Oral evidence: Department of Health Annual Report and Accounts 2015 -16

Oral evidence, 7 September 2016.

Witnesses

Andrew Baigent, David Williams and Chris Wormald.

Chair

Good afternoon, and welcome to the Public Accounts Committee on Wednesday 7 September 2016. We took the opportunity, Mr Wormald, as you are in front of us today, to ask you to come in ahead of the witnesses for our main session just to discuss with you our concern and disappointment that the accounts for your Department were laid on the last day that Parliament sat—21 July of this year, at 11 o’clock. That was a full seven days after the Comptroller and Auditor General had signed them off with an unprecedentedly critical explanatory note. We are also very concerned about how close to the wind the Department is sailing in these accounts—accounts that have wafer-thin margins; about a series of short-term fixes that are not sustainable, as the Comptroller and Auditor General has very much highlighted; and about piecemeal measures, as well as, as we know, pressure having been put on constituent bodies of the Health family to take a different approach to certain accounting procedures. I am really seeking reassurances today from you, as the new accounting officer, that this will not happen again. First of all, though, could you explain to me why there was a delay between the Comptroller and Auditor General signing the accounts off and their publication to this House?

Chris Wormald

It is not unusual for there to be a delay of a few days between those two, and of course—

Chair

Sorry, Mr Wormald, but a seven-day delay is a long time.

Chris Wormald

You have exchanged letters with my Secretary of State on these issues, and I don’t have a lot to add to what he wrote to you. Obviously, there was quite a lot going on in that period—it was also seven days after the formation of the new Cabinet—

Chair

Mr Wormald, I don’t like cutting you off, but I do think we just need quick answers to questions here. It is not unprecedented to have a delay, but a delay of seven days—I think the NAO will back me up on this—is longer than normal, and I do not understand why even a vote on a referendum or a change of Prime Minister stopped you, as the accounting officer, ensuring that the accounts were laid in good time. It smacks of burying bad news.

Chris Wormald

We do not accept that they were not laid in good time; they were laid five months in advance of the statutory deadline. What we were aiming to do was to produce an unqualified set of accounts that was published before the summer recess, and we wanted to publish our accounts at the same time as we published the plan by the NHS about how it was going to reset finances. We wanted to do that at the same time. That was part of the answer to the issues that the Comptroller raised. We wanted to do all that at the same time and that was the day on which we could do it. So I am afraid, as my Secretary of State set out, we do not accept the charge that you are making.

Chair

Well, that gave no time for this House to scrutinise these accounts. And let’s be honest, Mr Wormald, these accounts are rotten, aren’t they?

Chris Wormald

No. They are an unqualified set of accounts.

Chair

As I said, they sail very close to the wind in terms of the measures that were taken to make the accounts balance. You must acknowledge that.

Chris Wormald

No, we don’t accept that, either. All the measures that we took to the accounts—we are quite happy to go through them individually, if that would help the Committee—were within normal professional standards and were signed off by the National Audit Office as being so. There are, of course, as the Comptroller said in his commentary, and we do not deny this at all, a lot of challenges about the NHS budgets, both in this year and going forward to which there needs to be a response. We accept all that—that is why we wanted to publish a plan that the NHS put together about how it was going to put itself on a financially stable footing. So we do not deny this is challenging, but, as I say, it was an unqualified set of accounts.

Chair

Mr Wormald, can you remind us how long you have been in post as accounting officer at the Department of Health?

Chris Wormald

Four months.

Chair

So a couple of months ago you were still very new in post.

Chris Wormald

Yes.

Chair

Weren’t you surprised by the extent of the action taken and measures introduced by the Department in order to get the budget in on time? Surely some of those surprised you.

Chris Wormald

The measures? No, as I say they are all within accounting standards and were designated as such by the National Audit Office.

Chair

So you are not concerned by any of the measures.

Chris Wormald

No. I am—everybody is—concerned to put the NHS on a financially stable footing. I discussed this with the Comptroller and Auditor General in quite a lot of detail and we agree that the kind of one-off measures that were necessary this year to bring us within the parliamentary control total is not a sustainable way forward. So on that I think we are all agreed and that is why we wanted the financial reset. That was certainly a concern to me, but that was not a new concern that I brought to the Department. That was shared by my colleagues who have been there longer. And, as I say, I think the National Audit Office were completely correct to identify this. There isn’t really a disagreement between us and the National Audit Office around any of these issues, and we have very good discussions with them, so I wouldn’t like to give the impression that there was some sort of dispute between us. They gave us an unqualified opinion, with which we are pleased, and they rightly raised a set of issues for the future that we completely agree we need to deal with. The sense created that there is some sort of disagreement between us is one I don’t really agree with.

Chair

You have suggested that, not us. We as a Committee want to know, and other colleagues in the House want to know, whether the Department’s accounts will be laid in better time next year and if you will make that pledge, so that there is time for Parliament to scrutinise the exact detail of the accounts while it is sitting.

Chris Wormald

Sorry, but there is a lot of time for Parliament to scrutinise the accounts. They have been laid five months before the statutory deadline, and we are scrutinising them now.

Chair

Mr Wormald, I repeat that twice since resource accounting was introduced has there been any need for the Treasury to extend the deadline beyond 31 January. That is a long deadline. All other accounts come out on time. The point is that normally, it is a day or two after the Comptroller and Auditor General has signed it off. We will leave that for now. I would like you to pledge that you are not going to do it on the last day in future.

Chris Wormald

I am not going to make pledges about—the statutory deadline is properly set, and we produce our accounts before that. We also, in addition to that, like other Departments—

Chair

Okay. You have made that point. I am not sure we agree to disagree; we will have to disagree. On the main issue of the accounts generally and the budget for the national health service, can you tell us whether the position for 2016-17 will be as tight and difficult as it has been this year?

Chris Wormald

We expect NHS budgets to remain challenging. If you look at the detail of the financial reset that NHS Improvement and NHS England published on the same day as our accounts, it is a tough plan. It is a difficult plan, and it is a challenge for all NHS commissioners and providers to meet. It has a lot of tough challenges within it, including a new financial special measures regime. I can describe that for the Committee, if that is helpful. It will be a challenge to deliver. If we can deliver that plan and the other elements of what we need to do to make the NHS financially stable long term around delivering the five year forward view and reducing demand on acute, and then in the longer term improving public health by cutting smoking and those sorts of thing, we believe we have a plan that is financially sustainable and that will deliver the spending review settlement and the NHS mandate that the Government has set out. But I am not going to beat about the bush: that is a big challenge for the sector.

Chair

I am glad you acknowledge that at least, as your Secretary of State did on Monday in the House in answer to a question from me. Can I go on to the issue of the national insurance contributions windfall? It was staggering to learn that the Department had, by an administrative error, not taken off the £417 million of national insurance contributions from the estimates. That is unique in the history of the Department. Who took their eye off the ball on that, Mr Wormald? Was it you or Mr Williams?

Chris Wormald

I will ask Andrew to go through the detail, but to be clear, we have transparently acknowledged that this was a mistake. It should not have happened, and we are working with the Treasury on systems to ensure that it does not happen again.

Chair

It seems such a basic thing.

Chris Wormald

I will ask Andrew to explain exactly what happened, but as I say, we are not denying that this was a clear error that should not have occurred.

Chair

Which you didn’t know about until you were preparing the accounts.

Andrew Baigent

That is correct. If I may go into a little detail—

Chair

Not too much. We are trying to do this session quite quickly.

Andrew Baigent

What happens is we are notified at the start of the year of an amount for national insurance contributions, and we put that into the estimates process. What then happens is that quarterly, we receive a list of the amounts we get daily, and that comes in. For the final quarter, we receive that in December. It comes in for cash management purposes, so we look at how much cash we need in the day. First of all, we take the national insurance contributions we are told about and then we top it up by drawing down the consolidated fund. That came in as usual. What was not identified and was not picked up by the system was that those amounts were, if you added them all up, more than we had been told about initially, and there was a breakdown in the system.

Chair

But Mr Baigent, no one would run their household accounts like that, and you are running the Department of Health’s accounts. I don’t understand how that could have been missed. Who is responsible? Who took their eye off the ball? Was it you?

Andrew Baigent

It is within my area, so in that sense that accountability sits with me. The important thing is that we make sure it never happens again. We have been working very carefully with the Treasury to make sure that that system identifies it and it comes through.

Chair

It just seems incredibly convenient that it happened in a year when the accounts were so stretched that this is what has plugged the gap. Does that not seem extraordinary to you, Mr Wormald?

Chris Wormald

As I say, it was an error and we are not shying away that at all. Of course, it is transparent that we are over our Treasury DEL total, even though we are within the parliamentary total. It was a genuine error and we have had to ensure it does not happen again.

Chair

But it has cost taxpayers—

Chris Wormald

No, it hasn’t changed the underlying financial position at all. No one has received more or less money as a result and it has no effect on overall Government financing. Nevertheless, it should have been identified.

Chair

Parliament agreed an estimate and a DEL for the Department and it has been double-spent.

