Health and Social Care Bill

HL Deb 15 March 2001 vol 623 cc1072-100

8.50 p.m.

House again in Committee on Clause 1.

Earl Howe moved Amendment No. 6: Page 2, line 2, at end insert— (3AB) The Secretary of State shall exercise his powers under subsection (3AA) solely with a view to securing the appropriate number of medical practitioners providing general medical services (under arrangements made under section 10) or providing personal medical services (under section 28C) in the area of each Health Authority, and in so doing the Secretary of State shall have regard to (inter alia)—

1. (a) the existing and anticipated need for such services in the relevant area,
2. (b) the existing and anticipated numbers of such medical practitioners in the relevant area,
3. (c) the cost in the relevant area of providing such services.
4. (d) the impact on other health services in the relevant area,
5. (e) the need for equity as between Health Authorities in the amounts allotted under subsection (3) (or varied under subsection (5)).

(3AC) Prior to exercising his powers under subsection (3AA), the Secretary of State shall publish details of the number of medical practitioners he considers appropriate for each Health Authority area for the purposes of subsection (3AB), and other matters taken into account in accordance with subsection (3) or (5). "

The noble Earl said: I shall speak also to Amendments Nos. 8, 11, 12, 14, 15 and 225. The amendments deal with how the Secretary of State will use the powers granted to him by Clause 1 to ensure that there is an adequate distribution of medical practitioners throughout England and Wales. Clause 21 abolishes the Medical Practices Committee, which, since the inception of the NHS, has undertaken the task of facilitating a fair and even spread of GPs throughout England and Wales relative to local populations. In 1946, the need for such workforce management was plain. There were areas of the country where the number of doctors per head of population was dangerously low, while more affluent areas could boast abundant doctor numbers with comparatively modest list sizes. The way in which the MPC has redressed those imbalances and maintained a continuing steady hand on the tiller has been very creditable. By the mid-1980s, the old restrictive classifications of areas as open or closed to doctors wishing to set up in practice were becoming redundant. By 1986, they had disappeared. Since the mid-1980s, the average list size per GP has continued to fall at a time when the number of whole-time equivalent GPs has remained constant. That illustrates the continuing effectiveness of the MPC's approach to its remit.

Against that background, many people are baffled as to why the Government wish to see the back of the MPC. It has had only limited powers to direct doctors to an area. It has no power to force a doctor to move to a particular post or region. However, the absence of regulatory power has not stood in the way of success. The MPC uses some sophisticated analytical models to evaluate GP workload in an area or even in a specific GP practice. The expertise necessary for those evaluations does not grow on trees. A priori, it seems self-evident that such expertise could not be replicated or distributed over 100 health authorities in the absence of a central body.

It may be a turn-up for the books for the Minister to hear me arguing for some centralised co-ordination, but I am fearful that without the MPC we shall be worse off. The ground that has been gained over the past 50 years could well be lost and it would not be easy to recapture it in a hurry. At a time when there are not enough GPs, I doubt that an approach based on simple resource allocation formulae will guarantee that under-doctored areas of the country are able to attract an adequate supply of practitioners.

I would have no problem with the idea of health authorities offering enhanced financial packages to GPs if GPs were in abundant supply. However, that is far from being the reality. Who will sort out the battles that are almost certain to arise between health authorities that are jockeying to compete for the same individuals? Some areas are bound to lose out.

It is ironic that the present Government should be creating such a market mechanism, having condemned and abolished the market mechanisms introduced by the Conservatives. The previous administration did not seriously contemplate the abolition of the MPC—and for sound reasons. That is why I am proposing a new independent medical practices advisory body that would advise the Secretary of State on any action that he needed to take to ensure a fair and adequate distribution of GPs. That advice would be published to enable groups representing patients to monitor national and regional trends.

If such a body is not set up, what safeguards will there be against a failure of the resource allocation formula? How will the Secretary of State avoid an area with an adequate supply of GPs suddenly finding itself starved of doctors as they are siphoned off elsewhere? I beg to move.

Baroness Northover

We share the Government's aim of an equitable distribution of GPs to ensure that patients have equal access to doctors. However, we are also very concerned about the abolition of the Medical Practices Committee without the continuation of its functions of national oversight, data collection and control. I shall put on record some of the views of the noble Lord, Lord Rea, who would have liked to contribute to the debate, but has unfortunately had to go home because of illness. He has passed me a note of what he intended to say.

The noble Lord would have spoken in support of the amendments, which are aimed at averting the danger of a less than even spread of GPs. He points out that if individual health authorities are allowed to fill or create new GP vacancies without national coordination, we are likely to get ourselves into a worse situation than we have been in up to now. He argues that the MPC has not had sufficient incentive at its disposal to attract adequate numbers of GPs to deprived areas. I agree with much of what he has said.

How will the Government's new system work in practice? What powers might the Secretary of State have to ensure an equitable distribution of GPs? In the absence of such safeguards, I commend the amendments.

9 p.m.

Lord Hunt of Kings Heath

I rise as the champion of devolving responsibility, in contrast to the noble Earl, Lord Howe, who is the champion of ever-tighter regulation.

We shall debate the Medical Practices Committee later. Our proposals detract not a jot from the hard work that the MPC has undertaken over the years. I have worked for many years with the current chair of the committee and I have enormous respect for her. As the noble Earl, Lord Howe, said, the MPC's role is to determine, on referral from a health authority, whether a vacancy for a GP should be declared. He rightly pointed out that it cannot direct a GP to practise in an under-doctored area, although it can prevent more vacancies being declared in over-doctored areas.

After many years the MPC has had some success, but it has not been as successful as one would want in ensuring a much fairer distribution of GPs throughout the National Health Service. I am convinced that the mechanism that we have adopted will allow local health authorities to take the lead role through the leverage that they will be given. The local medical services and the other techniques that can be used will allow them to be much more pro-active in developing primary medical care services, underpinned by the change in the funding formula.

I assure noble Lords that health authorities are not going to be left floating on their own to engage in a brutal market force approach to ensuring a better distribution of GPs. In the first place, as part of the process that they have to undertake, they will have to agree with regional offices of the NHS Executive the need for the number of GPs in their area and to agree with the regional office target increases. There will be what are described as "regional envelopes" for the number of GPs, so that we can match—I very much take the point raised by the noble Earl, Lord Howe in this respect—the distribution of numbers of GPs to both the increase in GPs who come through as a result of the NHS Plan and the overall increase in medical training and the need for a better distribution of GPs. That will be linked into national workforce planning arrangements, which I shall shortly describe more generally.

