HC Deb 24 May 2000 vol 350 cc205-26WH

Motion made, and Question proposed, That the sitting be now adjourned.—[Mr. Betts.]

9.30 am
Mr. Tom Brake (Carshalton and Wallington)

I am pleased to have secured this important debate. I wish that more London Members were present; perhaps they will arrive shortly. The debate will interest anyone who is concerned about the continually falling number of police officers in the Metropolitan police, the recruitment crisis in the national health service and the recruitment and retention of teachers. Those are, of course, national issues, but the problems in London are much more acute, because of the cost of living there.

One difficulty affecting our consideration of the problem is that, although many of us are aware of the issues facing public sector workers in London, much of our evidence is anecdotal, being drawn from friends, family and constituents who contact us through our constituency offices or surgeries. Without a cost of living index for London, the scale of the problem is unknown.

In 1974, the Labour Government's pay board introduced a London weighting index, which was published regularly until the Conservatives abolished it in 1982. Since then, no official measure of the cost of living and working in London has been collected or published. An unofficial London weighting index has been published privately, but although the pay board recommended that the formula should be revised every five years, that revision has never taken place. There has been no adjustment to take into account greater travel-to-work distances and the changes to relative house prices. The retail prices index is adjusted every year to reflect changes in products and consumer tastes, but the weighting index presupposes that we live in the London of 30 years ago. As a result, according to Bargaining Report: it seriously underestimates the extra costs it is supposed to measure. The unofficial London weighting index, produced by the London research department, shows that, from an index of 100 in 1974, London's cost of living had risen by last year to 768.1 in inner London and 515.7 in outer London. The value of the index is more than £3,000 for inner London and more than £1,000 for an area such as Carshalton and Wallington, where I live. Despite that, the London allowance received by nurses, teachers and police officers is well below those levels.

Recruitment to public services has suffered all over the country and has been widely reported in the past few years. Nowhere has it suffered more than in London. In its recruitment report issued in October last year, the Metropolitan police reported that it faced an increasingly difficult job market, in which the Service is not a first choice career for many and one in which the pay and conditions offered are not competitive with those of other employers. That description could equally be applied to the teaching and nursing professions. Recruitment has deteriorated in London in recent years because of lower unemployment, faster growth, greater earnings growth and longer travel-to-work times than those in the rest of the United Kingdom. In particular, rising house prices in London have made a bad situation worse. According to Tony Travers of the London School of Economics, the result has been both long distance commuting and London employees who are of a lower quality than they would be elsewhere, in both the public and private sector…No teacher in their right mind would stay in London when property costs 80 per cent. more than in Gloucester or Carlisle. The most recent figures on house prices—the Halifax housing prices index—support that view. House prices in London are now 76 per cent. above the UK average. That is the biggest differential since the Halifax index began in 1983. London is now the only region in the United Kingdom where prices are currently above their 15-year average in relation to earnings. In Greater London, the Halifax housing prices index records a 54.5 per cent. increase in house prices since 1990, whereas the increase in South Yorkshire is 5.71 per cent. A recent glance at the Homes Online website revealed that the cheapest one-bedroomed flat in east London costs £55,000 and that the cheapest one-bedroomed flat in south London costs £80,000, whereas a small three-bedroomed, terraced house in South Yorkshire costs between £25,000 and £35,000.

Such factors are taking their toll. Recruitment to the teaching profession is worse in London than elsewhere in the country, although, unfortunately, the lack of reliable statistics means that it is difficult to judge precisely how bad the situation is. Staff shortages are often bridged by the use of agency staff. The only statistics on the use of supply staff that are collected and published regularly by the Government are the occasional teacher figures: an occasional teacher is one who teaches in the same post for up to one month. Figures show that occasional staff are heavily concentrated in schools in London and the south-east. A teacher working for more than one month in post counts as a regular teacher, whether or not he or she is, in fact, a temporary supply teacher. I am sure that the Financial Secretary will correct me if I am wrong, but statistics are not published on the number and location of all supply staff, nor is there any independent means of assessing the whereabouts or the concentration of supply or overseas staff.

