Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 340 - 359)



  340.  It is no then.
  (Mr Brown) The system is a three year spending allocation, in this case for health five years, with end-year flexibility so that money does not have to be used for an emergency where it would be right for them to carry a reserve, they can carry that money forward to use for other purposes. This is a far more sensible system of financing than has existed in the past. If I may say so, the three year spending system, and now for health five years, has worked far better than the annual round which caused so much consternation in the last few weeks of the year when people tried to spend money probably inefficiently otherwise they would lose that money. So your question again, like your previous set of questions, is based on a wrong presumption.

  Mr Ruffley: It is still an under-spend.

  Chairman: After 12 minutes on that section, we will pass to Mr Fallon.

Mr Fallon

  341. I want to pick up one question on tax receipts, Chancellor. You cut taxes before the last election, you admitted last Wednesday that tax receipts are now £10 billion lower in this year than you originally forecast, and now you are raising taxes again. Most people, even if they support you on the NHS, still now think you have broken your promise. How are you going to recover your reputation?
  (Mr Brown) I have broken no promise. There is no promise we made at the election or we made in our manifesto which has been broken. If you remember, Mr Fallon, it was a feature for probably a week of the campaign that I refused to rule out changes in national insurance, your party accused me of all sorts of things, I still refused to rule out changes in national insurance, we held to our election manifesto that the direct income tax rate would not be raised, that the top rate would not be raised, that we would not extend VAT to essential goods, these were the promises we made and if you look back over the election campaign there was an attempt made for me to rule out changes in national insurance but I refused to do so.

  342.  Why do most people now think you have broken your promise?
  (Mr Brown) You will have to go back and look at what I said. What I said is what I stand by. Any journalist who was covering that election knows that we were under pressure for a week by your party asking us to rule out changes in national insurance, and I refused to do so.

  343. So you were planning it all along, were you not?
  (Mr Brown) What I said all the time was that politicians, particularly people who are running treasuries, can make a number of promises which it is right to do but you cannot make promises on every one of 250 reliefs and allowances, and those politicians who have made promises, such as the Conservative Party before the 1992 election when they ruled out everything, live to regret that, because you have got to be able to manage the economy in the way that is best for the economy subject to the promises you have made. I kept all the promises that I made and our party has kept all the promises we made on taxation at the time of the election.

  Mr Fallon: We will come back to this when we turn to national insurance.


  344. On to health spending, Chancellor. Since your announcement of the large increase in funding, there has been quite a bit of discussion as to how this money will be spent. Some say it will be swallowed up with wage demands, some say trust deficits will have to be paid off, others say that liability claims reaching £4 billion may have to be dealt with by the National Health Service. So there is a view it could be going down a black hole. Are you satisfied that the extra money you are giving the NHS can be spent on improving services rather than fuelling excessive wage settlements and paying off accumulated deficits?
  (Mr Brown) We had to satisfy ourselves that put into place before money was made available were new standards for audit and accountability, and therefore there is a new system of audit which is independent, a new inspectorate which is independent, a new independent scrutiny of patient complaints which is built into the system, and a duty for both an annual national and local report itemising the link between the money spent and the standards achieved. In addition, we have agreed with the Health Secretary, who has made a speech on this matter today which I would refer the Committee to, about the use of the resources, but there had to be new financial incentives he wanted to introduce for hospital performance, so there were rewards for hospitals that do best; greater freedoms for the foundation hospital proposal, for high performing trusts as well as hospitals; more power and resources are going to the front line into primary care trusts; we are reforming social services care for the elderly; we are increasing patient choice, and all the time we are trying to meet the waiting time targets that I think the Committee is well aware of. So the money is conditional on the modernisation we have agreed, and that will lead to the results that we intend.

Mr Beard

  345. Chancellor, are you satisfied with the reforms which have been made in the National Health Service since the Pre Budget Report?
  (Mr Brown) The announcements which were made came after a great deal of discussion but of course also after the Wanless Report was prepared and published. I think it is very interesting that the Wanless Report has looked at demography, technology and patient expectations, and the driving forces for additional expenditure are the extra costs of new technology, new buildings, new equipment, new drugs and the rising expectations patients have. It is right, for example, that instead of the eight or 12 patient wards, of the new beds now being built in the 60 or so hospitals which have been constructed or planned a third are single rooms in our hospitals, so the standard of care that patients can expect is higher as well. Many of these targets have been agreed between ourselves and the Department of Health. Mr Milburn in his speech today outlined some of the ways he planned to invest in the Health Service, including better IT, including new equipment, including better work on the cancer and heart plans he has developed for improving the service to cancer and heart patients, these are the priorities including social services care which he has outlined.

