Examination of Witnesses (Questions 1040
WEDNESDAY 9 JANUARY 2002
MP, MR ANDY
1040. On health care, which we debate all the
time. I just want to get on the record what is the correct figure?
(Mr Milburn) Our commitment is that we will have health
expenditure in this country at the EU level. That is precisely
what we will do.
1041. Which is what?
(Mr Milburn) At the moment I think it is 7.9 per cent
across the EU. By the end of this spending review period, the
current spending review period, expenditure on health care in
this country will be between 7.6 and 7.7 per cent of GDP. So we
will be within a hair's breadth, within shouting distance, of
the EU GDP average.
1042. This does not take into account that GDP
will increase in Europe.
(Mr Milburn) Well, GDP may increase in Europe, health
expenditure may well fall. For example, I know that the Germans
are overall, as I understand it at the moment, reducing the percentage
of health care as a percentage of GDP, that is what is happening
there. We are increasing it as you know and actually we have got,
I think, the fastest growing health service of any major country
in Europe right now. Pretty simple in terms of the numbers, the
numbers are right now, the average expenditure on health care
in Europe is 7.9 per cent, or thereabouts, by the end of this
spending review period, which will be the 31st March 2004, we
will be spending here between 7.6 and 7.7 per cent of GDP on health.
1043. Just so it is absolutely straight. What
you are saying is your target is to come within a hair's breadth.
(Mr Milburn) No, no, no.
1044. You said 7.6 per cent.
(Mr Milburn) No, no, no. I said our commitment is
to get to the EU average and then I said that at the end of this
spending review period we will be within shouting distance of
that. Our commitment is that we will get to the EU average.
1045. Right. The EU average, but the EU average
as it is now, not what it might be because no-one knows what the
EU average might be in March 2004.
(Mr Milburn) Our commitment is to get to the EU average.
Mr Burns: As it is now.
Chairman: Can I say we are getting slightly
off the ball here.
1046. Chairman, can I finally ask what is the
source of your figure for the average EU spend?
(Mr Milburn) The OECD.
Chairman: We have had a hour on the Concordat,
we have other issues to discuss. Are there any colleagues who
have a brief final question?
1047. To come back on the private beds issue,
and perhaps rather than dealing with this now our Clerk can deal
with this in correspondence, albeit we will need the information
fairly quickly. It seems to me that the Department of Health evidence
we have had suggests that if you take away the amount of extra
care that could be purchased by income which is derived from the
private beds in NHS hospitals, that you might get better value
for money by having the provision of the care available within
the NHS hospital.
(Mr Milburn) Remember that if we were to do that,
then we would have to provide the resource for the NHS consultants,
for example, leaving aside the NHS nurses, to staff the NHS bed
that became available.
1048. On the figures available it would appear
(Mr Milburn) Remember, that at the moment the NHS
is not paying the NHS consultant to staff the private patient
unit bed, the private sector is paying for that and, frankly,
at prices that are well ahead of the prices that the NHS pays.
John Austin: It might be worth looking at the
figures on that.
1049. Would that be true if the consultant were
already paid by the National Health Service? Are you suggesting
that if they go and do something in a private unit they will be
(Mr Milburn) By and large, that is not the case for
a private patient wing as distinct from the pay beds that are
scattered around, and remember the occupancy in the pay beds not
in the private patient unit is very, very low as far as privately
paying patients are concerned, it averages around ten per cent
so, in other words, if you have got an odd pay bed on an NHS ward
somewhere for only ten per cent of the time is it occupied by
a patient that is paying for it and 90 per cent of the time it
is occupied by an NHS patient that the NHS is paying for to occupy
it. That is a different category. In the private patient unit,
or separate wings as they usually are (often, incidentally, run
by a private sector operator) the consultant is not staffing the
private patient unit in their NHS time. Usually it is being staffed
in the private sector's time. I think that is right.
1050. What would your opinion beand I
want to preface my remarks by repeating what you said as well
that most of the consultants I know work extremely hard in the
National Health Service and often above their National Health
Service contractof a consultant employed by the National
Health Service who because of the position of a hospital or because
there was a lack of capacity due to lack of nurses or a theatre
has closed down or something like that, did private work in a
private unit, even National Health Service work in a private unit,
and was being paid again because he or she was unable to operate
within the National Health Service because of failings on behalf
of the National Health Service?