The school teacher review body has noted the lack of such data. It states: The DfEE vacancy figures do not include some posts that schools may have been forced to fill on a temporary basis and provide no indication of the quality of those appointed to vacant posts. Schools may have had to accept a candidate of poorer quality than they would have liked because, in words we often hear, "We must have a teacher in front of the class. As a result of those concerns, the review body conducted its own survey last year and found that, nationally, one in 20 advertised teacher vacancies was not filled, but that in inner London, the figure was one in eight. Other figures also tell a sorry tale. In 1999, 39.5 per cent. of all teaching vacancies in English primary schools and 33.9 per cent. of all teaching vacancies in English secondary schools were in London. All that must be seen against the backdrop of teaching in London, which is certainly not easier than in other parts of the country and is often more challenging. Gareth Bevan, the head teacher at one school in my constituency, Carshalton high school for boys, was so worried about the situation that he considered buying a house locally to house the school's incoming young staff. However, the cost was too prohibitive for the school. Commenting on the current situation, Mr. Bevan said: In thirty years at this school, I can only remember one person who has come into a position of responsibility at the school from outside London. The outer London weighting of £1,524 is a paltry sum; it's nonsensical. Ten years ago, the LEA offered relocation packages. Now, I know of no school or local authority that could even contemplate relocation packages. In their recent housing paper, the Government identified assistance that could be given to key workers. I hope that the Financial Secretary will put a little more flesh on the bones of that proposal today.

In recent months, the needs of the health service have had a higher profile than those of education; none the less, there is a similar tale to tell in the national health service. There are no longer any official figures giving the number of agency and overseas staff in different health trusts. While national vacancy rates are published regularly, local vacancy rates are not. However, approximately, one third of the 15,000 nursing vacancies in England are in London: a survey taken for the Evening Standard at the end of last year showed that there were nearly 5,000 vacancies. My local trust has had to look abroad for nursing staff and has told me, informally, that the vacancy rate could be up to 20 per cent.—although, on the record, it estimated the figure to be closer to 6 per cent. Clearly, there are local problems. The three-month vacancy rates obtained from the Library show that the vacancy rate in England for nursing and midwifery is 2.6 per cent.; in London, the rate is twice as high, at 5.1 per cent., and in my local health authority it is 4.9 per cent., close to the London average of 5.1 per cent.

I shall illustrate the difficulties that the NHS is experiencing in recruiting and retaining staff with an example of a hospital just across the river—St. Thomas's. St. Thomas's hospital relies heavily on biomedical scientists to carry out a range of screening tests. After five years of training and an honours degree, a graduate in that profession can expect to earn about £9,500 to £10,000; after qualification, he might earn a couple of thousand pounds more. Given those circumstances, it is hardly surprising that staff are leaving the profession. Yesterday, I spoke to Judy Copestake, a biomedical scientist with 40 years' experience as of yesterday. Until just a few days ago, she was a biomedical scientist grade 2; she had management responsibilities, but continued to supervise other biomedical scientists working on the bench in the laboratory. Her leaving salary was the princely sum of £22,000. She feels that her profession has been abandoned by the Government. She has been told by the Minister of State, Department of Health, the hon. Member for Southampton, Itchen (Mr. Denham), that biomedical scientists cannot constitute a special case—but it would appear that nurses can. She has also been told that there is no chance of a pay increase until after "Agenda for Change" has been implemented. That means that, in all likelihood, there will be no change until 2002.

The same Health Minister said that 6,000 biomedical scientists have received a 7 per cent. pay increase. I should be grateful for confirmation in writing, from either that Minister or the Financial Secretary, of exactly how many of the 21,000 biomedical scientists have received that increase. Judy Copestake and her colleagues do not know of a single biomedical scientist, including colleagues at St. Thomas's hospital and others, who has received that 7 per cent. settlement. Their view is that, if the increase had been available to 6,000 biomedical scientists, they would know at least one person who had received it. They know of many who have received a 3 per cent. increase and a small number of trainees who have received a more substantial increase, but none who have received a 7 per cent. increase.

Perhaps the Government calculate that the impact on public services—in this case, the testing of medical samples—will be minimal. However, unfortunately it is not. I have a press release that speaks of an accident and emergency service; it is not in London, but if Llandudno is experiencing problems, I am sure that the problems in London are just as acute. Apparently, Llandudno hospital has been forced to close its accident and emergency service at 4 pm each day, owing to insufficient biomedical scientists to carry out important laboratory tests on patients. That is obviously a source of concern, for if those circumstances were to be replicated in London, I am sure that my constituents would contact me in large numbers.

The problems are no different in relation to the Metropolitan police. We know that finding new recruits is hard work and that the Macpherson report, rightly, put further pressure on the Met to recruit more ethnic minority police officers. Higher academic and health standards now apply to entry to the force. Police numbers are continuing to fall due to a combination of recruitment and retention problems. I ask Conservative Members, who talk vociferously about the need to recruit more police officers, to consider the effect on recruitment and retention of the Conservative Government's decision to stop the police housing allowance. The Financial Times recently reported that pay talks between the Home Office and police representatives, which are regarded as a critical component of the Government's pledge to boost recruitment by the next general election, have broken down. There are clear signs of an impending crisis in the police service as well.