The substantive point that I want to make is that health authorities will be given much greater freedom to be proactive in this area, but that will be within a sensible performance management framework through regional offices, allowing for targets to be agreed between the health authority and the regional office and allowing the Department of Health to have some workforce planning arrangements at national level. I believe that that will give us the best of both worlds: a framework for the NHS and greater freedom for the health authorities.

I oppose the specific amendments that have been tabled because I believe that they would limit the Secretary of State's power. He could only take into account Part II expenditure with a view to ensuring that each health authority has an appropriate number of medical practitioners. These amendments ignore the need to look at the whole primary care workforce when considering GP distribution. I suggest that they also continue to separate GP services from the rest of the NHS although workforce planning is moving in the direction of integration.

The amendments would also require the Secretary of State to say how many GPs he thinks there should be in each health authority. I believe that that amounts to over-centralisation. It seems to me that the determination of the need for GPs should form part of the local strategic planning role of the health authority, which is very much underpinned by the changes in the funding formula.

The other point that I make in relation to the amendments is that a further effect of them would be that the only non-cash-limited expenditure which could be taken into account would be that on general medical services. I said earlier that, although our present focus is on general medical services, we want to ensure that in future we shall be able to cover other contractor professions, including, for example, dentistry.

I turn to Amendments Nos. 12 and 15. I have said that we want to devolve responsibility for GP distribution to health authorities, but not in isolation. We believe that health authorities must consider GP numbers as part of their whole NHS workforce planning strategy. But we do not believe that a framework is needed to oversee national GP distribution, which I suspect would almost recreate the Medical Practices Committee.

We are setting up a new national workforce development board, which will start its work in April. It will oversee the workforce development of all NHS clinical staff, including GPs and their staff at national level. Alongside that, the Medical Education Standards Board will also keep under review the impact of training requirements on the distribution of GP trainees and principals. Through the national workforce development board, we shall establish an integrated structure of national workforce planning.

I turn to Amendment No. 225. I believe that a medical practice advisory body would amount to over-centralisation and would, as I have already said, tend to recreate the Medical Practices Committee in another guise. I believe that the overall framework that we have set—a funding formula with the right financial incentives, a leadership role for health authorities within a performance management framework, and a national workforce mechanism at national level—will give us the right balance between a central framework and local determination.

Earl Howe

We shall see. I hope that the noble Lord is right in his predictions. I am grateful to him for explaining very clearly the full set of mechanisms that will be in place to deliver what I am sure he wants to see; namely, a more equitable distribution of GPs. However, I still have worries that the significant expertise built up in the MPC will be dissipated.

Lord Hunt of Kings Heath

Perhaps I may respond to that. I am the first to admit that the expertise of the MPC has been valuable, but it is worth pointing out that all the data on which it relies come from individual health authorities, which have to make cases to the MPC. The health authorities have a great deal of expertise in putting together information and making cases to the MPC, and I am sure that that is a good foundation on which health authorities can take forward this work.

Earl Howe

That is true. Nevertheless, the skill lies in the interpretation of the data. I do not believe that the tools of analysis developed by the MPC over the years are readily available and to hand in most health authorities, as they will need to be to enable the health authorities to approach the kind of fine tuning required. In the mean time, this has been a useful debate and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 7 to 15 not moved.]

On Question, Whether Clause 1 shall stand part of the Bill?

Lord Clement-Jones

I do not want to extend the debate unduly. We have had a fair canter around the course and the Minister has tried to explain a thicket of very difficult language in the existing Act and in the proposed Clause 1. Certainly, as a lawyer who is used to reading legislation, I find the 1977 Part IV provisions very difficult to understand. I am also ashamed to say that the Government Resources and Accounts Act 2000 had passed me by. I did not realise what it was all about until very recently, when the provisions of the Explanatory Notes made clear why it was so relevant.

This is not only a debate about transparency or the future of the MPC; it is also about the merits of Clause 1. I listened very carefully to what the noble Baroness, Lady Cumberlege, said. I believe that she could give tutorials in resource allocation, although she said that they are "shrouded in mystery". They continue to have a shroud around them.

I believe that the essence of the clause is that it is directed at under-doctoring. The way in which it tries to do so is to allow a different method of dealing with total resources by permitting non-cash-limited expenditure to be offset against cash-limited expenditure. However, I am baffled. If we are trying to get more GPs into deprived areas, why are we adopting this extraordinarily complicated method of doing so? Is it not simply a rather sophisticated way of introducing overall cash limiting? The noble Earl, Lord Howe, used the expression "back-door" cash limiting. I wonder what the ultimate agenda is in that sense.

I understand what the Minister said. The clause is designed to achieve a fairer system. But why is the BMA so opposed to the proposal? One would have thought that a new system, both of resource allocation and of assessing the needs of deprived areas, could have been concocted and used in conjunction with the medical profession. Why have we chosen this rather unilateral way of doing it?

The Minister said that it cannot be subjective, but, frankly, the Wednesbury unreasonableness test, which relates to judicial review, is hardly the most fine instrument of control on government policy, as some of the former Ministers in this House will be only too well aware. Therefore, I do not believe that an adequate level of objectivity is in place, and the result could be overall reductions. We heard what the Minister had to say. Reference was made to overall reductions in the budgets in total. If one added together the GMS budgets and unified budgets, that would be the power available.

Therefore, in a sense, does not this proposal represent a move towards overall cash-limited expenditure? Could it not be used for all sorts of other purposes, quite apart from those stated by the Minister? In addition, as a number of Members of the Committee asked, will it involve a transfer of funding?

My final point is that a great deal hangs on the formula in Clause 1. I find it somewhat inexplicable that the MPC could not have been reformed rather than abolished. Perhaps it needs to be less powerful or perhaps it could have been advisory. However, so much now hangs on that formula. I heard what the Minister said about the national workforce planning framework. Nevertheless, without the MPC, that formula will be very important. It is extremely opaque and, if I were a health authority manager, I would find it somewhat baffling. I would need a great deal more explanation than I believe we have heard today.

Earl Howe

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

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

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

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

Baroness Carnegy of Lour

I have a small footnote to add. The Minister says that this is a decentralising way in which to do things. I expressed my anxiety at Second Reading about the centralising nature of the Government's approach. They must realise that it may look as if giving certain powers to local authorities is decentralising, but it does not look like that to GPs, anyone else working in the health service, or patients. The manipulation of jobs, spread of GPs, and so on will seem enormously threatening to individuals.