(Mr Milburn) On the face of it that does not sound
Chairman: Can we move to the PFI.
1051. We have had a whole host of what has often
been very contradictory evidence during the inquiry, people starting
from quite entrenched positions, from the the Unions' and Allyson
Pollock's position, which seems to be "public good/private
bad" at any cost, to on the other end of the scale organisations
like KPMG, where they are arguing that we are not going far enough,
as it were. Mr Stone has argued for the removal of "artificial
boundaries" from PFIs. He believes that "whole service"
PFIs maximise the scope for innovation and value for money. They
are also suggesting that the Department of Health oversee some
pilot projects which will involve clinical and neo- clinical services
to see what further benefits could be provided by the private
sector. I believe you looked at a similar scheme when you went
to Spain run in a very similar way, owned by the public sector
hospital managed by the private sector. Do you have any plans
to establish any such schemes in Britain in the near future?
(Mr Milburn) It depends what you mean by "any
such schemes" really. Certainly the one that I visited in
Spain was interesting, it is what they call foundation hospitals
and I think that there are only three of them that they have at
the moment. Essentially it is part of the public health care system
and they have a national health service broadly equivalent to
ours, although it has greater regional control over it than we
have in this country, and it is privately managed and, if you
like, the organisation that privately manages it gets a fee for
managing it. That is effectively how it works. It is a very modern
hospitalvery, very new. It has a more very severe case
mix, interestingly, than the corresponding group of Spanish health
service hospitals but has shorter waiting times. The staff are
better paid, although they told me that they worked harder than
in the equivalent public sector Spanish hospital. There are some
interesting lessons to be learned there. I suppose the closest
we have come to that sort of model thus far is the DTC arrangement
that we have been negotiating with BUPA that Richard was asking
about in Surrey where, effectively, what we are doing, I suppose,
is taking a BUPA hospital, and it is going to continue to be managed
by BUPA but it is going to be part of the National Health Service.
That is what we are doing with it because it is going to be exclusively
treating NHS patients and it means, in crude terms, as I was indicating
earlier, that we can get more NHS patients treated and hopefully
get them treated more quickly. I do not have a problem with that.
If you are asking what we are contemplating, that is the only
model we have contemplated thus far and it so happens that this
came along as an opportunity, rather like the London Heart Hospital,
and we decided to take advantage of it.
1052. One of the controversial aspects that
a lot of different agencies face is the staffing aspect and there
are a lot of people who are very worried about the fact of where
do clinical staff fit into this picture, should they remain part
of the NHS. What is your view on that?
(Mr Milburn) I think, by and large, they should. As
I think our first memorandum indicated that we submitted to the
Committee before I came before you last time, clearly in the large-scale
projects, whether it is through PFI or some other form of PPP
that we are seeking to develop, it is probably preferable that
you keep doctors and nurses as part of the NHS with NHS terms
and and conditions and so on and so forth. I think that is, by
and large, what they want. As you know, we are about to trial
the retention of employment option in three or four parts of the
country to see whether we can apply precisely the same sort of
approach to so-called non clinical staff as well. I think that
is largely for cultural reasons and people want to remain part
of this thing called the National Health Service.
1053. What would you describe as clinical staff
and what as non-clinical staff? In one of the hospitals, I forget
which now, the support staff were classed as very much part of
the ward team and almost regarded themselves as clinical staff
even though on paper it looked as though domestic staff would
be a more accurate description. Where would you draw the line
between clinical staff and non-clinical staff?
