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21 May 1996 : Column 735

Housing Bill

The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish): My Lords, on behalf of my noble friend Lord Ferrers, I beg to move the Motion standing in his name on the Order Paper.

Moved, That it be an instruction to the Committee of the Whole House to whom the Housing Bill has been committed that they consider the Bill in the following order--

Clauses 1 to 7,

Schedule 1,

Clauses 8 to 50,

Schedule 2,

Clauses 51 to 54,

Schedule 3,

Clauses 55 to 77,

Clause 89,

Schedule 6,

Clauses 90 to 97,

Schedule 7,

Clauses 78 to 80,

Schedule 4,

Clauses 81 to 83,

Schedule 5,

Clauses 84 to 88,

Clause 98,

Schedule 8,

Clause 99,

Schedule 9,

Clauses 100 to 107,

Schedule 10,

Clauses 108 and 109,

Schedule 11,

Clauses 110 to 126,

Schedule 12,

Clauses 127 to 154,

Schedule 13,

Clauses 155 to 188,

Schedule 14,

Clauses 189 to 194,

Schedule 15,

Clauses 195 to 199,

Schedule 16,

Clauses 200 to 205.--(Lord Mackay of Ardbrecknish.)

On Question, Motion agreed to.

London Regional Transport Bill

The Parliamentary Under-Secretary of State, Department of Transport (Viscount Goschen): My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Therefore, unless any noble Lord objects, I beg to move that the order of commitment be discharged.

Moved, That the order of commitment be discharged.--(Viscount Goschen.)

On Question, Motion agreed to.

21 May 1996 : Column 736

National Health Service (Residual Liabilities) Bill

3.11 p.m.

Baroness Cumberlege: My Lords, I beg to move that this Bill be now read a second time.

First, I should like to say how much I look forward to the maiden speech of the noble Lord, Lord Harris of Peckham, who has been unstinting in his commitment to the National Health Service and has given so much time, energy and skill to its management.

In the past five years we have seen a transformation of the structure of the NHS. By setting up hospital and community trusts and by establishing health authorities as commissions we have seen services develop, waiting times plummet and more people treated in both secondary and primary care. We have encouraged efficiency and given trusts both freedom and incentives to respond to patients' needs.

The 1995 Health Authorities Act, which came into effect on 1st April this year, completes the last stage of our reforms. It streamlines significantly the management structure of the National Health Service. The abolition of regional health authorities allows decisions to be devolved to a local level closer to patients, and it will deliver savings of £100 million per year. Creating single health authorities through merging district and family health services authorities will also result in better services to patients.

Having completed this latest stage in the reforms, we are confident that there now exists a structure that is flexible and responsive to local needs. Society is not static and the NHS has to continue to reflect changes, as it has done successfully since 1948. In the future we will almost certainly see trusts alter and, subject to statutory consultation, merge where it is in the best interests of patients. It is that flexibility in structural change and the wish continually to improve health services that provide the context for this Bill. Proper and prudent management of the health service should ensure that patients continue to receive the services they need and that those who contract with the NHS can do so with absolute certainty.

Under current legislation, provision for the liabilities of trusts, health authorities and special health authorities which cease to exist is at the discretion of the Secretary of State. In the past, where a health authority or trust, and before that a hospital, has merged, the liabilities have been transferred elsewhere. Recently in the lead-up to 1st April when district health authorities and family health service authorities were merged, their property, rights and liabilities were transferred. We have used the discretion to transfer liabilities in the past, and it is most unlikely that any Secretary of State would not do so in future. The provisions of this Bill, however, remove all doubts in the matter.

The Bill, if enacted, will reassure all those who contract with the NHS. In the event of further reorganisation involving the exercise of Ministers' powers, it will ensure that no liability will simply be extinguished.

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In detail, Clause 1 imposes a duty on the Secretary of State to ensure that all liabilities of a health authority, special health authority or National Health Service trust are dealt with on their ceasing to exist; that is, on their dissolution or abolition. "Dealt with" in this context means that the liability is transferred to another NHS body, being an NHS trust, a health authority or special health authority, or to the Secretary of State. The property and rights will remain subject to the Secretary of State's discretion to transfer, except to the extent that they need to be transferred to secure that all the liabilities of the body are "dealt with". The effect of this is that all the liabilities must be transferred, but they need not be transferred to the same person or body.

Clause 2 imposes the same duty on the Secretary of State with respect to trusts, health boards or special health boards in Scotland, except that liabilities may also be transferred to the Common Services Agency for the Scottish Health Service, which can itself be abolished only by primary legislation.

Clause 3 allows any corresponding provision made by Order in Council in respect of Northern Ireland to be subject to the negative resolution procedure.

