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Earl Howe: Before the Minister replies, perhaps I may follow up the comments of the noble Lord, Lord Clement-Jones, because I identify myself very much with what he said. However, I want to add one or two other comments. I begin by saying that, by any standards--certainly by comparison with existing health legislation--Clause 1 gives the Government powers that are extraordinarily wide. They are wide enough to cash-limit the NHS as a whole, including general Part II expenditure, and to do so by squeezing the remaining expenditure. Essentially that is what we are looking at.

The Government may say that that is not what is intended. However, some people will suspect that that is precisely what is in their mind. If the aim is to enable the Government to increase resources in under-doctored areas, I still do not understand why a power for that purpose, and that purpose only, could not be taken under Clause 1.

In exercising their powers under this clause, the Government must also act fairly and transparently. The Minister's comments in earlier exchanges were most helpful in that regard. I believe that that is a very important principle because the objective of a more equitable spread of doctors can only be achieved indirectly. Therefore, it is all the more important that the Government make apparent precisely how they intend to use their powers for that purpose. If the Minister can shed further light on that, I shall be extremely grateful.

What the Government are doing begs a host of questions, such as the extra costs of providing GPs in terms of premises and the impact on other services of diverting resources to under-doctored areas. Health authorities must be treated fairly vis-a-vis each other, and there may be other relevant matters. The rules of fairness and transparency demand that the Government make clear at the outset what are their aims for GP numbers and what else will be taken into account in allocating funds and resources. Those matters need to be enshrined in the legislation. They are too important to be left to whatever modus operandi the Government choose to introduce because that can be changed at the drop of a hat.

Baroness Carnegy of Lour: I have a small footnote to add. The Minister says that this is a decentralising way in which to do things. I expressed my anxiety at Second Reading about the centralising nature of the Government's approach. They must realise that it may

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look as if giving certain powers to local authorities is decentralising, but it does not look like that to GPs, anyone else working in the health service, or patients. The manipulation of jobs, spread of GPs, and so on will seem enormously threatening to individuals.

I do not want to sound too much like a great aunt--I may have already done so this evening--but we must remember that the NHS is made up of individuals, all of whom have to find a certain satisfaction from it, whether that is job or customer satisfaction. The Government's approach is dangerous from the point of view of demotivating and alienating people. Everything must be done to clarify precisely what is happening. The system must be abundantly plain so that everyone knows exactly what the Secretary of State and the authorities are doing. The doctors must have as much say as possible in their fate, otherwise there will be trouble.

9.15 p.m.

Lord Hunt of Kings Heath: I shall do my best to respond and perhaps try to show how the system will work. I shall be happy to follow up with more detailed information if members of the Committee would like me to write to them. I understand that matters relating to NHS finance are not easily understood, even by those of us who have struggled to understand them for a number of years.

We are making a genuine effort to devolve authority down to the level of the health authority. The record of the Medical Practices Committee, however hard it tries, shows that a central, bureaucratic approach does not work. My experience is that efforts made to determine numbers of doctors have always failed in the past because they have never fully connected with the needs of the health service. Our approach in decentralising decisions down to the health authority level, combined with the work force framework at national level that I have outlined, is the best way to proceed.

Secondly, I accept the challenge in relation to fairness and transparency. That is why we referred the issue of the formula to ACRA. The recommendations that it makes in due course will be made available to Ministers. The formulas that are decided will be in the public domain, especially the targets that are set and the distance from targets for each health authority.

My third substantive point is that these changes are occurring in the context of both more resources and more general practitioners. That is the only way in which changes to the formulas will work effectively. We can look back at RAWP--the Resource Allocation Working Party--son of RAWP and grandson of RAWP and we know that if we try to introduce formula changes at a time when resources are squeezed, it becomes difficult to get any substantial movement. The conditions in which we are introducing the changes are absolutely right.

There will be a single funding formula that will set a target or fair share for each health authority and primary care trust, covering GMS non-cash-limited

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expenditure, as well as a unified allocation. When the Government allocate extra resources for unified allocations in the future, our pace of change policy will apply to those new targets.

So those who are spending less than their fair share on GMS non-cash-limited services will be given a larger increase for their other services. If they are spending more than their fair share, they may get a smaller increase. But that will be done--this is important--by a process of levelling up so that no area will have its existing level of resources reduced. I want to stress this: GMS non-cash-limited spend will remain non-cash-limited. GPs will continue to enjoy the right to remuneration that they currently hold.

Perhaps I may give one example. For the purpose of illustration, suppose a health authority is 3 per cent under target on its unified allocation and 10 per cent under its new GMS non-cash-limited target, if we combine those it might show the health authority to be 4 per cent below its combined target. In line with the pace of change policy, it will probably receive higher growth in its unified allocation than it would under the current system. It is then very much a matter for each health authority to decide what strategy to take forward. But in the end that is the best way of dealing with two different problems; first, the distribution of GPs; and, secondly, the way the allocation of funds works at the moment. We could have a situation where Part II funding is out of kilter with the unified funding which is based on a fair shares approach.

Baroness Cumberlege: Before the Minister sits down perhaps I may ask for clarification. I clearly understand the issue where we have a strong economy and we are able to invest more in public services. But there is a feeling, when we look across the Atlantic to what is happening in America, at the stock market and at all the other signs, that we are at the beginning of another recession. If the situation arises when the Government can no longer continue to increase their funding to the National Health Service, what happens to those allocations? Do they stand still? If there is a reduction in funding, do we then take away from some authorities? Where does the squeeze come?