Chris Wormald

No, it has been spent only once. What should have happened is that there should have been a conversation with the Treasury about whether that money would have been retained by the Department or returned to the Exchequer. If it had been returned—

Chair

Then the Exchequer would have been £417 million—

Chris Wormald

No, we would still have overspent so the actual public expenditure—

Chair

Exactly. You have neatly described the point in question. You have plugged a particular size hole in the budget.

Chris Wormald

This is not a secret. The Auditor General’s description sets this out in detail.

Chair

It is great to see a confident permanent secretary, Mr Wormald, but if I were you, I would be a bit more embarrassed about such a basic error. Can you tell us it will not happen again?

Chris Wormald

Yes, we are putting in systems to ensure it will not happen again. Sorry, I am trying to be factual. Obviously, this should not have happened.

Chair

I am going to bring in the Comptroller and Auditor General briefly and then Nigel Mills. I then have a couple more questions before I bring in Karin Smyth.

Sir Amyas Morse

It is quite right to say we do not have a fundamental disagreement with the Department about this—I want to be clear about that. Equally, paragraph 21 of our report says: “Where the Department chooses to engage in short-term, non-recurring activity to manage outturn in 2016-17, I will consider the implications for the scope and timing of my 2016-17 audit. I will continue to give careful consideration of the measures taken by the Department…against the Parliamentary controls when framing my opinion”. What that says in clear language is that there are explanations for each of these on a one-off basis, but when you put them all together into a package, we would not expect to see a package of adjustments of this scale happening again and we would take a serious view if we did see it. I express that to you very directly. I know we agree about it, but it is worth spelling out.

Chris Wormald

Yes.

Sir Amyas Morse

The other thing—a little point but one that is worth making—is about laying accounts on recess day. It is my understanding that the Department of Health’s own accounting manual specifies that that should not done, and the House of Commons guidance on laying accounts specifies that accounts should not be laid on recess day, for pretty obvious reasons. We should not let it be the same as normal business. Laying accounts on day of recess is not something we regard as generally desirable practice and I wouldn’t like to sound as if we thought it was.

Chris Wormald

The Auditor General’s points are well understood. We have discussed them and not being in that position is why we wish to publish the plans that NHSE and I did on how we would renew financial rigour within the NHS, particularly around provider deficits, but also covering the commissioning system. There isn’t a disagreement between us. We recognise the challenges the CAG has raised and we have responded accordingly.

Chair

Mr Wormald, as I said, all these issues combined make us think the accounts are rotten. You say they are not.

Chris Wormald

They are an unqualified set of accounts.

Chair

Are you happy with the accounts this year?

Chris Wormald

As I said, our objective was to have an unqualified set of accounts.

Chair

Technically.

Chris Wormald

That is the standard to which we are held and the standard to which—

Sir Amyas Morse

Will you be opening the accounts for auditing?

Chris Wormald

Yes.

Nigel Mills

I am slightly intrigued about what the defence on the £417 million was. “We had a bit more cash coming in than we thought and we just didn’t notice for a while”? It will sound a little strange out in the country that, even for a budget as large as the NHS has, you can have a lot of money turning up and you just didn’t quite realise it was more than you were expecting for quite a long time. Is that really, realistically, what happened?

Andrew Baigent

It is what happened. I tried to explain earlier the way that we were notified of that, which is that we get a daily list of things and what we concentrate on is making sure we don’t draw more money down than we need on a daily basis from the Treasury. That was used to adjust the amount we draw down. What was missed was then adding it up to get to a total. As the permanent secretary said, that was an error.

Nigel Mills

So what was missed was adding up the amount of money you’d got coming in to see whether it was the number you thought you’d got coming in?

Andrew Baigent

In terms of the funding source for national insurance, yes, that is correct.

Nigel Mills

This is quite fundamental. Presumably, if any major company that was quoted on the stock exchange had to publish in its accounts, “Oh, very sorry. We managed to have a £417 million hole because we didn’t quite add up what we were getting to see if whether it was what we thought we were getting,” that would be a hell of a mess, wouldn’t it?

Andrew Baigent

I understand the point. What I would say is, in terms of the audit opinion, our expenditure figures were right and our income figures were right, in the way that the accounts are put together in accordance with accounting standards. There were no errors or mistakes in those elements.

Chair

So what you need is a calculator so you can do the maths? We might have a whip round.

Andrew Baigent

What we need to do is make sure that we get a system in place that identifies the issue that happened this year and is—

Chair

As you can gather, around the Committee table we still can’t understand how it has never happened before. It happened this year and you have had to introduce new systems to make sure it doesn’t happen again. What changed between the last, however many years—1948 to now?

Andrew Baigent

It is a relatively new way of doing things under the clear line of sight, so it is not 1940-whatever. I have looked in massive depth as to how this happened, because, as you say, it is very difficult to see how it can happen in that way. It is because of the way that we were notified and the purpose that that schedule came in for. We just need to make sure it doesn’t happen again.

Karin Smyth

With due respect, it seems to the rest of the country that every stone has been turned in every single one of the 20-plus arm’s length bodies within the Department of Health and NHS England to find every spare penny of cash that is available. Two different transaction bodies look at different ways of accounting with different guidance on how to account, which all look much more favourable to the overall position—which is outside in the auditor’s report—and suddenly £417 million, which gives you the ability to get underneath the limit by £200 million, is the one thing you don’t find. I think that is what looks astonishing to the rest of the country.

Chris Wormald

I am not sure there is much more I can add to what has already been said. It was an error. It should not have happened.

Chair

So it won’t happen again?

Chris Wormald

We have a system in place with the Treasury to ensure it never happens again.

Nigel Mills

If you had found the error was the other way and you were getting less cash than you thought you were getting, would something have tripped the system to go, “We can’t pay the bills here”?

Andrew Baigent

When we have looked back into it, it has happened before where there has been less cash coming in and it hasn’t been identified—on, I have to say, a much smaller magnitude.

Nigel Mills

So this isn’t a one-off? This happens every year?

Andrew Baigent

It hasn’t happened for the last few years but it has happened in the past.

Karin Smyth

Do we know why the Treasury were not aware they had lost £417 million?

Andrew Baigent

No one has actually lost any money. This is how it is accounted for and it is not the Treasury’s job to notice, it is our job to notify.

Chair

Perhaps we can ask the Treasury Officer of Accounts what it says about the Treasury’s oversight of the estimates procedure. Are there any issues there that the Treasury needs to take up?

Marius Gallaher

In this particular case we rely on the Department of Health to inform us about the national insurance contributions. If we weren’t informed we can’t act. If we had known at the time we may have reacted differently, but certainly we had not got an arrangement that we could second guess what we were being told by the Department of Health.

Chair

So what has the Treasury done about this?

Marius Gallaher

We have worked very closely with the Department of Health. I think we are trying to bring in safeguards and second checks to ensure we don’t let this happen again in the future.

Chair

Is there a risk it will happen in other Departments?

Marius Gallaher

We are learning this lesson here, which will apply across the board.

Chair

Well, I think you can tell we are sort of gobsmacked.

Nigel Mills

Who pays the national insurance contributions over to the Department of Health?

Andrew Baigent

HMRC.

Nigel Mills

Which is responsible in Government to which Department?

Chair

To the Treasury.

Nigel Mills

So it is the Treasury paying the Department of Health, but the Treasury’s defence is that they could not know that they were paying a different amount.

Andrew Baigent

No, we are very clear that it was our error.

Nigel Mills

I am just not convinced that the Treasury could not have known, given that it was effectively paying the money.

Marius Gallaher

It hasn’t happened before. That is no excuse; I accept that, but we are now learning from this experience, and we hope that this will be avoided in the future.

Chris Wormald

It was our mistake. We do not wish to blame our colleagues because it was not their mistake. It was ours. The solution, however, does involve the Treasury.

Chair

Well, we would hope it involves the Treasury.

Chris Wormald

It was our error but putting together a system to ensure that that never happens again involves us working very closely with the Treasury.

Chair

You can sense the gobsmackedness of members of the Committee that this could have happened in the first place.

John Pugh

You say that it hasn’t happened before and you are saying that it has happened before. A discrepancy has occurred.

Andrew Baigent

I am saying that there have been relatively small changes in the past to the amount of national insurance that we were expecting and received. That has happened before and it has been missed on one occasion to make the adjustment. It was a tiny amount.

John Pugh

And the Treasury was oblivious on both previous occasions?

Andrew Baigent

None of us knew it had happened until we did the exercise to see whether it had happened before, as a result of this incident.

Mr Bacon

Who is the member of the Department of Health board responsible for finance?

Andrew Baigent

Of the board? Mr Williams.

Mr Bacon

That is what I thought. You have had a very light outing so far, Mr Williams.

David Williams

I have.