I have focused on the problems of three key groups of public sector worker—teachers, nurses and police officers—but they are not the only public sector workers in London who experience difficulties. If the Government cannot recruit and retain key public sector workers in our capital city, it is clear that they cannot hope to achieve the improvements in public services that, during the general election, they promised to Londoners and others.

I hope that the Minister will agree that the first thing that must be done is to assess accurately the scale of the problem. The London Research Centre, now under the control of the Greater London Authority, should be given the task of compiling a new index to measure the cost of working and living in London. Such an index should be published annually and presented to the teaching and nursing pay review bodies, the police negotiating board and other relevant Government Departments and public sector bodies. New research into all aspects of recruitment and retention of public sector staff in London is needed urgently: we need estimates of the number and net cost of supply and agency staff in schools and hospitals, and accurate figures on the cost of failing to retain trained staff and of recruitment to the Metropolitan police. That key research that is not available at the moment.

Does the Minister agree that it is time for an annual report to be produced on the state of public services in London, and that its contents should be debated by the House of Commons? If that were done, today's Adjournment debate could be the first of many.

9.46 am
Mr. Simon Burns (West Chelmsford)

I begin by congratulating the hon. Member for Carshalton and Wallington (Mr. Brake) on securing this important debate. I am not a London Member of Parliament, but I want to contribute because events in London have a ripple effect on the home counties, and in my county, Essex, that effect is significant.

I shall concentrate on the subject of police officers. As the hon. Gentleman said, there is a significant problem regarding recruitment and retention of police officers in the Met. I do not think that he would disagree if I said that figures show that the Metropolitan police is 1,000 officers understaffed. That is a considerable problem. When talking to the Essex police last week, I discovered that, if a Member of Parliament tables a question to the Home Secretary asking, for example, how many officers the Metropolitan police had on 31 March 2000, the answer given is not the number of officers employed by the Met on that day, but the number for which it has been funded. Those are very different figures. The answer to the same question about the Essex force would be 60 officers more than the real number.

Police officers in the Met receive a London allowance of approximately £3,000, because London is clearly far more expensive to live in than Somerset, the west country or parts of the north of England, especially in terms of housing costs. I understand that the Home Secretary proposes to increase that allowance to £6,000, and that the Police Federation believes that even that figure is too low and should be slightly higher. As the Home Secretary told the hon. Member for Watford (Ms Ward) at Home Office questions on Monday, the figure is currently at arbitration. We shall have to await the results of that process.

So that my comments cannot be misinterpreted, I should say that I do not question the need to acknowledge and make provision for problems specific to London, which is infinitely more expensive to live in than other parts of the country; nor do I question that those problems have had an impact on recruitment in public services. I am not saying that the London allowance should be cut out entirely. However, unless other measures are taken, a London allowance is itself a problem that has a significant impact on counties that adjoin London, such as Essex.

I shall use the example of the police to make my point. With a London allowance, a police officer working in London earns approximately £3,000 more than a police officer working across the boundary in Essex. The allowance does not significantly affect the employment of police officers in Essex, as, depending on where those officers live, the commuting costs of getting to London diminish the attractiveness of that £3,000. However, if the London allowance increases to £6,000 as the Home Secretary wants—or if it is increased further as a result of arbitration—the impact will become significant. Many people in Essex who want a career in the police service will find it more financially beneficial to get a job in the Metropolitan police, where their income will be £6,000 more, than in the Essex constabulary.

There is a double whammy. Many police officers who currently serve in the Essex constabulary—especially those living in Epping, Loughton or elsewhere in the south of the county, who would have to travel only a few miles into London—on suddenly discovering that their colleagues in the Met are being paid an additional £6,000 will resign from the Essex police and seek a job in the Metropolitan police, which is crying out for new recruits. Therefore, any distortion of pay structures in the Metropolitan police has serious implications for the recruitment and retention of police officers in Essex.

Mr. Edward Davey (Kingston and Surbiton)

The hon. Gentleman is worried that a higher London weighting for police officers would have that effect, but how would he solve the problem of the severe shortage of police officers in London, if not through the index approach?

Mr. Burns

I specifically said at the beginning of my remarks that I was not going to suggest the removal of the London allowance. If the hon. Gentleman will wait, I shall answer his question.