During the debate on the Bill in another place, much time was spent discussing the benefits of the private finance initiative in the NHS. It is indeed the case that this Bill has arisen in the context of the PFI. The Bill will give comfort to all those who contract with the NHS and pave the way for the continued development of the PFI, to the benefit of patients and taxpayers alike.

We believe that the PFI offers a great opportunity to develop, be innovative and produce modern facilities to the benefit of patients. In the past five years the value of new starts on major schemes (that is, schemes with a capital cost of £1 million or more) has been £0.5 billion or less annually, following the peak in the late 1980s. There are now about £1.5 billion worth of schemes seeking private finance. Around 25 large schemes, each over £25 million in value, have placed advertisements in the Journal of the EC to seek a PFI partner. In the 10 years from 1985 to 1994 only 10 contracts of that size were placed. If only half the schemes seeking PFI now succeed, that will expand the NHS capital programme significantly.

Nevertheless, I want to reassure your Lordships of one thing; namely, that there are some important principles that will not change. The NHS will continue to be committed to the provision of a universal health service, largely free at the point of delivery and largely funded from taxation. There is a collective government commitment to the key founding principle of the National Health Service, that healthcare should be available to those who need it on the basis of their clinical need without regard to their ability to pay. The private initiative in no way erodes that principle.

The PFI is not intended to herald a new period of upheaval in the NHS. Health authorities will continue to manage budgets on behalf of their resident population; fundholding GPs will continue to reinforce the purchaser function of the health service; and responsibility for providing health care to meet the needs of patients will continue to rest on NHS trusts.

21 May 1996 : Column 738

All will continue to operate in the public sector. All will continue to be accountable through Ministers to Parliament.

Concerns were expressed in another place that the Government will be needlessly taking on uncontrolled and uncontrollable risks. That is not the case. Trusts are subject to a full and detailed framework of financial governance and there is a comprehensive system of controls already in place.

In terms of controls on trust borrowing there are four key elements. One: that trusts must obtain value for money in carrying out their functions, including any borrowing they undertake to support that. This generally means loans from the Secretary of State or guaranteed loans from the commercial sector. The process of issuing guarantees provides a supervision mechanism. Two: trusts may not mortgage or charge their assets as security or borrow in non-sterling currency without express permission. Three: every trust has an external financing limit--a limit on the amount of borrowing that the trust can make. Trusts submit a financial plan each year demonstrating how they will meet it and are monitored throughout the year to ensure that they do not exceed it. Four: the quarterly monitoring of expenditure would quickly alert regional offices if trusts started to take on unusual debts.

There is a statutory requirement for trusts and certain other NHS bodies to keep accounts which are audited by the Audit Commission. That audit is in addition to the examination within the NHS Executive of the annual accounts, which are statutorily required to be prepared and transmitted to the Secretary of State in respect of each financial year.

Chief executives of health authorities and trusts act as "accountable officers" and are expected to answer to Parliament through the NHS chief executive for the efficient, effective and proper use of all the resources in their care. In cases of serious management failure or unacceptable conduct, the accounting officer would expect the appropriate chief executive of the health authority or trust to accompany him to a hearing of the Public Accounts Committee to answer personally to the committee. The Comptroller and Auditor General also scrutinises the accounts of trusts, health authorities and special health authorities and lays them with his report before both Houses of Parliament.

Finally, the change the Bill makes is a technical one and does not represent any change in policy. This Government have always understood that any liabilities incurred by trusts should be transferred on dissolution. This Bill ensures that the Government will stand behind their liabilities in a proper and prudent manner. In conclusion, the provisions contained in this Bill are sensible and appropriate. They demonstrate the continued commitment that this Government have to the NHS--to those who work in it, are cared for by it and whose livelihoods depend on supplying goods to it. This is a sensible measure and we believe one worthy of the support of your Lordships' House. I commend it to the House.

Moved, That the Bill be now read a second time.--(Baroness Cumberlege.)

21 May 1996 : Column 739

3.21 p.m.

Baroness Jay of Paddington: My Lords, I thank the noble Baroness for introducing this short but significant Bill and, like the Minister, I look forward to the maiden speech of the noble Lord, Lord Harris of Peckham, with his interest and particular involvement in this subject.

As your Lordships will know, this Bill has been designated as a money Bill and will not therefore be considered in detail by this House. But this afternoon we have an important opportunity to discuss our concerns about the troubled state of the private finance initiative in the health service. Frankly, it is somewhat disingenuous to suggest, as the Minister did in introducing the Bill, that it is about the NHS paying its debts. That suggests that somehow, over its 50-year history, without this legislation being in place, the NHS has had a rickety financial background from which the Bill may rescue it. When that assertion was made in another place honourable Members rightly challenged Ministers to show when, in its 50-year life, the NHS had not met its financial obligations without this legislation being on the statute book. But answer came there none.