Mr Bacon

You are actually the man responsible for this on the Department of Health board and yet, so far, you have not been troubled to utter a single syllable. I was reading Public Finance, as one is wont to do, especially with an iPad. It said, Mr Wormald, that your predecessor, Una O’Brien said of Mr Williams’ appointment that he was a “highly respected financial strategist with experience of Whitehall, local government and the NHS and she was delighted to have him on her executive team.” Richard Douglas, the former finance director, added, “David is an excellent choice because he has great experience and knows his way around Whitehall and the NHS. I have known David for years. I am very happy leaving, with the comforting certainty that the DH’s finances are in very safe hands.” You will have spotted the incredulity around the Committee at what has happened. Are you honestly asking us to believe that it was all accidental, that nobody knew and that they did not spot this £400 million?

David Williams

I can only repeat the points that my colleagues have made that this was genuinely an administrative error.

Mr Bacon

It was a very convenient one, wasn’t it?

David Williams

I don’t know how convenient it was. Obviously, if we had spotted it at the time, we would have had a conversation with the Treasury in the run-up to supplementary estimates about whether that money would have been retained—in which case the supplementary estimate would have shown an increase in the non-voted budget for the Department—or whether we would agree with the Treasury that the voted element of the Health budget would have been adjusted by corresponding amounts. It is hard to say here how convenient it is.

Mr Bacon

It seems to me much more likely that not only are you a highly respected financial strategist who knows his way around Whitehall, but you are also a highly experienced financial tactician and that it was your advice that the Department took advantage of to end up with its head under, rather than over, the wire.

David Williams

I can only say that it was genuinely a surprise to me when we discovered this. Funding the Departments through national insurance contributions is not something that happens in every Department. It was not a feature, for instance, of the way in which the Ministry of Defence was funded so it is not particularly a set of issues that I had focused on in my first year-end in health. It is not as though we get a note saying, “Congratulations, Mr Williams! You are the recipient of an extra £400 million of national insurance contributions.” It is a detailed, day-by-day schedule with daily amounts ranging from single figures of millions to several hundred, the primary purpose of which is to help us to manage that daily drawdown of cash. The bit that we missed in the process was connecting that cash management requirement into the conversations about the overall health budget in the supplementary estimate process, and we will fix that for this year.

Chair

Reconciling figures is, as Mr Bacon said, something that is very much squarely at your feet.

Karin Smyth

How much time has been spent on producing these one-off measures throughout the entire system to get within the balance?

David Williams

I am not sure I can give you a precise time quantification. Some aspects of this are part and parcel of the production of end-year positions in what is a—

Karin Smyth

There has been a lot of effort within the Department, hasn’t there? We have had exchanges in these sessions about bringing yourselves within the limit for this year.

David Williams

Yes, clearly, living both within the parliamentary vote and the Treasury DEL limits is an important issue. In terms of the activity taken to deliver that, there has obviously been activity and action within the Department itself and work within our national arm’s length body partners. To the extent that that is around not a series of accounting adjustments, but some of the efficiency and productivity programmes that we put in place in 2015-16, it spreads out into the NHS, individual CCGs and provider bodies. Given that complexity—it is a set of accounts that consolidate information from over 450 bodies—I can’t tell you precisely how much time.

Karin Smyth

We have heard that you have done what the accountants require. I think Mr Wormald said you have been held to the standards to which you are expected to be held. Are you concerned about the impact on the organisations that you are responsible for from these one-off measures and the pressure that has been brought to bear to bring them within the cash limit for this year, Mr Wormald?

Chris Wormald

As I set out before, we accept that the overall financial situation is challenging and we are therefore well aware of the burden that we are placing on individual institutions. It was our intention, and it is indeed what is required of us, to come in within the parliamentary limit, and we make no apology for seeking to do so. One-off measures are a part of that process, as the Auditor General set out, but we do not want them to be part of the process in this way going forward for the reasons that—

Karin Smyth

You are new in post so it was not under your watch.

Chris Wormald

No, I am trying to set out factually the position. Every Department seeks to come in within its parliamentary total; that is always required of us. We have a system of accounting that is across a line—yes or no—and we seek to get across that line. In this case, the one-off measures helped us to do so. As I said, we do not want that to be the situation going forward for the reasons that the Comptroller and I were discussing. That is the purpose of the financial reset. I am not trying to disagree with you. We do not want this to be the way we do things in future.

Karin Smyth

My question is a slightly different one—partly, it is that this has not happened on your watch, actually. You have come in new to look at this and understand the amount of pressure that has been put on the system for several months back, because of the provider deficit at root cause. It is an opportunity to be concerned about the impact, the incentives on those organisations to behave differently and to deliver savings, and the pressure that has been put on finance directors, both in trusts in NHS England and in other Departments. Is that of concern to you?

Chris Wormald

I am not going to comment on things done before I was there. I have set out how I want it to work in future, which is in line with the financial reset document that was published. That specific thing has not been top of my concern list.

Chair

Perhaps Mr Williams can answer Ms Smyth’s question about the pressure on organisations. We have all spoken to a number of finance directors. One said to me, “The whole picture was one of increasing panic as the year progressed. It just seemed to get worse and worse.” I am talking about panic from the centre down. That was the flavour of what we were getting from people we have spoken to in preparation for this hearing.

David Williams

The situation did indeed get worse through the year. One of the disappointing elements of the 2015-16 position is that the provider-side deficit, despite the action that we took in concert with our national partners, was worse than the providers’ own plans at the beginning of the year. At the start of the contracting round they had plans for a deficit of around £2.1 billion, which we did not believe was acceptable and were looking to improve, but the outturn at £2.45 billion is clearly worse than that. A focus on restoring financial discipline— ensuring that the financial consequences of decisions in the NHS are given appropriate weight—is relevant to short-term control in 2015-16 and indeed this year, but also sets the foundation for the sort of transformation we want to see in future under the Five Year Forward View. Almost uniquely in my experience, and reflected in some of the conversations we had with the NAO around the risk profile in 2015-16, is that all the incentives in the system by the end of the year were for 2015-16 to look as it bad could be. There were 160 organisations in deficit, so the previous peer pressure that if you were in deficit, you were an outlier, flipped in 2015-16 to being the norm. It is not that I think the people in local trusts were making inappropriate judgments in their year-end position—but where there is a range of professional judgment, that could be brought to bear—I just wanted to check, through some of these exercises, that it was not being skewed too far towards 2015-16 looking as bad as it could, because it was clearly going to be a difficult year, then making 2016-17 look a bit easier.

Karin Smyth

We have looked at the trust position, but looking at the MHRA, for example, the super-dividend that is taken from it would not incentivise me, if I were running the MHRA, to manage my part of the business carefully—that I was not suddenly going to be raided to plug a deficit somewhere else. My point is that you have got to boost morale and incentivise people throughout the system, to help get through this system. The Report from the auditors suggests that the series of measures we have seen are one-off measures—for example, in the MHRA—that do not encourage people to work with the system co-operatively, but incentivise behaviours that will hide things and not be co-operative in the future.

Chris Wormald

I will ask Andrew to comment on the super-dividend specifically, but generally I think there will be quite a lot of agreement between us. As I have said several times, we want it to work differently in the future, on two levels. The first is the financial reset that I have already talked about. The second is fundamental to the underlying question in all this—can we reduce the demand, particularly for acute services?—and requires exactly the kind of approach you are describing. That is why NHS England has gone through its STP process, which is about bringing together all the commissioners, providers and local authorities in an area to look at our health economy and to ask how we work together to solve some of these fundamental questions. As I said, if we look at all the things we need to do to put the NHS on a financially stable footing, obviously there is the extra investment that the Government have put in; there is the financial reset, particularly for this year, that is about financial rigour and productivity; there is co-operation around the demand piece you described; and in the longer term, particularly as the population ages, there is the question of whether we can encourage healthier lifestyles with less smoking, for example. It is only going to be the combination of those four things that creates a financially stable position going forward.

Karin Smyth

The pressure on finance directors to behave in the way that they have been pressured to across the system this year—to drive down those costs and, particularly, to drive down provider costs—does not help with working collaboratively in a system as the STP—

Chris Wormald

And we have to make some balances here. Parliament and others perfectly reasonably expect us to come in on a cash sum in-year, which requires a number of actions in-year, not all of which are fully compatible with what you might do in the medium term. Likewise, we want people to put themselves in a stable position in the medium term. Those are both perfectly reasonable objectives; they do not always lead you to the same measures, and our job is to balance them up.

Chair

I’m going to intervene because time is marching on. We need slightly quicker exchanges. While we are on this point, one of the other comments I got from a finance director was around the capital to revenue transfers: one said to me that they did not believe it met normal accounting procedures so they did not do it. What Ms Smyth is driving at is that some of the pressure being put on was what Mr Williams described as a range of professional opinion. We have had some evidence from people suggesting that that was pushing them to a point where they, as accounting officers for their own organisations, were not happy.

Chris Wormald

I can do no more than, again, say that the NAO, our auditor on this, gave us an unqualified set of accounts around all those measures.

Chair

But there is the pressure that Ms Smyth has been talking about.

Chris Wormald

Can there be a tension between what you need to do to come in within the parliamentary control total in year and what you want to do to build sustainability long term? Yes, there can. Of course, those two things have to be balanced because they are both important. I am not denying the point at all. Do you want to add something on the capital to revenue?