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

9.15 p.m.

Lord Hunt of Kings Heath

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

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

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

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

There will be a single funding formula that will set a target or fair share for each health authority and primary care trust, covering GMS non-cash-limited expenditure, as well as a unified allocation. When the Government allocate extra resources for unified allocations in the future, our pace of change policy will apply to those new targets.

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

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

Baroness Cumberlege

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

Lord Hunt of Kings Heath

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

Lord Clement-Jones

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

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

Clause 1 agreed to.

Clause 2 [Payments relating to past performance]:

Lord Clement-Jones moved Amendment No. 16: Page 3, line 4, after "they- insert "reasonably

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

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

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

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

Those two amendments are designed to give extra flexibility to the clause. We have no objection in principle to a performance management system. It seems to us to be sensible to introduce something along those lines. However, it should be right and should give the rewarders a degree of power to be flexible in the circumstances. I beg to move.

9.30 p.m.

Lord Hunt of Kings Heath

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

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

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

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

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

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

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

Lord Clement-Jones

May I thank the Minister for that reply. I appreciate what he said, but still feel that the clause as it stands is still somewhat unbalanced. It seems to be all "sticks" so far as the under-performer is concerned, and there are inadequate "carrots". I suspect it is a somewhat lopsided situation and it may he that the Minister may be able to make a case, himself, for giving cash and resources to under-performers, rather than going through brokerage, and so on. That would of course inevitably add to the costs of the local authority concerned. It needs further consideration. I will read carefully what he has said and in the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees (Viscount Simon)

In calling Amendment No. 17, I must advise Members of the Committee that if it is agreed to I cannot call Amendment No. 18 due to pre-emption.

Earl Howe moved Amendment No. 17:

Page 3, line 4. leave out from first "objectives" to end of line 9 and insert "set by the Authority as objectives to be met in performing their functions and approved by the Secretary of State, or

• (b) they met the performance criteria set by the Authority and approved by the Secretary of State as criteria relevant to the satisfactory performance of their functions (judged by the method of measuring their performance against those criteria set by the Authority and approved by the Secretary of State),
• and the Secretary of State shall publish details of such objectives, performance criteria and method of measuring performance within 28 days of approving the same."

The noble Earl said: I would like, if I may, when we come to Clause stand part, to talk a little bit about the so-called "traffic light" scheme, so I do not intend to dwell on that now. Whatever one thinks of the "traffic light" scheme as currently proposed by Ministers, I hope it is common to all of us to want to see it working fairly in practice. One of the ways of ensuring that fairness is achieved, and is seen to be achieved, is for all the parties on the receiving end to know exactly where they stand and what they are expected to do with the scheme. That is why it is strange—indeed, quite disappointing—that Clause 2 of the Bill suggests the exact opposite of that. It says that the Secretary of State may increase the amount of money allocated to a health authority if it appears to him that it performed well against any of the criteria notified to it, whether or not the method of measuring their performance against those criteria was also notified to them".

That is an extraordinary provision. It suggests a kind of measure first and manage second approach. If one takes the wording at face value, the Secretary of State could set, for example, patient satisfaction outcomes as a criteria, but then not set the way in which it is to be measured. That would leave the managers flying blind. It would be rather like saying to Members of the Committee that the Peers will be rewarded for their contribution to the work of the House, without saying how that contribution is to be measured. Noble Lords' contribution might be measured according to the number, the length or even the brevity of their speeches. The point is meant to be serious. There is a maxim of management theory which says that you cannot manage what you cannot measure. This is an example.

The Explanatory Notes say that the Secretary of State may need to see how well bodies have done the previous year before setting performance measures for the coming year. All right, but why not notify the method of measurement as soon as it is known? The wording in the clause smacks very much of thinking of the answer first and then setting the question. I do not believe that is acceptable.

There is another way to approach the whole issue. That is the way that is set out in my Amendment No. 17. I should have said at the outset that I am speaking to Amendments Nos. 17, 18 and 21. What concerns me about the whole concept of supplementary payments, as presented by the Government, is the ability of the Secretary of State to micro-manage the NHS. We have already had a graphic illustration with the operation of the waiting list initiative of how disastrous that can be in practice. Waiting list targets have been set by Ministers, so the only option for managers is to try to meet those targets if they are to access certain funds available to them, but, in doing so, they find that they have no alternative but to distort clinical priorities.

It is a way of proceeding that is the very opposite to being assessed on the quality of outcomes. In a real sense Clause 2 sets that dangerous syndrome in concrete.

Although in Clause 2 we are not dealing with trusts but with health authorities, the point still holds good. I suggest to the Minister that we can retain the worthy idea of rewarding good performance from the centre, but should do it with a light touch. The amendment would leave it to health authorities to set their own objectives so that local knowledge and clinical needs are properly catered for. However, it would also provide for Ministers to approve and make sure that the objectives were soundly based. There would doubtless be scope for Ministers to urge local health authorities to adopt targets which were slightly more ambitious than the ones they had first thought of. But one distinct advantage would be that, because it would have set the assessment criteria, there would be no possibility o f a health authority being ignorant of the way in which its performance was to be assessed.

I look forward to hearing what the Minister has to say on these issues. I beg to move.

Lord Clement-Jones

I rise briefly to support these amendments. I have worked as a professional manager for something like 30 years—I had to pause to recall how long it has been. I must say that if you are going to move the goalposts after setting the original performance criteria and not notify someone about how it is proposed to measure whether they have ultimately succeeded, you are in a pretty arbitrary employment situation. It seems to me that the same principle would apply in this clause.

The amendment has been drafted extremely well. It would make the clause a far less arbitrary instrument in terms of resource allocation. I commend that to the Minister.

Baroness Carnegy of Lour

I should like to make a small point. I am not a professional manager, but I have been involved in management for a long time. One of the main tasks of the management process is to set objectives. Furthermore, having been on the receiving end—while serving on a university governing body—of something rather like this system—in my case, concerning the allocation of money for research—it does not take long for intelligent managers to begin to play the system. That means that the system then quite often has to be changed, or the managers get the better of those setting the objectives. I believe that there may be an enormous trap here.

I may be over-simplifying the case a little, but this is a basic principle which I am rather surprised that the Government think will operate successfully.

9.45 p.m.

