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NHS Cost of Living Supplement

10.30 am

Mr. Robert Syms (Poole): I want to discuss an important and complex subject. It used often to be said that the national health service, with 1 million employees, was the largest organisation except for the Red army. I do not think that anyone knows these days how large the Red army is, but dealing with pay and the various other areas of the NHS is difficult and complex, and all Governments struggle with that.

Health authorities that have been given the cost of living supplement and additional money--£65 million from April--to supplement the pay of their staff, doubtless consider that good. However, those of us who fall below the line and do not get that benefit for our hard-working NHS staff feel a degree of difficulty and unfairness. At the moment, petitions are going around Poole and Bournemouth hospitals, because people feel that they should be entitled to the benefit and that the Government have got the formula wrong. The benefit, although worth perhaps 2.5 per cent.--somewhere between £400 and £600--is not to be sniffed at for many people in the NHS who are on not particularly high wages.

My hon. Friends in Dorset and I have written to the Secretary of State to make it clear that we are concerned about the implementation of the proposal. If one health authority or county is given the benefit, and the authority next door is not, there will be a knock-on effect. If London receives it, but Kent, Essex or Suffolk do not, there will be a knock-on effect. If Avon receives the benefit, but Somerset or Gloucestershire do not, there will be an effect on the neighbouring area. Indeed, we in Dorset see that Wiltshire and Hampshire will get the cost of living supplement, while we will not. That is a matter of great concern, particularly for the Royal College of Nursing, which has been responsible for some of the petitions.

There have been previous attempts to try to put cost of living supplements, or some market forces element, into NHS pay. I have reviewed the staff side evidence to the review body on cost of living supplements. In 1989, the Department of Health in England introduced pay supplements to address recruitment and retention problems for hard-to-fill posts. The scheme, according to the staff side, had little impact and did not impress the review body with its cost effectiveness. There were some industrial relations problems when it was introduced, and the review body ended it in 1992.

In 1995, the review body attempted to increase the pace of local pay through the X plus Y mechanism. That mechanism was pursued again in 1996, but once again, according to the staff side, it proved counter-productive to recruitment and retention. It had an impact on morale, increasing dissatisfaction with the NHS among nurses, midwives and health visitors. There is a positive side for those who receive the benefits, but a negative side for those who do not.

According to the staff side, the effect of the cost of living supplement on labour market behaviour cannot be predicted with any degree of accuracy. It remains to be seen what impact the supplement will have when it is implemented in April. However, the key issue is that, if shortages are a supply side problem, the cost of living

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supplement will simply move the shortages around the country. As the Government's NHS plan recognises, the health service has a real problem concerning human resources and the training of sufficiently qualified staff.

Nurses in areas with some of the highest vacancy rates will not qualify for the cost of living supplement. East Kent, for example, has one of the highest vacancy rates in the country, according to Department of Health statistics, and a number of hot spots in the west midlands do not qualify. There is a real problem. The Royal College of Nursing estimates that 22,000 nursing posts in the UK are vacant. If one starts with a fairly centralised pay structure and adds cost of living supplements that go to one county but not the next, it will have an impact on recruitment and retention in the neighbouring authority.

Equal pay for work of equal value has always been a principle in the NHS. There seems to be a move away from that. What is the Government's policy? Are they moving towards more regionalised pay as some in the nursing profession fear? Could the Minister explain the method on which the formula is based? The cut-off point seems to be 117 on the table. Those on or above that figure seem to get this benefit. How is the cost of living index calculated? What impact does housing have on that? What impact do vacancies have or the fact that staff in rural areas must travel and spend money on petrol? We need to know a lot more about how the Government arrived at those figures. Although it is obvious that Kensington and Chelsea and Westminster are the most expensive, other counties fall well below the line, including some near London where the cost of living is bound to be high.

In Dorset we have lived under one great disadvantage--the area cost adjustment, which means that we do not receive the same level of local government and police funds. It is perennial problem. This announcement from the NHS perhaps puts us at a further disadvantage in terms of how we will fund nurses' pay.One of my constituents, Mr. R. Bayldon MBE, TD, wrote to me. His wife works at Poole hospital. With the help of the internet, he compared the house prices in Poole and Southampton. Southampton is in Hampshire and so will receive the cost of living supplement, and Poole, being in Dorset, will not. It takes about half an hour to travel between the two by car, so they are within a relatively similar travel-to-work area.