Andrew Baigent

Yes, I can add on the MHRA. On the capital to revenue point, we have been through in detail with the NAO the way that that was treated. We would not agree with the correspondents you have had that it was outwith normal accounting treatment.

Chair

They chose not to do what you suggested.

Karin Smyth

My question was about the future of how you work with the system and your relationship with these different bodies in order to plug the deficit. If you were running MHRA and there was a raid on your surplus, how would feel about responsible management of that organisation in future?

Andrew Baigent

If I may talk about the MHRA for a minute.

Chair

We don’t want you to go too much into that. We have the background on this.

Andrew Baigent

The MHRA had built up a surplus of around £100 million over a number of years. We are required by managing public money to recall that if they have no plans to spend it. That was something that had been discussed between us and them for a number of months—indeed, we discussed it late on in the previous year—and that was actioned. I wouldn’t accept that that was something that they were either unaware of or was not expected.

Chair

You would agree, Mr Baigent, that it was a one-off. You are not going to do it again.

Andrew Baigent

Yes. That was absolutely a one-off.

Chair

That goes back to our concerns.

Chris Wormald

On which there is no argument from us. The Auditor and we have discussed this and clearly, by their nature, you cannot go on doing one-off things, which is why all the other actions I have described about what we need to do going forward are important. I don’t think there is a disagreement around these issues.

Karin Smyth

Mr Williams, are you concerned about the impact on future capital plans with the revenue to capital transfer?

David Williams

Looking at 2015-16, for the most part the capital headroom was created by clawing back money where there had been overly optimistic plans on the level of spend, where projects themselves naturally were slipping and not proceeding at the pace that had been expected. In some cases, particularly in the central budget, it was through modest reprioritisation. The impact of last year’s capital revenue switches, in terms of the progress of the capital portfolio of the Health family, has been relatively low. Capital will remain tight for the next couple of years before we get into the second half of the spending review settlement. We need to be absolutely clear about how that spend is prioritised.

Chair

I’m going to bring in the Auditor and Comptroller General.

Sir Amyas Morse

Very briefly, because I made the comments I wanted to make earlier. Yes, it is quite true, as the permanent secretary says, that these are unqualified accounts. It is also true that I have confidence and regard the Department of Health finance team as skilful and quite well able to manage what they are doing. However, it is worth pointing out that it is pretty unprecedented for us to write a Report like this. We did so because although we were not qualifying the accounts, we were seriously concerned. Of course it is normal for Departments to take whatever reasonable measures they can to try to ensure they come within the cash limits. Because of the nature of the cash limit regime, it can be a bit of a struggle and a scrabble at the end of the year. That is normal. We see that all the time. But that is a bit different from a very large exercise. What we are really saying and absolutely want to make clear—I have heard with pleasure the commitment from the Department on this—is that there is another alternative, which is that you cannot meet your cash limits. If you actually do not have enough money to run the service, there is a limit to how many adjustments you can make. I know that the Department understands that. I will simply say that I note the commitments that the permanent secretary is making, and we shall look forward to seeing those carried out next year.

Chris Wormald

There is not a disagreement between us, but I would point out that the requirement on me is to come in within my cash limit.

Chair

As well as us and the NAO, other parliamentarians and others will be looking at this closely. There is just one other point that came up in the accounts, which is the first time we have had a chance to ask you about it because it was released late in the Session. It was on the data that the shared business service did not pass on to NHS England. These were letters about patients that should have been sent back to NHS England and on to people’s individual GPs in some cases. Which of you can give us an update on what has happened to that? Are there any risks to patient safety as a result?

David Williams

I do not have a lot more to say today than the disclosure in our Government statement and the written ministerial statement that Health Ministers issued on the last day before the recess. We have taken this as a serious issue. The primary concern has been to understand the potential extent of safety issues for patients. NHS England established a clinical review team to run through those documents, and that process is now complete. Where there have been some concerns about the potential for harm, those records have been turned to the relevant GP for assessment and that process is still under way. I would prefer to wait for that process to finish before giving you a definitive update.

Chair

So do you have a timetable for that? People out there may be worried.

David Williams

Well, it’s under way now. I would expect us to be in a position to report back later this calendar year.

Chair

Before Christmas?

Chris Wormald

Yes. We are obviously concerned about this and we understand why everybody else would be. Perhaps we should give you regular written updates when new information is available.

Chair

You could do that to us and to our sister Committee—to Sarah Wollaston, who is Chair of the Health Committee. One or other of us will ensure that we keep an eye on this. We are liaising on this.

Chris Wormald

I think that would be appropriate in these circumstances.

Chair

Both Committees have an interest. We will ensure we do not duplicate, but we would like to know what is happening. You have it loud and clear from this Committee, Mr Wormald, that we were not happy—and nor is Parliament—that accounts were laid on the last day before the recess. It gives us no time to scrutinise them. We have expressed a strong view that that should not happen again and I hope you have taken that on board. I want to turn to the issue around to the oft-repeated £10 billion, which the Secretary of State mentioned again as a solution to the NHS’s problems. We have now published seven Reports this year and, for each of them, Simon Stevens or you or others in the health service have said, “It’s all right. It will be resolved with the £10 billion and the Five Year Forward View.” That money has been promised so often now that we know that there has to be a bigger debate—and I hope you acknowledge that—not just about these accounts, but about how the NHS can be sustainably funded over time. Would you agree with that view?

Chris Wormald

I hope that what I have set out—I think three times during this hearing—is that clearly just the additional investment is not the entire answer. It requires the four parts that I described. It requires the extra investment, the financial reset—

Chair

But my point is, is that extra investment enough? Is the £10 billion enough? What we are seeing from this side of the table is that it is not.

Chris Wormald

We, as I said, believe that the Five Year Forward View and the mandate on which it delivered is deliverable for the spending review settlement, but that is clearly a challenge. It requires all the actions I have described in these hearings and for them to be delivered. I am sure you will hold us to account for that.

Chair

Mr Simon Stevens is in front of us next week, so we will relay to him your confidence that the NHS mandate will be deliverable by then.

Chris Wormald

I am trying to give an honest opinion here. I am not denying that it is a huge challenge and that we have to demonstrate delivery across all the four elements that I described to get to the position that we want to get to. Yes, it is a challenge. We think it is an achievable challenge, and we expect to be held to account for that.

Chair

It is not just a financial challenge; it is about demand on the NHS, which is going up faster than the amount of money going into its budget.

Chris Wormald

Of course, at that level, the challenges of the NHS are no different from the challenges of every single health service in the western world.

Chair

We are talking about our health service today, Mr Wormald.

Chris Wormald

As I say, the big challenge that faces all those health services, including us, is how we transform services with the extra public investment that the Government has made to be able, first, to cope with that demand; secondly, to ensure that where people are better treated in the community than in expensive acute resources, they are treated in the community; and, thirdly, to diminish the demands on the health system in the long term by improving public health. That is the challenge of all health services, including the NHS, and that is our challenge.

Chair

We on this Committee are keen that our health service survives in good shape. We are very concerned that these accounts are just a symptom of the financial concern in the NHS. As you know, we will be having you as a regular visitor to this Committee, Mr Wormald.

Chris Wormald

I would expect no less. Indeed, I am coming back in about a minute.

Chair

We have one final, very quick point on a constituency matter from Mr Stephen Phillips. We will then move on to our next panel.

Stephen Phillips

Mr Wormald, are you aware of the overnight closure of the A&E at Grantham hospital?

Chris Wormald

I am aware of these issues.

Stephen Phillips

It is not in my constituency—it is in Mr Boles’s constituency—but obviously it is used by my constituents. ULHT, which is the trust, has said that it is a staffing problem and not a money problem. I want your assurance that the Department is on top of this and giving as much assistance as possible to the trust.

Chris Wormald

As you know, NHSI deals with those issues. It is always on top of them, and I am quite happy to write to you with an update from NHSI on the exact position.

Stephen Phillips

That would be very helpful. We know that the Department and the Secretary of State are still ultimately responsible for the health service, so it is to you that I look to get on top of this issue.

Chris Wormald

As I say, NHSI is charged with the management of those issues. Of course, the Department is responsible for oversight of the whole system, which is why I will go away and consult NHSI on exactly what the issue is and come back to you.

Stephen Phillips

If you could write to me and perhaps copy it to Mr Boles, that would be very helpful so that we know what the Department is doing.

Chris Wormald

I would be delighted.

Chair

Thank you very much, Mr Wormald. I think you are staying, but your colleagues have been let off for now.

Chris Wormald

I am getting some reinforcements.

Chair

Thank you very much indeed for coming. As I say, we are looking at this with our sister Committee, the Health Committee, to make sure that we keep an eye on the accounts throughout the year. Examination of witnesses

Witnesses

Melanie Dawes CB, Colin Molton, Stephen Lovegrove, Chris Wormald and Philip Rutnam.

