Oral evidence: Financial Sustainability of the NHS, HC 887

Oral evidence, 11 January 2017.

Witnesses

Chris Hopson, Chief Executive, NHS Providers, Sarah Thompson, Chief Officer, Enfield Clinical Commissioning Group, and Rob Whiteford, Chief Finance Officer, Enfield CCG.

Chair

I welcome you all to the Public Accounts Committee. We are here to look at the financial sustainability of the NHS. We are working on it thanks to the National Audit Office’s good Report that came out in November, but it is an issue that the Committee has looked at over a long time, particularly the last year when we had 11 Reports on the NHS, all raising concerns about long-term financial sustainability. I welcome witnesses to our first panel. It is sometimes a bit warm in this room, so feel free to take off jackets at any time. Apparently, I have to give permission but I did not go to the sort of school that knew that. Sarah Thompson is the chief officer of Enfield Clinical Commissioning Group and she is here with Rob Whiteford, the chief finance officer of Enfield CCG. If I am right, your CCG has just gone into special measures. Is that right?

Sarah Thompson

We went into special measures in the summer of 2016.

Chair

So six months ago. We know that you are here to talk about your experience on the ground as one CCG. We recognise that you are not speaking for every CCG but we appreciate your giving up time to come here today. We also have Chris Hopson who is the chief executive of NHS Providers. Thank you very much for your evidence, which we do not want to replay in this hearing. As I say, we have looked at this before. We have previously discussed the £2.45 billion deficit that trusts reported in 2015-16. We are concerned about this year’s budget, which will raise with our main witnesses. The ongoing financial stress will obviously have an impact on patient care so we are keen to hear from the commissioner and provider point of view how you think this situation is playing out for patient experience and whether there is a proper strategy from the Department of Health and NHS England. We had a lot of one-off measures in place to balance the budget in 2015-16, which Mr Hopson may shed some light on from the providers’ point of view. We want to look today at how the sector will be brought into balance, what plans are being tested to ensure that they are deliverable and what support you are getting as NHS bodies to deliver the demanding requirements from the Department. I will start with Chris Hopson. I don’t want to go into too much detail. You have given us a good briefing and we also noted the briefing you provided to Members of Parliament ahead of the urgent question in the House. Perhaps I could go to the end of that and what you highlight there. You might not have it in front of you but I’m sure you know. You talk about the NHS Five Year Forward View setting out a clear, long-term vision for the NHS but then you say, “In addition, we need” and you list some of the things needed in future. In short, do you think that the NHS has got enough money to do all of those things? And what are you asking for as well as the NHS Five Year Forward View?

Chris Hopson

No, we don’t think the NHS has got all the money that it needs to deliver all—

Chair

Sorry, could you speak up? My hearing is not so great and the acoustics are bad in here.

Chris Hopson

No, we don’t believe the NHS has all the money that it needs to deliver what it is currently being asked to deliver. Over the past six months we have said on a number of occasions that we think there is now a clear gap between the priorities and demands being placed on the NHS—a combination of 4% demand growth plus a bunch of new priorities—against a set funding envelope from the spending review, which as you know goes down from a 3.6% increase this year to much lower levels of increase over the next three years. We think there is a gap and that we need a credible and robust plan to fill it. Without wishing to put words in the NAO’s mouth, I think we would share many of the NAO’s concerns that the current process does not offer that credible robust plan for the next two or three years.

Chair

Sarah Thompson—or either of you from the CCG point of view—what does it feel like being in charge of a CCG in special measures in the current climate? Are you getting the support and the money you need to deliver?

Sarah Thompson

As a chief officer of a CCG, I have to accept responsibility and make a commitment to staying within the available resources. It might be helpful to give you some indication of the numbers in relation to Enfield. Our forecast position to the end of March is a deficit, an overspend, of £10.9 million. We have a cumulative deficit of £41 million and that originated in 2013-14. During the course of this year, the focus of our attention has been to ensure that those numbers form part of a financial plan that sees a way forward where we will get back into budget balance. At the moment, we see that as happening in 2018. As part of our strategy this year, we have generated £13 million in savings, and that has been through a combination of focused work in our contractual relationships with key providers and, more importantly, transformational schemes. For example, in Enfield we spend £38 million on prescribing in general practice. Our very skilled and able medicines management team have worked very carefully with local general practitioners, looking at benchmarked information and best practice in prescribing. Through that change in prescribing practice, with no detriment to patient care, this year they have saved £2.4 million. That is a very real and live example for us of a way in which we are trying to be very careful and systematic in our approach to service transformation, offering our public good-quality care but mindful of the importance of saving money where relevant.

Mr Bacon

Is that through the greater use of generic medicines and so on?

Sarah Thompson

It is through looking at the prescribing practice of individual GPs, yes; better use of medicines, which can be more cost-effective; and looking at alternative strategies—through a combination of those things.

Mr Bacon

When you say “better use of medicines”, just to be clear, do you mean less use of medicine, use of different medicines that are generic and do the same thing, or what?

Sarah Thompson

On an individual patient basis, working with a GP, what is in the best interests of the individual’s patient care? That may be a combination of all those elements, in terms of promoting best practice in prescribing.

Mr Bacon

The thing is, using generic, non-brand name pharmaceuticals to save money is not exactly new, so if you have managed to save £2.4 million, it raises the question in my head, “What was happening three, seven, 11, nine or four years ago that this £2.4 million that isn’t now being spent was being spent?” Why wasn’t it being done before? Over the past 10 years, that would be £24 million, wouldn’t it?

Sarah Thompson

Potentially—

Mr Bacon

Given that this is not new, why is it only happening now?

Sarah Thompson

I am trying to give you an example of the world in the Enfield of the moment, where we are working carefully with our clinicians—

Mr Bacon

I understand. My question is not about that; my question is, why is this only happening now?

Sarah Thompson

I cannot answer that historically, I am afraid. I have been in Enfield since May of last year, and I am trying to give you a real, live example of work we are doing in the field to transform—

Mr Bacon

Thank you. You have answered my question.

Chair

May I ask something before I hand over to Anne Marie Morris? First, when were you appointed to the CCG, Mr Whiteford?

Rob Whiteford

November 2014.

Chair

So you were there through the last financial year.

Rob Whiteford

Yes.

Chair

What did it feel like from your end when the budget was being put through last year? A lot of pressure was being applied—although of course you have a legal duty—to balance. Did you face particular pressures? Did you have much contact from the Department directly about that?

Rob Whiteford

Certainly we received a great deal of support from NHS England and, in setting the budget, the history that Sarah mentioned was quite important, because in 2014-15 we were a CCG with an annual deficit of £19 million. That came down to £14 million in 2015-16 and will be, as Sarah said, £10.8 million at the end of this financial year. There has been steady progress over the past three years. We were able to agree a control total—the amount we are allowed to spend—with NHS England fairly robustly.

Chair

You are confident now about the figures, but what led to the deficit? Was it bad management, population change or increasing demand in particular health areas?

Rob Whiteford

More than one factor led to the deficit. CCGs are funded based on a national funding formula. For some time Enfield was materially under the amount determined by that formula, so in 2014-15 we were £24 million under the amount that formula would dictate. As a result, we have increased growth over the last two years, and that has helped us to improve our financial position.

Chair

Okay, so some historic issues there.

Karin Smyth

I used to work for Enfield Health Authority many years ago, so I know the patch very well. Where is that deficit? Is it mostly located in the hospitals?

Rob Whiteford

Certainly a very big proportion of that deficit was driven. When we were back in 2013-14, as I understand it we were on a series of block contracts and it did not matter how many patients went to the hospital, we paid the same amount. We then moved on to a payment-by-results system where we paid by individual patient in 2014-15, and that was when a lot of the deficit emerged—a very material part of it.

Karin Smyth

Where is that mainly? Is that mainly in the North Mid?

Rob Whiteford

North Middlesex and Royal Free London.

Karin Smyth

But you still have a lot of patients going across London for all sorts of things, don’t you?

Rob Whiteford

Absolutely, we do, although those contracts are much smaller for us. By far the biggest contracts we hold are with North Middlesex and the Royal Free.

Karin Smyth

So the problems with those trusts have been going for quite a number of years. That has been a problematic area for a number of years.

Rob Whiteford

With the trusts? Sorry, could you just clarify when you said “with the trusts”?

Karin Smyth

I guess my point is that it is not a new situation for Enfield, is it, to have a problem with those particular trusts in terms of running a deficit?

Rob Whiteford

I think that is fair to say. It dates back to at least 2014-15, and it would have dated back earlier than that had we not been on block contracts.

John Pugh

Specifically on that, did the volume of patients go up when you moved from block contracts to the different method of paying by individual? Could you tell?