The problem is not exclusive to Essex. It affects all of the home counties surrounding London, as the hon. Member for Watford said when she questioned the Home Secretary. The Home Secretary acknowledged that three chief constables in the home counties had already been in touch with the Home Office because of the significant and adverse impact that a large increase in the allowance would have on home counties police establishments.

The hon. Member for Kingston and Surbiton (Mr. Davey) asks how the problem could be solved without increasing or exacerbating recruitment problems in London. The answer is that serious consideration should be given to creating a home counties indexation. Although the hon. Member for Carshalton and Wallington rightly drew attention to the significant increases in housing costs in the capital, those costs do not drop away at the borders of the Greater London area. Housing in the home counties is also expensive compared with other parts of the country. In my constituency, house prices are relatively high and they have increased significantly during the past two years or so, with the result that, even in an area such as Chelmsford, people have found it difficult to buy or even rent private housing on the sort of salaries that they command if they work in Essex, rather than commute down to the City of London or the west end to work. There is a haemorrhage of the work force from Essex to London, of which one example is that of people who want to work for the Metropolitan police force, not for the Essex constabulary.

The problems caused by London's magnetism could be minimised by creating an outer-band allowance or a home counties allowance. We should not try to solve London's problems merely by enhancing the financial benefits for those who work there, because that simply shifts the problem away from the capital to the band of counties that surround it. Those counties have a diminishing standard of public services because they cannot recruit people—at least, not of the standard that they want—and they cannot retain those whom they have recruited.

I appreciate that the Financial Secretary is a London Member of Parliament, but his constituency is on the outer boundaries of the London area, so he will be familiar with what is happening in areas such as Essex, which adjoin his own local authority area. Will he consider the matter, draw it to the attention of his right hon. Friend the Home Secretary, and ensure that the Government give it urgent consideration? If we wait and argue for too long and set up committees or working parties to find solutions, damage will continue to be done as those committees drag on and politicians and others talk. The matter is one of urgency and grave concern, and it needs to be seriously and swiftly addressed.

9.57 am
Mr. Edward Davey (Kingston and Surbiton)

I congratulate my hon. Friend the Member for Carshalton and Wallington (Mr. Brake) on obtaining this debate. Liberal Democrat Members have sought such a debate for some time, because we believe that the issue is one of the most important that affects public services in our London constituencies. We want to make it clear to the Financial Secretary that, like the hon. Member for West Chelmsford (Mr. Burns), we believe that this urgent problem requires instant Government attention.

My hon. Friend the Member for Carshalton and Wallington put well the argument that we need more information about the problem. One of the concerns expressed by the hon. Member for West Chelmsford was that we do not know about the effects of measures outside London, as well as inside the capital city. If we had better information about relative staff shortages in various public sector professions, not only in London, but outside it and in its environs, we could sensibly judge correct relative weightings. However, we do not have that information.

Mr. Burns

The hon. Gentleman and his hon. Friend the Member for Carshalton and Wallington are right to make the point about the lack of information. However, we have information about the scale of the problem for police forces: we know the funded numbers for each constabulary, and if individual constabularies keep records, as they often do, they can tell us how many officers are actually serving at a given time.

Mr. Davey

I am grateful for that intervention. We know some of the funded numbers, but it takes time to discover the actual numbers serving. As the hon. Gentleman rightly said, the figures can be obtained, but they are not easily got. When conducting research for today's debate, I found that information is not available about many professions in the public sector. Many statistics held by Departments are inaccurate, being based on funding and expectations rather than on what is happening. In addition, with such high staff turnover in hospitals, police stations and schools, figures change quickly.

I shall highlight the significant turnover problem affecting London schools. My hon. Friend the Member for Carshalton and Wallington referred to vacancy rates, which provide an important indicator of the supply of employees not meeting the demand. High turnover is another such indicator—on that, in many ways, shows the damage done to the quality of service that our constituents receive. However, turnover figures are not readily available. My hon. Friend mentioned anecdotal figures and surveys such as those carried out by institutions such as the Royal College of Nursing.

When trying to build a picture from anecdotal evidence, I found that there are large potential costs for the taxpayer arising from the problems that we are discussing, because of the extra costs of more frequent recruitment and of management in integrating new employees into the work force, whether on a hospital ward, in a police division or in a classroom. Extra costs also result from having to pay premium rates for short-term placements, such as supply teachers, bank or agency nurses. Therefore costs are incurred not only as a result of recruitment, but by plugging the gaps and putting a finger in the dyke. If we estimate those costs just for the health service, we come up with a figure that easily exceeds £100 million. We could radically improve the situation by redirecting the money that is currently spent on short-term solutions; rather than spend excessive sums treating the symptoms, we should deal with the causes of the problem and put the money into decent salaries for public sector employees. That is the solution, but how quickly will the Government reach it?