Lord Hunt of Kings Heath

I suspect that we shall debate the question of central/local relationships in the National Health Service in a number of clauses. The debate generated in relation to this clause very much reflects the need to get right the balance between national direction—which is appropriate in view of the Secretary of State's accountability to Parliament for the running of the NHS—and the need for local managers to be given sufficient room to lead and to make any necessary changes.

I do not believe that anyone, when looking back over 52 years of the NHS, would ever say that this balance has been entirely right. Indeed, I give due notice that I can cite plenty of examples of undue centralisation conducted by the last government which I intend to bring to the attention of noble Lords at various stages of our debate. However, if we are serious about this matter, we must acknowledge that it is never easy to get the balance exactly right in a service like the NHS. That is why I am optimistic that, through earned autonomy and the traffic light system, we have found a way to achieve it. We shall reward the good performers by intervening less, but we shall intervene more on those who are not up to the task. The clause is designed precisely to achieve that. It is not concerned with micro-management, nor is it concerned with moving goalposts during the financial year.

Perhaps I may turn first to Amendment No. 17 which, essentially, would allow health authorities to set their own objectives to secure the release of the performance fund. I suggest that it would also allow health authorities separately to define the performance criteria and how they are to be measured prior to the release of the fund. Much as I admire health authorities and uphold their honesty and decency, I have to say that I believe that there is a real danger that the amendment would create a perverse incentive. It could encourage health authorities to define objectives that would release the performance fund which they knew that they could achieve. That might not be consistent with the priorities set out in the NHS Plan.

It is wholly consistent with the purpose of the performance fund, tied into the NHS Plan, for national targets to be set. However, that does not mean that we should set unrealistic objectives. The whole process of NHS planning involves Department of Health regional offices negotiating individual objectives and targets with health communities that define their contribution to nationally set objectives. I should also make it clear that it does not mean that an overly prescriptive approach will be adopted as to how the performance fund is spent.

The system of earned autonomy outlined in the NHS Plan gives complete freedom to better-performing green light NHS bodies over how they will spend their share of the fund, while yellow light bodies will negotiate and agree their spending with regional offices. It is only in the case of the minority—I very much hope that it will be a small minority— of poor-performing red light bodies that the new modernisation agency will determine how the share of the fund will be spent.

We sent out a consultation document on 18th January with ideas about how the performance fund might be developed. We have received from the health service a large number of very helpful comments. We shall issue guidance shortly to the NHS on how the performance fund will work. At the end of the day it is right that the essential framework should be set by the Secretary of State.

I now turn to Amendment No. 18 and the suggestion that the goal-posts can be moved during the financial year. Let me make it clear that in all cases the criteria against which a health authority's performance will be measured must be notified in advance. There is no suggestion, and this power would not make it possible, that we should make additional payments to health authorities based on their performance when the criteria against which they would be measured had not been notified to them in advance. For example, we could not inform health authorities of additional criteria halfway through the year and then make payments based on their performance against those criteria during the year.

This is not a question of moving the goal-posts. It is simply a question of practicalities. The annual assessment of traffic light status will not be available until some time into the new year, because it reflects performance over the whole of the previous financial year. So it would not be sensible for us to set the precise method of measuring performance against the notified criteria for the coming year without seeing the results for the previous year, and in particular how individual performance indicators have worked.

I can assure the Committee that we intend to consult the NHS each year on the introduction of new performance indicators or the amendment of existing ones. We should want to avoid, for example, introducing indicators which might produce perverse incentives. It would not always be possible to conduct a consultation process and assess the results before the start of the assessment period.

Amendment No. 21 reflects a point that the noble Earl has made previously in relation to transparency. As I said in response to earlier amendments, I believe that sufficient arrangements exist for demonstrating overall accountability to Parliament for NHS allocations and expenditure. The process begins with a parliamentary vote on the estimated expenditure for the NHS prior to the start of the financial year. The actual expenditure of the department funded through allocations to the NHS is provided at the end of the financial year in the published appropriation accounts of the department. The financial accounts of NHS bodies are published after the financial year ends. These include details of income and expenditure. As I have indicated, central budgets allocated to the health service are announced. These arrangements have been in place for many years. They were used by the previous government as well as by this Government and they clearly demonstrate an acceptable level of accountability to Parliament.

Overall, I believe that this is a very sensible approach. It gives the right incentive to enable health authorities and the whole of the NHS to wish to improve their performance. I believe that as a result of the consultation process on the new performance system we shall produce a system which will be seen to be fair and which will operate well, and one which the health service will feel ownership of.

Lord Clement-Jones

As quite a strong supporter of the new earned autonomy system, I feel rather less satisfied now than I did at the beginning of the Minister's response. There is a real cultural problem here. Quite honestly, if I applied what the Minister said to any organisation of which I had any experience I should find myself with a revolution on my hands. The setting of objectives is a mutual process. The noble Lord says, "We don't leave it to health authorities to come back to us with some suggested objectives; effectively, we set them. However, there are some safeguards". It is like me saying to my employees, "I'm not going to carry out an appraisal this year, I'll jolly well tell you what your objectives are".

The Minister says that the clause is not overly prescriptive, but this provision is bolted into its structure. I became more and more uneasy as I listened to his response. It is rather like looking at the objectives of one of my people and saying, "What we're after is X per cent growth this year", and then, six months later, saying, "Aha! It wasn't based on turnover, it was profit", which is a different system of measurement. It is extraordinary. We seem to have a system where the Secretary of State has all the cards and, culturally, the health authority is totally at the mercy of the centre.

The Minister has assured us that there are safeguards involved, but the culture of the clause is deeply unsatisfactory. We are not talking about a mutual discussion, or a mutual agreement; the system seems to me to be very centralist. Indeed, it is far more centralist than I thought it was when we started the discussion.

Lord Hunt of Kings Heath

At the risk of disappointing the noble Lord, I should like to speak further on the matter. In a national service, which is accountable to Parliament, it is surely right for the Secretary of State to take a leadership role in relation to encouraging the improvement of performance. That is what the performance fund is about. Surely it is right for the Secretary of State to set the criteria under which those performance arrangements will take place. It is a national service.

We are having a debate with the health service at present about the criteria, the targets, the "must dos", and the other targets that will need to be reached, to enable those bodies to become green light bodies. That is only right. As the years go by, we expect to have a close dialogue with the NHS. However, at the end of the day, it must be for the Secretary of State to set those criteria.