Rob Whiteford

The volume of patients rises every year, but I think the answer to your question is no. The number of patients did not rise because we moved from one contract type to another, but it did rise by the normal amount that we would expect to see it rise in any given year.

John Pugh

It was just a more expensive way of paying for the same business?

Rob Whiteford

Yes.

Karin Smyth

Those trusts will be quite tightly supported by NHS Improvement to come within their own totals. And you are being supported now by NHS England to get yourselves out of special measures—is that right?

Sarah Thompson

That is correct, yes.

Karin Smyth

How do you feel the conversations are going in the field in terms of the support that is being given to the trust and the support that is being given to you? Is that aligned at a national and local level?

Sarah Thompson

It is important to say that it needs to be aligned, and we do try extremely hard. An example would be: we have just completed a set of negotiations to complete our contracts for the next two years and that has required the coming together of both regulators, the providers and ourselves. We have achieved agreement for the next two-year period. So I think that is probably a real example of the need to work together. It has not always been easy—there have been tensions, inevitably, and I wouldn’t pretend otherwise—but the outcome has been good for the system in terms of delivering agreed positions.

Karin Smyth

You said that it needs to be aligned.

Sarah Thompson

It does.

Karin Smyth

Is it aligned?

Sarah Thompson

It is. We come together, and there is that example of the need to work together on contracts. As issues come up, it needs to be aligned and we spend time getting that alignment. Those conversations, as I have revealed, are complex and difficult.

Karin Smyth

You are being very careful—I appreciate your problem. Mr Hopson, would you like to get to the nub of my question?

Chris Hopson

I think the experience of our members on the ground would be that the alignment between NHS England and NHS Improvement is better, but I think we would all agree—I suspect that NHS England and NHS Improvement would agree—that it needs to be even better. So let’s not talk about this contract but go back one contract round. A number of our members reported that, as the financial pressure grows, what happens is, quite understandably, CCGs come under a lot of pressure from NHS England to negotiate hard on the contracting side. And then, needless to say, NHS Improvement are suggesting to our members that they should not accept a contract which does not enable them to meet their control total. Certainly, a number of our members have reported that actually there ends up on occasions—there have been in the past—problems where effectively both sides are under pressure from their respective oversight bodies and it can get quite difficult. But, to be fair, I do think the situation is getting better, and certainly on this year’s contracting round I would argue that NHS England and NHS Improvement have worked more effectively together. But as soon as you have the underlying tension of there not being enough money in the system, you do really risk this provider-commissioner split and the negotiation really becoming quite fraught, because both have been given very stretching control totals that, in a sense, you can only realise at the expense of the other. That is again partly why the move to sustainability and transformation plans, where we are planning as a whole system, does over time offer the ability to allocate the money across a whole system so that, in a sense, you do not waste a whole lot of friction time contracting, with commissioners and providers arm wrestling.

Karin Smyth

In terms of the STPs resolving that problem of two different masters, what time limit would you put on them actually being able to deliver?

Chris Hopson

I think the sustainability and transformation planning process is trying to do two things. First, it is trying to set out a path in each local area to deliver the transformation that was set out in the Five Year Forward View. The second task that has been given, which I think is an extremely difficult one, is—we know that because the NHS funding increases are slowing down, each STP area has been given a very stretching 2020-21 financial target to meet. To be frank, the feedback from our members is that they are finding it very difficult to identify how they can meet that very stretching target.

Karin Smyth

By 2021?

Chris Hopson

In terms of meeting a very stretching financial target for the end of the spending review envelope, effectively. We know that first draft plans were submitted in October or November. Our members have fed back that very few, if any, feel that they have a credible, robust, rigorous plan that sets out how they will meet that very stretching financial target. Our view is that that STP process will probably need to carry on for at least another three or four months until we can get some genuinely robust, rigorous and credible plans to close that financial gap. But in a sense, the STPs are just a localised reflection of the gap that we have at the national level, so you might argue that effectively, all we have done is parcelled up a national gap and asked a whole bunch of local systems—44 systems—to try to come up with a local answer to their share of the national gap. Not entirely surprisingly, it is proving to be a very difficult task.

Anne Marie Morris

The STPs are clearly seen by us all, I think, as conceptually a good idea and something that ultimately should bring the different systems together across a geography, but you have already indicated some of the real challenges that that gives rise to. Let us look at the CCGs and your CETs, particularly given that you are both in special measures. If we can start with Mr Whiteford, do you feel that the plan you now have is credible and deliverable and that you have—or will have—the working relationships with the different parts of the health economy to actually deliver on time and within budget?

Rob Whiteford

My view is that it is entirely possible that we will achieve our plan. I phrase it that way because the money follows what happens on the ground, and for the money to turn around, we need the service transformation to happen as it is laid out in the sustainability and transformation plans. That is the reason I have answered you in that way. If those service changes occur, yes, the plans are realistic and credible.

Anne Marie Morris

But how realistic is it, and what work do you see NHS England doing to enable you to make those transformations? My concern is that much of the work that is being done on the new models of care isn’t being shared. If it is not shared, how can you work that into your plan? Your “if” becomes a very large question mark, because the assumption you have made is that someone is going to come up with a solution to this problem and you will be able simply to bring it in and use it. Is that realistic?

Rob Whiteford

I am not in a position to judge the entire viability of the sustainability and transformation plan, but what I can say to you is that there is a sustainability and transformation plan with a set-out timetable. It requires investment of £100 million across north central London. As Chris mentioned, bringing everyone together into the same system helps us generate that investment. One of the biggest impacts of our financial position in Enfield is that we have had very little money to invest in primary care and community services. Bringing it together as one system through the STP will allow us more flexibility to generate that investment. What I am not in a position to do is exercise an opinion on how likely the service transformation schemes are to deliver. I cannot do that.

Anne Marie Morris

All right, but the bottom line is therefore that you are relying on something to happen that hasn’t happened yet: these new models of care that will enable you to move forward.

Rob Whiteford

That’s true.

Anne Marie Morris

Therefore, my conclusion is that there is a very significant question mark. Do you believe that this plan is bought into by all parties and something that everyone is really up for, or do you feel, by contrast, that the Government have said, “You will do it or you won’t get any money,” and there is therefore a nice piece of paper but no real buy-in?

Rob Whiteford

In the north central London health community, everyone has bought into it. We effectively operate with one budget now. There is one control total, one budget for north central London. Everyone has the same vested interest in ensuring that that delivers.

Anne Marie Morris

Do you have any idea how you are going to be held to account? Have any performance indicators been mentioned to you? Because, clearly, you are going to have to deliver on that plan and report back fairly regularly. Has any of that been discussed?

Rob Whiteford

The CCG has a fairly comprehensive performance framework that we are monitored under at the moment. I agree with your point. To some extent, we are less than clear about how that would be monitored under an STP-wide system.

Anne Marie Morris

Perhaps I could ask you, Ms Thompson, whether your experience is similar. In a way, Mr Whiteford has the benefit of this shared budget. You are one of the few in my experience of talking to CCGs and STP groups together. How do you feel with regard to your STP? Do you feel that it is credible, doable, deliverable and that your stakeholders are together and ad idem in the ability to deliver it?

Sarah Thompson

I am here to speak in large part for Enfield, as chief officer for Enfield, and we contribute to the STP in north central London. I can absolutely say that the agenda of transformation we are leading in Enfield is in large part echoed and replicated across the STP. There are benefits from that work for us. Our performance that has just been described is measured regularly on a monthly basis by NHS England because we are in special measures. We have monthly performance meetings. I would say that the rigour and scrutiny within which Enfield must secure its recovery in the context of the wider STP is very much part of our business as usual. It is the way in which we operate. So I think the answer to your question is that I accept responsibility for delivery of financial balance in Enfield within the context of the wider work and wider work streams of transformation that will happen through the STP in the forthcoming period.

Anne Marie Morris

Do you have any specific transition funding? One of my concerns is that we have these STP plans, we know how we are currently working and how we want to work in future but we have to get from A to B. There is the issue about money, if you like, to enable double running. That is not the same thing as transformation money because that is money to enable the project to be delivered. There is this double running. Has that been accounted for in your plan?

Sarah Thompson

No, at the moment we have to chart our course in Enfield of transformation within the available resources that we have.

Anne Marie Morris

Do you believe that is deliverable? Because if you move from system A to system B, is it realistic not to have double running?

Sarah Thompson

In an ideal world, if there was an opportunity, of course it would be very helpful to have seed funding to do exactly as you described but it is a given for us at the moment that we must take forward the various schemes of transformation within our available resources. We do that through business cases that have to evidence and quantify the change and the shift that will occur in financial terms. It is a very rigorous process that I have described.

Chair

Mr Hopson, do you want to comment on that point?