Let us be quite clear what the Bill is about. It is not designed to fill some historical gap in the health service financial administration which the Government may suddenly have identified; it is designed to try to rescue, to breathe life into the private finance initiative which at the moment is in unproductive chaos. Let us also be clear how serious that unproductive chaos is.

In last autumn's Budget the capital resources for the health service were cut by nearly 17 per cent. The Chancellor and financial Ministers blithely suggested that the money for hospital building programmes and other major capital investments would be raised through the private finance initiative. A figure of £135 million was mentioned as a reasonable target to raise from private sector funding during this next year, even though I should point out that that target of £135 million would be less than half the cuts in public expenditure made in the autumn Budget even if it were practically realisable.

The real tragedy for the health service is that not a single private contract for a hospital has been completed and nothing has been finely agreed. That is not just since last November, since the cut in the public expenditure budget, but since 1992 when the PFI was introduced. People throughout the country--there are specific examples in Carlisle, Norwich, Amersham, North Durham, Swindon and several other places--have been promised new hospitals through the private finance schemes and not one brick has been laid. Several of those communities have been waiting for those hospitals for a number of years, waiting for the PFI to deliver, but nothing happens. And, as the Treasury Select Committee report on private finance in the health service published last month said,


    "In some circumstances it [the private finance initiative] has delayed rather than encouraged investment".
One would not be aware of that from the stream of Department of Health press releases which emerge with regular optimism announcing new schemes, trumpeting new developments. But the private financiers, the bankers, just do not bite on those projects. I am grateful

21 May 1996 : Column 740

to my noble friend Lord Eatwell, the Treasury spokesman on these Benches, for defining the PFI as "probably fictitious investment". It certainly has little reality in the health service today.

The Government have now realised that hospital development and building programmes have ground to a halt and hence the rush to push this Bill through Parliament in order to reassure the bankers and persuade them to invest in order to get at least some building started in this pre-election year.

We on these Benches support the principle of joint public/private partnerships and the potential for spreading risk on major capital ventures. But ironically this Bill, by compelling the Secretary of State for Health to accept a health service trust's residual liabilities if that trust ceases to exist, simply brings the ultimate risk back to the public sector. Private bankers may invest; individual trusts may run up liabilities; but if things go wrong, the taxpayer must pick up the pieces. One would have thought that that would make any entrepreneur look at any investment in this area as very attractive; it is virtually gold plated.

Unfortunately for those who proposed the Bill--and indeed most unfortunately for the health service--since the Bill finished its passage through another place there has been growing evidence that the bankers and the building industry are still not convinced. John Laing plc, the construction group which has been a leading bidder for some of the NHS schemes, called the existing arrangements for negotiating contracts "farcical and appallingly slow". Mr. Martin Laing, the chairman, is calling for a complete overhaul of the Government's PFI arrangements by the Treasury.

At a banking conference in London earlier this month there was international scepticism about the extent of the guarantees provided by the Bill. Potential investors spoke at the conference about the risks involved in negotiating long-term financial deals with individual trusts who themselves have only one to three years guaranteed income from their contract with local health purchasers. There was also concern that the Bill does not exclude the possibility of an insolvent trust continuing to exist but being unable to pay the PFI investors. The magazine Building of 3rd May headlines its report on that conference,


    "Banks Scorn PFI Hospital Safeguards".
That is not an encouraging verdict on something which was designed to give the private sector a total guarantee of its investment.

It is also not surprising that the Treasury Select Committee in another place, which recently took evidence from some trust chief executives, states in its report--also published since the Bill began its passage through another place--


    "the evidence reveals some concern about the suitability of PFI for health projects".
The sixth report of the Select Committee on PFI published, as I say, since the residual liabilities Bill was first considered in another place, is a thorough and critical appraisal both of this Bill and of the general situation. Honourable Members in another place of all parties who serve on the committee were particularly

21 May 1996 : Column 741

concerned to establish how finance raised in this way--I remind your Lordships that under this Bill that would be ultimately guaranteed by the taxpayer--was to be monitored; how priorities were to be decided and what guarantees exist to prevent individual trusts not only raising private money for buildings and equipment, but also privatising clinical services and thus undermining the basic principles of the NHS.

The important issue of responsibility for sanctioning and monitoring borrowing by individual trusts seems to be extraordinarily complicated and obscure. Initially the Secretary of State for Health told the Treasury Select Committee that trusts did not have the power to borrow at all. Not surprisingly, Department of Health officials as well as better-informed honourable Members, quickly pointed out the arrangements which the Minister repeated this afternoon whereby, under Schedule 3 of the 1990 legislation, trusts can borrow. As the Minister said, they can borrow as long as they do not mortgage, do not borrow foreign currency or together do not borrow more than £5 billion.

