Examination of Witnesses (Questions 80
MONDAY 21 OCTOBER 2002
80. Is that a recognition that the resource
allocation formulaI think it goes back to the 70s, does
it notdid not give enough weight to health inequalities
and to chronic ill health and that we can look forward to that
being rectified for the new formula or PCTs?
(Mr Douglas) That is one of the clear aims of the
review of the formula, to better recognise needs within the overall
resource allocation, in particular what we call the unmet need
in the formula. The adjustment change last year was extended to
years of life lost to death under one year old, that is the additional
change we brought in.
81. I notice that some health authorities received
a health inequality payment, some also received a pay cost top-up
as well. Can I ask you about relative weighting given different
factors, deprivation and pay costs in arriving at the figures
(Mr Douglas) The two adjustment figures we had on
top of the formula were the health inequality adjustment, which
was £148 million and the cost of living adjustment/supplement
which was £102 million.
82. In future that money is not going to be
(Mr Douglas) There has not been a final decision made
yet and the recommendations on the review of the formula have
been put to officials for modelling and they will go to the Secretary
of State before allocations are made this year and then a decision
will be made on what is incorporated in the formula.
83. There is a similar debate going on about
the local government funding formula at the moment. There are
roughly the same pots of money allocated for both, pay pressures
and health inequality. Does that suggest that they are given equal
weighting in the overall equation?
(Mr Douglas) No. There is a formula primarily driven
by needs, the overall formula is primarily need driven.
84. Under the current formula it gives age profile,
that is not necessarily need driven, the age of the population.
If people are living longer they might be a healthier population.
(Mr Douglas) It is not entirely needs.
(Mr Foster) In relation to the cost of living supplement
this is a much more recent allocation of money and really it is
a response to the changing problems in the labour market. I think
it was first introduced something like three or four years ago
and subsequently expanded as recently as two years ago. The two
policies and respective costs have not been brought together,
they are quite separate evolutionary policies.
85. The may be brought together in the new PCT?
(Mr Foster) The money will arrive in the same way.
In terms of policy they come from completely different directions.
86. I have a genuine concern that the priority
given to pay costs is actually channelling public funds into areas
that are more affluent by definition and likely to have a healthier
population. Are you satisfied overall that deprivation and ill
health is going to be given adequate weighting and that you might
lose the emphasise that should be given to that in terms of fighting
off and fuelling possible wage inflation in others parts of the
(Mr Foster) The cost of living supplements are monies
that are applied to nursing and the other professional staff who
have to live in those very high cost areas. It is a labour market
force payment that enables us to sustain staffing levels in those
87. You know Wigan and the area very well. One
thing that worries me about this policy and about policies generally
is recognising in budgets the house price inflation and wage inflation
for certain parts of the country, and it is precisely those parts
of the country where it is possibly easier to recruit because
people they are attractive parts of the country to live, whereas
if you look at the Wigan and Leigh area we are significantly under-GP'd,
one of the worst parts of the country in terms of lack of GPs.
It might be that you need to pay people more to be a GP in Wigan
than you have to pay to be a GP Bournemouth. Are you satisfied
that that problem that is being picked up by the formula is being
(Mr Douglas) I think overall we are satisfied that
we get the right balance. We have to recognise both of those things.
We do have significant problems in recruiting and retaining staff
in areas of high cost.
88. Are there problems in areas of high deprivation
(Mr Douglas) Yes. What we try to get is a formula
that balances the needs element and the cost element.
89. The solution in areas of high deprivation
is to pay them more because people are not attracted to go there.
(Mr Douglas) The issues round staff shortages are
far more significant generally in the higher cost areas than in
the lower cost areas of the country.
90. Is it fair to say that the new formula will
give weighting to health inequality/deprivation and pay costs?
(Mr Douglas) It will bring into account both costs
91. No decision has been made on the relative
(Mr Douglas) The final decisions round the formula
are still to be made.