Chris Hopson

I thought that the NAO Report really brought out at a national level some of the real challenges of the process. If you talk to our members, and listen here, it is many of the same issues. The issues that the STPs are grappling with are, “Can we really reduce the acute demand to the degree to which we need to? Can we get the new care models in place sufficiently fast enough? Is primary and social care robust enough to move the care out of the hospital closer to home? Are there sufficient investment funds at a point when we are raiding the capital budget effectively to ensure we deliver the revenue to make the very significant amount of investment that is needed?” I think the capex one is a good example of where we are currently in an unsustainable position. We know that we have got a whole bunch of issues. A good example would be St George’s where we know there is a series of issues.

Chair

St George’s, Tooting, south London.

Chris Hopson

Yes, St George’s, Tooting, where there has been a series of issues highlighted in a CQC report around the fact that we need investment in the operating theatres and we have not been able to make the investment that we needed. What we’ve got is a whole bunch of different calls on capex, ranging from the need for up-to-date maintenance to keep facilities up to date, investing in the new technology that we absolutely need, but at the same time also investing in those new care models, yet here we are with a capital budget that is much lower than what we asked for. We are already taking a quarter of it to basically prop up revenue. All I am saying is that doesn’t seem to me to describe a particularly sustainable way of running our national health service. I really thought the NAO identified a whole bunch of those issues at a national level, but they are absolutely playing out at a local level. STPs are a reflection of what is going on nationally.

Karin Smyth

I just want to go back to Miss Thompson. You said that one of your priority areas needed to be around primary care. The plan has £2.4 billion aligned to supporting primary care, so that we can lessen the reliance on hospitals. Have you seen that money feed through into your budgets at Enfield?

Sarah Thompson

We have most recently, because we’ve had national funding to develop hubs that offer our public access to services on weekends and bank holidays through until 8 o’clock in the evening. Before Christmas, we launched our first hub in south-east Enfield. The remaining three will be opened later this month.

Karin Smyth

Are they additional to your current practices?

Sarah Thompson

Absolutely.

Karin Smyth

How is that transforming your existing practices into a new way of working? Is it able to do that, or are you putting new services in place?

Sarah Thompson

The way we approached it was to invite our general practitioners and practices in Enfield to come forward on a lead practice arrangement. It was done through a procurement, so it is local Enfield GPs who have responded to that. They are leading in the development of those services on a locality basis. That feels absolutely right and proper for the public that we serve. We are now looking daily at how those services are being utilised. As you may know, we are lucky enough in Enfield and Edmonton to have a walk-in service as well. Clearly, given the pressures that we know our hospitals are experiencing at the moment, people like myself look daily at the utilisation that has been made of our walk-in services and our hub services, because we want to make sure that our public have a range of opportunities to access healthcare.

Karin Smyth

Is that reducing demand at the hospital?

Sarah Thompson

Because our hub opened in early December, I don’t think we can make that relationship at the moment. What we are seeking to understand and look at is where the patients who use those services are coming from. We really need to gain a greater knowledge, understanding and analysis to see those links.

Karin Smyth

Are you not in danger of opening up more roads and creating more traffic? Or are you able to align to see whether there is less pressure now on your two main hospitals because of that increased support?

Sarah Thompson

It is a fair challenge. You obviously know the locality well; North Middlesex hospital is under pressure. We also know that 140 people accessed our walk-in services over the last weekend.[1] We need to be able to respond to those demands at this time and look carefully at how we need to structure those in the longer term, to make sure that only those patients who really need to go to our hospitals are there. We are also lucky enough to have a “see, treat and direct” function that is offered by general practitioners on the front door of North Middlesex hospital. We are trying very hard to work collaboratively with our local provider, and are looking at every opportunity to respond to our public’s needs.

Karin Smyth

How long is that front end in place for?

Sarah Thompson

“See, treat and direct” has been on since about April 2016; it slightly predates my joining Enfield. Let me just check with Rob.

Rob Whiteford

That is correct.

Karin Smyth

Has that reduced admissions to hospital?

Sarah Thompson

It has. We are happy to follow up with details to evidence the impact it has had on redirecting patients, either because they are seen and treated there and then—they are redirected alternatively to primary care—or it may be that they can return home. There are a variety of alternatives.

John Pugh

Is there a coercive element in this? You give the impression that everybody is buying into this, but clearly, if you are transforming and reconfiguring services, there are going to be winners and losers. People will not provide services from certain centres that they previously did, and things will be done differently with varying degrees of willingness. Mr Whiteford, you said that you are working to one controlled total. That is clearly the stick in this, isn’t it? You do not get the money unless you come up with something that is doable. I just wanted a frank acknowledgement from you as to whether there is an element of duress in this, and that some of the providers, or the CCGs within the framework for that matter, are less than happy with how things are panning out.

Rob Whiteford

I can only speak for Enfield. I don’t have a sense of how a wider range of providers or the NHS health community would view it. From the Enfield perspective, our position is improving, and I think our plan is fairly solid.

John Pugh

So there is a happy, collaborative atmosphere in Enfield?

Rob Whiteford

I think there has been a happy, collaborative atmosphere, yes.

Sarah Thompson

It is not easy at all. I would say it is complex. It is all about trust and relationships, critically, with our providers in our local authority. But we are now seeing grip, and we have a plan to deliver financial balance in 2018.

Chair

Do you have a chair of your STP?

Sarah Thompson

We have a convenor, who is Sir David Sloman, the chief executive of the Royal Free London.

Chair

How was he appointed as convenor? We might pursue this with Mr Hopson.

Sarah Thompson

That is not something I can comment on, I’m afraid.

Chair

That is an interesting point. We thought as much. Mr Hopson, on the same point.

Chris Hopson

The experience, I think it is fair to say, of the STP process is that, by definition, it will vary. We are very strong supporters of the process. We think it is a really important process to bring your local communities together. It is fair to say that some of them are perhaps more natural fits than others. In terms of how the work is then developed, every single member I have spoken to has said they feel they have really benefited from the degree of collaboration that the process has involved. Clearly, if you are making very tough and difficult decisions and choices that may have negative impacts on people, there are bound to be some communities where it will be difficult to strike the agreement. The reason why I smiled about the appointment process is that there is no doubt—to be fair, in the vast majority of places, the convenor emerged with a degree of happiness and satisfaction from the players. In a small number of the STP footprints, there was a feeling that a convenor was imposed from above upon them by our colleagues in the arm’s length bodies, but we got over that. We have made the process work. If we are honest, there will be some places where it is difficult to see the STP plan and process in its current form absolutely reaching the required destination, partly because in some places the footprints are so artificial. If the key exam question, which is the one I think we are asking here, is, “Where’s the rigorous, robust plan for the next three years to ensure the NHS is sustainable in a way that delivers services within the required financial envelope?” we have to have some kind of planning process and, in a sense, we have to make the STP process work. At the moment, we are, in the vast majority of places, quite a long way off from having a robust, reliable, rigorous and credible plan.

Anne Marie Morris

I have a final question to each of you. What is the biggest risk to the STPs, in terms of them going off the rails?

Chris Hopson

I think the biggest risk to the STPs is the danger they have been asked an impossible question, which effectively is, “How do you deliver the current full range of services and all the priorities within a financial envelope that is quite simply impossible to meet?” You will have seen from our submission that we are now very clear that we have reached the point in the NHS where we can no longer deliver everything being asked of the NHS. If the Government has fixed the money—the Chancellor said very clearly in his autumn statement that he was not going to change the spending envelope for the rest of the Parliament—the NHS has to ask the really difficult question of what it is not going to do to meet the financial envelope. I echo the real concern that the planning process we have at the moment is making some assumptions, like demand management. For example, the starting point is actually worse than is currently assumed in terms of the size of the provider deficit. It is making assumptions about the speed with which we can make the transfer to new care models. As you have seen from our submission, we need a proper, rigorous, robust process that is based on a proper set of assumptions and which, if the money is fixed, asks the question, “What are we not going to do?” We cannot carry on pretending that we can do everything in the financial envelope we have. It is just not possible.

Anne Marie Morris

Right. Can we have a quick word from Ms Thompson?

Sarah Thompson

I am here for Enfield, and the biggest contribution we can make to the north central London STP is for Enfield to get back into financial balance.

Anne Marie Morris

The question is, what is the biggest risk to the STPs?

Sarah Thompson

I cannot really comment on the biggest risk to the STP because my contribution—the reason I am here—is to ensure Enfield makes its contribution to the STP.

Chair

A final question from me. We have talked a lot about systems, initials, Sustainability and Transformation Plans—STPs—but what about patients? What is your biggest concern about what the current state of finances will mean to patients? Secondly, what is your biggest concern, as we approach 11 weeks off the end of this financial year, about pressures on your budget?