(Mr Milburn) As you know, we published back in 1998
precisely that differentiation and I am very happy for you to
have it, and I think the Committee has had it, which listed where
the divide lay between clinical and non-clinical services. However,
I also have to say that there are some grey areas between what
is clinical and what is not clinical. As you know, part of the
purpose behind the retention of employment option has really been
to try to reintegrate the services that people have traditionally
defined as completely non-clinical, the cleaning services in particular,
that are not part of the clinical team, and try to re-integrate
those back into the heart of the NHSfor obvious reasons
that people nowadays are very worried aboutwhich is where
you have had the absolute hard separation between some services
being in-house and some services being out-of-house. That has
not always contributed to the best standards, certainly as far
as cleanliness is concerned. Personally I do not think it is so
much the fact that those services were tendered out as the fact
that there was not a common management grip on the services. Part
of what the retention of employment option is about is to try
and get relationships right at ward level between the matron,
the ward sister, doctors, the cleaners and the other support staff,
so we have some of the basic functions carried out in hospital
wards that should always have been carried out in hospital wards
which is to keep the standards of cleanliness at a high level.
1054. I do not know if you remember last time
when I asked you questions about the PFI, a division bell went
and that was the end of the matter. We have had some responses
to the outstanding questions so I will not go over that again,
but I wanted to look at the question that PFI now is almost a
gateway to capital development in the NHS. Certainly everything
has to pass through it before it is decided whether they can proceed,
even if the decision subsequently is then to revert to the more
traditional route. Is that an objective part of its function or
is that just de facto what happens these days? Secondly,
this time last spring, not quite a year ago, you announced a batch,
I cannot remember the number, around about 30
(Mr Milburn) Twenty-nine.
1055. Now there will be different schemes of
different range, different volume, different scale, but assuming
they are all progressing at around about the same pace, how do
you recognise the problem of the capacity of the sector to actually
deal with those? Lewisham was one of the schemes last year and
I think they have got an excellent case to carry forward but they
are now worried that they are going to get caught in the constriction
of the system as we utilise it.
(Mr Milburn) On the first point about the PFI being
a gateway, as you put it, I do not think that is a bad thing at
all because what it allows us to do is to test, certainly for
the big capital projects as distinct from the smaller ones where
public sector capital is a perfectly quick and easy way to get
the odd ward built and so on and so forth, for decent value for
money for the taxpayer. As you are aware, many that have gone
through the gateway have passed their value for money test and
have gone off as PFI. Some that have gone through the gateway
we found do not represent good value for money or affordability
and, therefore, we have gone down the public sector route. I think
on the stocks we have got 64 PFI projects, major hospital projects,
and we have got four non-PFI projects in places like Rochdale
and Hull and elsewhere. I do not think that is a bad thing if
it brings some discipline to the value for money test in the National
Health Service on the capital side. That is point one. I think
we will want to continue to do that. There are concerns, which
I am sure the Committee has heard and that I am concerned about
too, about the time that it takes to get a PFI hospital built
from me taking a decision, or even earlier I suppose from the
strategic outline case, outline business case, full business case,
final sign off, building work beginning, completion and so on
and so forth. We are looking, Peter is looking, and I think we
will need to look at this jointly with colleagues in Treasury,
at how we can take some of the time out of the current PFI process
in order to get these new hospitals built as quickly as possible.
That brings me to the second and related point that you raise,
which is one of the rate limiting factors that we experience in
terms of being able to translate announcements about new hospitals
into bulldozers and then wards actually happening is the capacity
both on our side of the fence and on the industry's side of the
fence. At the moment there are very few players in the PFI market.
Essentially there are how many?
(Mr Coates) About a dozen I would say.
(Mr Milburn) About a dozen players who compete regularly
for NHS contracts. Although there are some new entrants coming
into the market, and potentially there may be more entrants coming
into the market, that limits the management capability of being
able to translate very difficult building schemes from paper into
practice. As a consequence of that, that is sometimes why you
get the delay. I think what your people in Lewisham are probably
expressing concern about, although I have to say there have been
no decisions taken on the next wave of the ones that are actually
going to go ahead, is probably lack of private sector management
capacity could limit the number of hospitals that can be built
quickly. That is something I think we have got to address very
seriously indeed with the industry. In the end I think the way
that we will answer that problem is probably by getting more entrants
into the market. That might not be comfortable for the current
entrants in the market because it will bring more competition
to bear, but if it means that we can get more hospitals built
and introduces more competition in terms of building more hospitals
then we would probably get a better deal for the taxpayer as well.