Chair

Good afternoon everybody and welcome to the main session of the Public Accounts Committee on Wednesday 7 September 2016. This session will be looking at the Progress Report on the disposal of public land for new homes. As those who have been following this matter will know, we had a first hearing on it in July last year, when we were a very new Committee. We were then looking at the last programme over the last Parliament. We have been closely watching the reiteration of the programme for this Parliament, and we are obviously one year in. We are hoping to have an open and honest discussion. Ms Dawes, I think we would acknowledge that you and your Department have done a good job of beginning to pull together what was previously a bit of a scattered approach into something that has more coherence. We are actually able to see a way through and monitor what is happening, which is our role. We want to see that these homes are built. We have still got some concerns and we also want to ensure that we are able to continue to monitor it, so information from you is going to be very important, which we will touch on. I would note that, interestingly just before this hearing, the Department for Transport released information about Network Rail releasing some land and the Ministry of Defence produced a press release about some land releases. It is great to have good news before a hearing. Of course, we haven’t had a chance to validate it. It would be helpful, if you are planning to release exciting news ahead of a hearing, if we had it a bit earlier so that we can have a closer look at it. To get it the day before may be great for your own purposes, but it is not so useful for ours. If necessary, we will come back and revisit that at a recall session, if we feel there is more to look into. Just to warn both permanent secretaries that that might be your fate if, when we have gone through it, there are some interesting facts in there. Over to Anne-Marie Trevelyan, who is leading for us today on this issue.

Mrs Trevelyan

As the Chair says, it is encouraging to see that the Department has grabbed together the various disparate parts. Without a doubt, building homes that are affordable in the right places is something that my constituents probably worry about more than anything else—other than perhaps potholes. This is a really important programme as far as we are concerned. The initial concern is that, now we are into the second programme, it is getting harder for Departments to find obvious land disposals. You have created a guidance booklet to help them understand what it is that the Department needs to see. I am a bit confused that a year in, there does not seem to be a finalised version of that. There is nothing published, so I am concerned it might be difficult—I will ask the others about this—to know that they are working from a clear set of guidance that you are not going to change as the programme goes through to make it more difficult for them. Is there a reason why it has not been published yet?

Melanie Dawes

Thank you for your comments on the improvements we’ve made. We have sought very much to pick up all the recommendations from this Committee and the NAO in setting up the new programme. If I may, I want to give you some information at the beginning about monitoring, because I know that has been a real concern. I am glad to say that our Ministers have prioritised this for decision as new Ministers in the Department, and they are asking us to monitor the building of homes right through the planning system on all our sites, in the new programme and the old programme. I hope that will be something that you will be pleased to hear.

Chair

Can you tell us how you will release that and how we will be able to follow that through?

Melanie Dawes

In the case of the new programme, we are collecting all the data we need from Departments already, so we should be able to release that along the way quite straightforwardly. We have not yet agreed publication schedules and timing and so on, but we would expect to do that relatively straightforwardly. On the old programme, as you remember, there are issues of data gaps, so we have got to work out how to do that, but we are committed to doing it.

Chair

Okay. When will you have the publication schedule?

Melanie Dawes

Coming on to the handbook and the publication of that—or would you like me to say more about the monitoring specifically?

Chair

About the monitoring—when you will know the dates.

Melanie Dawes

I haven’t got a date yet and probably ought not to predict one today, given that I was not very successful in predicting the date of our publication last time. I am sorry about that. I would expect us to say more about the monitoring very shortly. We are hoping to get the handbook out shortly and it will need to be part of the release of the handbook.

Chair

I think you are one of our most frequent flyers between now and Christmas, so I am sure we will keep on it.

Melanie Dawes

Yes, I think I am. On the question of the handbook, to answer your specific question, the handbook was ready in draft for Departments in December and then we revised it in April. It is what we sometimes call in Government a living document. We are at the same time seeing the Cabinet Office, for example, revising their guidance on the disposal of surplus property in Government, and that is expected quite soon. What we are trying to do with the handbook is not to keep changing the rules. All the important points about who is in charge of what, what the data reporting needs to be and so on are not changing. Equally, sometimes we do need to adapt what we are asking Departments to do as wider circumstances change. For example, the monitoring is a new element that we are introducing. It isn’t that this is moving around a lot. I think we have provided certainty for Departments. This has been used actively by the programme now for eight or nine months. It just hasn’t got to the publication state yet. We have been ready for a while, but it has been subject to some of the uncertainties in Government in recent months. It is now a priority for us to get it out soon.

Mrs Trevelyan

That is really helpful. Mr Lovegrove and Mr Rutnam, you have fairly chunky figures to meet. Have you found that adequate? My concern is always that if the goalposts keep moving, the datasets are going to be difficult to rely on when we get to 2020—if, a year in, only tiny numbers have been met so far. In fact, DCLG is doing the best with 12%, but the Ministry of Defence is at 1.5% and Transport is so far at 0.2% of its target. Do you feel you have what you need and that you are not going to have the goalposts changed on you? Otherwise, we are not going to make the sort of progress we want to see.

Philip Rutnam

We are much happier with the governance of the programme, as per the comments that have already been made. We think that the guidance that has been provided with CLG and the working relationships that have been established between, in my case, my Department, Network Rail and the Homes and Communities Agency are all very positive. Things will continue to develop, as per Ms Dawes’s comment about the monitoring of the number of houses completed, but fundamentally we think that some very significant steps have been made in the right direction in terms of establishing a more rigorous, consistent, transparent and clearer set of arrangements for running the programme.

Mrs Trevelyan

That is helpful. While you are there now and looking at those numbers, do you see the Department for Transport’s commitment to this programme coming in at the end? Why is it so small so far? Where can you see the challenges?

Philip Rutnam

I shall comment on the numbers as well as the general point. The programme is an ambitious one. We have been set a target that for the Department for Transport represents a roughly ninefold increase on the target we had for the 2010 to 2015 period.

Mrs Trevelyan

But you have agreed to that capacity of 38,000.

Philip Rutnam

We have accepted that target, which was set as part of the spending review 2015 outcome. Of course the Department has accepted that, alongside all the other constraints and objectives set in the SR outcome, but it is an ambitious and challenging programme. There is a reason why it is perhaps not that surprising that, numerically, the programme has got off to a relatively slow start: we have been establishing the governance arrangements, as we have just discussed. A significant gearing up of effort has been under way, in both the DFT and Network Rail, which accounts for the great bulk of our 38,000 target. I am pleased to say that already, even since the dates in the NAO Report, significant further progress has been made. The data in the Report—the 0.2% that you mentioned—was as at the end of March 2016. Already, I can report that by the end of June—I accept that this has not been audited by the NAO, but none the less—we had moved from 71 units to 540-something units having been scored by the HCA. A further 1,250 or so are awaiting acceptance by the HCA. So, significant further progress is being made, but it is an ambitious and challenging programme.

Mrs Trevelyan

Mr Lovegrove, you also have a big chunk of this challenge.

Stephen Lovegrove

I do.

Mrs Trevelyan

Do you feel that you have the rigour from a data-collecting point of view and that you are going to be able to crack on? In March, you were 1.5% towards your target; again, that is a slow start 20% of the way in.

Stephen Lovegrove

Yes, indeed. I would very much echo what Mr Rutnam just said. It is a relatively slow start. I should say that the Ministry of Defence had a very big target in the previous Parliament. The experience of that was that there was a very rapid acceleration towards the very end. In fact, I think that a good 40% or so was achieved in the last year of the Parliament. I hope that we will not find ourselves in a position quite like that this time around. If things go well, we are already up at 86% that we think will have been achieved by the penultimate year of this Parliament, so you’ve got only 14% to go in the last year. In one sense, that is encouraging. If I am to be absolutely honest, which obviously I will be, for me the issue is more about not just finding numbers that add up to 100% by 2020, but decreasing the risk associated with a lot of that 100%. The question of how much buffer we have to put in over 100% in order to be able to come down to 100% is very live for us at the moment. We are having a bigger look at the reserve estate and we are looking at the training estate. It would probably be unwise for us to say, “Right, okay. Downhill with a fair wind behind us, we are going to be able to get to 55,000 homes so we can stop there and stop trying.” That would be unwise and we will not be doing that. Over the course of the Parliament, we will clearly be able to judge how much we are going to be able to bring that risk down. At the moment, I think it is about 50% of our 47,000 sites that are in the high-risk category. We are aiming to get that down through mitigating actions to 17%, but that is still 17% and it is also not no risk; it is just not high risk. There is quite a way to go there.

Mrs Trevelyan

Thank you; that is a very fair answer. Ms Dawes, my first question says “despite your not monitoring”, so I am very pleased that I do not need to ask that question because you have solved that. In terms of keeping track from the point of view of the outside world, we had the problem with the first scheme of whether the houses would be built by 2020—I have no doubt it will not be all of them. How are you going to be able to monitor it? Is each accounting officer also responsible effectively for driving through that house building, or does that remain with you? In that case, how do you drive that forward to ensure that things do not get stuck in planning, land banks and all those problems that we saw earlier on?