Sarah Thompson

As chief officer of a CCG, my first concern is always about patient care and safety. As a commissioning organisation, we always need to be assured that in our governance, our relationships with our key providers, our ways of working, we follow up any difficulties in relation to patient care. That is where I would—

Chair

So do you have any concerns as we approach the end of this financial year?

Sarah Thompson

Not of a financially driven nature. You asked about my greatest concern; that is my concern: to ensure patient care and safety is always complied with.

Chris Hopson

My greatest concern is if we carry on on the current trajectory with this kind of decline in performance and increasing risk. I don’t wish to sound dramatic because I don’t think it is appropriate. You may have seen me try to be very under-dramatic in the way we have talked about A&E. I think the biggest concern, to be frank, is if we carry on on the current trajectory, we begin to bring into question the entire sustainability of the NHS model. I’ll give you an example. We have a quarterly meeting with our trust chairs and chief executives. We had 130 of them in a meeting in December, and for the first time in four years we had a serious conversation about the point at which public confidence in the NHS model of care—delivered free at the point of use based on clinical need, not ability to pay—comes into question. I am not saying that is now, but if we carry on on this current trajectory, my nervousness is that public confidence in the NHS really seriously does come into question. As somebody who is deeply committed to the NHS, I have to say that that is a source of worry. What we are doing at the moment is not sustainable.

Chair

This is a difficult question to ask because you are representing all NHS providers. Is there any particular area of patient care or treatment that you are picking up from your members as being particularly under threat? Obviously there are pressures in A&E, and that gets acute in the winter. Is there any particular area that leaps out?

Chris Hopson

Given where we currently are, it is difficult not to answer anything other than that we would clearly be very concerned about A&E. The point we have made is that as the pressure ratchets up, we are finding that there are certain systems where their resilience has been worn away. What happens is that you get a flood of patients and then you are looking at very precipitate drops in performance, which genuinely are a significantly increased risk. Because we have a great bunch of managers and because NHS Improvement is doing a grand job—a much better job in our view of what Monitor used to do in terms of supporting our trusts—then management action kicks in. All I am saying is that, with what we are seeing in A&E departments, we definitely have a significantly enhanced risk. So it would be A&Es where we would particularly point to.

Chair

This is my final point to you, because you are here representing providers. I won’t recap because I’m sure you know the figures. They are very neatly laid out in paragraph 1.11 on page 18 of the NAO Report. It talks about the projection on the deficit for this year. As a representative of NHS Providers, have you got a rough idea of the percentage of your members who will not be able to balance their budgets this year?

Chris Hopson

The better number I can give you is our relative confidence about what the overall aggregate number will be. Again, we think NHS Improvement developed a good, strong plan, which our members are working to. There is a target of minus £580 million. My guess is that we are probably heading to about minus £650 million or £700 million, but please do not underestimate how much effort is being put into that. As we put in our paper submission, there is quite a lot of risk to that, but you can have confidence that there is a robust plan in place effectively to stem the rapidly growing tide of deficits. We think the tide will turn, but the question we asked is, how sustainable is that long-term?

Chair

Because there were a lot of one-off measures in the last budget, of course. We could go into this a lot more—thank you very much for your time—but we need to get on to your paymasters, in effect, if that is the right phrase. You are very welcome to stay for the rest of the hearing. Our transcript of this hearing will be available on the website in the next couple of days, but you will obviously be sent a copy. I am not sure exactly when our Report will be out, but we will send you a copy of that as well. Examination of witnesses

Witnesses

Chris Wormald, Permanent Secretary, Department of Health, David Williams, Director General, Finance and Group Operations, DoH, Simon Stevens, Chief Executive, NHS England, and Jim Mackey, Chief Executive, NHS Improvement.

Chair

Welcome. I do not think that I need to repeat to most of you, because you have heard it before, how much we as a Committee are concerned about the long-term financial sustainability of the NHS. Our 11 Reports last year underlined some of the concerns, and this Report from the NAO brings together a lot of the concerns that we have with a lot of data underpinning them. I am pleased to welcome our witnesses for the second half of our session: David Williams, the director general for finance and group operations at the Department of Health—welcome back, Mr Williams—Chris Wormald, the permanent secretary at the Department of Health; Simon Stevens, the chief executive of NHS England; and Jim Mackey, the chief executive of NHS Improvement. For anyone following, the Twitter hashtag this afternoon is #NHSfinance—very imaginative. Welcome back all of you, our frequent flyers at the Committee. We are sometimes called the second Health Select Committee. Can I start with you, Mr Stevens? We heard very clearly from Mr Hopson—I don’t think that you were in the room, so I will repeat roughly what he said, and forgive me that it is not an exact quote—that there is not enough money in the system; there is a clear gap. He also said that the NHS can no longer deliver everything that has been asked of it. The Government are repeatedly telling us—I have recently had letters from the Secretary of State—that the NHS is getting more money that it asks for. What is your view on that?

Simon Stevens

It is right that by 2020 NHS England will be getting an extra £10 billion over the course of six years. I don’t think that is the same as saying we are getting more than we asked for over five years, because it was a Five Year Forward View and not a six year forward view. Over and above that, we have obviously had a spending review negotiation in the meantime, and that has set the NHS budget for the next three years. It is a matter of fact—it is not news, and I said it previously to the Select Committee back in October—that, like probably every part of the public service, we got less than we asked for in that process. So I think it would be stretching it to say that the NHS has got more than it has asked for.

Chair

Would you agree with Mr Hopson that there is not enough money and there is a clear gap?

Simon Stevens

There are clearly substantial pressures. I do not think that it helps anybody to try to pretend that there are not, but that is not a new phenomenon, to some extent. It is a phenomenon that is intensifying. I think that we were fortunate to get the front-loaded funding increases for this year that we said were needed to kick-start the broader change process. Had we not done that, we would not be in a position where we are on track to cut the hospital deficit by two thirds this year and also make a start on some of the improvements that we need to see on cancer and mental health services. However, I believe that there are some very genuine choices to be made across the NHS and there is a circle to be squared. I think that is right.

Chair

Okay. We will perhaps come back to choices—what can be offered—later, but that is not the main focus of our session today and we have covered that ground a bit before. Mr Wormald, do you think that there is not enough money and that there is a clear gap?

Chris Wormald

I agree with what Simon has said—unsurprisingly, as we discuss these issues all the time. The Government put in to the NHS pretty much exactly what they said they would put in as part of their manifesto. That was of course, in the way that Simon described, negotiated through the spending review. Not everyone gets exactly what they ask for, but over the period we put in the amount of money that we said we would, and we believe that the Five Year Forward View is deliverable—

Chair

So you are saying it got what it asked for but not more than what it asked for.

Chris Wormald

The statements made around that are simply making the point that the NHS, compared with other services, got an extra year of settlement and £2 billion in that year, so I do not think there is any contradiction in anything that anyone is saying here. Anyway, it is slightly irrelevant. The cash sums we are putting into the NHS are set out very clearly in the spending review. Anyone can look at them and take their own view. Our challenge as public officials is, how do you deliver the best health service you can for those cash sums? Certainly that is what we are all focused on.

Chair

Cash sums are all very well, but when you have got cash sums going in but demand increasing at a higher rate, that is a challenge.

Chris Wormald

Yes, of course it is. I am sure we will discuss this throughout the hearing. The pre-panel witnesses set out both the challenges and some of the opportunities for efficiencies and savings very clearly. They brought out that there are things that we can do here. I think it speaks for all of us on this side of the table. It is the Government’s position that this is a very challenging time, but there are things that we can do. The local examples you were given actually set out the challenges very well.

Chair

We know what happened with the budget, which was laid before Parliament on 21 July last year. How confident are you that you will balance the budget?

Chris Wormald

We expect to hit DEL—

Chair

Sorry, explain the acronym, because not everybody listening will understand.

Chris Wormald

Our departmental expenditure limit. It is the amount of money we are given by the Treasury and that Parliament votes for us. Like all Departments we expect to hit it. I will not predict an exact number. For people doing financial and economic forecasts recently, it has not been going well for them, so I will not join the club. In a system in which we spend over £300 million a day on the health system, we work on very fine margins and comparatively small changes can have quite big effects, but we are aiming to hit DEL.

Chair

You said on 7 September, when we spoke to you about this before, that you agreed with the Comptroller and Auditor General 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 you are confident that you will be within budget.

Chris Wormald

I mean exactly what I say. What we are aiming for, and what was set out in the financial reset that my colleagues in NHSE and NHSI set out, is to substantially reduce the provider deficit through a series of measures on financial rigour led by NHSI, and to cover that deficit by a contingency held by NHSE. We want to balance the budget on that basis. The quarter 2 figures, the last published figures that we have given, give us encouragement that that process is working. If we deliver those objectives across the year, we will have balanced the NHS budget without excluding any one-off measures. Of course, there are always one-off measures going in both directions in all sets of accounts, but our plan is to balance the NHS budget in the way set out in the 21 July document.