Lord Hunt of Kings Heath: Given the Government's sound handling of the economy, I regard that as an extremely hypothetical question. But if a decision were made, for whatever reason, that resources to the NHS, at some undefined time in the future, were to be reduced from current levels, that would clearly have an impact on the pace of change. As has happened in the past, when less resource money is available we simply slow down the pace with which we move people nearer to target.

Lord Clement-Jones: I thank the Minister for that reply. But I do not believe that the situation the noble Baroness, Lady Cumberlege, introduced into the discussion is so hypothetical. The situations when levelling up might not occur would be exactly those that she indicated.

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I take some comfort from what the Minister said and the care with which he outlined the meaning and intent behind Clause 1. It may be we will have a truncated process on this Bill. But we shall need all the time we can get in order to understand what is a complicated area. I regret that the drafting of the Bill had to be so complicated. It cannot be beyond the wit of those concerned to have had more simple drafting and, frankly, drafting that did not take the opportunity to draw the net so widely. I know it is always a great temptation, but the Bill draws the net very widely, which raises suspicions about what could occur in the future if the resources were not there. However, I accept the Minister's assurances.

Clause 1 agreed to.

Clause 2 [Payments relating to past performance]:

Lord Clement-Jones moved Amendment No. 16:

    Page 3, line 4, after "they" insert "reasonably"

The noble Lord said: Here we move into the thickets of performance management and resources following performance and so forth, which I believe will give us much excited discussion between now and 11 o'clock. The amendments I suggest are not as comprehensive as those which follow in later groupings. However, they are significant. They try to introduce safeguards which, in the circumstances, will be valuable.

In moving Amendment No. 16 I shall speak also to Amendment No. 20. Amendment No. 19 is a slightly stray amendment, which may have been introduced in a haphazard fashion. Amendments Nos. 16 and 20 are the nub of the argument. The wording in Clause 2(2) contains the term "satisfied". That seems to be an absolute statement and leaves matters very much in the hands of the Secretary of State.

On my reading, each and every objective would have to be met to receive any additional amounts. Many of us believe that health authorities should have access to additional funding if they reasonably satisfy the objectives; for instance, if they achieve the majority of the objectives. They should not be deprived if they miss achieving one or two of the number of set objectives. There should be a degree of flexibility in the process.

Amendment No. 20 tries to introduce further flexibility. At present, as I read Clause 2, it is all carrot if health authorities have performed well in the past. Rather, there is a lack of incentive for health authorities which are not performing satisfactorily. If a health authority has performed satisfactorily and well against criteria, they can be rewarded. But what about those health authorities to which the Secretary of State wishes to give an incentive to perform better than they have to date? That may be covered elsewhere in the provisions, but it does not seem to me to be included elsewhere on the face of the Bill. Therefore, we have introduced the concept of payments being made to improve unsatisfactory performance looking towards the future. The Minister may say that there are other ways of dealing with that; I hope that he does.

Those two amendments are designed to give extra flexibility to the clause. We have no objection in principle to a performance management system. It

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seems to us to be sensible to introduce something along those lines. However, it should be right and should give the rewarders a degree of power to be flexible in the circumstances. I beg to move.

9.30 p.m.

Lord Hunt of Kings Heath: I am grateful to the noble Lord for his welcome for the general principle of a performance fund. This falls neatly into the Government's proposals to develop what we describe as earned autonomy. Essentially it endeavours to reward through greater autonomy those parts of the NHS that are doing well and to intervene less in their activities while having a much more proactive role in relation to intervention than those organisations which are not doing so well. These clauses enable us to go down that route.

As regards 2001-02, the new performance fund will be issued to health authorities on a fair share basis. Health authorities will then be directed to pass the fund on to NHS trusts and primary care trusts. Performance in the next financial year will not determine the amount of money those NHS bodies receive. It will determine how much direct control they have over how it is spent. The powers in the clause will not be used to operate the performance fund next year.

The essential purpose of this clause is to allow at some future stage the Secretary of State to make additional payments to health authorities, based on how well they are performing in a given year, if he should wish to do so. There will be additional flexibility which will allow the Secretary of State to provide an additional performance incentive for the health service.

For that reason, I have concerns about this group of amendments. First of all, the clause envisages incentives for good performance. The Secretary of State will be able to make payments to health authorities that either satisfy objectives notified to them or perform well against criteria notified to them in advance. I do not believe that is the place to deal with poor or average performance. By extending our powers to make payments to authorities that perform well against criteria, I believe that we have already provided much of the flexibility suggested by the concept introduced by Amendment No. 16 of reasonably satisfying objectives. However, we would not accept that any such payments could be made in any circumstances, as suggested by Amendment No. 19.

I understand the concern behind Amendment No. 20 that money should be made available to tackle poor performance. That is why the performance fund that we are starting with and which will operate next year is based on fair shares for all health bodies, with more strings attached to the money for poor performers. I do not believe that it is appropriate to take a power to make additional performance payments on the basis of poor performance. I accept that there is a balance here, but there is also a danger of that being a perverse incentive.

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I think there are other ways in which we can make payments to health authorities to improve unsatisfactory performance levels. For instance, one way in which at the moment we deal with funding issues for authorities or trusts which are having problems is to use brokerage, where money is made available but has to be paid back over a certain period. The condition of the brokerage deals is that there is greater intervention and supervision, perhaps by the regional office, as to how that organisation can get itself out of the trouble it has fallen into. Of course it would be open to the Secretary of State to make an adjustment to the allocation process in order to deal with those issues as well.

I believe, overall, that we have set out a reasonable way to go forward. We are starting on the basis of fair shares, but the clause as it stands allows us, if we wish, to move to differential additional performance payments in future. It would always be our intention to notify health authorities in advance of the objectives they need to satisfy and of the criteria against which they need to perform well.

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