According to the Land Registry figures for the period between April and June 2000, the average price for a detached house in Poole was £191,772. The average price in Southampton was £154,206. The average price for a semi-detached house was £100,781 in Poole and £91,307 in Southampton. The average price for a terraced house was £86,589 in Poole and £80,790 in Southampton. The average price for a flat or maisonette was £102,475 in Poole and £68,731 in Southampton.

When one aggregates those figures, and I rather suspect that there are rather more detached houses in my constituency than in Southampton, the average house sale price between April and June 2000 in Poole was £132,396 and only £89,588 in Southampton. House prices are about 40 per cent. higher in Poole than in Southampton. The problem is that nurses who are deciding where to work can look at Southampton and see that they will get cheaper housing and more pay

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through the cost of living supplement. Staff are likely to be sucked out of the Poole and Bournemouth area and the quality of service that my constituents receive is in danger of deteriorating.

I therefore ask the Minister to reconsider the cost of living supplement and perhaps to review how the body has come to those figures because I fear that we will have an increased vacancy rate in Poole and a more difficult job retaining staff. The real value of the NHS lies in its staff and the quality of service it provides to my constituents, so a higher vacancy level will cause problems. There are currently 39 vacancies for fully trained, full-time nurses in Poole, and a further 24 vacancies for which job offers have been sent out, but currently await acceptance.

This small measure could be a step in the right direction. We need to recruit good, qualified staff who want to work in Poole, but housing and the cost of living there is expensive, so people--who obviously have to put themselves and their families first--often go elsewhere. The Salisbury area in Wiltshire and the Hampshire area receive the benefit, but Poole and south-east Dorset--also an expensive area--do not. The differential impact will be significant.

Will the Minister set out clearly how the formula has been applied? Will she give an assurance that further scrutiny will take place before we go down this particular road? It will cause difficulties for my constituents, many of whom believe that it is unfair and unjust. In the near future I expect to present a petition signed by nurses that expresses their concerns.

This is a difficult and complex subject. The Government's decision to start to implement cost of living supplements would no doubt be viewed as courageous by Sir Humphrey Appleby because it pleases some and displeases others. I am a Member of Parliament representing people in Dorset, making a case for good hard-working NHS staff in Dorset.

10.41 am

Mr. John Whittingdale (Maldon and East Chelmsford): I begin by putting on record the fact that my wife is a practice nurse who works in the national health service in North Essex. I warmly congratulate my hon. Friend the Member for Poole (Mr. Syms) on securing the debate and setting out a powerful case. He has demonstrated that Dorset's failure to receive the cost of living supplement has caused serious problems for health care in the area.

My constituency in Essex is a long way from my hon. Friend's, but what he said applies equally to my area. Curiously, Essex has also been excluded from the list of health authorities eligible to receive the cost of living supplement. My first communication about the matter included a list of all authorities that the Government had decided were eligible for the supplement.

The 15 eligible health authorities outside London include Avon, Wiltshire, Oxfordshire and Cambridgeshire. Those areas doubtless face additional cost of living pressures, but fewer than counties such as Essex, which borders London. Travelling to Cambridgeshire where the supplement applies requires going through Essex, which does not qualify.

I am here today to represent my constituents in mid-Essex, but areas such as Kent and East Sussex feel equally strongly that they have been excluded unfairly

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from the supplement and will face real problems on account of it. The issue has been taken up by the Royal College of Nursing, which first brought it to my attention and is now mounting a campaign on behalf of all the excluded authorities.

The supplement applies in one part of Essex. Just a few miles down the road from the Broomfield hospital, which serves the majority of my constituents, is Brentwood. Staff living in that area qualify for London weighting, which has created a huge disparity between the earnings of staff working in Brentwood and those working a short distance away in Chelmsford and Malden. There is no doubt that that is having an impact on the recruitment and retention of nursing staff.