Chair

So you are not excluding one-off measures.

Chris Wormald

As I say, there are always one-off measures in accounts for perfectly valid reasons. I am saying that our objective is to balance the NHS budget in the way that I have described.

Chair

Okay. I am not sure which of the three of you to ask—perhaps Simon Stevens and maybe David Williams. There is this 1% reserve that commissioning groups are holding on to. They have been asked to hold that. Will that be something that you are likely to claw back into the centre, Mr Williams, to make sure the books balance?

David Williams

I am not expecting to rely on that to balance the overall group position. What we are looking for is for NHSE and commissioning groups locally to maintain that reserve to balance in the first instance NHS provider deficits. That is my perspective.

Simon Stevens

David is obviously right technically, but I think the spirit of the question is: are we going to have to underspend £800 million in order to offset pressures in hospitals and elsewhere? The answer is yes, we are. We are planning on the basis that that is what is going to have to happen. Last year we did the same to the tune of £599 million; the year before we did £285 million. The reason David is right is that when the accounts aggregate to the Department of Health, he is not clawing something back, but CCGs have been asked to create and manage an underspend of £800 million this year.

Chair

The buffer has basically been created locally to bail out providers locally.

Simon Stevens

It’s planned. I wouldn’t say it is a bail-out.

Chair

It feels like a bail-out to us.

Simon Stevens

It was implied in the reset document in July. What it means, however, is that that is £800 million not available to put in place the alternative services, the primary care services, the community services that one might have wanted to try to offset some of the demand. That is the pragmatic judgment we took in July, given all the pressures facing the system.

Chris Wormald

The basics of the reset plan were to get the deficit in the previous year, which as you know was £2.45 billion, down to about £600 million. That will be a significant achievement and will have shown that providers have really got to grips with the issue. That £600 million still has to be covered; it is still a deficit. In the year we are in, we are looking to make substantial progress towards getting back to the situation we want to be in.

Chair

You are making substantial progress, but the quarter 1 deficit includes £450 million of sustainability funding. This is on page 18, paragraph 1.11, where it is laid out very clearly. Without that funding the deficit would have been £911 million, which compares with £930 million for the equivalent quarter in 2015-16. It is not as good as it is painted.

Chris Wormald

I think we have always been clear that the extra investment is an important part of what we are doing. As has been described, the health service as well as all that—

Chair

You say extra investment. You are saying that the sustainability funding is extra. Let’s be clear.

Chris Wormald

That is part of the front-loaded increase that Mr Stevens was describing.

Chair

Let’s be clear about which extra we are talking about. It is not extra extra on top of this.

Chris Wormald

No, this is all part of the spending review.

Simon Stevens

This is the case that, frankly, we made—I made—for 2016-17. I think these pressures in hospitals are legitimate and real; they are not because hospitals or staff are being feckless. There are huge pressures there, and therefore it needs to be funded. That’s the reason we needed a front-loaded funding settlement for 2016-17, and that is the reason why, when we got it, our case had been heard for 2016-17. I think that is right.

Chair

Mr Mackey, you have been quite robust in the past about hospitals managing their own deficit. Some trusts have been allowed to get their deficits exceeding 5% of their income. Why has that happened, and what are you doing about it?

Jim Mackey

The financial position deteriorated over a period of about five years.

Chair

Because of the 4% efficiency savings, as you are on record as saying.

Jim Mackey

Very few organisations created a very large problem quickly; most of them had been doing it for a few years. The purpose of the reset was to say, “This has got to stop now. Let’s start eating into it.” The work we have done with those organisations that went into special measures, for example, has been really effective in addressing that. By the end of this year, we are expecting just over half of organisations to be in surplus again, versus 30%-odd last year, to make further progress next year and, if it is possible in the two-year planning process, to get 2018-19 to the 2013-14 levels of deficit, in terms of the numbers of organisations.

Chair

This must be very disappointing for you. You came to take on the role at NHS Improvement 18 months or two years ago.

Jim Mackey

November 2015.

Simon Stevens

Dog years.

Chair

It must seem like a lot longer for you. To try to do all these improvements while dealing with what are now effectively structural deficits—because of that 4% efficiency that was imposed—doesn’t that put the improvement agenda on the back foot? In effect, you are just chasing the financial agenda to the detriment of the improvement and transformation that you were brought in to try to deliver.

Jim Mackey

I wish we were able to spend all of our time on real clinical improvement. There is an awful lot of that going on out in the service. One of the dangers at the moment is that everybody gets fixated on the money and the A&E crisis. Everywhere you go in the NHS you see fantastic improvement activities. Often you are in an institution that actually has international standing, or at least national standing, in the clinical activities going on. I was in Liverpool yesterday. They had the worst day in their history on Monday in A&E, and have lots of financial challenges, but I met some fantastically impressive clinicians doing amazing things. There is a real danger that we oversimplify this. I also very strongly believe that organisations will always struggle to improve if they have lost control of the money. It is part of managing the system. It is not money versus quality. All these things have to work together.

Chris Wormald

Yes. I was going to add that the Enfield CCG examples of how you bring yourself back to financial rigour by doing quality better were very clear. When we look at the hospitals with the highest CQC ratings on quality—the National Audit Office referred to this—they are also the ones with the lowest deficits.

Chair

The correlation is very clear.

Chris Wormald

Quality management and financial management go together.

Philip Boswell

Just a quick question to Mr Stevens and Mr Wormald on sustainability. The Health Select Committee report states that extra funding for Department of Health responsibilities is increasing by £4.5 billion and not the £10 billion as stated. Now, £10 billion, £8 billion, £4.5 billion, definition, duration—can you explain what those figures are? If it is £4.5 billion, what impact will that have on the improvement agenda?

Chris Wormald

The difference between those numbers—in a way, this is much simpler than it appears—is that the £10 billion refers to the NHS budget. The commitment in the governing party’s manifesto was extra money for the NHS. The resources that the Department of Health have that are outside the NHS need to make their contribution to austerity measures in exactly the same way as every other Government Department does. That is not dissimilar from the situation that I had in my previous Department—the Department for Education—where the schools budget was protected but not the wider education budget. As I said, the governing party’s manifesto was very clear that it was the NHS budget that the commitment related to, so the NHS budget is going up by £10 billion in real terms. If you look at the wider health budget, including that outside the ring fence, you get some of the numbers that you were describing, so the numbers are not in contradiction at all. The Government, as I said, have been very clear about what their commitment was.

Simon Stevens

Yes, I think the Health Select Committee has forensically dissected that very effectively. Dr Wollaston has set out, in easy to understand terms, the difference between those numbers. To some extent the debate about 2020-this and 2020-that misses the point, actually, which is that in the here and now there are very real pressures. Over the next three years, funding is going to be highly constrained, and in 2018-19, as I previously said in October, real-terms NHS spending per person in England is going to go down, 10 years after Lehman Brothers and austerity began. We all understand why that is, but let us not pretend that that is not placing huge pressure on the service.

Philip Boswell

So is it misleading to say it is £10 billion, or are you getting £10 billion?

Simon Stevens

If you are clear about what you mean when you say each of these numbers, it is not misleading, but if you conflate or gloss them together, that would, indeed, not do what the Health Select Committee recommended.

Chris Wormald

Yes. As I say, it was very clear in the governing party’s manifesto what it meant. I think all Government statements have made it clear that it is the NHS that we are referring to when we describe the £10 billion.

Chair

But as you say, within the system, money is being moved from one place to another. You could say that we are robbing Peter to pay Paul—taking money out of public health to put it in other places and setting up special funds such as the better care fund.

Chris Wormald

As I say, outside the ring fence for the NHS, health budgets make their contribution to the Government’s austerity agenda.

Chair

Yes, so you are robbing Peter to pay Paul. You can’t say that, because you are the permanent secretary, but I think that is what is happening. Public health, which is preventive work for long-term planning, is being denuded to bail out trusts and other providers in the short term.

Chris Wormald

No. We are making our contribution to austerity like every other public budget is.

Chair

Mr Stevens, would you like to comment on that before I bring in Mr Evans?

Simon Stevens

Parts of the offsets that were made on the broader DH budget are a result of policy changes, and they won’t have a direct impact on frontline services. There are others where clearly there are bigger concerns. Sustaining preventive services that are now commissioned by local authorities is obviously one of them. No doubt we will come on to talking about social care. The original proposition in the Five Year Forward View was that we would need to expand capital investment. In practice, unfortunately, we have to cut it by about £1 billion a year and transfer that—

Chair

We are going to come on to that. Before I bring in Mr Evans, Mr Wormald, the cash reserves of trusts are dwindling. Mr Stevens just highlighted the issue of capital funding. It was turned into a resource, so there has been a reduction in capital spending. This is all causing hidden stresses on the system that are going to come to fruition down the line. Doesn’t that worry you as an accounting officer?

