HC Deb 17 February 1983 vol 37 cc482-91

4.8 pm

The Secretary of State for Social Services (Mr. Norman Fowler)

With permission, Mr. Speaker, I should like to make a statement about the use of commercial contractors for domestic, catering and laundry services in hospitals.

It is in the Government's view essential that the resources devoted to the National Health Service should be used as cost-effectively as possible. Only in that way will these resources, which have increased in real terms year by year under this Administration, benefit patient services to the maximum extent. Authorities already use outside contractors for a variety of services. In 1981–82, £159 million was spent in England on commercial contracts. Only a small part of this sum—£17 million—was, however, spent on domestic, catering and laundry services, which together cost the Health Service almost £800 million. There is a large potential here which is not being realised.

I therefore want to see health authorities go to competitive tender for these three services on the basis of a fair comparison between the private contractors and the authority's own staff. Authorities should therefore work out which would be the most economic way of delivering their services to the specified standard, and then either enter into contracts with private companies or continue to use their own staff, using their tenders as the budget for the service. I should stress that health authorities will be able to use all savings achieved in this way for extra patient services.

Up to now, one anomaly has been that the National Health Service, unlike local government, has had to bear VAT on most contracted-out services. My right hon. and learned Friend the Chancellor of the Exchequer is today announcing that the Government will seek powers in this year's Finance Bill to refund VAT to health authorities where services are contracted out. This will permit a fair comparison with in-house services.

I held a discussion earlier this month with the representatives of private contractors. They are confident that they have the capacity to provide straight away in many places the level of services which health authorities will be wanting.

I am today issuing a draft circular, copies of which have been placed in the Vote Office, to health authorities, and to the staff side of the general Whitley council, inviting comment by the end of March. In this circular I shall be asking district health authorities, special health authorities and boards of governors for the postgraduate hospitals, to test the cost-effectiveness of their domestic, catering and laundry services, by putting them out to tender. Regional health authorities will be asked, in relation to their own premises, to take similar action on their cleaning and catering sevices. In each case, the authorities' own staff will be invited to compete for contracts on equal terms. I intend to make regular checks on progress and to ask regional health authorities to do likewise.

The aim is that each authority should make the most cost-effective use of the resources allocated to it in the interests of the patients it serves. This is a further step to achieving that.

Mrs. Gwyneth Dunwoody (Crewe)

This is the fourth attempt by the Secretary of State to shove health authorities into putting out their work to private contractors, whether they require to do so or not. Will he tell us on what he bases the assumption that there will be a benefit to the health authorities, since his own figures show that a number of authorities which tried private contractors last year have given up the service?

Secondly, will the right hon. Gentleman say on what basis catering services are to be provided, who will be responsible for the provision of staff such as dieticians, and what guarantee he has that special diets and the special interests of the patients will be preserved?

Thirdly, as there is a great risk of cross-infection in using laundry services, will he tell us who will police the health of any of the workers concerned and whether local authorities will be given guarantees that laundries in their area will not be a danger to public health?

Finally, as the present cleaning staff on wards are there to reduce the danger of sepsis, will he explain how patients will benefit from a system that will change the rule whereby at present the cleaning of wards and the cleaners themselves are organised by the ward sisters, whereas contract cleaners, if they are employed, will be responsible only to administrators? Will he accept that what he is trying to do will in no way contribute to the economics of the Health Service and that he is simply pandering to the wild men on the Government Back Benches?

Mr. Fowler

The hon. Lady has delivered her normal nonsense in reply to my statement. If money is saved, it will go to patient care. It will provide more patient services. I should have thought that right hon. and hon. Members on both sides would support that.

The hon. Lady asked me, first, what evidence I had for believing that there would be savings. We have studied what took place at Ministry of Defence hospitals, which, as the hon. Lady may know, went over to using outside cleaners in 1981. Appreciable savings have resulted from that. On the basis of that experience, it is reasonable to believe that in some National Health Service hospitals savings of up to 20 per cent. could be made. If the service is adequate in other hsopitals, clearly those savings will not be available, but where savings of up to 20 per cent. are available I should have thought that the hon. Lady would want them to be ploughed back into patient care.