Lord Clement-Jones

At this stage of the proceedings, I am glad that I can respond to the Minister. As I said, I am all in favour of strong leadership, but objectives must be set in a mutual fashion. That does not appear to be the case under this clause.

Lord Hunt of Kings Heath

We have just consulted on a detailed paper, which asked for the views of the health service on how the whole programme should work. We shall continue to do that on a regular basis. Unless the NHS feels confident that we have the right system, clearly it will not work. I agree with the philosophy that the noble Lord is espousing; namely, that. at the end of the day, those concerned must feel that it is a fair system.

Earl Howe

I listened with great attention to the exchange between the noble Lord and the Minister. I am right with the noble Lord, Lord Clement-Jones, on this point. I have to say that I do not believe that the Minister has dispelled the doubts that I raised. I extend the point made by the noble Lord in the following sense. After spending hours and weeks of their time ensuring that they achieve certain targets, it is demotivating in the extreme for managers, who believe that they are doing everything that is required of them, to find that their way of evaluating the performance of their authority is not quite the same as the method employed by the Secretary of State. I am worried that the Bill explicitly leaves the way open for such a situation to arise.

I understand what the Minister said about the difference between setting criteria and what one might describe as the "weighting" attached to the performance. However, it still seems to me that the clause allows the Secretary of State to notify performance criteria to an authority without telling it what weight will be attached to those particular targets in the context of overall performance. Once that happens, you create a situation where the managers on the ground are in the dark about the resources that they need to allocate to address the particular issue. They may well allocate some money to the problem that the Minister thinks is appropriate, but they may allocate more money than he believes to be appropriate. But how are they to know?

I am disappointed that the Minister does not see more merit in my bottom-up approach to the setting of targets. It does not seem to be so difficult to do. There is no question in my mind of carte blanche being given to health authorities to set their own targets. I made it clear that Ministers would decide whether or not the targets were reasonable—the kind of mutual process to which the noble Lord, Lord Clement-Jones, referred. However, more important is the psychological point that a bottom-up approach would enable managers to feel a real sense of ownership of the targets they attempt to meet. They would know that these targets were 100 per cent relevant to the needs of their area. That will not always be the case under the scheme proposed by the Government. That is to be regretted.

However, having said that, I think that we have probably exhausted the topic for the time being. Like the noble Lord, I shall read carefully what the Minister has said as it may contain more words of comfort than I realised when the Minister was speaking. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 18 to 21 not moved.]

On Question, Whether Clause 2 shall stand part of the Bill?

Earl Howe

The Explanatory Notes tell us that Clause 2 is directly linked to the concept of earned autonomy in the so-called "traffic light" system of ranking health authorities.

It is easy to see how the best authorities, rated as green light authorities, come within the clause as it is drafted. The clause refers to satisfying objectives and performing well against criteria. That is indeed what green light authorities will do in order to earn extra funding. What is less easy to see is how, as the clause is worded, the yellow and red light authorities can be allocated extra money, albeit with strings attached, if I can put it that way.

By definition, yellow and red light authorities have failed in some measure to satisfy the objectives that they have been set. How does a clause which provides only for success cater for those health authorities that are not successful? Anyone reading the clause might be forgiven for thinking that the idea is to reward green light authorities with extra money but not to reward yellow and red light authorities. Yet we are told that even the less good or failing authorities will receive extra money. I simply do not understand how the clause achieves what the Explanatory Notes say that it does.

My other question relates to the way in which the traffic light system will work. My noble friend Lady Noakes said quite correctly during the debate on the gracious Speech last December that the NHS Plan anticipated a 25/75/25 per cent split between green, yellow and red light authorities respectively. yet she received a letter subsequently from the Minister which stated: Work to develop a fully operational traffic light system is still ongoing and no decision has yet been taken as to exactly how or how many NHS bodies will be classified green, yellow or red. Therefore it is incorrect to assert that 25 per cent of health bodies will automatically have red status, as was suggested in the King's Fund article in the HSJ on 7th December". So much of the detail of the NHS Plan seems to be changing and evolving that it often looks as if the department is making things up as it goes along. Of course, I am sure that it is not. We need to be told with a little more clarity how in the first instance it is envisaged that health authorities and, indeed, other health bodies within the scheme will be classified as to their colour and what sort of split between green, yellow and red Ministers have in mind. How many green light authorities are there likely to be? Will there be any kind of quota or limit set on those numbers and, if so, will the quota be large or small? What of red light status? At the moment we do not know whether the red light is to be an exceptional measure for a seriously failing authority or trust or whether it is likely to be accorded to a significant number of organisations. Without that information we simply cannot tell how the scheme is likely to operate or what its impact will be on the NHS. If there are arbitrary limits placed on the number of authorities eligible to receive red light status, be it 10 per cent, 25 per cent or even 50 per cent, there is bound to be considerable damage done to NHS morale.

Good managers in the NHS have a choice. They can go and work for an authority that has earned its autonomy and can spend money as it chooses or they can apply to work for an authority whose extra money may only be spent in ways laid down by the NHS Executive. For which working environment would you opt? Would you not want to be paid more to go to a failing authority than to go to a successful one? As far as I can see, there is no provision here for incentives of that kind.

The over-arching problem with the traffic lights scheme is the one to which I have already referred. How do those organisations at the bottom of the pile succeed in recruiting and retaining staff in the face of their red light status, and what is certain to be a terrible dent to staff morale? How do they present themselves to the public as places in which patients would want to be treated? One can imagine a doctor telling a patient that he needs an operation and the good news is that the waiting list at the local acute hospital is quite short, but the bad news is that it is classified by the Government as red and failing. What the patient cannot say is "send me to another hospital". If he says that the doctor will be obliged to tell him that as a patient, effectively, he has no choice as to where he is treated because of the limitations placed on freedom of referral.

The flaw in the system as currently proposed is that hospitals will be encouraged to compete with each other for the valued green light status. They will be competing to meet targets set by the Secretary of State. Those targets will not necessarily be those directly in the clinical interests of patients, the waiting list initiative being an example and the cancer pledge being another. They will be in a double bind. To meet politically driven targets such as the waiting list initiative they may have to compromise on clinical priorities. Even when they have done that successfully they may still not achieve green light status because they will find that the quota of green light organisations is full up. Without each and every hospital having the realistic prospect of achieving green light status because of the limit imposed on how many can get it, there will always be yellow and red light hospitals struggling to present themselves as attractive to both staff and the public. It will be a very difficult trick to pull. We all agree with the need to drive up quality in the NHS, but I have grave doubts whether an openly divisive scheme like this is the way to do it.