My hon. Friend talked about house prices in Dorset, and the same problem applies in Essex. Not long ago, I saw figures showing that house prices in Chelmsford were rising faster than anywhere else in the country. If the supplement is genuinely intended to recognise the additional cost of living in areas of the south-east, Essex has a very strong case for inclusion. I find it bizarre that the county has not been included in the published list.

People do not enter the nursing profession because they expect great riches or rewards, but because it is a vocation. They are utterly dedicated to their jobs and provide a fantastic service to the people whose health they look after. Those staff also have to live, however, and there is no doubt that being a nurse is a pretty tough task. If people are not going to receive recognition of the additional costs that face them, their lives will be made considerably more difficult.

We can make comparisons with all public services, because there are problems of recruitment across the public services. We have had great difficulty in recruiting the number of nurses that we need, but there are equally great problems in recruiting police officers. Indeed, in a directly parallel case, an additional supplement is paid to police officers in the Metropolitan police area, but that supplement is not available in Essex. The effect is that people who would normally look to join the Essex police, are travelling quite a distance in order to join the Metropolitan police, because of the quite considerable financial benefit. I fear that the same may apply to nurses when they see what salaries are available not too far away as a result of the cost of living supplement.

My hon. Friend powerfully set out the disparities that will be created in the labour market if an apparently arbitrary method of allocating the supplement is proceeded with. Let me quote to the Minister a letter that I received from Mr. Clive Mortimer, branch secretary of the mid-Essex branch of the Royal College of Nursing, who is based at Broomfield hospital. He wrote to me about the problems that will be created as a result of this policy, saying:

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Not long ago, my constituents were alarmed by the publication of a survey that showed mortality rates in various hospitals across the country. It stated that Broomfield hospital had the second worst rate in the country. I do not believe that the shortage of nursing is contributing to that, and I want to know a lot more about the figures because there are questions about how they were compiled. However, there is no doubt that they raised serious concerns for local people. Alongside those figures, the survey showed that Broomfield had a lower ratio of nursing staff than other hospitals. I do not suggest that that has contributed to the mortality rate. I believe that that is not the case, and much more investigation is needed, but people are anxious about the figures and know that there is difficulty recruiting sufficient doctors and nurses.

The Government have tried to tackle the problem by introducing a supplement in certain areas. However, I ask the Minister to look again at the map and to consider whether the case for a cost of living supplement is equally strong in areas such as Dorset, which my hon. Friend mentioned, and my constituency in Essex.

10.50 am

The Parliamentary Under-Secretary of State for Health (Ms Gisela Stuart ): I congratulate the hon. Member for Poole (Mr. Syms) on his success in the ballot for the debate. Before I respond to the hon. Gentleman, I shall clarify for the record a point made in the previous debate on hospices. The £23 million of the new opportunities fund is for adult services, including respite care.

An equally important matter is the NHS cost of living supplement. Every Member of Parliament whose constituency was not on the list responded with great passion, which provoked a heated debate. The supplement is not the only solution to labour shortages in some parts of the country and I shall therefore outline the thinking behind the proposal and the problem that it addresses. If Members would like me to do so, I shall later explain the precise way in which factors including market forces are calculated.

The NHS plan set out a strategy to give staff a better deal in their working lives. It is not a question of money but of capacity; we do not have enough doctors and nurses. Staff who commit themselves to a career in the NHS do not expect an easy life, but they are, nevertheless, entitled to expect their contribution to be valued and fairly rewarded. We must get that right; as the hon. Members for Poole and for Maldon and East Chelmsford (Mr. Whittingdale) recognised, it is crucial to the task of providing high-quality services that meet the needs of patients. That is the fundamental rationale behind our plans to increase staff numbers. By 2004, there will be 7,500 more consultants, 2,000 more general practitioners, 20,000 more nurses and 6,500 more therapists and other health professionals, and that will be achieved by a variety of means. Some short-term problems have long-term solutions, but in the meantime we have to consider the short-term solutions that work in tandem with them.

For a start, we will provide more training places; by 2004, more than 45,000 nurses and 13,000 therapists and other health professionals will have finished training.

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Hon. Members said that they are afraid that shortages will be moved from one part of the country to another, and that will be prevented only if there is more training. In addition, there will be year-on-year increases in the number of training places available, so that by 2004 an extra 5,500 nurses, midwives and health visitors will be trained each year.

