a severe indictment. It is all the more sobering to read his conclusion that, alongside the low improvement in productivity, no less than 85 per cent of the extra resources have been absorbed in staffing costs. It is perhaps no surprise that the Select Committee in another place concluded last month that the Government’s handling of the NHS workforce has been a “disastrous failure” and the expansion of the NHS workforce “reckless and uncontrolled”.

Any business knows that success and delivering on objectives depend on having good financial control. The PAC reported last month on NHS financial management. Some of the recommendations that it makes cast a pretty dismal light on the ability of the DoH to performance manage the health service. Agenda for Change, the GP contract and the consultants’ contract between them cost £560 million more than was anticipated. The department says that the committee needs to analyse precisely why that happened. How can lessons be learnt for the future?

The department does not routinely collect information on local structuring and staffing, which renders it unable to take an informed and rounded view of how the NHS as a whole is performing against its objectives. The accounts of NHS bodies are not sufficiently transparent. They do not show clearly where their income comes from, which is one of the main themes of my noble friend Lord James. Many trusts do not produce management accounts and cashflows at sufficiently regular intervals, nor do they interpret properly the figures that they do produce. Why does not the department insist that the trusts do so?

How can financial balance in the health service be brought about? It is not by sending in turnaround teams; it is by following the advice of the noble Baroness, Lady Murphy. The PAC recommends that to bring about financial balance, there needs to be a partnership between financial managers and clinicians, because only by doing that can resources be allocated efficiently and effectively. To me, that makes complete sense. However, one wonders how such a cultural shift is achievable when, according to a recent poll, 69 per cent of doctors would not personally recommend a career in medicine. That echoes another poll of doctors in February, in which half the respondents said that they were planning early retirement or emigration. Those are depressing and indeed tragic figures. If so many doctors feel demoralised and disengaged from the service in which they work, there is clearly an awful lot to do before a constructive partnership of the sort envisaged by the PAC is going to be possible. The lessons for putting things right are there to be learnt; I very much hope that the Government and the department are ready and able to learn them.

My Lords, I am sure that we are all indebted to the noble Lord, Lord James of Blackheath, for his very interesting speech in introducing this debate. I look forward to responding to some of the points that he raised, although I suspect that I may have to write to him on a number of others and share that with noble Lords.

Clearly, the financial deficit that the health service faced in the past financial year has been a matter of great interest and concern to the Government. The good news is that we are on course to deliver a balanced financial position at the end of 2006-07. Although I noted the comments of the noble Lord, Lord Dykes, in relation to what he described as overly decisive action leading to instability, it was essential to get the health service back on an even keel in relation to its resources so that it can start the new financial year in a robust position. I say to the noble Lord, Lord James, that while I do not recognise the substance of his criticisms, I accept that the need for rigour and transparency in relation to the money used by the health service is absolutely essential. I agree with the comments made by many noble Lords on that area. I also agree with the noble Lord, Lord Fowler, that we must ensure that we spend wisely; every pound must count.

The noble Earl, Lord Howe, was rather pessimistic about that and about the Government’s stewardship. It is a legitimate question as to how well the additional resources being used in the NHS are being spent. My noble friends Lord Haskel, Lady Pitkeathley and Lord Morris were absolutely right to list some of the many achievements that have occurred in the health service in the past few years. We have more than 30,000 more doctors and about 80,000 more nurses. Those represent substantial gains in the quality of service that can be given. Waiting times are at their lowest ever levels.

In 1997, there was a patients’ charter that had a target. Yes, the previous Government had a target of 18 months’ maximum wait for in-patient treatment. Yet thousands of people were not being treated within that time. Now the vast majority of patients are seen within six months. Our aim is that, by the end of 2008, all patients will be treated within 18 weeks of referral by their GPs. When one thinks of the history of the NHS, it is an extraordinary achievement to have virtually eradicated waiting.

On cancer services, the noble Baroness, Lady Verma, doubted the impact and benefit of reducing waiting times. More than 99 per cent of patients with a suspected cancer are seen by a specialist within two weeks of being referred by their GP. We have increased the number of cancer specialists by 45.6 per cent since 1997. My noble friend Lord Morris mentioned the more responsive service and the fact that he can call his GP surgery at 8 am and have a call back from a GP within the hour and a consultation over the telephone. We are seeing a transformation in our National Health Service and we must be confident that the programme that the Government have put into place will produce even more improvements.

The noble Lord, Lord Dykes, was absolutely right to say that the noble Baroness, Lady Verma, passed over the inheritance that her Government left behind—crumbling hospitals, long waiting lists and drastically reduced training places. In 1993 the number of nurse training places was reduced to 13,000. No wonder we had an acute shortage of staff when we came into office in 1997. The noble Baroness said that the number of beds has been drastically reduced. Yes, the bed numbers have come down, but the statistics show that bed numbers have been reducing since 1948 because we are treating patients differently; there is now much faster treatment, which is better for patients, and it is often carried out in day-case environments. That is why the number of beds is being reduced. The annual staff census, published this morning, shows that there has been a reduction in the number of managers, while the whole-time equivalent commitment of doctors and nurses has increased.