Melanie Dawes

Once a site is sold, our general presumption will be that our role is over. We will monitor what goes on because that is very important for transparency and for you and everyone to understand the overall impact of the programme. Our ultimate aim for all housing programmes is to get homes built. What we then do is have a large sites programme and, across the country, we and the HCA look at the big important sites where we think that we could and should intervene from central Government to make a difference. Some of those are former public sector land sites—quite a lot of them actually, because they tend to be big and they are often the hardest to move forward. There are also some private sector land sites. We won’t have an approach of always following through if a site is stuck. We will be monitoring that so that we have got transparency, but we will be relying on the contracts that we struck at the point of sale and the certainty that we sought that a site has genuinely gone far enough through the system for us to rely on it in our programme. We will also, in some cases, be relying on conditional clauses and so on that are part of the contracts themselves. We won’t be expecting routinely to be checking and moving sites forward just because they were public sector land programmes, though we might be on some of these sites.

Mr Bacon

At the point of sale, you generally presume that your role is over. Government policy is that there should be 1 million homes built in the next five years. That’s policy. It is not questioning policy just to state it. So far, we are way, way under that. We are by a country mile under it—by 100,000 houses a year at least under it. It would seem to me that, in order to deliver Government policy, a slightly more proactive philosophy generally might be warranted. When your DCLG Secretary of State predecessor, Mr Clark, a former member of this Committee, announced that the Government was directly commissioning the building of 13,000 houses, I bumped into him in the Lobby on the very day and said, “Greg, this is fantastic. It is an explicit admission that the supply of houses does not rise to meet demand.” He said, “Yes.” You carefully calibrated it and said it is not always the case, but why is it right for you to presume that at the moment of sale your role should generally stop? Why is that, when Government policy is to build 200,000 houses a year and we are nowhere near it?

Melanie Dawes

Mr Bacon, we agree with you that the market does not always work and that is why we are intervening in a number of ways, whether that is through finance, loans and guarantees, or as you have referred to on some of our former or still existing Homes and Communities Agency sites, we are directly commissioning. That is quite a new intervention for Government to be taking. We are intervening directly to build new parts of the market such as custom-build, self-build and so on, as well. We have quite a big range of housing policies in quite a diverse way. What I am saying is that we do have data that show broadly what the timeline is for different sizes of sites and how quickly they move through to development. Generally speaking, we will be relying on the market to push things through. After all, developers have paid a premium for a site that either has planning permission or is in a local plan. They have got an incentive to build it out, but through our large sites programme we look at where we think things are stuck. We have got more proactive on those sites in recent years and we have also expanded the number of sites and moved down towards more medium-sized sites. Some of that may well mean that we are intervening in more of these public sector land sites, but it is a judgment call. In the end, the local planning system—with local authorities, developers and builders—will do the vast majority of the work here, if we get the land into the system. That is one of the big blockers in the market. That does not mean that we are complacent about the market always being absolutely fine every time we have sold a site. Sometimes we will be intervening quite actively.

Mrs Trevelyan

Just as part of this monitoring of the building of the homes themselves—it is an encouraging set of statistics—could you give us an update on the 100,000 from the first programme? Do we know the numbers that have been built of that 100,000?

Melanie Dawes

We do not yet have the data. We will, and I look forward to being able to give you fuller responses on that in the future. I can give you the latest number for the Homes and Communities Agency. If you remember, we gave that to you last year. We had a figure last year in July of 6,191 starts out of a total aim for the HCA of 20,930 from the land it had sold. Of those 6,191, 2,000 had been completed. The figure now is 9,564 starts, of which 4,153 have been completed. We have got double the number of completions on those sites. They are moving their way forward. Some 20% of the homes have been built.

Mrs Trevelyan

That is a very slow building of homes.

Melanie Dawes

That is the nature of some of these sites. Some of them are quite large, and the build-out—that is the phrase I have used sometimes—tends to be quite slow. I have got that data for you.

Mr Bacon

Why do you think that is, when there is such an unmet demand for houses and the price of houses keeps on going up due to a shortage of supply? Why do you think, in those circumstances, the build-out rate is so slow?

Melanie Dawes

You have asked a big question about the nature of the housing market.

Mr Bacon

I have, and I am looking for a big answer. Why do you think that is the case? Looking at the ceiling does not really help me.

Melanie Dawes

The first gap in the market is the lack of land, which this programme aims to make a contribution to. We then know that there are issues with lack of finance. Sometimes it can take time for developers to find the finance to do the infrastructure they need up front. We have intervened considerably in recent years to expand the range of financial instruments we are deploying there, including with loans on site, and that is having quite a big impact in speeding things up. What it means is that even on quite large sites—you may be familiar with some of them; I can think of some that I have visited recently in the east midlands—the developer, because we have given them a loan, has had the cash up front to build the roads and to start to get the schools moving and so on. They are then able to build the homes at the pace that the local market wants, rather than having to wait until they have got enough money for the next round of infrastructure investment, because we have sorted that out for them up front. That is an example of a gap in the market that we are aiming to fix and are quite successfully fixing. A further problem is that, as you know, there is a shortage of supply in the industry. There are not enough builders in the market. We are always challenging the developers and the builders as to whether they are really pushing fast enough or whether they are just protecting their margins and building out too slowly. We have had conversations with the Home Builders Federation in recent months. Our former Ministers secured commitments to slightly higher rates of build-out than had previously been declared. My analysis is that we have to push on a number of different fronts here. We have not been building enough homes for many years. Even if we put enough land and planning permissions into the system, the market is not going to suddenly be there to build the homes overnight.

Mr Bacon

You have given all the classic answers. I wrote them down: land, finance and planning. Those answers are typically the ones that are given. There are always difficulties with all three, so none of that surprised me. In fact, I wrote down part of your answer before you gave it. The curious thing is that although we have a shortage of houses, we do not have a shortage of green corduroy trousers or tables or chairs or other things we need. We don’t have a “help to sit” programme financed by the Government to make sure that we have enough chairs. And yet, if you want to manufacture chairs, you need a factory, you need land, you need finance and you need planning permission. Somehow, by some miracle, I suppose, we have enough tables and chairs. We have enough green corduroy trousers. What is the difference? Why don’t we have enough houses? Why doesn’t the supply of houses rise to meet the demand?

Melanie Dawes

I have given you some elements of the answer. We don’t have enough land coming into the system quick enough. Some people would say the planning system is still too slow. We have tried to speed it up—

Mr Bacon

But that doesn’t prevent us having enough green corduroy trousers, does it? We don’t have enough land in the system. That doesn’t prevent us having just the number of factories we need on land financed with planning permission to manufacture the tables and chairs or green corduroy trousers or whatever else it is—carpets.

Chair

Do you manufacture anything?

Mr Bacon

Yes, we manufacture a lot. We manufacture cars in South Norfolk.

Chair

Okay, never mind!

Mr Bacon

My point is that all these considerations that you’ve mentioned also apply to other things, and yet we don’t have a shortage of those other things, so why do we have a shortage of housing?

Chair

One last go, Ms Dawes, and then we will move on.

Melanie Dawes

In order to manufacture green corduroy trousers, you don’t need to go to your local authority to find scarce land in order to—

Mr Bacon

You need planning permission to build the factory, sure you do. So what is the difference?

Melanie Dawes

The difference is the supply of land, the complexity of the planning system, the fact that for many years we have not been building enough, which means that the market has shrunk and consolidated—all of these things need tackling together and it is a very big challenge. I agree with you. I think we are in agreement, Mr Bacon.

Mr Bacon

All of those answers also apply to any factory that you might want to site in order to develop or manufacture something. There is no difference. There is a difference, of course, and you have not mentioned this at all. You did mention the Home Builders Federation, with perhaps not the wide-eyed astonishment that one hears from some officials and politicians—there does appear quite often to be a wide-eyed astonishment with house builders. You have talked to them about asking them to build faster. But they are a private sector player; they act in a profit-maximising way. There seems to be a wide-eyed astonishment that they would do that. Of course they are going to do that. Their interest is not actually maximising the quantity of product, is it? It is maximising the profit, so they will build when and only when it is sufficiently profitable for them to do so. That is the difference and there aren’t sufficient other choices, are there? There is essentially an oligopoly. That is the difference, really, isn’t it? You are shaking your head.

Melanie Dawes

I am shaking my head because—

Chair

It is quite a big question to absorb.

Melanie Dawes

I think we are in agreement that there are big problems in the housing market, in the way it works. In the end, the supply of land and the supply from other parts of the supply chain that are needed to build homes are constrained in a way that doesn’t happen in other markets. That is the root of the problem. There are lots of reasons for that. Once a market has been constrained like that, you start to find the finance, the builders and the employees are not there in the industry as well, so it is very hard to suddenly recreate it overnight. I don’t disagree with your analysis that the housing market is different and that is why it isn’t meeting demand at the moment. That is a big challenge. This programme is one of the things we are doing to try and tackle it; it is not the only one.

Chair

Clearly we need a PAC housing summit to get into these more philosophical questions, but I am going to move things along.