After some rather confused discussions in the Select Committee hearing, the Secretary of State said that he thought it would be helpful if the Department of Health produced a paper on trust borrowing powers and the constraints on those powers--somewhat late in the day, it must be said, because the Bill your Lordships are considering this afternoon was due to have its Second Reading in another place a week after that hearing. However, the paper was produced and now forms Appendix 23 to the Select Committee report. Appendix 23 follows the lines that the Minister has described this afternoon and appears to give a clear line of accountability, albeit in rather general terms, through the various health service financial systems back to the Secretary of State, back to the Treasury and ultimately to Parliament. But in practice, when my honourable friend in another place, Mr. Milburn, asked the Secretary of State in a Parliamentary Question how many NHS trusts had borrowed from the commercial sector in the past year, the answer, as it is so often nowadays in the health service, was that the information was not available. Therefore, the trusts appear to be able to borrow up to £5 billion--now, under this Bill, secured by the taxpayer--and the Department of Health will not hold information on who has borrowed what.

There have been assertions--the Minister made them this afternoon--that the PFI would be controlled by the trusts' external finance limits which are subject to the conventional annual public expenditure controls. But I am advised that this is not the case simply because, unlike publicly funded projects where capital charges are up front in the first year in which they are committed, under PFI schemes there is almost no expenditure in the first two or three years. These schemes involve long-term charging for constructing a building or providing a service over the years in which the project is delivered. The EFL--the external financing limit--is therefore irrelevant because the commitment is made for future years in which there is no agreed EFL. Evidence from the Treasury to the Select Committee revealed that trusts are "encouraged" to register PFI projects, but this is entirely voluntary.

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The Select Committee report describes the overall monitoring process as "rather haphazard". "Rather haphazard", my Lords, and do not forget that we are talking of up to £5 billion in private loans underwritten by the Government.

Perhaps even more haphazard and worrying is the way that using this type of PFI in the health service may distort priorities and may undermine the ability of any Secretary of State to develop a national strategy for investment and service provision. If, as the Government are now suggesting, all NHS capital schemes must be subject to private finance schemes, we are effectively transferring the choice about which hospital projects go ahead from a publicly funded, publicly accountable system to one where the private sector calls the shots and chooses which projects are commercially attractive.

Perhaps I may give an example. If the Secretary of State were to decide that breast cancer services were most effectively and efficiently delivered through particular centres of excellence with a specific geographical spread, but, at the same time, individual trusts negotiated individual private sector loans to create their own breast cancer units, they, the trusts, could well cut across a carefully considered set of health service national priorities. Equally, if private investors decide that a necessary local unit--necessary, that is, on clinical grounds--is unacceptable and unprofitable, it will therefore not be available. Unless it can compete for some public money over a longer term it will not be available to local patients. This must further undermine the already shaky national framework of the NHS. So far as I can see, there is nothing in the present PFI arrangements to prevent it happening.

Again, I refer your Lordships to the bipartisan Treasury Select Committee report. In paragraph 7 the report states:


    "If the need for a facility, and its probable profitability, do not coincide, the Government will need to take steps to ensure that services continue to be planned and provided. It would be unacceptable if the Government's planning for the future provision of ... hospitals began to be driven by the shorter-term perspectives of private bidders. The Committee would welcome therefore the Treasury's views as to whether the prioritisation of projects should be the responsibility of Government and Parliament, or those seeking to provide projects on a commercial basis".
I can tell the House that there is little doubt which position we on these Benches would take about that.

This last point brings us inexorably to the issue of whether the PFI in its present form is bound to lead to the privatisation of clinical services, not just buildings. Again, there seems to be little to prevent this happening. The Secretary of State has said that clinical services should not be provided under the PFI--this is an interesting caveat--"without the consent of local clinicians". But frankly that does not seem to me to be a watertight enough guarantee against piecemeal privatisation. For example, one can easily imagine circumstances where local clinicians as well as local managers may well be prepared to make major compromises in order to get a new hospital building off the ground. Already at the Stonehaven Hospital in Scotland we are told that the design, building and management, including the delivery of clinical services, will be put out to private sector bidders. Indeed, there

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was some discussion--there was detailed but inconclusive exchanges between my honourable friends in another place and the Secretary of State and between Mr. Dorrell and the Treasury Select Committee--about what constituted clinical services and how to try to protect them.

As in so much of this area, the official picture is unclear but suspicious. I should be very grateful if when the Minister replies she could tell the House whether or not the department has come to a conclusion about whether, for example, clinical services which would be specifically excluded from PFI include such things as haematology, pathology, radiography or MRI scanning. If the Government genuinely wish to preserve the public service NHS, they must speedily define and ring-fence clinical services and specifically exempt them from the private finance initiative.