We will expand the number of training places: there will be an extra 4,450 therapists and other key professionals, plus an extra 1,000 specialist registrars--the feeder grade for future consultants--and 450 more doctors in training for general practice. We will expand the number of new medical school places allowing for a 40 per cent. increase in the numbers of medical students since the Government took office in 1997. When we decided where the extra training places would go, regional factors were taken into account because people tend to stay in the areas where they trained, particularly in the medical profession. The presence of a medical school attracts high-quality staff. Hon. Members who represent constituencies in the south-west will be aware of the new Peninsula medical school, which will not only provide training for extra doctors, but encourage high-quality staff to want to work there.

We will improve pay through our plans to modernise the outdated pay system, which has failed to keep pace with the demands of the NHS. We have acted to ensure that midwives have better access to progression. The decision to introduce cost of living supplements is another example of our intention to design and put in place targeted solutions to specific problems that need a new approach. In this instance, we intend to use cost of living supplements to top up the pay of key staff groups where there are labour market shortages.

Such targeted actions are in addition to above-inflation pay rises for all NHS staff from 1 April 2001. The latest awards will be worth at least 3.7 per cent.--0.8 per cent. ahead of the most recently announced inflation figures--with more for senior nurses, staff in the professions allied to medicine, health visitors, midwives and staff working in pathology. We have recognised the essential contribution of senior nurses and PAMs to delivery of the NHS plan. We have also recognised the particular problems experienced in recruiting and retaining suitably qualified pathology staff and have therefore singled them out for special treatment, as we did last year for cytology screening staff. Again, it is a question of long-term solutions, but in the short term we will pick off specific problems and see whether we can offer solutions to them.

We will improve working lives by making the way in which employers treat their staff a part of core performance measures, linked to the financial resources that they receive. We hope that staff retention will be much improved. To receive financial resources, employers will need to show how they are investing in training and development, tackling discrimination and harassment, and improving diversity.

Employers will also need to show how they are applying a policy of zero tolerance of violence against staff. Given the increase in attacks on NHS staff, that is important because we need to ensure that people want to continue working in the NHS. Employers will have to demonstrate how they are reducing accidents in the workplace and sick absences by providing better

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occupational health and counselling services, and conduct annual staff attitude surveys to obtain feedback on whether they are good employers.

By 2003, all employers will be assessed against the human resources performance framework and the new improving working lives standard, which will mean that they need to demonstrate their commitment to flexible working arrangements, providing for flexi-time, annual hours, child care support, flexible retirement, career breaks and a reduced hours option. Hon. Members have referred to the expense of hospitals having to use agency staff. One reason why staff in some areas have decided to work for agencies is that they allow people to work the flexible hours that they want. We need to ensure that hospitals take those real concerns on board.

We have invested some £9 million--£25,000 per trust--to improve the working environment for staff. In 2001-02 and beyond, money will be invested in the extension of occupational health services. By 2004, more than £30 million will be invested in better child care facilities for NHS staff, providing for subsidised nurseries in about 100 hospitals.

We are tackling entrenched and often long-standing problems, which are not amenable to quick-fix solutions. Many of the initiatives that I have outlined will need time to bear fruit. That is why we also feel the need for a more immediate approach where it can deliver results. For that reason, we are working to recruit additional suitably qualified staff from abroad where feasible and have recently appointed a director of international recruitment to drive that work forward. All that activity shows our determination to adopt and put in place a wide-ranging menu of initiatives and policies to tackle entrenched problems with recruitment and retention and to maximise the length of time that qualified staff work in the NHS. Staff at one of the London hospitals told me that turnover would be reduced if they could guarantee that every employee stayed an extra six months, so retention of staff is important.

Low levels of participation among qualified staff in some areas are part of the problem. The NHS needs more staff to do the job that we need it to do and it needs to hold on to its existing staff so that skills and expertise are not wasted. As I have said, we are taking action on a number of fronts to deal with that problem, combining short-term strategies with creating the right building blocks for the future. Part of the problem is that we experience much greater difficulty in recruiting and retaining nurses and other specialist staff in London and some parts of the south of England. That situation is worsened by relatively low levels of participation in the NHS where there are, nevertheless, a wide range of job opportunities available to qualified staff.

