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John Hemming (Birmingham, Yardley, Liberal Democrat)

A lot of good points have been made today, particularly by Dr. Taylor. He and Paul Farrelly made the same key point that a lot of trusts bill one another within the health economy, so there is a risk that deficits are concealed for some time. It is very difficult to pin down what the deficits are, and sometimes people do not find out until the end of the year.

A lot of the problems were predicted, which is backed up by the evidence. I shall quote from "Early lessons from payment by results"—a report produced by the Audit Commission in October 2005 that one would expect the Minister to have read. It says:

"There are valid concerns that the level of risk inherent in the current policy design, particularly given the pace of implementation and the size of the change is too great."

In other words, we may not be in meltdown now, but if we keep going in the same way, we are likely to be in meltdown.

In the current financial year, about £8 billion is dealt with by what is called payment by results, but it is actually a transactional fee, not a market-based system. So Woolwich hospital's underlying costs are higher, because it cannot pay its tax bill and because its PFI costs are so high, but from the health service's point of view, the hospital cannot be shut down, because those costs must still be paid—so chaos ensues. We have chaos at the centre.

We have had a triple whammy, whereby well-managed Peter is being robbed to pay badly managed Paul. Eastern Birmingham PCT, which covers my constituency, is very well managed—it controls things very effectively—but it has been hit by three things within six weeks of the start of the financial year. First, it has been hit by the phasing out of the purchaser protection adjustment, to which hon. Members alluded earlier. Secondly, it has been hit by top slicing. Although we do not know the final top-slicing figures, they vary nationally between 1.5 per cent. and the 3 per cent. figure that is often quoted. Some people argue that that at least gives them a bit of money to deal with the chaos created by Government policy. Thirdly, we do not know what the tariff will be.

There is an argument that, if anything should be top-sliced, it should be the tariff, because that is where the real danger lies. There is a good argument for a scheme whereby people aim for a 3.2 per cent increase for non-elective surgery, and if people go above that, transactionally, it is only 50 per cent. of the cost and if they go below it, transactionally, it is only 50 per cent. of the benefit. There is a substantially stronger argument that that figure should be reduced, because it is very clear that the current chaos—as I say, it is not meltdown, but it is likely to turn into meltdown—is caused by too rapid an implementation of the process. If the speed of implementation were reduced, we would have a chance of people managing. Dr. Stoate made the point that we want to plan expenditure. With payment by results—or transactional payment—people cannot plan such things.

Let us take the situation that we are in. We have deficits all over the place and we are not quite sure what they are. We will go further down a route that will create more and more deficits. Suddenly, we decide that we will take the money off the PCTs. We are top slicing some of their money. We are removing the purchaser protection adjustment from many of them. We are not telling them what they have to spend in the next financial year, which starts in a couple of weeks. They do not know the cost.

What do we do if we want to create total chaos? We sack all the senior managers and tell them that they must re-apply for their jobs. That is really clever. For proper financial accounting, the deficit at the end of the financial year must be predicted. If accounting staff are told that they will not have a job if they predict a figure that is in deficit, of course no deficit will be predicted. Suddenly we find that PCTs have been merged and there are massive deficits all over the place, beyond the amount top-sliced by the PCTs. What do we do?

We encounter a further problem, which was raised by the Royal College of Nursing. If someone is made redundant, their redundancy pay must be included in the accounts for that year, which is why there is such a big rush to make people redundant. If cost savings have to be made all in one year, it is difficult to find savings, so more people are made redundant than need to be.

We are caught up in a horrible administrative mess. The Prime Minister said that every time he reformed something, he wished later that he had gone a bit further. When everything in the health service settles down, we will look back and think, "No, we did that a little too fast." There is far too much change. The well organised managers who can add up are reeling with the pace of change, and we get more and more change.

We should look for a couple of things from the Government. First, they should stop reorganising the primary care trusts. They will never get anywhere if they tell all the people who are responsible for dealing with the tight management that they are to be sacked and will have to re-apply for their jobs. That will create chaos. Secondly, the Government should review the rise from £8 billion to £22 billion. I know that they are constrained to do it for the foundation trusts but it is clear that the Audit Commission views that as causing a massive problem. Thirdly, the Government should listen to the points made by the RCN, especially about timing. If everything is done in one year, the result is total misery. We must remember that our concern is with the patients—the people who need that health care. If there is no nurse or doctor to treat them, they do not get treatment. Action is needed from the Government to stop pushing us down that route.

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