  346. The Wanless Report in paragraph 5.19 said, ". . . the Review believes that its projections for UK real terms spending growth of 7.1 to 7.3 per cent a year over the next five years are at the upper end of what could sensibly be spent. Indeed, to be wisely spent, they would represent a very considerable management challenge." How would you reply to that?
  (Mr Brown) What Mr Wanless is saying is that there is a point at which extra resources may have caused either inflation in Health Service costs or resources not to be used as efficiently as possible. Our final decision is very similar to that of Mr Wanless but we have taken into account one or two things, including national insurance itself, and therefore we accept that the Health Service can spend the money we have given it efficiently, that it is not itself the extra money which is a driver of inflation on the Health Service costs. Obviously, while we are negotiating new doctors' and consultants' contracts and also the Agenda for Change for nurses and for other staff in the Health Service, I have made it clear today that responsible pay-setting is absolutely crucial to the development of the next years of the Health Service. We plan to hire considerably more nurses, doctors, radiographers and other staff, and responsibility in pay is going to be important to the way all public services develop. I think I emphasised that for all public services when I gave my opening remarks on the manner in which we will approach the public spending review.

  347. Could it be that some of the under-spending in the Health Service in the last two years has been due in part to the National Health Service management being unable to cope with these very swift increases in the funds available to them?
  (Mr Brown) I would hope that the way that resources are being used, because there is a longer-term frame for planning, is actually better and more effective than if there had still been the annual cycle. I do not share Mr Ruffley's view about the under-spend being the problem he says it is, because it is right you have a reserve to deal with emergencies, and it is good if you do not have to use it and can use it for other things. In the way that previously the Treasury held the reserve in its entirety, the departments themselves have a reserve as part of the three year plan set aside for contingencies or for developments. Equally, at the same time, if a department is planning to spend over the course of three years then the fact it spends it in April rather than March should not be regarded as a source of great anxiety.

  348. How much has the system of public service agreements enabled you to decide the allocation appropriate to the National Health Service?
  (Mr Brown) I think you will find that when Mr Wanless drew up his proposals for the 7 per cent or so rise in the National Health Service expenditure he was very much influenced by the cancer plan and the heart plan and looking at the other specialties where progress was to be made. These are, of course, targets we have set, extra employment, equipment and servicing which needs to be done, and he worked it through six separate specialties to get an idea of the sort of costs which would be involved in meeting the PSA targets, so the public service agreement targets are absolutely essential. Let us emphasise that this is not money thrown at a problem, this is money conditional on modernisation leading to the achievement of targets and results with a built in independent system of audit, inspection and scrutiny, including independent reporting to Parliament with an annual report and reports which are done by every health authority which are called the local prospectuses which are published for each area, so people can see the link between the money which is spent and the service improvements they are getting.

  349. Will the public service agreement system be an adequate way of assuring you and the Treasury that the money allocated is being spent as intended and to best effect?
  (Mr Brown) I should say to you that we do not set a target and then just leave things for years. What we do is have a continuous process of stock taking, involving the Prime Minister and others, so that it is important to have an idea, right over the course of the period on a consistent basis, about how well these targets are being achieved. The truth is that waiting times, which are a maximum of 18 months, are now down to 15 months, going down to 12, will go down to nine, then the plan is to get them down to six by 2005, and then to three, so the aim is to stage by stage improve the service to the patients so that waiting times are reduced. The maximum times are these and the average waiting time will come down even lower than that over the course of—

  350. How frequently during the 12 month period before the annual statement of aims and expenditure will the Treasury be monitoring these spending programmes during the year?
  (Mr Brown) This usually happens every three months. It is a continuous process of dialogue between the departments and the Treasury and indeed the Cabinet Office. There is a process of stock taking that is established now that is working so that you have early warning if there is a problem, but equally, at the same time, you have a committee sitting of Cabinet Ministers, PSX, which looks at the spending plans of the different departments, questions the ministers, that is ministers questioning other ministers on that, and it is of course a process of continuous review which is very important now to the operation of the system. The public has a right to know not only that we have targets so that money is spent well but that we continuously review that, and they also have the right to the independent audit and scrutiny and inspection system that has now been introduced for the first time since the Health Service was created in a systematic way.

  Chairman: We asked your officials yesterday, Chancellor, if you could share that information with us on a regular basis, and we would be pleased to have that.

