Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 120 - 139)

MONDAY 15 APRIL 2002

MR NIGEL CRISP AND MR PETER WEARMOUTH

  120. Are they taking their bad practice with them?
  (Mr Crisp) Hopefully they are taking their good practice with them. Where people move from one to another, and that was my point about if there has been an estate strategy developed before, we have not lost it necessarily.

  121. So if there has been a bad strategy before, we have not lost that necessarily either.
  (Mr Crisp) That is perfectly fair but the point that I made in answer to the Chairman's very first question is that there are incentives to get your strategy right. One is the performance management, the second one is that you will not get investment unless you have got an adequate estate strategy and that is a strong incentive.

  122. I shall bear that in mind when I read the Report. Does price determine what we get rid of rather than operational use?
  (Mr Crisp) What we get rid of?

  123. Not in the retained sector, I know that is quite simple, I know how to deal with that. I am more interested in this residual part, the smaller part albeit. Does price bear an implication on where you decide which part to get rid of?
  (Mr Crisp) There is a process the estate strategy goes through to look at what assets you have got and whether you are making full use of them in the first place, clinically, and secondly whether the money that is tied up in them, including the maintenance cost on keeping them redundant, you can invest that money better. Now in that sense the value of the property does play a part because it is part of what you are calculating in.

  124. So you may get rid of a very good operational unit which is in a prime site to reinvest that money into a less prime site?
  (Mr Crisp) No, my first point was that you first of all look at what you need operationally. Therefore, if you have got a good and well functioning hospital, clinic, whatever it is, of the right size that is being used in that clinic well that is what you stay with, that is what the estate strategy starts with. What do you need to deliver your services? That is the first point, that is the starting point, and that overrules everything else. Having established that there may be some property surplus after that the way in which you deal with that may depend on what it is, how much it is costing you to keep it and how much if you have a very expensive asset that is tied up there that is doing nothing for you, that is not operationally useful, whether you can use that money better. It is at the second level. The first point that people are looking at is can we deliver today's service with the facilities we have got now. This is not about selling the hospital in an expensive area and moving to a cheaper area.

  125. If I was to tell you of a hypothetical case where two hospital units within a town were shut down and a new one was built on a greenfield site and the old hospital buildings were in such an appallingly difficult state to maintain that the developer who bought them refurbished them and said that the structure, the building, was so good that they did not have to bother maintaining it, it was built by the Victorians, but the reason it was sold was to maximise the income of development land, both sites being used for housing, and the investment taking place in green belt land, would you be surprised at that outcome?
  (Mr Crisp) I would be surprised unless you had missed out an important part of that argument which is that the two hospitals were not providing the service that was needed by the local population. That is the starting point. Are these hospitals providing the service for the local population? That is the starting point. If after that you end up deciding you need a new replacement hospital then you make the decisions about disposal. It is that way round. You do not get rid of the hospitals because they are on an expensive site.

  126. Yes. I think it was suggested that the cost of refurbishing the existing hospital to bring it up to the modern standard was far less than building a new hospital but the sale of the land would have been of benefit at that time because the price of buying the agricultural land was so cheap that they might be able to make a profit.
  (Mr Crisp) This is all very, very hypothetical. I hear lots of anecdotes about the NHS all the time and my experience is they are worth investigating and looking at properly. If a developer is telling you this story, I wonder why the developer is telling you this story? If I was presented with a case like that I would like to see the facts because what you are describing to me is extremely unlikely. We start off by looking to see whether or not the Service is providing the services needed and only subsequently then look at what is surplus.

  127. Unfortunately as a business, as the health service, you look at your bottom line and do not take into consideration the cost imposed on the public by having to travel to a hospital in a green belt area.
  (Mr Crisp) I do not think that is true either. Though this is not what the subject is about, planning services, it is very important in planning services that we take account of all those issues as well as the clinical ones.