I hope I have shown that the Bill is not a technical measure designed to correct a long existing small problem in NHS finances. The Bill is part of the Government's determination to reduce public services, to devolve proper control and accountability in the health service to the individual small businesses that now make up NHS trusts. At the same time, ironically, the Bill compels the taxpayer to meet the private liabilities of dissolved trusts. I am extremely glad that, although this House cannot seek to amend the Bill because of the parliamentary timetable, we will have the benefit this afternoon of contributions from several of my noble friends who have vast expertise in Treasury matters, in economics, and practical experience of industry as well as of the NHS itself. At least their authoritative comments will be permanently recorded in the Official Report.

The authoritative and generally discouraging verdicts of the private sector and the Treasury Select Committee are already on the record but no doubt the Government will try to press ahead in their rather blinkered way. We shall just have to wait for the speedy election of a Labour Government to develop a system in which private finance may be able to work creatively in partnership with public finance in the public interest. The Bill before your Lordships today will certainly not achieve that.

3.37 p.m.

Baroness Robson of Kiddington: My Lords, I thank the noble Baroness the Minister for introducing the Bill and for trying very hard to justify it. I should also like to say how much I am looking forward to hearing the maiden speech of the noble Lord, Lord Harris of Peckham.

I was more than a little puzzled when I first saw the Bill. The reason for the introduction of it seems very difficult to comprehend. Ever since 1948 the Secretary of State has had the power to deal with the liabilities of any health authority or trust which finds itself with financial problems. As far as I am aware, this has always worked well. I do not know of any case where a supplier has been the loser because of reorganisation or closures. From reading the debate in another place, I note that not a single case was brought to the House's attention.

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The Bill changes the position of the Secretary of State by imposing a duty on him to deal with the situation. Why is that necessary if the system has worked well for 48 years? During the whole life of the NHS it has been understood that the taxpayer stands behind the liabilities of the health service. So why the need for the Bill to impose a statutory duty? It leaves us with no alternative, as the noble Baroness, Lady Jay, indicated, but to assume that it has more to do with the Government's desire to introduce into the health service the private finance initiative than with a need to improve a system which has worked well for 48 years.

I believe that the Government have two reasons for introducing this Bill. One has already been mentioned by the noble Baroness, Lady Jay. It is that the private finance initiative has not so far been a success in the NHS. Most investors have been wary about the health service partly as a result of the Government's endless reorganisation, but also because of medical advances and the difficulty of looking into the future. No private investment consortium is prepared to invest the money needed to build a district general hospital without at least a 25-year guarantee of a return on its investment. That means that the health authority, the trust or the taxpayer in the last analysis will be saddled with this revenue expenditure for 25 years, even if for any reason, and not always within its control, the hospital were no longer needed. If the hospital had been built with NHS capital funds, it would still belong to the NHS and the proceeds of a sale would accrue to the National Health Service. It would also be relieved of the recurring revenue cost, and that money could be used for patient care.

I suspect that the second reason why the Government need this Bill is that if they can persuade private capital to invest, they will be able to reduce the capital allocation to the NHS and present a Budget which opens up possibilities for tax reductions. They have already reduced capital allocations to the NHS this year by just over 16 per cent. However, the real cost to the NHS has not been reduced because all that has been done is to move the expenditure from the capital account to the revenue account in future years.

Can the Minister assure me that in the event of a hospital being built under the private finance initiative, the health authority will have its revenue allocation increased year by year by the amount it has to pay in the lease money to the consortium? Unless that is guaranteed, what we are doing is burdening future generations with the cost of possible improvements now to the detriment of patient care in the future.

I read with interest the evidence to the Treasury Committee of Stephen Dorrell on the private finance initiative. When asked if it were not true that some of the bankers wanted this Bill, he replied (at page 106 of the report):


    "It is perfectly true that in the discussions with partners this lacuna in the law has been pointed out. What is not true is to suggest that this is in some sense special to the Private Finance Initiative. The same problem applies to the potato supplier to Southend Hospital. The potato supplier to Southend Hospital finds himself at risk at this moment of me reorganising the hospital and leaving his bill unpaid".

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I have been involved in the health service for many years, as governor of a teaching hospital, as chairman of a postgraduate hospital and as chairman of South West Thames Regional Health Authority for eight years. I have never been aware of difficulties in obtaining a regular supply of potatoes because the supplier was concerned about non-payment of his bill.

The demand for this Bill has certainly not emanated from regular suppliers to the health service. One must therefore conclude that the only reason for the Bill is an intent to encourage private venture capital to invest in capital projects in the NHS.