Chris Wormald

If I may—

Chair

Mr Williams, does not that worry you as a finance officer?

David Williams

I think the reduction in cash reserves is a symptom of the underlying problem rather than a different one. The underlying problem is that the costs to NHS providers of delivering their services are higher than the income that they are generating through that activity, but they still need to find sufficient cash to cover the cost, to meet their payroll, to pay suppliers; and where that income is insufficient, either they need to draw down on cash reserves, where they have been able to build those up in previous years—and that is what the reserves are for—or they need to borrow cash from the Department. So I would describe it as another symptom of—

Chair

But it is not sustainable, is it? It is a symptom, but it is not sustainable, because you can’t keep drawing down on the reserves and reducing capital expenditure year on year. You are storing up problems for sustaining it.

David Williams

No, for sustainable operation of the system you would want to have a level of cash reserve in individual organisations just to keep the—

Chair

Aren’t you concerned that the cash reserves are dwindling at such a rate?

David Williams

I am not surprised that they are reducing. I would not want them to reduce substantially further than I think they will be by the end of this year, but as we set out, we are part-way through a process to recover the financial performance of NHS providers. I do not expect those cash reserves to move in isolation, as it were, from what we are doing on the overall deficit.

Chris Wormald

On the basic point of whether we could continue on the trends that we saw in ’15 and ’16, I think all of us at different points have said to the Committee that we all accept that no, we can’t. That was why a financial reset was necessary last July, why the financial rigour measures we have put in are necessary—and I am sure we will come on to some of these other things—why we need to deliver on our efficiency programmes, and why we need to tackle unnecessary demand in the system and get an assessment of that.

Chair

But you haven’t really done an assessment of the impact of that reduction in capital spend, and the turning of capital to resource. That is an impact that you, as accounting officer, must be looking at, because if you just allow hospitals to turn their capital into resource to plug the gap and you have got hospital buildings, other buildings, equipment and IT just deteriorating, you are storing up costs and problems for the future. Surely you have—or why haven’t you?—done an analysis in the Department about it.

Chris Wormald

I will bring David back in a moment, but, clearly, doing capital to revenue switches is not something that you want to do. There is a prioritisation decision that protecting front-line services when they are under pressure is necessary—

Chair

We know why it happened, Mr Wormald, but, Mr Williams, are you looking at what the long-term cost of that is to the system and individual trusts?

David Williams

We have been doing some work on that. At the departmental level it is quite difficult to get a line of sight to the consequences for individual NHS providers of changes in their local capital plans. At the group level most of the reduction in capital spend in 2015-16, in our judgment, was capable of being delivered, and was delivered, through natural slippage. It is not uncommon for public sector capital programmes.

Chair

So can we unpack that? You say at group level most of it was delivered by natural slippage—so a project overrunning slightly, but, you say, at group level—so they are not amalgamating individual trust development projects.

David Williams

In terms of our expectation of how that was delivered, it was mainly as a result of natural slippage or over-optimism in the profile of spend, rather than directed management action to slow down. Around a third of the capital to revenue switch in 2015-16 was negotiated directly between Mr Mackey’s organisation and individual providers. In those areas there will have been a greater understanding of the extent to which that required deliberate action; but for the remainder it was largely the result of slippage.

Chair

Wouldn’t it just be easier to give a budget for the capital that is needed, rather than just for transferring capital budgets to revenue spending, so that you are actually planning for a capital investment?

David Williams

As Mr Wormald has said, I do not think that anyone here would argue that shifting money from capital to day-to-day expenditure is a sustainable or desirable approach for the long term. It has been a necessary approach to balance some of the financial pressures in that day-to-day expenditure. It is something that we will look to repeat this financial year. Supplementary estimates—

Chair

How many times can you repeat it, Mr Williams? It was done quite a lot last year and you have acknowledged that it will be repeated this year.

David Williams

Yes. This will not be the last time, but our plan is for that level of capital revenue transfer to reduce. Certainly by the end of the spending review period, I would like to eliminate any reliance on it at all.

Chair

Mr Stevens, have you got something to add?

Simon Stevens

What David says is right. In practical terms—what does it mean for the NHS around the country and what do we do going forward—it is clear that given what we need to do to support GPs, we are going to need capital investment, particularly in terms of GPs coming together to be able to offer an expanded range of services. That will get better access for patients and relieve pressure on hospitals. Fortunately, we got some of that with the premises improvement programme. The first tranche of that has been allocated around the country. What we found when we went out and asked people about the schemes they get a positive payback on was that we had our hands bitten off. There were many more schemes that we could be funding. Even before you get to the question of hospitals operating in old and dilapidated buildings or on multiple sites, or ways in which we could drive productivity if we invested in infrastructure in the NHS, there clearly is an unmet need out there. To the extent that it becomes possible to meet that need with increased infrastructure investment over the next several years, that will pay off both in terms of revenue savings and, more importantly, in terms of better patient services and a more modern set of facilities in which our staff can deliver care.

Chair

That is great—the nirvana in the future—but we are very concerned about the capital issues. I think it makes sense for me to finish some of my very brief questions before I pass over to Chris Evans and Kwasi Kwarteng. First, Mr Williams—can you give a brief answer, please?—many trusts are delaying payments to suppliers as a way of covering their worries about this year’s budget settlement. Is that something that concerns you or that you are monitoring at the Department of Health?

David Williams

It is something that we are monitoring closely with colleagues in NHS Improvement. Clearly it is not good practice, but it is another symptom, as the Report says, of some of the financial pressures in the system.

Chair

So do you think it is acceptable that they are doing that?

David Williams

It is not something that I would like to see sustained over the long term. As a way of managing financial flows in the short term, I can see—

Chair

There is a danger that there is just a very big surge of spending in April, I suspect, as they all suddenly pay their suppliers. Anyway, we will not go into that at this point; I do not want to dwell on that for too long. With the financial pressures, the concern we have all got is the impact on patient care. On Monday, the Secretary of State announced that the four-hour A&E target is being dropped. Given the deterioration—

Chris Wormald

No, he didn’t.

Chair

He said it was no longer going to be the target.

Chris Wormald

No, he didn’t say that. I re-read his statement this morning.

Chair

Perhaps I did not read his statement; I read the press coverage. Perhaps you can explain very briefly, Mr Wormald, what he did say.

Chris Wormald

He said that the four-hour target was extremely important and was staying. I suspect that this point is being debated in the main Chamber as we speak, and it also came up at PMQs, but the point he was making—Mr Mackey might want to comment on this—was that we need to have a conversation about how accident and emergency is used.

Chair

We read that bit, too.

Chris Wormald

It is about ensuring that the target is for the patients that accident and emergency is designed for. There is a whole series of things that we are looking at—

Chair

To be clear, you are saying that the Secretary of State is not dropping the four-hour A&E target.

Chris Wormald

The four-hour target is staying.

Chair

But it is being breached on many occasions. It is at its worst level of performance almost since its introduction, from my records.

Chris Wormald

Yes. It is an extremely important target. We believe that it is the toughest access target anywhere in the world. We are not meeting it at the moment, and we do need to get back towards it.

Chair

So you are planning to keep that one. Are there any plans to drop targets or extend waiting times on other targets?

Chris Wormald

Not at the moment, no. Perhaps Mr Mackey should come in on what we are actually doing around A&E, because it is an important set of questions, but the target remains.

Chair

Mr Mackey, are you looking at the targets at all in NHS Improvement to rejig anything?

Jim Mackey

We are not looking at targets in the round. On the A&E standard, we have got a session tomorrow with the Royal College of Emergency Medicine, and colleagues from across the service from other colleges and the specialist societies and so on, to look at how we improve going forward. The 95% standard is still a really important indicator of system health, but a lot of things have changed since it was introduced. What we have been trying to communicate this week is that there are an awful lot of people in A&E who could be seen in other settings, so we are going to try to create those other settings and help them be seen there.

Chair

That isn’t new, though. We have had people going to A&E with coughs and colds and all sorts of other things for years. That is why we have walk-in centres, GP services and hospitals.

Jim Mackey

But it has grown significantly, and this is a recognition—

Chair

After tomorrow’s meeting, just to be clear—we need to move on a bit—is there a chance that the A&E target will be altered, dropped or redefined?

Jim Mackey

It won’t be dropped. There are some measures—the clinical community is saying rightly that when we introduced the standard, there were no such things as a sepsis six bundle for our very sickest patients. It takes about 45 minutes to start and make reasonable progress on that. There are some clinical pathways that exist now that save lives that did not exist when the standard was created, and I think we need to take that on board and understand what that means for the standard. What I am bothered about is that when departments are very crowded, risk can be unmanaged. We need to ensure that departments are able to uncrowd themselves so that clinicians can focus on the sickest patients. We are starting to work through that. If that means that clinicians want us to add into the processes to say, “If you are very sick and you have certain conditions, there should be a standard that says you are seen by a doctor within two hours, three hours or whatever”, then that is what we will consider.