Catering and other services will have to be managed and overseen by the National Health Service administration. That will be made clear in the circular.

Mrs. Dunwoody

Is the Secretary of State aware that there is a fundamental difference between a service hospital dealing with young fit adults in a restricted age group, and a large general or geriatric hospital dealing with quite different problems? Will the Secretary of State make it very clear that if undertakings are to be given by the people who take out contracts, they must guarantee the safety of the patients and staff? If he can give that guarantee, will he also give a guarantee that we can monitor the results?

Mr. Fowler

I certainly give that guarantee. That of course will be part of the tendering process. There will be comparisons of like with like. Those considerations will be taken into account. The evidence that we have, certainly from the Ministry of Defence, shows that there are substantial savings to be made. We have taken account of the differences between Ministry of Defence hospitals and NHS hospitals, and if there are savings to be had surely it is simple common sense for those savings to go to patient care.

Mr. Clement Freud (Isle of Ely)

If the Secretary of State has been given leave to make a pre-Budget announcement, will he tell the House whether the Government are also seeking powers to refund VAT to health charities, and not just to health authorities?

Mr. Fowler

I have made clear what the Chancellor of the Exchequer announced about health authorities. Different issues are involved with charities, and that is a matter that my right hon. and learned Friend the Chancellor of the Exchequer has under review.

Mr. Peter Horden (Horsham and Crawley)

Will my right hon. Friend accept that his announcement wall be welcome to all those who have long hoped for greater efficiency in the National Health Service? As those who will be contracting for services in competition with the NHS will be relieved of VAT, will he accept that the principle might also be applied to voluntary charitable organisations which provide services to the social services department of the DHSS?

Mr. Fowler

That point was raised by the hon. Member for Isle of Ely (Mr. Freud), and I shall pass on my hon. Friend's views to my right hon. and learned Friend the Chancellor of the Exchequer.

Mr. Mike Thomas (Newcastle upon Tyne, East)

Is the right hon. Gentleman aware that his proposals would be more likely to be judged on their merits if he did not appear to be so fanatically determined to introduce privatisation, whether or not there is a benefit, in the same way as the hon. Member for Crewe (Mrs. Dunwoody) is determined to introduce nationalisation, whether or not there is a benefit? Would he not be taken more seriously if he were to make the savings that are available to be made from generic drug substitution—at the minimum, £30 million or £50 million, and probably substantially more—and which he could have made on the day that he took office?

Mr. Fowler

I find the Social Democratic party's policy as eccentric on this matter as it is on virtually everything else. The hon. Gentleman, normally using rather foolish and exaggerated figures, is asking about generic substitution. I have made it clear that if economies are to be made in the drugs bill, we shall make them. We have no intention of compelling authorities to do that. We are saying to authorities that there are or may be opportunities for savings in this connection. It is about time that the SDP decided what its policy is on this matter: does it agree with it or not?

Mr. Andrew F. Bennett (Stockport, North)

Does the Minister recall that the reason why most hospitals began providing the services themselves rather than employing contractors was that for a long time there had been allegations about the financial interests of those responsible for the administration of the hospitals and the private contractors? Will he make sure that there is now a clear declaration of financial interest by anyone appointed to a hospital board, whether at district or regional level, and anyone who works in a hospital, to avoid allegations of financial irregularity in the placing of contracts by hospitals?

Mr. Fowler

We will take every precaution to prevent anything of that kind happening. The hon. Gentleman seems to be underrating, in all kinds of ways, the contribution that can be made by the private sector. His concept of the private sector is wrong.