1056. Taking it a little bit further, your assessment
then is that it is the management capacity. It is not the scale,
the volume, the gross amount of money that is involved, it is
literally the management capacity and you need similar capacity
regardless of the spend?
(Mr Milburn) The problem is not the money from our
side of the fence in terms of the revenue commitments that we
make against the PFI projects, because as you know from the figures
that the Committee has seen although the revenue commitments of
PFI are rising year by year as the number of PFI projects rise
year by year, actually in terms of the overall NHS budget it is
not a huge proportion, around one per cent of the revenue HCHS
budget at present. Nor is it a problem with the cash that the
private sector has available to it because, in theory at least,
they have unlimited access to cash from the markets and so on
and so forth. The problem is the sheer managerial capacity that
you have in managing what are very complex projects. UCLH, a couple
of miles from here, is a hugely complex inner city hospital replacement
and it is going to cost us somewhere between 400 million and 500
million quid. It is vast and difficult, difficult to manage, and
there are only a limited number of project managers, leaving aside
architects and so on and so forth. It is the project management
function where we lack the capacity probably more than anywhere
else. I think that can probably only change with time. I do not
know whether Peter has anything to add. Maybe as the market matures.
Remember, there is lots of criticism about PFI, but the thing
to remember about it is that it is a relatively new market. Although
a lot of money was spent on PFI prior to 1997, not a single new
hospital was built. Now we are getting the hospitals built but
it has only just begun.
(Mr Coates) It is not the capacity in the building
market that is the problem, once they have been signed and they
start building there is capacity there. It is the skilled teams
in negotiating, designing and taking the schemes through to signing
that is the problem. That is where the capacity constraint is,
both to some extent in the NHS and to a greater extent in the
private sector. The major players can only take forward two PFI
schemes at any one time in terms of design and negotiation and,
given that, that implies you can only actually have six schemes
out in the market at any one time because you need at least two
bidders for each scheme and there are 12 players in total in the
market. That gives you the size of the area of the capacity constraint,
1057. Is it not misleading to say to all those
who were approved in the initial stages last year that they are
all off and running? Is it not a bit like the London Marathon,
they all start off but it takes them hours to get through Greenwich
Park gates before they can actually get on with what they are
(Mr Milburn) No, because if you remember when I made
the statement what I said was that these different schemes, all
29 of them, will come in different waves. This is three, four
and five, is it?
(Mr Coates) Four, five and six.
(Mr Milburn) The fourth, fifth and sixth waves. I
actually said which one was going to be in which wave. What we
were quiet about was when those waves would happen. Clearly I
want them built as quickly as possible. We have made the announcement,
the money is there, both from our side of the fence and I guess
the capital is there from the private sector side of the fence,
certainly the skills and expertise are there in the building market.
Our problem is the logjam, the bottleneck, if you like, around
the project management issue. I think that is something that we
need to try to jointly resolve between Government, including the
Office of Government Commerce, ourselves and the private sector
because it would just be anomalous for me if we have a situation
where we can build the hospitals but we have got a specific skills
shortage that means that you cannot do it immediately, we should
be getting on with it as quickly as possible. We are looking at
that issue and as far as the local issues are concerned I will
come back to you in due course.
1058. Can I move on to risk transfer, probably
to Mr Coates to allow you to finish your tea. It has become clear
that it is the risk transfer figures that make PFI into value
for money. How do we answer critics who say that the risk transfer
is uncertainty, unprobability and it is not a science? That is
the first question. The second one is risk transfer is only beneficial
if it is actually enforceable. How can it be enforced? At the
worst scenario, what happens if the same happens as happened in
(Mr Coates) It is true that the only way to test an
assessment about whether it is right to build a PFI or with public
funds is to build two together and then work out which one is
the cheapest. What we do is we analyse how costs escalate and
there are time overruns on publicly funded projects. We do know
that almost inevitably there are cost and time overruns in public
schemes. It seems to me that it is not a probability, it is a
definite occurrence. The larger the scheme, the greater the likelihood
that it will be at greater cost and take greater time.
1059. So some of the risk is not a risk, it
is a certainty?
(Mr Coates) Yes, it is not all simply probability.