Mrs Trevelyan

I would agree with Mr Bacon, and I think you do too, that the builders’ ability to maintain their margins and therefore build more slowly is a very real drag on build in these markets. Is that something that the Department is looking at? Is it considering whether the land disposal deals, which hopefully will come with at least outline planning, might indicate that, as it is public land that is going into the system, there is an expectation that they should be built in a prompt fashion? Is it also looking at the mix of accommodation that will be built on what was public land? Is that something that this programme is going to tackle, to ensure we get that?

Melanie Dawes

We do not seek through this programme to, and we don’t ask Departments to, impose any conditions, such as types of home or particular speed of delivery, as a general rule. If we did that, we would almost certainly reduce the return that we are getting from the asset that we are selling into the market. There could well be perfectly good policy reasons why one might want to do that, but that is not part of our approach in this programme. Instead we tackle issues, such as the need for affordable homes, through other means—national planning policies and ultimately through local authority decision making as well. So that isn’t part of the programme this time in the way that it wasn’t last time either.

Mrs Trevelyan

Will you be monitoring the type of accommodation that is going to be built? Will we know if we end up with 160,000 four-bed executive homes starting at £250,000, or will we have some nurses’ housing built on a piece of former NHS land? Are we going to have a picture of that from your monitoring?

Melanie Dawes

We need to look into that. At the moment, we are not expecting to give a lot of detail on the precise type of home, particularly because what often happens is that the affordable housing, especially in very high-price areas of the country, is delivered on other sites, so you have to be quite careful about the data. We are looking at these issues, but we are not currently expecting to include in our monitoring data the nature of the homes that are built. It’ll be the overall number.

Chair

Is that size? Tenure?

Melanie Dawes

Yes: size, tenure, number of bedrooms, affordable or non-affordable. We are currently expecting to be able to report on the number, but we haven’t yet gone into the detail of that. We will be doing so.

Stephen Lovegrove

I can give an example of that. As you know, we sold the old War Office for, I think, £357 million. Theoretically, 100 dwellings were going to be located in it. It turns out that the developer is likely to put only 90 in there, so there is a shortfall of 10. It is rather unlikely that any of those 90—or, indeed, any of those 100—were ever going to be affordable housing. The developer is currently discussing with Westminster City Council what the provision of affordable housing in another part of the borough is going to be. I’m not privy to those discussions and I don’t know when they are going to end, but there is quite an involved process of making sure that the offsets, as it were, are appropriate for the local needs.

Mrs Trevelyan

So the programme will in fact be at the mercy of the local plan, in whichever area it is, driving forwards the balance of affordable homes and other non-executive home types of building, which obviously comes under your remit in a way but not within this programme itself.

Melanie Dawes

We will be relying on the local authority role in local plans and then in individual planning decisions in the normal way, yes—subject, of course, to national guidelines and policies as well.

Chair

When we were discussing this in preparation, one of the things we talked about was the fact that there can sometimes be other dividends, not just financial, which Anne-Marie is going to come to in a moment. Mr Wormald, you have had a little rest, so we will come to you. For the Department of Health there are many, many issues, but the one I want to ask about first is: you have a recruitment crisis, and there is a really big issue, particularly in high-cost areas such as London, with nurses—even consultants now—finding it hard to afford somewhere to live. If land is sold, a dividend is that some of it might be available for health workers. Given the fact that the aim of the programme is to get a certain number of homes, rather than a certain amount of money into the Exchequer, is that something you are able to factor in when you are looking at this, and are you?

Chris Wormald

We don’t, but the people who own the land do. We are different from the other Departments represented here: as usual with the NHS, it is much more complicated. The vast majority of the land is owned by individual hospitals. The individual sales are made by those hospitals and they keep the proceeds, so it is not a nationally run programme.

Chair

Do you have any guidance for that?

Chris Wormald

Yes, we issue guidance to the system. We try to create a framework of incentives, whereby people are releasing surplus land, and we have advisers who go around every trust and talk to them about their estates plans. In the end, though, it is up to the individual trust to decide whether it wants to do the kind of thing you are describing. They do do it, though—we have examples.

Chair

Nevertheless, there is problem with guidance as well for you. My local example would be of Barts. It is not exactly out of the woods now, but when it was going through its particular crisis relating to Whipps Cross, we local east London MPs asked the non-exec directors and leaders of Barts what they were doing with some of the sales of land in areas right in central London, and what housing they were providing for key health workers. They said, “It’s nothing to do with us. Housing is not our responsibility.” We were pretty shocked by that attitude.

Chris Wormald

Well, under the system we run, it is a decision for them. As I say, when an NHS trust sells land it gets to keep the receipt. That is the great incentive to release surplus land. It is also up to it what, if any, conditions it wants to place on the sale. As I say, individual trusts do that. This is an issue we are looking at further, for the reasons that you say—

Chair

When you set provider budgets, as we have discussed many times in this Committee, the budget comes down from the Department. The trust sets its budget to meet what has come down, and it starts off with a shortfall of staff to meet demand, because that is the way the model has unfortunately been “working” over recent years. The very big incentive on those trusts is to maximise the capital receipt and perhaps use it to plug holes elsewhere in the budget, although obviously not on the revenue side—well, under some of the funny accounting that has been taking place, maybe they can. Let us not go back over old ground. The long-term benefit to them of having homes for local staff would be—

Chris Wormald

I completely agree with you. As I say, we have examples of trusts that do that. We will look further at whether trusts should be doing more and how we might support them to do so. The way we are working this is that we have our existing programme, which is doing okay—I think it is about 12% of our sales at the moment—and we have our normal pipeline. We are also reviewing what we need to do in the future. Sir Robert Naylor has been taken on as the Department’s adviser on estates. As you know, he is a very eminent London chief exec who is very up on all these issues. Later in the autumn, he will be coming back to us on how we should be working with the NHS estate overall—not just on the sales question, but on how people manage their estate, on some of the issues you are raising and on the system’s capacity and capability to manage its estate.

Mr Bacon

Therein lies an important rub. Sir Robert Naylor is a visionary leader, but what do you do where you have trusts, which you say have the decision-making power themselves, that are led by people who are purblind and mind-blowingly unimaginative, who, almost certainly the day after selling the land, are the same people who will come bitching to your Department that they can’t get staff because staff locally can’t find anywhere to live? What do you do when you are faced with such people?

Chris Wormald

I am not going to recognise that description of the NHS. However—this is one of the things he will be looking at—because of the pattern of land ownership, we will of course have some quite small trusts that might well be doing one-off deals. They will not, as a rule, have the capacity and capability to do it in the best way because they are doing it only once. You would expect a very big London trust to have a capability in land—

Mr Bacon

Do you have, or are you thinking of evolving, a professional estates capacity that can go out on a consultancy basis to help them do this better? Is that what you are saying?

Chris Wormald

We do a bit of that already, because the advisers we contract with have been around every trust—there have been 12 of them. We will see what Sir Robert recommends, but this is one of the key issues he is looking at, although not for the reasons that you described at the beginning.

Mr Bacon

Not using quite the colourful adjectives.

Chris Wormald

The thrust of your question is, is there the capability in the system to do this? Well, not universally. Colin can probably describe some of the solutions that some of the trusts have used. They include handing the land sale over to the HCA or to NHS Property Services when they don’t have the capability themselves. Maybe Colin can describe examples of that.

Colin Molton

We have examples of where we have worked with NHS trusts and ambulance trusts, etc. In Bristol, which we have taken over from the South West Ambulance Trust, they didn’t have the capability to deal with the site themselves. We paid a value for that and entered into arrangements where we shared the uplift in value, and that has been a very successful project. We worked very closely with the local authority in that case, and we are now in contract with Bouygues, and there will be a substantial uplift in value as a result of that. We use our professional capability to assist trusts, as well as other—

Mr Bacon

Mr Molton, it is not only about the maximum uplift, is it? There is a whole series of policy issues that affect wider value for money. We have been talking about health workers, but rural high schools complain that they cannot get staff in rural areas. The counties have lots of land. It wouldn’t be that difficult to see how you can put the two together and get a high-value result that would be good for public policy.

Colin Molton

There are quite a few examples where we are working with local authorities to agree the mix of development on sites. That is quite common. For example, on Blackberry Hill—another Bristol example—the local authority wants to see housing for older people on that site. We can accommodate that as part of the mix, but that is more of a planning issue, to bring a planning brief with the local authority, and then we can secure that outcome by working together.

Chris Wormald

There are some swings and roundabouts, and there are some very obvious advantages, including in the disposal of surplus assets, for hospitals controlling their own estates and, where they release land, being able to reinvest that in local health services—I think that is what most people expect—and dealing with that as an institutional thing. Exactly as you say, there are some big advantages in looking across the piece. This is one reason why we wanted Sir Robert to do his work and why his work is not specifically about land sales; it is about estates, property and the strategic use of the health estate. That is partly for health reasons and for some of the reasons we were debating in the previous hearing. We need a different type of estate to be able to deliver the health that we want. Partly it is for cash generation reasons, and partly it is contributions to this programme. We are in the business of balancing up those particular objectives and trying to get the benefits of local management that I am describing and the benefits that you and Colin were discussing.