Mrs. Jill Knight (Birmingham, Edgbaston)

Will my right hon. Friend accept the congratulations not only of Members but of many thousands outside on the determined way in which he is tackling the waste and misuse of money in the National Health Service? Will he please repeat, often, very slowly, very clearly and in words of one syllable so that Opposition Members who appear unable to grasp it may understand, that this is the best way to make more money available for patient services and to stop the waste that is inherent not only in the way in which the service has been run but in other things, such as the misuse of drugs?

Mr. Fowler

I shall certainly do my best to fulfil the wishes of my hon. Friend, but I cannot guarantee that hon. Gentlemen and hon. Ladies will understand the message. My hon. Friend is absolutely right. Our first concern is the interests of the patients. If we can provide support services which are as good as existing services and which can be provided more cheaply by the private sector, and if that money goes to patient care, I should have thought both sides of the House could unite in agreeing that that is a good thing.

Mr. Laurie Pavitt (Brent, South)

In making his statement, did the Minister consider the effect on morale of the encouragement of forward planning under the former area health authorities and the capital investment in laundry machinery and what is likely to happen, if that becomes redundant, as a long-term cost? Will he undertake to write to me on the specific case of the contract given to a Birmingham firm of outside contractors for the laundry at Northwick park hospital, Harrow, where the previous arrangement was that the Central Middlesex hospital was given £250,000 by the area health authority to cope with that task? Will he confirm that the tender submitted by the Birmingham company was higher than that submitted by the Central Middlesex hospital?

Mr. Fowler

I shall certainly write to the hon. Gentleman about that. I shall check the facts and see whether what he said is correct.

Mrs. Sheila Faith (Belper)

Is my right hon. Friend aware that this will be good news for all those who suffered in hospital last year and during the winter of discontent when industrial action took place, because if the catering, laundry and cleaning services are broken down into smaller units that must be good for industrial relations and will in no way harm the concept of the National Health Service?

Mr. Fowler

I entirely agree with my hon. Friend. The comparison between the public sector and the private sector tenders will be like with like.

Mr. Lewis Carter-Jones (Eccles)

Is the right hon. Gentleman surprised if some of us are sceptical about what he says? Some of us have been involved for some time in the issue of the payment of VAT by charities supported by the people of this country, and know that services have had to be withdrawn. We fought this battle for three years. Does he not find it rather strange that he can get up now and tell us that the Chancellor of the Exchequer has agreed to there being no VAT on privatisation? Will he consider that very carefully?

Mr. Fowler

I understand that the hon. Gentleman will be sceptical. I hope that he will also be open-minded about the results of this particular policy, its potential and the fact that the National Health Service can benefit from it.

Sir Anthony Grant (Harrow, Central)

Is my right hon. Friend aware that his statement today will be welcomed by everyone who wants to improve the National Health Service, and that he particularly deserves congratulations on having persuaded the Chancellor of the Exchequer to remove a grossly unfair anomaly with regard to VAT? Will he remind Opposition Members that, during the winter of discontent, when the Labour party was in office, all the trouble took place in those hospitals where there was direct labour and none where there were outside contractors? Will he remind them also that the Secretary of State for Social Services in the previous Administration paid public tribute to the high standards of contractors in hospitals?

Mr. Fowler

Yes. It is also fair for me to say that my hon. Friend has taken a leading part in seeking the kind of extension that the Government are announcing today. The general policy is that we would expect districts to compare the in-house costs with those of commercial contractors. If the same quality of service can be provided more cheaply and at least to the same standard there will be an overwhelming case for the authority to take that course. I believe that that is the right policy for the Health Service.

Mr. William Hamilton (Fife, Central)

Will the Minister say whether this policy statement also refers to Scotland? If so, why does the Secretary of State for Scotland not have the guts to come here and do his own dirty work and be cross-examined by Scottish Members? Does the Minister recognise that this is a further squalid example of introducing the profit motive into the National Health Service and will be resisted by the trade unions throughout the country? Does he know that at Addenbrookes hospital in Cambridge the health authority is so appalled by the quality of the cleaning service provided by private enterprise that it is considering matters with a view to removing the contract from the firm?