10 p.m.

Lord Clement-Jones

My Lords, I hold a slightly different position with respect to the traffic lights system. I believe that properly applied it could be a very effective way of ensuring that quality standards are improved in the NHS and that we see a considerable increase in quality. It is an edifice on which a great deal of the success of the NHS Plan is predicated.

Since it was announced my party has always had doubts about the fixed allocation or the possibility of fixed allocation. There have been mixed messages coming from the department and the Minister about there being a fixed allocation of red, green and yellow status. Initially, it appeared that there would be such an arbitrary allocation. Later, messages have suggested that that is not the case. Certainly, at Second Reading the Minister denied that there was going to be a fixed allocation. The more detail the Minister can give about that the better. If there is a situation where a red light status trust or health authority cannot move into the next category—although by any reasonable standards it has met the criteria—that is grossly unfair. It means that one is "disincentivising" managers, lowering morale and effectively driving them into trusts which are already in a different category. That is an extremely negative way to proceed. A proper performance management system should not operate in that way. It should give every chance for the failing hospitals to achieve a higher status.

The noble Earl, Lord Howe, raised many extremely good points. Since the consultation on the performance management system is so important, can the Minister undertake to make public the framework of performance management which the health authorities have agreed as the sensible way forward? If that is a possibility, perhaps the noble Lord can give the dates that we are talking about. It is an important new instrument. If we are to make the best use of new resources, we have to ensure that the system works and is not an arbitrary, centralising process. I have argued that it is not; but I do not want to be proved wrong in a couple of years' time.

Baroness Cumberlege

I support both noble Lords who have spoken. I thank the Minister for sending me the NHS Plan implementing the performance improvement agenda, the consultation document to which reference has been made. I have read it and I found it of great interest. It explained to me clearly how the system will work. The figure of 25 per cent is mentioned as regards "green" organisations—those which are perceived to have succeeded. What measurements were taken on that? I assume that there is consultation on the "must dos" and the performance indicators. But what is so magic about 25 per cent—a quarter? What evidence was taken in order to choose that figure; or was it plucked out of the air?

I assume that there has been much consultation with selected people in order to draw up the consultation document. But for health authorities alone there are 10 "must dos", 38 major priority areas, with 39 associated performance indicators. That is something like 87 suggested targets. I think that that is demoralising. It is a straitjacket. With those figures and targets, there is no room for local autonomy and local decision making or for local priorities to be set on local needs. Surely health authorities are meant to look at local needs and reflect them in local priorities.

I understand the view that there are too many performance indicators, "must dos", targets and so on. I hope that the Minister will be able to tell us what they will be cut down to. In my experience, if one wants to achieve something one needs a slimmed down version that people will want.

I echo what my noble friend Lady Carnegy said. I believe that if progress is to be made, if services are to be improved, then local people have to be allowed to be creative, to use their imagination, to take risks and, above all, to be forgiven when things go wrong. Forgiveness is lacking in the health service. That is why some of us have strong reservations about this traffic light system. I accept what the Minister said about the Secretary of State, his ministerial team, officials within the department and the NHS executive providing leadership. But if everyone has to achieve this rigid grid, it is demoralising and will not work. People will not have ownership of it. There will not be enough room for manoeuvre. When it goes wrong, they will be beaten over the head again.

Beaten over the head is the right phrase, because they will be in the hands of the Modernisation Agency. I have not met the Modernisation Agency, but it does not sound like a friendly, cuddly helper. It sounds like a remote quango that comes in to take over the management of a local trust and health authority. Why does the Modernisation Agency always succeed when local people fail? Where do these people come from? How did they come to be supermen and superwomen who know how to manage brilliantly something that may be hundreds of miles away? How does the system work? It looks pretty frightening to me.

Where does the agency's accountability lie? Why does it have an amazing capacity to micromanage when local people cannot do so? This is a big brother approach to something that could be sorted out in another way.

Lastly, I should like to know how this brilliant agency is going to manage all these wonderful things so cleverly. It will have to keep an eye on around three quarters of the NHS body. That is an enormous task. How does the Minister think that it will all work?

Lord Hunt of Kings Heath

We come again to this fascinating; issue, which is crucial to the future success of the running of the huge organisation called the National Health Service in a way that discharges proper accountability to Parliament. I have been a Minister answering questions in your Lordships' House for nearly two years. Very rarely am I asked to give away control or decentralise. The emphasis of the parliamentary debate and focus is on Ministers taking more control, regulating more and having more information. That is one pressure that is always on health Ministers. I agree with everything that has been said about the need to allow for local determination, flexibility, growth and leadership. It is difficult to get the balance right.

We already use the traffic light system in a number of areas. Winter planning is a good example. We have developed a process of identifying those parts of the country that look as though they are not going to succeed. That results in greater intervention and help for those places. The system has proved outstandingly successful. The health and social care services have coped magnificently this winter with the pressures put on them. As with earned autonomy, those health communities that are doing well and are seen to have things sorted out are left alone, but intervention is necessary for places that look as though they are in trouble.

The second part of our approach is based on our experience in the past three years. When authorities or trusts seem to have specific problems, often the best form of intervention is to send a team of people who are experienced in working at the front line to help the poorly performing organisation sort the problems out. That answers the point made by the noble Baroness, Lady Cumberlege. That is how we should approach poorly performing organisations. We need rapid identification of the fact that they are in trouble and then help to allow them to get out of trouble. That help comes not from academics or people sitting in an office in Richmond House, but from people who have done the job successfully at local level. In other words, we have a learning organisation.

I again stress that the proposals for the working of the traffic lights system have been the subject of consultation. No final decisions have been made. There are three band definitions for the traffic lights system. First, the green organisations will meet what could be described as the "must do" core national targets that will be set, which we think will initially involve about 20 per cent of all organisations, but that has to be a fluid figure. As we gain experience in developing the system, it will be reconsidered and changed if we think it appropriate.

For a health authority, the examples in the consultation paper of core (or "must do") national targets may be waiting targets, emergencies, reduced levels of delayed discharges, financial balance or clinical quality measures. In addition, there may be other performance indicators on a second list, which for a health authority may involve programmes aimed at reducing smoking, preventing the illicit use of drugs and teenage pregnancy. The consultation paper explores those options in some detail.