The noble Baroness, Lady Shephard, and the noble Earl, Lord Howe, raised the issue of consultant and GP contracts. There have been criticisms and some teething issues regarding the introduction of those contracts, but it is essential to point out that they are unique in any healthcare system in that they relate money paid to actual clinical services performed. Yes, we are learning lessons, but the targets for QAF payments for GPs have been raised, they are open to negotiation on a regular basis and they are about incentivising GPs to improve access and to spend more time with their patients. It is the same for consultants, and their contracts ensure that an annual work plan is agreed with the local employer. There may be issues regarding the preparedness of some employers when the contracts were introduced, but this is the foundation on which to work in the future and the employers are much more able to influence what their consultants do. I would say to the noble Lord, Lord Selsdon, that that enables those clinicians to spend more time with their patients.

On the position of Norfolk, I am happy to write to the noble Baroness, Lady Shephard, with details. These are matters to be determined locally rather than by Ministers, but my understanding is that the PCT did not apply to the fund because, as the noble Baroness said, the future of those community hospitals was subject to consultation; but I understand that they plan to apply in the second wave.

My Lords, I am most grateful to the Minister for replying in some detail on that matter. I just hope that the second wave will not be too late. I hope that he does not think that that is churlish, and perhaps he might address that point in the letter that he kindly offered to send me.

My Lords, I am happy to do that. I should stress that, in the end, the future of those hospitals is a matter for local determination. It is up to the PCT to take that into account when applying in the second wave, but I am happy to respond with further details.

On resource allocation, both in relation to rurality issues and the more general issues raised by the noble Earl, Lord Howe, he and the noble Baroness will know that resource allocation formulae are always subjected to intensive debate and it often depends on where you live as to whether you think that they are right or not. The issue is subject to regular review. It is being reviewed at the moment and I will ensure that the comments of both noble Lords are passed to the team that is undertaking the review.

The noble Earl, Lord Caithness, made some interesting points on pathology services. I note his comments. An independent review was carried out by the noble Lord, Lord Carter. We will take forward that work. I understand what the noble Earl said about marginal costs and I shall ensure that officials consider that point. I understand also his point about demand control. The pathology modernisation programme involved projects that were designed to facilitate improved pathology testing. I very much take to heart the noble Earl’s points.

The noble Lord, Lord Selsdon, made some interesting comments. I agree with him on the demographic challenge and that longer delays make it more costly for patients; speedy treatment is better for them in all sorts of ways in terms of outcomes. It is better, too, for the health service for it to be organised in the way that he suggested.

On Germany and France, we must be careful that we compare like with like. Those countries have more doctors than us, although there may be contrasts as regards general staffing. The NHS is an extraordinarily comprehensive service and that may account for some differences. However, it is an interesting issue. We have not yet reached the GDP spend of Germany and France, but as we approach it, it will be interesting to see whether we can learn lessons from each other on improving our performance.

My noble friend Lord Bradley made an important speech on the experience of Manchester. I visited the Manchester Royal Infirmary on Monday and I echo his thoughts. He is right on the LIFT programmes and on cancer treatment. I understand the issue of the 62-day target, which is being looked at by our cancer tsar at this very moment.

The noble Lord, Lord Fowler, is assiduous in raising the issue of investment in sexual health and he has raised it again. We debated it recently and I acknowledge his outstanding work of 21 years ago and the impact of that campaign. I know that there is an argument regarding general national campaigns versus targeted campaigns. What is not in doubt is that there should be campaigns. I know that there is an issue of funding. There is no question that PCTs had to make some difficult decisions in the past financial year. I do not agree with the noble Lord on ring-fencing. I understand why he proposes it, but we must trust the local primary care trusts. It is, however, important that strategic health authorities monitor what PCTs are doing in the area of sexual health and I do not doubt that it is an important matter to prioritise at a local level.

On finance and financial deficits, which is what the debate was billed to be about, action had to be taken. I say to the noble Lord, Lord Dykes, that, at the end of 2004-05, we were facing a net deficit of £221 million. That increased to £547 million by the time of the 2005-06 final accounts. If that trend had continued on a straight line, we could have expected a net deficit of around £750 million. As I said, action had to be taken. There have been no large-scale redundancies. The current compulsory redundancy figure is 1,446.

When the noble Lord, Lord James, talked about the difficulty of finding one’s way through NHS finances, I sympathised. When I was director of the NHS Confederation, I found it very difficult to find my way through the annual financial announcements by the previous Government, although I usually found that the Government were not providing enough money to the health service, even under the stewardship of the noble Lord, Lord Fowler. I accept that we have to improve reporting, which must be transparent and understandable. My reaction to the speech of the noble Lord, Lord James, was, “My goodness, we have to help people to understand healthcare finance”. We have introduced quarterly financial reporting and we constantly review the reporting of our accountancy information in order to improve transparency. However, we believe that the financial position as reported properly reflects the finances of the NHS.