Mr. Robert Rhodes James (Cambridge)

Absolute rot.

Mr. Fowler

There are a number of comments that I could make about the situation at Addenbrookes, but I will resist the temptation to do so.

The Secretary of State for Scotland will make his own announcement on policy in Scotland. I believe that he is making it today. We are seeking to achieve greater efficiency in the use of resources in the Health Service. The hon. Gentleman, who at Question Time after Question Time, makes complaints about resources, really cannot have it both ways. If he wants resources for the Health Service, he must support the most efficient use of those resources.

Mr. Toby Jessel (Twickenham)

Is my right hon. Friend aware that my constituents will warmly welcome the possibility that their district general hospital, the West Middlesex at Ilseworth, will make savings which could be used to save and keep going local community hospitals such as Teddington Memorial and St. John's, Twickenham? Is it not astonishing that Opposition Members seem unable to accept that hospitals and health services which are intrinsically expert at providing medical care for people may not also be expert at providing catering, cleaning and laundering services?

Mr. Fowler

In some cases there is no question but that the in-house service is good and will continue. The Government's case is that the present balance is all one way and that the opportunity should be given to private contractors to compete on equal terms. The first point made by my hon. Friend is absolutely correct, and it is one which I do not think is even now grasped by all Opposition Members. It is that the savings thus made go back into local improvements in health services. That seems to me the most important aspect of all.

Mr. Bob Cryer (Keighley)

Will the Minister accept that it is not the care of patients that comes first in his mind, but the greed of his supporters in the Tory party, who can line their pockets with what they see as lucrative contracts? If the principle of competitive tendering is so important and so endearing to the Minister, will he say why it was not used in the Serpell report, where two Conservative supporters obtained contracts when they had a direct financial interest, without any competitive tendering at all? If it is good in one case, why is it not good in another? Will he confirm that the draft circular that he proposes to send round will have no legal validity whatsoever?

Mr. Fowler

If, by his last point, the hon. Member for Keighley (Mr. Cryer) means that I am not directing health authorities to carry out a particular policy, that is of course the case; but that is the position with any circulars from the Department of Health. The Government have now set up a system of regional and district reviews and the progress that is made locally on what is being proposed will be checked and will be taken up with the chairmen. If the hon. Gentleman believes that this is simply exhortation, I must tell him that that is not the case.

With regard to the hon. Gentleman's second major point, although I shall not go back to my old area of railways, the money saved will go back into patient care and to provide more services. I was under the impression that to provide more services was what the welfare state was about.

Mr. David Atkinson (Bournemouth, East)

Does my right hon. Friend recall that his Department issued a similar circular in August 1981 urging health authorities to privatise services which proved to be utterly ineffectual? What assurance can he give the House that, without the force of law, his statement today will be more effective?

Mr. Fowler

There are two reasons. First, there is the obvious and important aspect that we have changed the position with regard to VAT, which is a substantial step forward for outside contractors, and should be recognised as such. My second reason for believing that it will be considerably more effective is that we have since introduced a system of accountability into the Health Service whereby the policies at local level are checked in a way that was hitherto not the case.

Mr. David Ennals (Norwich, North)

Will the Secretary of State accept that health authorities have always had the right, if they so wished, to contract out certain work? Will he also accept that the Labour Secretary of State for Social Services never paid tribute to the private contractors because the system did not work—either because private contractors did not put in bids as they were not prepared to do the work, or because the work was unsatisfactorily done? Will he confirm that the number of contracts that have been put out to private tender have decreased rather than increased? Does this not prove that this is just an absurd waste of time except to promote the benefits of private enterprise?