I accept the point made by the noble Baroness, Lady Cumberlege, that it would be very difficult for the health service to respond to a huge number of different targets. I agree that the challenge for us is to try to keep those targets to as limited a number as possible. The noble Baroness will understand that that is not always easy because of the natural pressure on government to ensure that every area of concern or every client group is included in those targets. We shall have to balance those two conflicts, which I believe will be quite difficult.

The yellow organisations will meet their core national targets, but they will not be in the top 25 per cent of performers overall. They will succeed in the "must dos" but may be weaker in some of the other performance targets that are set. I can tell the noble Earl, Lord Howe, that the intention is to encourage more and more organisations to become green light organisations. I agree with him that it would be demotivating if over the years we had very arbitrary percentage figures for one category and another category; but that is not the intention.

I can also tell the noble Earl that I very much hope that the number of red organisations will be limited. I do not agree with him that it necessarily becomes a wholly demoralising situation for an organisation to be classified as red. I believe that there are examples in the NHS of organisations having patently been seen to fail, which has acted as a spur to people to improve their performance and get their act together. That surely must be the aim of these arrangements.

The Modernisation Agency is not a draconian arm of central government coming down to hammer local NHS organisations. It is very much a helping agency—helping people to make change and design new services—and a centre of excellence using people with practical skills who have succeeded at local level. Linked to the Modernisation Agency is our Leadership Centre, which is designed to give much greater support to people in leadership positions, whether clinicians or lay managers. It will play a much more proactive role in ensuring that we have the kind of people, mentioned by the noble Earl, Lord Howe, whom we will need to lead change and particularly deal with red performing organisations.

From the explanation that I have given, I hope that Members of the Committee will see that we are going to adopt a sensible, sensitive approach. There is a clear need for ownership by the NHS in these arrangements in order to ensure that they work effectively. The whole purpose of consultation is to ensure that that ownership is put in place. Of course, we shall learn by experience and shall make changes as necessary.

Earl Howe

I wonder whether I may ask the Minister to comment on the point that I made at the outset. I could not see how the clause, as drafted, caters for yellow and red light organisations because it is expressed in terms of satisfying objectives and performing well against criteria. By definition, yellow and red light authorities do not satisfy objectives and do not perform well against criteria, yet they will still receive extra funds. I do not understand how the clause works.

Lord Hunt of Kings Heath

I said earlier that we do not need the clause to make the current performance payments that we are making because they are made on a fair-share basis. At present, every NHS organisation will receive its fair share of the performance fund. Organisations which do well will have much greater freedom to use the funds in the way that they wish. This clause would allow us to move on from that situation. At some stage in the future, we may well wish to make additional payments to green light organisations as an extra incentive. That is what the clause allows us to do.

Earl Howe

I am most grateful to the noble Lord for that clarification. I take the point that he made about red light status. Of course, it could act as a spur to those who work for the health body to institute measures to improve the performance of the body. However, I believe that if red light status lasts for more than a short time, there is a distinct risk that it will become, as it were, a self-fulfilling prophecy because it will lead to the migration of staff. I believe that the challenge will be to ensure that red light status does not hang over an organisation for more than a certain time.

This has been a useful short debate. I thank the Minister again for what he said.

Clause 2 agreed to.

Clause 3 [Supplementary payments to NHS trusts and Primary Care Trusts]:

Earl Howe moved Amendment No. 22: Page 3, line 17, at end insert ", at the request of any Health Authority or any trust with the approval of a Health Authority,".

The noble Earl said: In speaking to Amendment No. 22, I shall speak also to Amendments Nos. 23 and 25. These amendments have an obvious purpose: to introduce greater transparency into the way in which additional payments are determined. We cannot expect the Bill to go into minute detail. However, it is remarkably silent as to the basis on which supplementary payments to trusts and PCTs are to be made. Unlike Clause 2, which refers to good performance, there is not even a mention in Clause 3 of any type of criterion or benchmark.

Effectively, what is being proposed is a bypassing of the normal purchaser/provider relationship whereby health authorities pay trusts and PCTs for the services provided. That has a distinct look of central micro-management about it, which makes me uncomfortable. I am prepared to be persuaded that there may be infrequent occasions when an accelerated process of that kind is justified by the prevailing circumstances. When it occurs, it is important for everyone to know what has happened and why. There needs to be a clear public statement of how the payment powers have been used, and health authorities need to know exactly how and why the normal contractual systems have been overridden.

It would be helpful if the Minister could tell us how often he expects those powers to be used, and in what circumstances. The Explanatory Notes speak of rewarding staff performance and improving facilities. Why should those not be dealt with through the normal service level agreements? If they are exceptional, one-off payments, what will determine them?

I fear that the normal system will be undermined either by special pleading from a trust, a PCT or, heaven forbid, even by ministerial favouritism. It is easy to imagine Ministers being lobbied as they go around the country so energetically.

There is nothing in the clause that would prevent that happening. That is why I suggested in my amendments that it should be the health authority itself that requests the supplementary payment, or at least approves it, so as to retain the semblance of accountability through the normal commissioning chain. In itself, that device would not alter the mechanism for payment, but it would promote transparency and a slight check would be built into the system to prevent money being paid across to trusts in inappropriate circumstances, such as those to which I referred.

Baroness Cumberlege

I rise to support my noble friend Lord Howe. I am concerned that the Secretary of State is seeking powers directly to reward staff working within a particular trust, or to improve facilities. This is very detailed stuff, according to the Explanatory Notes.

The Secretary of State will bypass the allocation formula, the health authority and the management of the trust. In my view, that is micro-management writ large. In the helpful meeting that the Minister held in the Moses Room, he explained that it was a way of cutting red tape and bureaucracy. I have some sympathy with that because I know how frustrating it can be. However, systems bring safeguards, which are extremely important in a public service. Service level agreements are drawn up with enormous care; there is a great deal of consultation and many people are involved. They take account of local need, and the input from a large number of people, including the public, is immense. They also implement the health improvement programme, which is the strategy that is adopted locally.

It is possible that under this clause the Secretary of State could act quite arbitrarily and perhaps make some perverse decisions, which have no place in the public service. In the private sector, where there is much more freedom to move, the boards of companies still have to comply with the Greenbury and Cadbury codes—those ethical tenets that have been laid down. It is even more important that a Secretary of State, who is in charge of a huge publicly owned body which affects all our lives, should work in an open and transparent system.

If the system is wrong, or the Minister feels that the bureaucracy has a stranglehold on the NHS, it is time to streamline the bureaucracy. Perhaps the Minister should be humble enough to recognise that local decisions should be taken locally, especially on these detailed matters of rewarding staff and improving facilities.