Stephen Dorrell also claimed that the private provider is carrying a great deal of risk under the PFI arrangements--that is to say, if the hospital is not completed on time and there are cost overruns. That is not new. A prudent health authority or trust will ensure that a contract with a construction company includes a time limit and a penalty clause for non-compliance. So the project can be carried out without the PFI.

The Select Committee in the other place warns that the PFI may not provide the best value for money and that capital spending on health will be cut on the basis of expected PFI investment which has still to materialise. It is not there yet and the investment has already been cut.

Finally, the willingness of the private sector to become involved in a new building project will increasingly influence whether the project goes ahead or not. This raises the prospect of the siting of hospitals being determined by commercial considerations rather than being planned on the basis of need. I believe that the public are deeply concerned about the expansion of the private finance initiative into the National Health Service. They are worried about the impact and whether it will still remain a truly national service. I realise that there are opportunities for extra capital in the health service through the PFI, but I do not accept that to cut capital expenditure by 16.8 per cent. before we have any guarantee of PFI is the right way to go about it.

3.47 p.m.

Lord Harris of Peckham: My Lords, I do not believe that I have ever been so nervous as I am today in making my maiden speech in this House. I thank noble Lords for my welcome.

I am going to talk about the importance of administration and management in NHS hospitals and NHS trust hospitals. My experience is of two years as chairman of Guy's and Lewisham Trust between 1991 and 1993. I should like to explain to noble Lords the size of the budget that we had at Guy's and Lewisham. It was £140 million, which is bigger than most companies in the top 100 of the FT Index. We employed over 7,000 staff.

On becoming chairman, I had to appoint a new chief executive, two new general managers--one from within the hospital and one from outside--and promote other people from within. What is also very important is that we had four new non-executive directors, and I believe that they are a very important part of the NHS. One of the non-executive directors is now chairman of the

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Lewisham NHS Trust, and one of the others is deputy chairman of the Guy's and St. Thomas' Trust; the other three still work at Lewisham.

The total cost of the total administration was £250,000, which is a lot of money, but less than one quarter of 1 per cent. of the total budget. When we speak about administration today, at Guy's and Lewisham we moved the director of nursing, who was a matron, onto the administration costs: the medical director changed his status from being on the hospital budget to the administration budget. The total budget of Guy's and Lewisham Trust was £250,000.

Once I became chairman of the trust, I had to look at the previous year's budget and performance. I was told in the trust application that there would be a profit--or rather, a surplus--of £1 million. However, once we had the numbers, we saw that there was a deficit of £1.5 million. If we had carried on in the same way in the following year, we would have had a deficit of £7 million.

Of course, difficult times lay ahead and we had to make difficult decisions. Between 65 and 70 per cent. of the total cost of the NHS goes on the payroll. We had to reduce our staff by 300, but we did not lose any nurses or doctors. We stopped using agency nurses as soon as possible because they cost double the rate of an ordinary nurse. We started to use what is called a "banking system" of nurses. We started to use people who had worked at Guy's and Lewisham previously but who now wanted to work only one or two days a week. We brought them in at a lot less cost than agency nurses. The savings on that alone amounted to £5 million.

We also budgeted slightly differently than ever before. We allocated 48 per cent. of our budget for the first half of the year and kept 52 per cent. for the second half. That was important because it meant that there was no shortage of cash in February or March so we could still treat as many patients as possible.

I made sure that all members of management and the board, including the non-execs, spent two hours each week walking round the hospital, talking to staff and patients. We also went out to see local GPs. Having done that, we could tell what we needed to do, and the board produced a charter. I have four copies of it with me. The charter told the public, our patients, staff, the local community and GPs exactly what we were going to do. Every six months we report back on what we have achieved and how far we have moved forward. In the first year we fulfilled 90 per cent. of the promises that we had made. That was a high level of achievement, but by the second year we had increased it to 93 per cent. We concentrated on improving patient care, treating more patients and on putting the patients first.

We also improved working conditions for our staff. We provided a canteen service for those staff working at night. We paid attention to health and safety matters and made sure that our staff were safe when working at night. We installed video cameras to try to prevent attacks. We provided better restrooms for them. After 12 months, we reduced the hours worked by junior doctors to 80 hours per week and, after two years, we further reduced them to 72 hours. I believe that we were the first trust in the country to do that.

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Communications are very important but very difficult in an NHS hospital. We had to talk to, and liaise with, 7,000 workers. As I have already said, we also had to talk to the patients and their GPs. We did that all the time. We felt that we had to do it; we concentrated on it and we learnt much from it. All that--and we had to live within our budget.