Mr. Fowler

Not for the first time, the right hon. Member for Norwich, North (Mr. Ennals) has got it wrong and slightly around his neck. The decision rests with health authorities. It is up to health authorities to decide where the benefit lies. Surely the right hon. Gentleman will agree that if, because an open tender has been allowed to go forward for the first time on equal terms and the health authority can then see for itself the savings that it can take, it should take them, because that is in the interests of the patient. The decision rests with the health authority; the money goes to patient care.

Mr. Mark Lennox-Boyd (Morecambe and Lonsdale)

Has my right hon. Friend had an opportunity to consider the deliberations of the northern regional health authority which is proposing to inject about £500,000 into the Roose hospital at Barrow-in-Furness to improve the laundry but has been unwilling to consider private contractors who wish to tender for the work? Will he consider, in sending the circular, a postscript to that authority because it should be persuaded at least to consider competitive private tenders before the capital payment is made, or no one will be able to judge whether the money could be better spent on improving patient services?

Mr. Fowler

I entirely agree with everything that my hon. Friend has said on the general principle because that is a major aspect which I hope, under the system we are introducing, will improve. When an authority is deciding whether, for example, to build a new laundry and to invest the amount of capital that is required, it should have information on how that service could be provided from outside. I hope that every authority will make such an inquiry.

Mr. Reg Race (Wood Green)

Instead of pretending that contractors are cheaper than National Health Service direct labour, will the Secretary of State tell the House what has been the experience of Health Service administrators in the central Birmingham hospitals, Amersham hospital, Stoke Mandeville hospital, and in the City and East London health authority, where contractors, when asked to make proposals for taking over services, submitted tenders which were substantially in excess of the sums being spent by the National Health Service? Does that not prove that the only way he can make the equation work is by ripping off the taxpayer by abolishing VAT and handing the profit to his mates in private industry?

Mr. Fowler

It does not prove that at all. Clearly, if the in-house arrangement can work more effectively, more efficiently and more cheaply than outside contractors, the principle that I am putting forward would mean that the health authority concerned would choose the in-house arrangement. We are saying that when the opposite is the case—I hope that the hon. Gentleman will agree with me—and a saving can be demonstrated, the health authority should take it.

Mr. John Gorst (Hendon, South)

Has my right hon. Friend carried out a survey into the number of regional health authorities that are not at present using contractors but are willing to have a go at the scheme he has announced today? Also, has he had any conversations with the trade unions involved, and, if so, what has been their response to his proposals?

Mr. Fowler

One of the aims of the circular, and why indeed it is called a draft circular, is that it is being put out for consultation and for the comments of the trade unions. Clearly the trade unions will be putting forward their views. I believe that throughout the Health Service and throughout the authorities there will be a welcome for this move because many people inside the Health Service believe that there is a potential here for a more efficient use of resources which can go to patient care.

Mr. Robert Kilroy-Silk (Ormskirk)

Why does not the Secretary of State be honest and admit that this is just a further step in the gradual dismantling of both the welfare state and the National Health Service to line the pockets of his political supporters, and that neither he nor they will be satisfied until they have reduced the National Health Service to a geriatric and psychiatric service?

Mr. Fowler

I have not put it in those terms because they are clearly so absurdly untrue that they are not worth serious consideration by the House.

Mr. Richard Alexander (Newark)

Is not the reaction of some Opposition Members entirely predictable? Is it not clear that their concern is a lot less for efficient and effective patient care than for the preservation of trade union monopolies in the Health Service?

Mr. Fowler

My hon. Friend is entirely right. I do not think that a serious argument has been put forward this afternoon against these proposals.

Mr. Thomas Cox (Tooting)

Is the Secretary of State aware that those hon. Members who have hospitals in their constituencies know from bitter experience the standard of work of many private contractors? Is he aware, for example, that at Springfield hospital, in my constituency, private contractors were brought in to pull down asbestos roofing but such was the deplorable standard of workmanship that it was left to hospital workers to clear up the mess? This matter has now been referred to the ombudsman. Such matters deeply concern us because we have experience of the shoddy workmanship of some of the cowboys who are being brought in to the hospital services.