Chris Wormald

I have now found the bit of paper with what the Secretary of State said. He said: “This Government are committed to maintaining and delivering that vital four-hour commitment to patients”.

Chair

Okay. Mr Mackey, at NHS Improvement, you are looking at how to squeeze the quart into the pint pot, or whatever the metric equivalent is. You have got to look at the money, the resource and how the change will take place. In that programme, is there a plan to look at any of the targets to see whether you can change or extend them in order to free up money and resources to flow around the system, so that patients will sometimes be waiting longer for treatment?

Jim Mackey

We are not looking at any relaxation of any targets or standards in our work.

Chair

Thank you. Mr Evans and Mr Kwarteng, please be brief.

Chris Evans

Mr Stevens, are you robbing Peter to pay Paul? In paragraph 1.27 on page 28, the Report states: “In February 2016, £950 million of this budget”—that is the capital budget, which was £4.6 billion—“intended for capital projects…was transferred to revenue budgets to fund day-to-day services.” That was the second year that you have done that. Why did you not assess the long-term effects of this? Do you even know what the risks are if you carry on doing this in future with this budget?

Simon Stevens

That is the conversation we were having a moment ago on capital. I would say that we were robbing Paul to pay Paul. It was money that Paul would have been spending on capital and is now spending on revenue. As we have just said, that is not a desirable situation. It will have taken about £4 billion out of capital expenditure over the course of five years, at a time when we would have benefited from that.

Chris Evans

Are you going to do it again this year?

Simon Stevens

You have heard that—

Chair

We have covered this ground, Mr Evans.

Simon Stevens

It is being done again this year, and it will be done again next year.

Kwasi Kwarteng

Can I ask a broader question? I hate to state the obvious, but as a country we have been running a deficit for 16 or 17 years. The funding pressures aren’t exactly new, although I appreciate that they are now acute. I just want to ask a question on sustainability. Short of just giving more money that I have said we do not have, and given that we have been running this deficit for 16 years, what could the Government do to make your life easier and the service more sustainable? I hear the shortage of money—

Chair

You have done a question. Mr Stevens.

Kwasi Kwarteng

That’s my question.

Simon Stevens

Well, we talked about some of these things when we began this strategic change process in the NHS. Some of the changes we have got to make to services we would be making even if we were awash with cash. The fact is that we have got a set of GP services and a set of hospital services that have not evolved sufficiently for the changing needs of our patients and the way in which care now needs to be delivered in a modern health service. In 1948, half of us died before the age of 65. Now it is 14%. One in three children born this year will live to 100. So we do not have a health service that is configured for long-term conditions, joining up what GPs do with what hospital specialists do, linking the mental health services and the physical services, and in particular the connection between health and social care. If Beveridge were at it again, he quite clearly would come up with a different proposition for the way health and social care work together. Despite all of the pressures, there is still an underlying deep consensus, not just in the NHS but in most industrialised countries, about how healthcare needs to evolve. On your question about what sorts of things would make a difference, first, the amount of illness that the health service has to look after is partly a function of how healthy we are as a population. A lot of that is determined outside of what a GP or hospital itself does. I will give you two examples—a good news example and a bad news example. The good news is that there are 1 million fewer adult smokers over the past five years, from 8 million to 7 million. That will have a hugely positive impact on continuing reductions in cancer deaths and heart disease. The bad news is the big rise in childhood obesity. There are things the Government clearly can do on that. The first part of the answer is that action that Government can take that has an impact on health risk and future cost is of great significance over the medium term. It does not show up this year or next year, but over five, 10 and 15 years, it is enormous. Secondly, there are aspects of the way in which funds flow between different bits of the public sector—in particular social care, but also the benefits system. I have talked about the need to rethink the way some of the funding streams for retirees work, as between health and social care, benefits, pensions and so forth. These are all part of the debate that the country needs. Thirdly - this is not day-to-day running costs, - but backing some of the longer-term changes we need, including infrastructure. There are innovative ways in which that could be brought about, which obviously requires broader Government action. Those would be three.

Chair

Thank you very much for that. We will come to Karin Smyth in one moment, but before that, Mr Wormald, I want to be absolutely clear. This is what the Secretary of State said about the four-hour standard—“if we are going to protect our four-hour standard, we need to be clear it is a promise to sort out all urgent health problems within four hours—but not all health problems, however minor.” The standard currently is that you turn up to A&E and are seen within four hours. By redefining it, it has actually been dropped.

Chris Wormald

No. The Secretary of State’s point is that—

Chair

It says it here in black and white. I just read it out.

Chris Wormald

I am sure my colleagues will agree with me on this. There are people who are currently going to A&E who could be treated elsewhere—

Chair

That is a different point. The point is here that he has altered the standard, so if you turn up to A&E, you are not guaranteed to be seen within four hours, unless you are in the urgent health category.

Simon Stevens

Let me come in here. There are three things going on here. The Government have said they are committed to maintaining the four-hour A&E target, but what we are saying is that first, clinical practice patterns have changed.

Chair

Which we have heard from Mr Mackey.

Simon Stevens

Secondly, in the way that you pointed out, the places where you can go to get urgent care continue to expand and evolve in the national health service. We have to capture the totality of that in what we are measuring. Thirdly—

Chair

This is the A&E target we are talking about.

Simon Stevens

The offer that the NHS makes to the public for people with emergencies and urgent conditions. We have never said we will sort out everything just because you happen to turn up to a physical place and then get it all sorted out in four hours. That has never, in practice, actually been what has happened.

Caroline Flint

But you see someone within four hours.

Simon Stevens

No. This is one of the great misunderstandings. You hear this sometimes. People think you turn up and then get seen within four hours. Actually, the standard is that you get treated—sorted out and turned around, lock, stock and barrel—within four hours, or you get admitted into hospital. What that means is that for some patients with conditions that can be treated and might take six or eight hours, often at three hours 59 minutes they are getting admitted to hospital because of the four-hour A&E target. These are some of the clinical things we need to have a look at, consistent with the spirit of ensuring that people continue to get high-quality, quick urgent care.

Chair

I still stand by what I said. The Secretary of State’s description has been, as you politely put it, amended—but you could say it has been dropped as a universal commitment. I will bring in Karin Smyth, because otherwise we are going to get waylaid on this.

Karin Smyth

I might come back to the target. Happy new year everybody, and welcome. Mr Wormald, let me take you back to 7 September, just after the summer recess—we will be using a lot of the transcript from that investigation in our final report. You said, in response to the need for the NHS to be in a financially stable position going forward, that it needed four things: extra investment—we can argue about the numbers, but we have had that—a financial reset, which we have also had; reducing demand; and the adoption of healthier lifestyles. You also said that, for the NHS to be financially stable going forward, a combination of those four things needed to happen. How is reducing demand going at the moment?

Chris Wormald

As you have heard already, it is challenging. To deliver the Five Year Forward View—I’ll ask Simon to comment on that; he has already said some things about it—we need to tackle those issues. We need to do two things. We need to change the clutch on the discussion we’ve just been having and address how people are treated within the health service, with more people treated in primary settings and fewer in acute settings. In the medium to longer term, as Simon described, we need fewer ill people coming to the health service. We need to see both those things. A number of things are being done, particularly on the first thing, some of which were described by your previous witnesses from Enfield CCG—I thought they gave a very good description of the kinds of things that people do locally. There is a lot of action on that. At this point I will hand over to NHS England.

Karin Smyth

I will come on to that. The plan was formulated in 2014, and we heard again at Prime Minister’s Question Time that the NHS is busier now than it has ever been. How can it be the case that we are getting busier and not reducing demand two years into the plan?

Chris Wormald

There are considerable challenges and pressures at the moment, and we have been clear about that. The four things I mentioned—I think I said this when I spoke in September—happen across different timeframes. The last of them—healthier lifestyles—as Simon described, will take 10 or 15 years.

Karin Smyth

Can I just stop you there? Why are we getting busier?

Chris Wormald

Why are we getting busier?

Simon Stevens

I can answer that.

Karin Smyth

I will come to you in a minute, Mr Stevens. There are four things that need to be done to put the NHS in a financially stable position going forward, one of which is to reduce demand. In the two years since the plan was formulated, we have got busier.

Chris Wormald

Yes. I think that people with actual operational experience of the health service are better at answering that question than me.

Karin Smyth

Okay. We are getting busier, so one of those four things is not happening. The fourth thing is the adoption of healthier lifestyles. Have we adopted healthier lifestyles in that time period?