After that, staff morale definitely improved. We had an agreement whereby we would pay low-paid staff--that is, anyone earning less than £4.92 per hour--an extra £6 per week for turning up at work. If staff turned up for work for five days a week, they got £6. Attendance increased from 70 per cent. to nearly 90 per cent., so the scheme was definitely self-financing. We also improved the quality of our supervisors. The extra rate for supervisors in the NHS is only about £2.50 or £3 a week more. We reduced the number of supervisors from 24 to 12 over the two hospitals, but paid them an extra £2,000 a year. Again, that was self-funding.

We also opened a nursery at Guy's for the first time. That meant that many staff who had left Guy's when they had had children then returned to us. We introduced a hotline so that staff could raise problems immediately with the general manager. We let our nurses have £2,500 per ward twice a year so that they could choose the equipment they wanted to have. They knew what they wanted to have on the wards far more than we did centrally, so they picked it and we bought it for them. As I have said, morale in the hospital was constantly improving. For the first time, all the nurses, doctors, other staff and unions were working together.

We provided a card on which patients could tell us what they thought about the service in the hospital. In its first year, we asked people to fill it in while they were in hospital. However, when we later sent the cards to people's homes, we received slightly different results. After 12 months, 75 per cent. of in-patients thought our service was excellent; 20 per cent. thought it was good; 3 per cent. thought it was average; and 2 per cent. thought that we could do better. We concentrated on that last 5 per cent. One of the problems that such patients reported to us was that no bed was available for them when they arrived in the hospital. Another problem was that when they left hospital no one told them what to do or what treatment they should follow. Having looked into that, we now have a "leaving hospital package" which tells patients what should happen when they leave hospital.

We increased daycare provision by 12 per cent. That resulted in a waiting list reduction of 12 per cent. in the first year and another 12 per cent. in the second year. Fewer than 50 people wait more than 12 months for treatment.

We have spent an extra £6 million on hospital maintenance. We painted the outside of Guy's for the first time in 14 years and refurbished 16 wards--that is double the previous average. The in-house cost of that was £25,000; but when we tried to contract out that work, we found that it would cost £250,000. The in-house cost was 90 per cent. of that.

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We introduced signposts in the hospital so that people knew where they were going. Previously, people could not find their way around Guy's, but that is no longer the case. I am also very keen on keeping places clean and tidy. I firmly believe that a clean and tidy hospital leads to better service and helps the patients, so I installed waste paper bins. That is all very well, but they have to be emptied. As I said earlier, members of the board walked round the hospital regularly and we sometimes found that those waste paper bins needed emptying. We were always told that they had only just been filled, but we decided to have a change of thought. We used black bin liners on Mondays, grey on Tuesdays, black again on Wednesdays and grey again on Thursdays, so we could soon tell whether they were emptied regularly.

In our first year we treated 6,000 more patients. That figure rose to 8,000 in the second year. In our first year we reduced the unit cost of treating patients by 12.9 per cent., and in the second year by 14 per cent. That was the first time in 20 years that the hospitals comprising the Guy's and Lewisham Trust lived within their income. In fact, we have a slight surplus. Over the two years we have made savings totalling £20 million. That money has been put back into the buildings and our staff; but, more importantly, it is spent on treating more patients and on providing a better service.

Finally, perhaps I may say this: people think that the NHS is free. It is only free when you use it. For the rest of the time, we all pay for it from our taxes, so we must make sure that patients get first-class treatment as soon as possible.

3.58 p.m.

Lord Winston: My Lords, I suppose that I should first declare an interest in that I am a National Health Service consultant, with an academic backing, working in West London.

With my usual lack of organisation, I have only just noticed my position on the speaker's list and I find that it is my privilege to thank the noble Lord, Lord Harris of Peckham, for his maiden speech. His expertise within the National Health Service will be of considerable relevance in this House and we are delighted to hear from him today. The noble Lord has a very distinguished business record. He is a member of the Court of Patrons of the Royal College of Obstetricians and Gynaecologists in London, to which I belong. He has given most distinguished service to that college. I believe that he is also an honorary fellow of Oriel College. A little while ago I mentioned that I had gone through Dod and made a study of the number of noble Lords who had been to Oxford or Cambridge. I find that very few noble Lords have a relationship with Oriel College, Oxford, so it is very good to welcome the noble Lord on that ground alone. Most of all, I wish to thank the noble Lord for his extreme generosity and remarkable commitment to many health issues, in particular research. I refer to his support for so many charitable endeavours. Sadly, I do not believe I have ever benefited myself from it, but I am very pleased that so many others have. Having seen the results of that work, I can assure noble Lords that it is work of very

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high calibre and international standing. Without people like the noble Lord, the National Health Service and the university sector in this country could not function.