  128. I think Mr Davies asked a question about salami slicing and you said it would not be in the rules but if I had an estate and I knew I could sell off a million pounds without seeking permission and the surplus was five or six million, I would have no difficulty going to my board and my accountants and explaining that we now seem to have a little money back here and I can salami slice the estate up just under a million pounds per year for the next five years and I would be within the rules. Since I have to reinvest the money on the estate itself, improving the provisions of the members of the public locally, the incentive will be there to do it, so what is to stop them?
  (Mr Crisp) The mechanism again, as I said, is that we have a framework and set of rules and we have methods for checking up whether or not people are following those rules, including quite simply the local auditors. We can actually ask for an investigation, we can look at it. What you have described implies that the only other alternative to that would be to make decisions centrally about relatively small disposals of land. We have very carefully worked out a strategy which has gone through the Treasury Public Services Productivity Panel whereby we put in place a very clear set of frameworks and rules and these are managed locally in the appropriate fashion and we have checks through audit.

  129. I have got no difficulty with people selling surplus land, surplus assets, I do not want to see a million pounds, five million pounds is no problem at all as long as the money is reinvested and gives an incentive for people to maximise the facilities for the benefit of the people and the public. I have got no difficulty doing that at all.
  (Mr Crisp) Good.

  130. When you answered the question about corruption and the district valuer giving you totals for figures, did I hear you say that the district valuer goes back and checks on the site at any future time to ensure that the site sold did not acquire a new value very shortly into its future under new ownership which meant that the NHS could have and should have assumed a higher price for that asset?
  (Mr Wearmouth) What we have when we carry out property transactions is we normally have advisors which could be the district valuer or could be local property planning or legal advisers. The transaction takes place. If it is felt there is potential for further development at a later date we introduce claw back into the transaction. 50 per cent of the transactions you will see have had claw back introduced into them which actually ensures that at a later date if further development is actually achieved on that site and the value would have been more than we would have originally got, we receive a percentage of the extra over and above what we received for the original transaction.

  131. Excellent. When you have a sale, do you have a list of preferred purchasers? Do you work with people in areas or is it just open competition?
  (Mr Wearmouth) There are a number of competition routes to follow but normally if it is for housing development it would be a tender process and it would be open to the market-place. There would not be any preferred purchasers. The only preferred purchasers we have are other government departments, other NHS trusts or people who have a right under the Housing Act.

  132. So there is no preference or giving first refusal to the county council or the local authority.
  (Mr Wearmouth) As priority purchasers they would have the right to purchase at the price of the district valuer's valuation.

  133. Which would be a bargain, would it not!
  (Mr Wearmouth) The district valuers value it at the value we should have sold it. The issue we have got to remember is it is being transferred between one public sector organisation and another public sector organisation. If we moved it into the private sector it is subject to the market to ensure that we get best value.

  134. But my recollection of the district valuer was that they always set a value on the project that should be expected to be met in the market-place. In fact, I can never ever remember an occasion when the value was lower than the value the district auditor set. Would you say that is your experience as well?
  (Mr Wearmouth) The true test of value of any property is subjecting it to the market-place.

  135. But an open market-place, a market-place where the purchaser gets full information and where bids can be accepted in an open manner?
  (Mr Wearmouth) That is right.

  136. So it takes preferred purchasers?
  (Mr Wearmouth) The only preferred purchasers are the local authorities and other government departments. The rules that we follow are that the district valuer's valuation will be the valuation we use to transfer between one government department and another.

  Mr Jenkins: Thank you, Chairman.

  Chairman: Thank you, Mr Jenkins. Nick Gibb?

Mr Gibb

  137. Do you think that capital charges are sufficient to give incentives for efficient use of capital assets?
  (Mr Crisp) I am not sure they are absolutely sufficient. They certainly do give an incentive and they do make people look at how they are using capital assets as well. In many cases I think they do change behaviour.

  138. How are they devised? What is the basis for them?
  (Mr Wearmouth) There are two elements of capital charges. One is a depreciation element on the value of the asset and the second one is return on investment of that particular asset, so there are two elements.

  139. The return on asset is what percentage?
  (Mr Wearmouth) Six per cent.


 
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