Dr Palmer

  351. Chancellor, up to now you have had mostly questions asking how confident you are that the additional spending on health will actually deliver better results and how you are going control that and check it, and you have been responding on that. Can I put the opposite question? In education we have traditionally had the complaint that there are too many reports and too many supervisory bodies that the schools have to respond to and that they are so busy filling out forms that they cannot get on with the job. Are you worried that the health authorities will feel that they have now got three masters, the Health Department, the Independent Audit, and the Treasury?
  (Mr Brown) I would not look at it that way. We are a helping hand! As far as health authorities are concerned, the new PCTs, 75 per cent of the money in time will be spent by the PCTs themselves. There is a process, as I said when I made my introductory remarks, which is as true of health as of education and other services: where there are national standards, there is also substantial local devolutionary plan. It is frontline first; getting the money to the front line, giving the people the freedom to make the decisions, having a greater degree of flexibility in a whole series of different areas, and we should think of the Health Service as these legal PCTs are operating with a great deal of independence, negotiating their contracts with the hospitals that are generally in their area and securing higher standards of care. I would not like you to think that this is a centralised system: this is local devolution that is now happening, and I cannot think of a situation since the Health Service was founded where 75 per cent of the money is going direct down to the local areas, and that is what the plan is under this system.

  352. Although I am fairly new in Parliament I have been following politics for thirty years, and I must say I never remember a Chancellor previously taking an interest or making specific commitments on the lengths of waiting lists, for instance.
  (Mr Brown) I do not make these commitments. I am just reporting the commitments that have been made by the Department of Health in the 10 Year Plan.

  353. Are you concerned that you will come under pressure in other areas to make statements on the number of troops to be committed in countries overseas?
  (Mr Brown) I think I should describe the relationship as we are responsible—indeed, the guardian for everyone—for the nation's money. We have to ensure as we report to you that that money has been as well spent as possible, and therefore it is for us to ensure that there are proper rules about the value for money that is achieved, but it is for the departments to propose how they wish to go ahead and the plan for devolution, the 10 year health plan, was drawn up by the Prime Minister and by the Health Secretary together, and it was published two years ago and is now being implemented by the Health Department.

  354. Would it be fair to say just in conclusion on this that because of the sheer volume of extra commitment this Government is giving to the Health Service, additional scrutiny is particularly important compared with perhaps some departments where spending is not changing so much?
  (Mr Brown) It is absolutely true that the independent scrutiny built into the announcement made by the health secretary last Thursday is absolutely crucial. I think people can look to a different system where there has to be an annual independent report prepared by the new auditor for Parliament, so that people can see for themselves the link between the money that is being spent and the results that are being achieved. In addition to that, we have a far greater scrutiny of patient complaints which is now being done independently of the Health Department, and an equally independent inspection which is important to this process.

Mr Fallon

  355. Coming back to something you said, Chancellor, about taking account of National Insurance in the NHS allocation, Mr Wanless presumably did not know what you were planning on National Insurance. I think you have now said you have taken account of it. What is the figure for the NI increase for the NHS itself?
  (Mr Brown) I think we issued a figure some days ago. Was it in the order of £200 million? I cannot remember exactly but we will give you a copy of the figure. It was £200-300 million and that is why, when you look at the figures for employers' National Insurance, the figure is for the public and the private sector.

  356. So that is £200-300 million that the NHS has got to find from next April because of your decision?
  (Mr Brown) : I think people would have found it strange if I exempted National Health Service employees or any public sector employees from a contribution that I am asking the whole country in employment to pay towards the improvement of a National Health Service, and I find it strange that people should argue that somehow the public sector should have been excluded from the National Insurance contribution. I think myself that, if private sector employees are being asked to pay some contribution to the Health Service, so too, in the tradition of National Insurance which has lasted, after all, for fifty years amongst all parties that have been in power, all employees and not just private sector employees should pay the contribution.

  357. I was not actually arguing that; I was only asking you for the figure.
  (Mr Brown) I know, but you will know that it has been advocated in recent days by people within your own party.

  358. I want to turn to one other spending line. You announced last Wednesday that, for a typical secondary school, additional payments to be made will rise from £98,000 last year to £114,000 this year, but in the Budget last year you said the payment would be not £92,000 but £115,000 and these payments will be made not just for one year but for every year through to 2004. How is the £114,000 which is £1,000 less, which you have announced this year, additional?
  (Mr Brown) I think I might have to send you a note on this because what is the typical school is the issue here[2]. Actually some schools receive far more than that figure in both cases of these figures, and some schools that are smaller receive less. Equally, in the case of primary schools, because of the distribution of numbers in different schools there is quite a range of schools for expenditure, so I will come back to the Committee on this. You will see that for schools with 2000, 1500, 1200, 1000—whatever the numbers of pupils are—there is a big difference in the rate of payments. So it is the typical figure that I was giving but it may not reflect the same definitions as you are using, but I will send that to the Committee.

  359. I understand that. I am familiar with the thresholds and, indeed, with this area, but I want to be clear whether what you announced last Wednesday is additional. You described it as additional?
  (Mr Brown) Additional money, of the order of £100 million extra, was put into this system.

2   See Appendix 8. Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 15 May 2002