92. When will they be made?
(Mr Douglas) In time for us to make allocations by
the end of November, in the next few weeks.
93. Just quickly while we are on this table,
can someone remind me exactly how the Performance Fund monies
are allocated. I know I should know the answer to that question
but it might prove interesting.
(Mr Douglas) I may have to check with one of my colleagues.
I think it was on a fair shares basis in line with the allocations
that the Performance Fund went out?
(Ms Edwards) Yes. My recollection is it was fair shares
but the way in which organisations were able to use the money
depended on their status. In other words, those organisations
that had performed well were given a lot of freedom about how
to use the funding and those who had not were given more direction.
94. Can we just raise a question about the issue
of deficits and the handling of deficits. My understanding is
that the current planning is that no NHS organisation will be
in deficit at the end of the current financial year. Is that correct?
(Mr Douglas) The original plan we set at the start
of the year was for each organisation to be in balance for the
year. That was after we had set aside the £100 million in
what we call the NHS Bank to support some areas of the country
that were particularly challenged in meeting that target.
95. I think I represent one of those areas.
Wakefield has got a historical deficit which has caused some concerns.
I know there is a worry that the pressure that is being placed
upon the local trusts that are involved here is resulting in a
sense in perhaps the undermining of wider policy objectives. For
example, we have in Wakefield one of the highest bed usages in
the country and the attempts to develop care services have been
undermined by the strategy for addressing the deficit. At what
stage do you review this objective of wiping out the deficits
and the weighting pattern on your other policy, initiatives which
most of us would support?
(Mr Douglas) The key thing on the deficit issue is
that people tend to think it is a book-keeping thing that accountants
like me get interested in and that it does not really mean anything.
If one organisation in the NHS has a deficit someone else is paying
for that in the NHS. The key thing we are trying to do is other
than in a structured way not to transfer money from one part of
the NHS to another. That is really all this policy is. I do not
know the details of Wakefield, but if within your area or around
your area there are other organisations that can help fund the
deficit, then that would be acceptable, but only if someone else
could find the resource to meet that.
96. What I was trying to get at is where would
you step in if the strategies that are having to be implemented
to address the deficit undermine the longer-term strategies that
have sensibly been adopted to move away from reliance on acute
(Mr Douglas) It depends what you mean by "step
in". What we would look to first of all is the local strategic
health authority to see if they could sort the problem out themselves.
If they cannot then we would look at other strategic health authorities
within that directorate of social care areas to see if they could
help sort it out. Only after that would we look at anything across
the rest of the country. But if the problem could not be dealt
with within Wakefield, within West Yorkshire or within the North
of England, then that money would have to be found from someone
else; someone else would have to pay for it.
97. Do you have an overview of strategies that
have been adopted to address the deficits and the way in which
those strategies may be impacting upon other government objectives,
because quite clearly what I am being told in my own area is a
contradiction with, on the one hand, the pressure to address the
very serious deficit and, on the other hand, the pressure to move
away from dependency on acute beds, which in a sense is partly
responsible for the deficit in the first place.
(Mr Douglas) I do not have the detail of the strategy
in every part of the country.
98. I appreciate that.
(Mr Douglas) But what we have made quite clear is
that people have to both achieve financial balance and deliver
the targets that have been set for this year.
99. I do not know Wakefield well but I know
the deficits around my part of the region in Swindon and Avon
and Wiltshire. What if it is decided that some of itnot
in Swindon but elsewhereis down to managerial incompetence
in the past? There is a serious question over whether the people
in that particular area should suffer, having suffered before
from management incompetence, and that they should pay that at
a fairly local level by not having the services they were expecting
or having services cut back.
(Mr Douglas) That is absolutely right. That is why
we established this £100 million NHS Bank initially to say
that where there are problems that really cannot be managed within
that local health community without very serious effects, then
we would look effectively at the rest of the NHS to pool together
to help sort that.