We know that pay is not necessarily the panacea. A range of factors affect our ability to recruit and retain staff and we are responding with a wide-ranging package of measures. The hon. Member for Poole referred to the size of the NHS as an employer. People who work within the NHS are extremely reluctant to leave that organisation. The Royal College of Nursing recently did a survey that showed that nurses find leaving the NHS a difficult decision to make; it is not something that they do lightly. Equally, I do not expect

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that staff who work in one hospital will look at a hospital 50 miles down the road and say, "I may get £400 extra, so I'll move there."

Mr. Syms : My concern is not the figures but whether that is the direction in which we are going. From day one, we are out and somewhere else is in. Will that be a trend?

Ms Stuart : As I said, this is a short, specific measure. It was an immediate response to an emerging immediate problem in some areas. We will see what happens as it develops.

An important unavoidable factor is that the cost of living in London and the south can be considerably higher than in other parts of the country. That has long been recognised for staff working in London and the fringe zone, who receive different scales of London weighting and fringe allowance to supplement their basic pay. That sometimes creates problems for employers trying to recruit staff in neighbouring areas where the cost of living is also relatively high but no London weighting or fringe allowance is available. I recognise the problem, outlined by the hon. Member for Maldon and East Chelmsford, that that affects not only the NHS but other public sector employers. The issue was raised when I recently visited Watford general hospital. Wherever we draw the boundaries there will be tensions but we need to keep a careful eye on how they play out.

As one of the ways of helping key staff in high-cost areas we have introduced a new cost of living supplement for London and parts of the south. As a brand new approach, it is bound to provoke interest and debate. We believe that it could make an important contribution to the raft of initiatives and make a real difference to our drive to increase the numbers of qualified staff in the key groups that I have identified. It will provide additional pay of between £600 and £1,000 per annum for qualified nurses, midwives, health visitors and PAMs in London health authorities and between £400 and £600 for equivalent staff in eligible health authorities outside London and the south of England.

We estimate that around 100,000 staff will benefit and have made £64 million available through allocations to health authorities. We accept that cliff edges are unhelpful and have done our best to minimise them in drawing up plans for the new supplements. However, it is difficult to get it right, given the vagaries of geography, travel-to-work zones and the choices that people make about where they live and work, and some staff and employers will find themselves on the wrong side of the line, wherever it is drawn, of the new allowance. We need to balance that against the need for a clear, transparent system.

The new allowance, by its nature, is perhaps the most precisely targeted of the range of new initiatives. We readily acknowledge that recruitment and retention problems exist beyond the areas eligible for cost of living supplements. That is why we will closely monitor the impact of the supplements on recruitment and retention rates and participation rates. We want to take an early view so as to be able to develop policy for the future. We shall announce details of additional funding that will be

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made available for other recruitment and retention initiatives; it will be made available on the basis of bids to parts of the service that do not receive cost of living supplements and where there is scope for action.

Clearly, the hon. Member for Poole feels that the supplement should have applied to Dorset as well as to Hampshire and Wiltshire. The straightforward reason why it does not is that Dorset health authority does not meet the criteria set out in relation to the staff market forces factor. We set the qualifying level at a factor of 117. Hon. Members may like to know how the factor works. MFF, as it is called, consists of evaluating the elements that are given the highest weight in the overall index: it takes into account staff medical and dental costs, London weighting, non-pay issues and capital. The aim of the staff MFF is to reflect the geographical variations in staff costs that NHS employers incur. It is necessary, despite national pay arrangements, because the geographical variation in labour markets results in some NHS trusts facing higher hidden staff costs due to recruitment and retention difficulties, grade drift and the use of agency staff.

The staff MFF is based on the three latest years of the new earnings survey panel data set. The 2001-02 allocations are based on 1997, 1998 and 1999. The analysis uses individual earnings of full-time employees aged 16 to 70 in the private sector whose pay was not affected by absence: all others are stripped out. The annual sample is about 75,000. The hon. Member for Poole may wish that he had never asked, but I shall continue. The data is then aggregated into 78 zones based on London boroughs and the former metropolitan and shire counties. Each year's data is used in a regression analysis, which isolates the effect of geography and staff costs in each zone by accounting for the effect of other factors such as age, sex, industry and occupation. I would be happy to write to the hon. Gentleman if he would like further precise details.