Mr. Fowler

It is up to the health authorities to decide on the standard of the service which will be provided. That is why we are, rightly, leaving them with that discretion. To characterise the private sector in the way that the hon. Gentleman has just done is totally absurd.

Mr. Tim Eggar (Enfield, North)

I extend a warm welcome to my right hon. Friend's statement. What assurance can he give the House that the internal accounting methods dealing both with capital and current costs will allow a fair comparison between external contractors and internal costs?

Mr. Fowler

My hon. Friend will have the opportunity to see the model contracts that we have drawn up to ensure that exactly that takes place.

Mr. D. N. Campbell-Savours (Workington)

Will wages fall or jobs be lost? Where else can the savings come from? Is it not cheaper to keep Health Service workers at work than to pay them benefits?

Mr. Fowler

In regard to wages, some of the outside contractors already pay the general Whitley council rates, although it will depend upon the position locally. In regard to redundancy, the hon. Gentleman will probably be aware that many contractors take on the staff who are already working in the hospital service.

Mr. Ivan Lawrence (Burton)

Does my right hon. Friend appreciate that the indignation aroused by his statement is unlikely to come from sick people but has come and will continue to come from trade union officials and their spokesmen in the Labour party who are frightened about the diminution not of the Health Service but of their power and influence in the trade union movement? Is he also aware that that comes from the same sources that were prepared to blackmail the sick in the recent past?

Mr. Fowler

I agree. Certainly the Opposition spokesman on these matters has no record in regard to industrial action in the last dispute. When she and the Opposition have had time to reflect upon the proposals, I hope that they will see the good sense of them.

Mr. Marcus Fox (Shipley)

I am sure that my right hon. Friend has seen the savings that can be and have been made by local authorities which have privatised, and in the area of defence. Does he accept that, if similar savings were made in the National Health Service, community hospitals such as Shipley hospital could remain open?

Mr. Fowler

The whole point of what we are doing is to enable health authorities to make savings. Then it would be for the health authorities themselves to decide how those savings were spent. Of course, they would be spent on patient care and the kind of projects that my hon. Friend has in mind.

Mrs. Dunwoody

Will the Secretary of State promise the House that, if district health authorities convince even him that the work is better, more efficiently and certainly more cheaply carried out within the NHS than by private contractors, he will not deduct a notional sum from their finances on the basis that they will be forced to go to private contracting?

Mr. Fowler

Yes, I will give the hon. Lady that assurance. We are trying to achieve a like-for-like comparison and fair tendering. We are not forcing the authorities to go to private contractors. What we want is fair competition between the public and the private sector. If the hon. Lady is content with that position, I am glad that the Opposition and the Government agree on this policy.

Mr. William Hamilton

On a point of order, Mr. Speaker. When I asked the Minister whether this policy applied to Scotland, he answered that it did. He has produced a document of eight foolscap pages. Presumably the Secretary of State for Scotland did not seek your permission, Mr. Speaker, to make a statement similar to the one made by the right hon. Gentleman. On today's Order Paper there is an inspired question, No. 167, in the name of the hon. Member for Bute and North Ayrshire (Mr. Corrie), who is not even here. That presumes that the House will be given in written form the answer which should properly have been given on the Floor of the House by the Secretary of State for Scotland, who would then have been subjected, quite properly, to questioning by Scottish Members.

Can you, Mr. Speaker, do anything to protect Scottish Members from such gross abuse of the House by the Secretary of State for Scotland, particularly on a matter which concerns every man and woman in Scotland who will be violently opposed to the propositions being put forward? Is there no way of preventing the Secretary of State for Scotland acting like a little Adolf Hitler?

Mr. Speaker

I allowed the hon. Gentleman to make his point of order, which he will understand was not strictly a point of order. I realise that he wished to express that opinion.

Mr. Donald Dewar (Glasgow, Garscadden)

rose—

Mr. Speaker

Order. I said that it was not a point of order.