10.30 p.m.

Lord Hunt of Kings Heath

Those who launched the NHS trust movement would be disappointed to hear the words of the noble Earl, Lord Howe, and the noble Baroness, Lady Cumberlege. In a sense we are trying to provide a mechanism by which, on occasion, we can make direct payments to NHS trusts with the normal commissioning arrangements.

This is not an undermining of the commissioning arrangements; it is designed to enable us, on occasion, not to have to go through the normal bureaucratic system under which commissioning operates. The underlying principle of supplementary payments is to make timely direct payments outside the scope of service agreements. The kind of things for which the power would be used is, as has been described, the direct improvement of infrastructure to enable the provision of better services. A good example of that was the injection of £32 million for ward cleaning. The Government took a view some months ago, quite rightly, that the cleanliness of the NHS was a matter of great concern—indeed, your Lordships' House debated it on a number of occasions. To kick start a new approach extra money was injected into the service mid-year. Our ability to do that quickly is important and this clause will allow us to make those payments directly to NHS trusts.

Another example of where this system could be used is money given to ward sisters to improve facilities and the appearance of their wards. That was an outstanding success. It was very much welcomed and was a great boost to morale at ward level. Again, there is a case for allowing the department to make those allocations direct to NHS trusts without going through the normal commissioning arrangements.

I heard the concerns expressed and want to assure Members of the Committee that this is not meant to undermine the normal role of commissioning. It is not meant to take the place of commissioning; indeed, to do so would undermine the whole approach to the development of NHS services. It is simply a more effective and efficient method to make the occasional direct payment to NHS trusts.

In relation to the notification to Parliament, raised in the second amendment spoken to by the noble Earl, I covered those matters in previous debates. The reporting arrangements to Parliament, which are the same as those under the last government, are sufficiently rigorous. When extra direct payments are made such as those for cleaning or for ward sisters to spend on their wards, they are always made as public announcements. I hope, on that basis, that the noble Earl will consider withdrawing his amendment.

Earl Howe

The Minister was a little hard on me and my noble friend Lady Cumberlege in drawing the conclusions he did from what we said. I made clear that I was prepared to be persuaded that infrequently there could be compelling and good reasons to make supplementary payments to trusts and PCTs and to do so in a speedy fashion.

I am glad to hear from the Minister that this is a mechanism that is likely to be used relatively rarely and that it will not undermine the normal commissioning process. I am a little disappointed that the Minister could not be more sympathetic to my arguments in favour of somewhat greater transparency and I wonder whether the normal NHS accounting requirements will provide the kind of immediate and accessible information that is so valuable.

Members of this Committee and no doubt Members of another place can table Written Questions to prise out details of supplementary payments when they are made. But it should not be necessary to do that. They should be on the record almost as soon as they have taken place. The announcements to which the Minister referred may or may not apply to every single instance. If they do, that may be satisfactory. We shall have to see.

Lord Hunt of Kings Heath

I confirm that in the year 2000–01, the current financial year, the three direct payments made were all publicly announced.

Baroness Carnegy of Lour

I apologise to the Committee for intervening. Those announcements were general and about the whole health service. There was no question of fairness between different parts. If people hear that their trust has received extra money to make their hospital cleaner and the one next door has not, a lot of trouble will be caused. I do not think that we can compare that. I am concerned about the matter. It is a peculiar way to manage fairly.

Lord Hunt of Kings Heath

Perhaps I may respond to the noble Baroness. I refer to the hospital cleaning programme, which I had the pleasure of launching at the Whittington Hospital in August. The public announcement gave details of how much money every NHS organisation received. That was based on a fair formula.

Baroness Cumberlege

Does the Minister not appreciate that there is a lot of frustration in the health service because allocations are pre-empted by top slicing? Many of the managers who spoke to me said, "We would have sparkling clean wards if we had the amount of money to spend that we want". However, as I explained earlier in Committee, so much has been top sliced. There is no room to manoeuvre and the frustration is enormous.

Lord Hunt of Kings Heath

Even with top slicing the health service is receiving huge amounts of additional resources—record amounts. There will always be a balance between the allocation made to the NHS locally and the retention of money at central government level to give particular impetus to core national priorities. I accept that there is a debate as to how that balance should fall. However, I do not think that we will ever get away from retention of some moneys at national level.

Earl Howe

As the Minister indicated, this will be a running theme, not only throughout the Bill but, I suspect, for as long as the Session lasts. It is a fascinating topic. I am grateful to all noble Lords who contributed to this short debate. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 23 not moved.]

Lord Hunt of Kings Heath moved Amendment No. 24: Page 3, line 29, at end insert— ( ) In section 97D of the 1977 Act (financial duties of Primary Care Trusts), in subsection (1)(b), after "section" there shall be inserted ", apart from subsection (5A)".

The noble Lord said: This is the first of a number of government amendments which have been tabled. I regret that we have to do this. However, I believe we have done rather better than with the NHS Bill we took through the House last Session.

This is a technical amendment, purely consequential to the 1997 Act. Although the new subsection (5A) of Section 97C of the 1997 Act enables the Secretary of State to make supplementary payments direct to a primary care trust, Section 97D of that Act did not allow for such payments to be taken into account when determining the primary care trust limit on expenditure for the financial year in question. In other words, the primary care trust could receive the extra payments but could not increase its expenditure for that year by an equivalent amount.

Section 97D of the 1977 Act sets a limit on the annual expenditure of a primary care trust. It provides that in any financial year a primary care trust may not spend more than the aggregate of the various types of income it receives in that year. Paragraph (a) refers to sums allocated to the trust by the health authority. Paragraph (b) refers to sums received under the 1977 Act other than the sums received under Section 97. Those words exclude the income from health authority allocations, but unfortunately they would also exclude supplementary payments from the Secretary of State which would be paid under the new paragraph 5A of Section 97.

This amendment resolves the problem by excluding supplementary payments under Section 97C(5A) from the ambit of the words other than sums received by it under that section.

Supplementary payments will therefore be added to the aggregate amount which the PCT is permitted to spend in the financial year in which the payment is made. I beg to move.

On Question, amendment agreed to.

[Amendment No. 25 not moved.]

Clause 3, as amended, agreed to.

Lord Carter

I beg to move that the House do now resume.

Moved accordingly and, on Question, Motion agreed to.

House resumed.

House adjourned at nineteen minutes before eleven o'clock.