Chris Wormald

Simon has already answered that question. There are some themes—smoking is one; teenage pregnancy is another—where we have made a lot of progress under successive Governments, and we see that play through into the health service. There are other areas in which, as a society, we need to make more progress: mental health, which the Prime Minister talked about on Monday, is one of them; and obesity, as Simon mentioned, is another. As I say, the overall story of public health is of quite a lot of progress over successive Governments that we need to continue, and there are some challenges that we need to meet going through that.

Karin Smyth

But by now, in 2017, two of the four things that need to happen for the system to be on a sustainable footing haven’t happened, have they? Would you agree with that?

Chris Wormald

To be clear, I was talking about sustainability over the long term. The crucial thing for this year was to return financial rigour to the system. That is why such priority was given to the recent—

Karin Smyth

The week after that, on 14 September, we asked Mr Stevens similar questions about the—

Chair

Sorry, Ms Smyth. Just before that, I know that Anne-Marie Trevelyan has one question for Simon Stevens that it would make sense to bring in now.

Mrs Trevelyan

In relation to demand management in A&E, could you confirm—perhaps you could go away and think about how we deal with this—that if you turn up to A&E you get free medication if you need it, whereas if you turn up to a GP you have to pay for it. That is driving an increase in demand, because it is an obvious way to get free Calpol for your kids, or whatever the issue might be. There is a question from a value-for-money point of view, but is that driving a demand increase that we could avoid?

Simon Stevens

I will have to go away and look at that specific question. I think it points to an anomaly.

Chair

In which case, perhaps you could write to Mrs Trevelyan and the Committee about that. Sorry to interrupt you, Ms Smyth.

Karin Smyth

In relation to the same question, what you said, Mr Stevens, was that the money—we’ll come back to the £8 billion, the £4.5 billion and the £10 billion—regardless of the final settlement, was based on three dependencies: a well performing social care system keeping up with demand; continued availability of preventive health services; and enough capital to lever in charges. We have talked a little about the capital. A well performing social care system keeping up with demand is the basis on which the plan is formulated. Is that social care system currently keeping up with demand?

Simon Stevens

No.

Karin Smyth

Thank you for the short answer; that is very helpful. Mr Mackey, what is your view of the demand situation now? Why are we busier now than we have been in the last two or three years?

Jim Mackey

It is multifactorial, as always. Some of it is the social care thing. Some of it is consumer led, as Anne-Marie pointed out. We have seen in the last few weeks a very big spike of respiratory disease, which has affected the elderly; and frankly, I think a lot of the people who have been admitted in the last few weeks would not have been with us five years ago. People are living longer and they are much more vulnerable. I think that has outstripped our expectations. It is probably much worse than we assumed a few years ago. If you look at the thing in the round, you can see why the system is very pressured.

Chris Wormald

Could I reply to your question? We expect and plan to be busier every year. Demographics would make us busier every year, so it is not a surprise that each year the health service has extra demand. The challenge we set ourselves was: could we limit that demand, but not eliminate it? We expect to be busy every year. The challenge we have had over the last few weeks and the last year is that demand has been higher than we anticipated.

Karin Smyth

I accept that. To sum up, the NHS has not quite got everything asked for for all the years of the five years, but it has had a substantial investment. But it was contingent on a number of assumptions. Those assumptions have not materialised, have they? They have not been realised, so my real question to you, Mr Wormald, is this: are you asking the NHS or are you in the Department now refreshing the financial envelope on which the plan has been built, because two and a half years in it clearly is not fit for purpose?

Chris Wormald

I don’t accept the premise of your question.

Karin Smyth

Okay. Are you asking them to relook at the financial plan?

Chris Wormald

One of the reasons why it was a very good idea to have a five-year plan in the first place was that in any very complex system like the health service, not everything goes as you plan. The idea of the Five Year Forward View is that we have a long-term plan and over that period we will make the improvements that we need. There is no disagreement between us: there are areas where we need to do considerably more and do better in order to get to financial sustainability, but—

Karin Smyth

I would agree that a five-year look ahead is a good thing—I don’t think anyone would disagree with that—but in addition to the things that have not materialised, particularly around social care and public health, because of the 2015-16 budget pressure we started 2016-17 in a worse position than anticipated.

Chris Wormald

Yes.

Karin Smyth

There’s also no allowance for the seven-day working, unless you can come back and tell us how much that is going to cost. There is also—I don’t particularly want to get caught up in talking about Brexit—no recognition of the potential inflationary impact of Brexit on drugs, or indeed the workforce, which is a whole new risk assumption. None of those things was factored into the plan in 2014. In any other organisation, you would be refreshing the financial basis of that plan now, wouldn’t you?

Chris Wormald

No, what we—

Simon Stevens

Can I—

Chris Wormald

You go first.

Simon Stevens

I think the answer is yes, you would, and that’s what we are doing. The reason for the factors that you mentioned—winding back just a moment, could I add in a few other data points to the conversation? Are we getting healthier? Yes, we are. On average in this country, life expectancy is going up by five hours a day, so for each hour that we spend together this afternoon, the NHS will have given you each another 12 and a half minutes of life. That is our gift to parliamentarians this afternoon.

Karin Smyth

We’re going to grow old together.

Simon Stevens

Yes, or at least it might seem like that. [Interruption.] That’s right. That’s what the NHS is doing for the people of this country. The second point was what is happening on activity. Activity demand is up over the past year. When we did the original activity modelling, we assumed that it would continue to rise in the early stages of the Five Year Forward View, until the benefits of some of those other investments kicked in. For the reasons you say, some of those other investments have not been available because they have been used on hospital pressures and elsewhere in the system—the £1.8 billion, the £800 million and so on. For all those reasons, it is therefore right to take stock now and say, “Given where we are, what practically are the things the health service needs to do and can itself offer over the course of the next two years?” We are going to do that. We are going to publish that by the end of March. It will be informed by the outcome of the contracting round, which, uniquely, is in the process of wrapping up across the national health service, even though we are in early January. As of this afternoon, all bar 11 contracts across the country are now agreed, below £1 million—all the specialised commissioning contracts. That does not mean that there are not very big efficiency questions that have now got to be resolved over the course of the next several months. We have got to work with frontline services and then memorialise that into the Five Year Forward View delivery plan for the next two years, which we will publish by the end of March.

Karin Smyth

That is very helpful, thank you. You publish that as NHS England, so where is the discussion then with the Department about whether that is agreed or not?

Simon Stevens

We are required by the 2012 Act to publish, by the end of March each year, the NHS’s plan for the year ahead. We intend to make that a two-year look, together with NHS Improvement and obviously working with the Department, our frontline services and other national bodies.

Karin Smyth

So that would essentially be a refresh of years 2, 3 and 4.

Simon Stevens

So 2017-18, 2018-19 and potentially some elements of 2019-20.

Karin Smyth

Those are the years that are problematic—from this year, anyway—aren’t they?

Simon Stevens

Yes. In this coming year the rate of increase, but also the underlying cost pressures, are a bit lower. I think that 2018, which happens to be the 70th anniversary of the national health service, is poised to be the toughest financial year of the five-year period.

Karin Smyth

So just to be clear, is that two-year look ahead, within the five-year, the point at which the choices that you have talked about—if we are not changing the targets, not changing some of those outputs and not changing the money, something has to change in the middle. Is the document at end of March going to tell us what those choices are?

Simon Stevens

Yes. I hope that it will do three things: first, set out, in pragmatic ways, what the health service is realistically able to deliver against the unchanging national targets; secondly, in very tangible terms, explain the improvements that the extra investment next year and the year after will get us in mental health services, in cancer services and in strengthening GP and primary care services; and thirdly, aggregate some of the local changes that are being discussed in 44 areas across the country and draw out some of the common themes where they require national decision.

Karin Smyth

So you are saying that it will be an alignment between that and the product of all 44 STPs.

Simon Stevens

Yes.

Karin Smyth

Will it also then recognise that one of the major changes has been the decline in social care services from 2009-10 to 2015?

Simon Stevens

It will have to.

Karin Smyth

I would suggest that that is the major factor that has made the plan not realisable.

Simon Stevens

In terms of the effective capacity available in hospitals, the back end is obviously having an impact on the front end at A&E performance. That is absolutely common ground between everybody; nobody disagrees with that. The fact that the social care delayed discharges have doubled over the course of three years is the pressure there. That is part of what has to get factored into what the realistic plans look like. There are some opportunities there. I do not think that we have got a complete solution on social care yet. The precept flexibilities that local authorities have got do not work the same everywhere, but in places where they can make an impact it would be good if they did. Hopefully we will see further action on top of that as well.

Karin Smyth

That comes out on 31 March or whenever. Does that then go into the Department for discussion? Are you discussing it en route?