Chair

We are going to come back to some of these issues at the end, if we have time. Did Karin Smyth want to come in on this point?

Karin Smyth

It is good to hear about some of that cross-working. I shudder a little bit at the mention of the involvement of NHS Property Services in this, but I am hoping to meet them soon.

Chris Wormald

The vast majority of land is owned by individual trusts.

Karin Smyth

We will need to realise how they work. My question goes back to the issue of high risk, because 45% of sites in the Department of Health are high risk, which is in figure 8. You mentioned Blackberry Hill in Bristol. Part of my scepticism about our local STP is the fact that we have already released a lot of land. A lot of those sites—the 45%—will be selling things to meet the requirements within the STP over the next few years. If you look at the timeline for the STPs, they might be submitted in October and agreed in January-ish next year. You then start the negotiation later to close a hospital site with a local community. You might get that through in a year, which takes us to the beginning of 2018-19 to then start selling the land by the end of the year. Do you see where I am going with this question about high risk?

Chris Wormald

Yes.

Karin Smyth

The timeline is dependent on releasing land to meet the requirements of the STP. The timeline is extremely tight for that 45% to backload it to 2020, if it is all agreed.

Chris Wormald

I completely see where you are going, and we are not reliant on that process to hit our targets. We have a target of 26,000 units—I’ll do this in housing units. As of 30 June, we were at 3,167, which is 12% of our target, which is okay. Obviously, we would rather be at 20%. Our pipeline is 21,330, including the sales, which means we need to identify over 5,000, because there will be some drop-out. We are looking at a further 11,000 potential units that are not yet in the pipeline, which takes us over 26,000. Clearly, what we will need to do because of high-risk sites, as others do, is identify more potential than necessary to hit our target. However, for exactly the reasons you have been saying, we want this to be a rolling process of the health service looking at what estate it needs going forward for health reasons. As well as fulfilling the needs of this programme and getting some cash, we want the right estate to deliver health. That again is one reason why, even though our numbers were quite encouraging, we wanted Robert to look at how we did this overall. We are trying to achieve something quite complicated here, which is to both serve the needs of my colleague in releasing land, but also end up with the health estates that we actually need, which is a very complicated thing. The numbers look quite good, but they are not enough for us; I think that is the summary.

Mrs Trevelyan

On a technical matter, paragraph 2.12 defines what housing would consist of in terms of what land disposal would be acceptable. One of them is “an Annington’s home previously leased to the Ministry of Defence and sold to the market”. I am a bit confused at how one can sell something as a disposal when one does not own it any more. We sold all those houses off in 1996. I wonder if you could explain the logic of having that in there as an acceptable thing to sell. It also does not create a new house, because the house is already there.

Stephen Lovegrove

That’s true, although it may have been standing void—

Mrs Trevelyan

That is a relevant issue for the MOD, to be fair, but that does not give me a new house for someone else to move into.

Stephen Lovegrove

The situation with the sale is that in 1999 Annington Homes bought a 999-year lease on those homes. The MOD then bought back a 200-year lease from Annington Homes, which is now owned by Terra Firma. The arrangement for houses being deemed surplus and then handed back to Annington either to sell into the market or being retained by us to be sublet, effectively, is I think where you are going. On the conversations between DCLG and my team on exactly how they would score, I’m afraid I do not have full details. Possibly Ms Dawes has. I am happy to get back to you with further details if that is helpful.

Melanie Dawes

We had a lot of discussions as we set the targets last autumn about what should be included and what should not be included. Our Ministers looked at a number of different suggestions from Departments, some very imaginative, that they decided were not in the spirit of the programme, but, in this case, they decided that because it is releasing housing back into the private market, it should score. In the last programme overall this was around 2.5% of MOD’s overall number of homes, so it wasn’t a very large proportion. I don’t know what it is in this programme, but we have been very transparent. This is included and there were reasons that were discussed as to why. I have just explained them, but that was a decision that was taken about including them.

Stephen Lovegrove

In this programme, of the 47,240 that we have so far identified, I believe around 3,000 of those fall into this category.

Chair

I think we may have asked before, but why are care homes included?

Melanie Dawes

Again, because that is a need that the country has. This is residential accommodation for particular groups of people, and it is often what local authorities want; there is a shortage of it. This is residential accommodation for people to live in so it is something that we felt was contributing.

Chair

I think we were a bit surprised that there was a shortage of care homes.

Mrs Trevelyan

There is massive excess capacity in the north-east, that is for sure. It is not necessarily a bad thing to have in your choice of things, but I would disagree with you that we have a shortage of care home space.

Melanie Dawes

Well, in the end this is still residential property, so that was why it was decided it should be included. I don’t have figures on the percentages here, but that will depend on local authority planning decisions.

Chris Wormald

I am quite happy to go away and check the stats, but, from memory, it is variable across the country. In London, it is quite short, but I am happy to check. I am sure the Department has some information.

Mrs Trevelyan

Coming back to Annington Homes as part of the wider question about value for money, Mr Lovegrove, if you are handing properties that are under your leasehold control back to Annington Homes, is there not an agreement that you have to put them back to their original condition, so there is probably going to be a relative cost for the MOD to invest in those homes before they can get back into the system under Annington’s sale process? In that case, how are you as the accounting officer ensuring that your value-for-money calculations work? Or would it not be better to keep those, as you have a 200-year lease invested in them, and simply use them within the MOD?

Stephen Lovegrove

That is a very good question. It is one that we are thinking about hard at the moment.

Mrs Trevelyan

But you have put them in already, so have you not thought it through?

Stephen Lovegrove

Not all of them have gone in like that. We do have quite a reasonable number of voids at the moment, many of which are there to accommodate the troops returning from Germany, so it is higher than it would be normally. You are right to say that there is a remediation cost that we by and large have to pay to be able to get the homes at the appropriate standard for Annington to take them back. That has come out on average, from memory, at about £14,000 or so. So there is a value-for-money question that needs to be addressed there. It is within the context of the beginnings of the—I hesitate to use the word “renegotiation”, but certainly looking again at the Annington Homes deal. The homes that we have from Annington are given to us on—not given to us. They are provided to us on a discounted basis and the basis of that discount needs to be revised in 2020. I have started conversations with representatives of Terra Firma personally to make sure that we end up with the right shape of deal as a result of that negotiation, to the extent that we possibly can, because there is quite a lot of housing stock in the Annington estate effectively, which I am not wholly convinced is being used to the best advantage of our troops or indeed the wider homeowning public. But there are quite a lot of moving parts in the Annington situation, made more so by this upcoming 2020 renegotiation.

Chair

The Comptroller and Auditor General has a question.

Sir Amyas Morse

I have come across Terra Firma before. Do they have a continuing interest in this? In other words, was this originally a sale and leaseback to Terra Firma?

Stephen Lovegrove

Yes, I suppose it would have been a sale and leaseback—

Sir Amyas Morse

So it was originally land owned by the MOD but sold for—?

Stephen Lovegrove

For a 999-year term—

Sir Amyas Morse

And then leased back—?

Stephen Lovegrove

For 200 years.

Sir Amyas Morse

For 200 years to the MOD. So there is a sort of reversionary interest. And now you’re releasing to the market a development lease, or something like that. You’re releasing at least a subsidiary leasehold interest, or something like that?

Stephen Lovegrove

It must be that, yes—

Sir Amyas Morse

You’re not giving a freehold interest?

Stephen Lovegrove

No, it can’t be, because underlying it is a 999-year lease. It is quite a complex deal and it’s quite an old—

Sir Amyas Morse

I won’t take you off on it now.

Chair

We don’t want to revisit Annington Homes today.

Stephen Lovegrove

I am sure you will want to visit the Annington—

Mrs Trevelyan

My concern across the board, therefore, with this programme is that the challenge for you as individual accounting officers is balancing the value-for-money question and meeting your spending review capital receipts target, along with meeting what are obviously going to be potentially some high-risk housing challenges to turn land into the homes we need. I am afraid, Mr Lovegrove, that as you were kind enough to publish yesterday a list of the various places you intend to sell, for the purpose of generating apparently 17,000 homes of your 57-odd—

Chair

Better than the 71 so far in the—

Mrs Trevelyan

Yes, it’s going in the right direction. It’s just to understand a little better that balance of value for money, risk and the wider policy that you will be considering for your Department. For instance, in the case of Southwick Park in Fareham, which is a golf course with a big house in the middle of it, is that a freehold to sell? Can we build on a golf course? What do we do with all the other people? There’s a whole College of Policing in there and a whole number of other people. The value for money for selling if it’s a golf course and the planning people saying, “That’s fine. Build a small city on it, around this very nice old house”—in your head, how have you put that into the mix comfortably as the accounting officer?

Stephen Lovegrove

First, a word on the numbers, because it’s important to make sure that we know exactly what we are talking about. In the year to date, we’ve made three announcements and we have announced in those three announcements that we have identified sites that can accommodate 39,000 housing units. Of those 39,000 housing units, only 17,000 of them are to be scored in the period up to 2020, because—well, for fairly obvious reasons—

Mrs Trevelyan

Time lags?