The north/south question was raised in relation to SHAs. Underspendings generated in one part of the country are not being transferred to SHAs in other parts of the country where there may be overspendings. Indeed, where there were any underspendings in 2006-07 in the north, that funding will be returned to those PCTs and SHAs in 2007-08. So it is not true to say that money will be moving from north to south. We have abolished the practice of revenue support and cash brokerage, the system by which NHS funding moved round the system in the past. The problem was that that could mask deficits. Locally, SHAs have agreed reserves with their PCTs to achieve financial balance within their area, but not by physically moving money around, as these reserves have to be repaid over a reasonable period by the PCT to the SHA that has provided the additional resource. We think that that is a much more sensible approach.

The £450 million contingency fund was not new money for the NHS. It was created locally by strategic health authorities, which identified savings against NHS central programme budget funding. The additional £100 million identified by SHAs between the quarter 2 and quarter 3 reports was the result of ongoing prudent management of expenditure. That was essentially a local matter led by the SHAs.

The noble Lord, Lord James, asked about the cost of the redundancy programme. We estimate that the total redundancy cost arising from the Commissioning a Patient-led NHS initiative is £325 million. These figures are difficult to estimate and will become firmer as new structures are put in place in SHAs, PCTs and ambulance trusts. However, the reconfiguration of PCTs and SHAs allows us to make savings, which can then be used for better patient care. The noble Lord was absolutely right that the £1 million shortfall is due to roundings. I will write to him on some of the other matters that he raised.

My noble friend Lord Haskel said that there were too many accountants. The official view of my department is that there are not too many accountants in the NHS. Of course, I accept what he says: the question is not how many accountants you have, but the quality of financial management. I pay tribute to the profession in the health service, but we know that the NHS has found it difficult to get enough people of the right calibre to be financial managers rather than—I do not say this in a pejorative sense—to take on the traditional bookkeeping role, as some NHS financial people have done in the past. I accept that we have to strengthen financial management. The appointment of the NHS financial controller in 2006-07 has greatly strengthened our strategy to improve the financial management and performance function of the NHS. We are committed to developing those skills so that NHS trusts, PCTs and SHAs have the highest-calibre advice on financial management. I say also to my noble friend Lord Haskel that, although there are issues around the impact of restructuring on staff and staff morale, the current structure of regions in the framework of SHAs and larger PCTs is the best way of getting the kind of expertise that we so much require.

The noble Baroness, Lady Murphy, put the argument very well when she said that, to get the right financial system, we have to ensure that clinicians are engaged and have much more ownership. I agree with her and I fully agree that the foundation trust regime is the right model. We want many more trusts to go through the rigorous process to become foundation trusts. I take this opportunity, as my noble friend Lord Bradley did, to praise Monitor for its rigorous approach. I have two brilliant foundation trusts in Birmingham, but they found the process of going through Monitor’s scrutiny very tough. That is hugely beneficial. For the first time, NHS organisations have been subject to the kind of scrutiny that the noble Lord, Lord James, argued should apply in general in the NHS. I am convinced that that is the right approach. Alongside payment by results, regulation, choice and competition, that is the way to get the most out of the money that we are putting into the health service.

I say to the noble Lord, Lord Dykes, and to the noble Earl, Lord Howe, that we have read and taken on board the PAC and Health Select Committee reports, which looked into these important areas. We have set out some key principles underlying the new financial regime: improved transparency; more consistency; greater independence for NHS organisations; and fairness, ensuring that all organisations carry the financial consequences and enjoy the financial benefits of the management decisions that they make.

This has been an excellent debate, which has raised some substantive points on financial management and the NHS as a whole. I will respond in more detail to the specific points raised by the noble Lord, but I am confident that, with the resources that we are putting into the health service, with the expertise, with the changes in the management structure and with payment by results, we will have an excellent foundation for achieving the kind of service in the NHS that my noble friend experienced and described so well and which we want all patients to receive.

My Lords, I am hugely grateful to everyone who has participated in this debate, especially for their close focus on the debate’s subject—resources and how they are deployed and, in particular, reported. I am especially grateful to the Minister for the good humour with which he confronted an oncoming steamroller and dealt with the points raised. I greatly appreciate his offer of a letter and further information, particularly because I have not yet heard him say that I was wrong on a single figure. I shall certainly look forward to his response.

I am also grateful to the Minister for indicating that he may now look towards amending the process of reporting. He has sympathised with those who have to understand what the present reporting package is meant to imply. I look forward to seeing that change and I hope that the debate has achieved its purpose.

I have two small personal points on which to conclude. First, I was extraordinarily grateful that only two of the 13 speakers said that they did not understand what I was talking about. That is only 15 per cent; I am used to a far higher percentage. Secondly, because people from the tabloids may be listening, I should say one other thing. I have not said today that I believe that the National Health Service is either insolvent or in financial difficulties. I have said that I cannot say that the National Health Service is not in financial difficulties and is solvent because the information that we get does not tell me that. I hope that any revision of the package will help us in that regard in the future.

I understand that the convention of these debates is that one moves to withdraw the Motion. I am happy and pleased to do that, although I recognise that I am to have a continuing dialogue with the Minister arising out of the data that have been forthcoming. On that basis, I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.