The problems that face the National Health Service are basically three in number. I am sure that the noble Baroness, Lady Cumberlege, will wish to argue with me about it. However, from my side of the fence it appears that the first chronic problem faced by the National Health Service is that of under-resourcing. I know that the Government have increased health service funding. I will not argue about it, and I do not make political points. However, most people who work in the health service feel strongly that, because of the way in which health is financed in this country, the health service is under-resourced. That can be seen in many areas. For example, one recent example is the difficulty in west London to get emergency beds for patients. I do not believe that the PFI will help under-resourcing in any way.

The second problem was the one to which the noble Lord, Lord Harris, referred: morale. Only a month or so ago we debated this issue. I believe that there was overwhelming support for the notion that the health service suffered from a terrible loss of morale. That is patently clear. Of course, we are all proud of the health service and no one wishes to talk it down, but there is a crisis of confidence among those who work in it. The PFI will not prove to be a benefit in that regard either.

The third problem, which in many ways is the most crucial one, is the lack of central planning. That is no fault of this Government. It was in place long before this Government or any previous government this century came into power. As far as concerns the old hospitals like Guy's, St. Thomas', Barts or the London Hospital--all of which were founded in previous centuries and have outlying hospitals associated with them that provide various kinds of specialist care--it is inevitable that there will be a lack of planning. In the major cities, particularly London, this is a very serious problem. First, in view of the way that the PFI is currently structured, I do not believe that this kind of central planning will be improved. I argue that, as the PFI is structured, it is likely to make the situation worse. Building in the health service is bound to be haphazard, is unlikely to reflect many regional needs and cannot reflect national needs.

Secondly, the PFI requires income stream. It requires the companies to generate income to service borrowings and make some kind of profit. Consequently, as we know from the Government's own document, the companies which come in need to take over many activities. It is true that there is a notional split between clinical and non-clinical activities. Thus, one may hive off one's cleaning activities to the PFI but retain nursing, but in practice that will be very difficult. Already a number of hospital trusts have mentioned this, as in the case of Sheffield. Recently, I have been involved in negotiations relating to a relatively small PFI rebuilding project at my own west London hospital. At the initial negotiation, those who were eager to put venture capital into it came up with the notion that they would try to pay pretty well all salaries except medical salaries. There is already a conflict. They believe that

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they will generate much of their profit and income from taking over and rationalising, or (as they say), improving these services.

Thirdly, those matters which are glossy, i.e. profitable, are much more likely to be funded and improved under the PFI than perhaps less essential services which will not generate income. I believe that that is a very serious issue which requires much more thought. I hope that the Minister will answer that point at the end of the debate.

Fourthly, the PFI is bound to increase delays in many rebuilding schemes in the health service. Indeed, there is evidence of it already. For example, the Central Sheffield University Hospitals Trust has that particular concern in regard to its own PFI. I believe that that concern is shared by many other trusts in the country. Therefore, it is not an advantage to the health service where sometimes there is a need to get on with these projects.

Fifthly, there is an inevitable tendency for the PFI to increase competition. The whole purpose of setting up a PFI is to encourage competition between those who tender. That is mentioned in the report of the Treasury Select Committee. My difficulty with that philosophy is that competition will spill over not only after the passage of the Bill but in terms of the services that are supplied. Perhaps I may take the trivial example of my own service because I understand it. We may undertake a PFI for new obstetric and gynaecological services in west London. Any sensible person who tries to initiate a PFI on the company side will immediately conclude that IVF is very profitable and perhaps one should snatch at it and downplay essential gynaecological services which, on the whole, do not make much money but are desperately needed.

I believe that there is a very special problem in regard to the university sector. There is a growing need for the interface between hospital and university practice. In the debate on the research councils last week I was rather critical of the fact that sometimes that interface was not present. I congratulated the Medical Research Council on its clinical research initiative. If we want our medical research to bite it must do so in the closest proximity to clinical services. There must be a concomitant degree of development of both services and rebuilding of both services. While the NHS may provide income stream, the university sector in general cannot provide it. It may do so if its research is so glitzy that it makes new developments, but there is no guarantee of that in any private finance initiative.

Finally, there is a genuine concern about the health service ethos. On all sides of the House we are proud of the National Health Service. It is something that has been freely accessible. However, speaking as someone who works in the health service that attitude is already being corrupted. There is no question that managers, doctors, nurses and other workers in the health service now look to see where the finance is coming from for the individual patient and his or her treatment. I say to the noble Baroness, Lady Cumberlege, that that is beginning to colour the practice in the health service. I fear that it is very much to the detriment of that service in the long term. While the PFI may be

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necessary, its structure has to be considered carefully so as not to cause those areas of damage. I fear that the current recommendation goes far short of what is needed for rebuilding in the health service.


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