Mr. Whittingdale : I am sure that the formula is excellent, but if it demonstrates that authorities in Cambridgeshire and Bedfordshire face higher staff costs than the North Essex health authority, it may be flawed. I simply do not believe that that is the case.

Ms Stuart : It seems difficult to comprehend how the formula works, but I have been told by statisticians that the mechanism is well known and fully accepted. I would be pleased, as I said, to write to the hon. Gentleman with a more detailed analysis of the three authorities, explaining how the weightings were arrived at and establishing whether there were any flaws. I cannot deal with such statistical intricacies in this place. The qualifying level was set at a factor of 117, because it was the lowest score among London health authorities and represented the most natural break point. Dorset, in common with several other health authorities such as Bradford, Wakefield, Calderdale, Kirklees and Leicestershire, scored only 110. We recognise that Dorset has hot spots where the cost of living is high, but nearly 30 health authorities that do not meet the eligibility criteria overall score higher than Dorset.

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Some may question whether the staff market forces factor was the right tool for setting the criteria. We reviewed the options and decided that it was the best available. It is not perfect, but the methodology is widely known and accepted in the NHS as a means of identifying high-cost areas and is continuously subject to rigorous academic review. As I said earlier, the cost of living supplement is not a panacea that will solve our problems. It is a small part of a much bigger jigsaw.

The survey is calculated from earnings survey data and average hourly earnings. We used those data as a proxy to provide the best basis to make decisions on eligibility. We certainly would not have thought it appropriate to use a formula based solely on vacancy rates, which are often as much a measure of good or indifferent human resources management as of genuine recruitment and retention difficulties. Striking a balance between addressing inadequate provision and services and rewarding success is important in all debates relating to the NHS, including the debate on hospices. If a hospital has a high staff turnover and bad retention rates, and finds it difficult to recruit, that is not necessarily a sign of specific problems of high costs, which more money would solve. The same would be true if a hospital used many agency staff. Such a hospital's human resources strategy would need close examination. That is why we did not use vacancy rates.

Poole hospital NHS trust is considering ethical international recruitment as an interim measure to address its problems. The hospital is also addressing longer-term solutions, such as administrative support for ward posts to take away some of the administrative tasks undertaken by nurses and free their time for nursing care. Poole hospital NHS trust is considering a range of policies to retain existing staff and attract new staff.

To achieve the qualified work force that we need for the future, we need to be able to attract and keep staff of the right calibre. We also need to make sure that the NHS is hanging on to the highest possible proportion of the people whom it trains. To do that, we need a multifaceted approach that tackles all aspects of the problems through a mix of immediate action, where we believe that it can make a difference, and more long-term change. Cost of living supplements for some key groups of qualified staff are part of an innovative package of measures. Our willingness to apply a previously untried solution is testament to our determination to solve entrenched problems of recruitment and retention once and for all.

I know that the hon. Member for Poole is concerned about the situation in Dorset, not least as it compares with Hampshire and Wiltshire, which are eligible for the supplement. I hope that he is satisfied that a range of other ways exists to deal with recruitment and retention difficulties, as his own hospitals are showing. The challenge is to find innovative local ways to keep key professionals in the NHS. Help with that is available through the regional offices and through various initiatives from which Dorset can benefit.

We do not foresee a sudden haemorrhaging of staff out of Dorset as a result of the introduction of cost of living supplements, and the hon. Gentleman recognised that staff would not suddenly leave his hospital over the next couple of months. However, he was concerned about the possible long-term knock-on effects. We

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recognise that we need to keep an eye on that. There is no point robbing Peter to pay Paul, and we take the hon. Gentleman's point seriously.

I am sure that we all share the desire to resolve recruitment and retention problems in the NHS. However, we will not put all our eggs in one basket, and neither should the hon. Member for Poole. Pay is not the only answer, and using pay and the cost of living supplement is only one part of our response to a problem that we all need to approach with the widest possible perspective.

11.14 am

Sitting suspended.

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