The vacancy rate in Kingston hospital in my constituency is more than the average for England. but it probably slightly less than the London average; nevertheless, turnover is high. Management tried their best to deal with the problem, but ended up going to Manila in the Philippines, where they recruited nearly 100 nurses to work in the hospital on two-year contracts. We welcome those Philippine nurses; they are exceedingly talented and have undergone a rigorous recruitment programme. However, it is ludicrous that we went to a relatively poor country on the other side of the world to recruit huge numbers of staff to work in Kingston hospital—I cannot believe that that makes economic or social sense. Two-year contracts mean that the turnover problem will be dealt with for a short time, but the overall long-term sustainable capacity of the London health service is not enhanced by having to resort to such measures.

In my constituency, I meet former nurses who had worked in the health service for many years and for whose training the taxpayer paid. They left the NHS because in the private sector, in retail and in office jobs, they receive higher salaries and enjoy more flexible working conditions, which can help them to meet family commitments, for example. The NHS competes in that market, and I do not believe that recruiting on the other side of the world can provide a solution. We should encourage those whom the taxpayer trained to return to the health service and work in their local hospitals. In my example, it would not be a case of poaching nurses from West Chelmsford; we must encourage people to work in public services provided to the communities in which they live.

Dr. Vincent Cable (Twickenham)

My hon. Friend eloquently describes a problem that many suburban hospitals have in common. West Middlesex university hospital faces an almost identical situation. Does he agree that the problem is, in part, caused by a chronic shortage of nurses' accommodation? Perhaps the Government could provide on-site facilities. A related problem is the difference between inner and outer London weighting, which does not reflect the current realities of the labour and housing markets.

Mr. Davey

I thank my hon. Friend for his intervention, partly because he has anticipated two of my points. Clearly, we think alike.

Reserved housing for nurses, police and teachers is a potential solution, but only a partial one; people in those professions do not want to receive their salary only or mainly in the form of housing because of the inflexibility of such an arrangement. However, such provision could be useful, especially for new entrants. Cuts in funding for public services have meant that much of the accommodation that was once used has been sold to supply a short-term solution to a funding gap elsewhere in public services in health and education. Many local education authorities used to have houses for teachers, and my hon. Friend the Member for Carshalton and Wallington mentioned that a head teacher in his constituency considered bringing back such provision.

The Government should examine reserved housing as a solution and consider reforming outer London weighting. The chief executive of Kingston hospital told me about the problem that that has caused in his hospital. When Queen Mary's university hospital in Roehampton closed, many of its staff moved to Kingston hospital to allow it to take on those patients who had formerly gone to Queen Mary's. However, the London weighting received by staff at Queen Mary's was higher than that received by staff at Kingston hospital, just down the road. A difficult agreement had to be reached to enable staff to work side by side with different London weightings, and the situation will have to be sorted out later. As my hon. Friend the Member for Twickenham (Dr. Cable) implied, the differences between inner and outer London weighting do not reflect financial realities. It can be more expensive to live in Surbiton or in Kingston than it is to live in parts of Roehampton and Putney. The old system no longer works.

In many respects, I do not blame the current Government for the difficulties. They inherited a huge political problem. As my hon. Friend the Member for Carshalton and Wallington said, the Conservative Government's abolition in 1982 of the London weighting index that the Labour Government had introduced in 1974 was one of the longer-term causes of the problem. We have also heard about the Conservatives' abolition of the police housing scheme in 1994, which contributed to the increasing scale of the problem.

Mr. Nick St. Aubyn (Guildford)

To what extent does the hon. Gentleman acknowledge that more money being given to public sector employees in London increases the problems of retaining people in the public service in the area outside London, to which my hon. Friend the Member for West Chelmsford (Mr. Burns) referred?

Mr. Davey

I thought that I had dealt with that matter earlier, when the hon. Member for West Chelmsford intervened. My point is that we need information, not only about London, but about other parts of the country: information on shortages, retention, recruitment and turnover in the public sector is limited, which is absurd given the avalanche of requests from the Government for huge amounts of information on services, outputs, waiting lists, absenteeism, qualification league tables and examination results from schools, local education authorities, police authorities and NHS trusts. The point is that the information that will help us to plan services more effectively is not requested. Public services depend on their employees: the health service, the police service and the education service are only as good as the people who work for them. If we really care about the quality of services in London and the surrounding counties, we must demand high-quality information on inflows, outflows and quality of staff.

If the Government sent questionnaires to the chief superintendent of Kingston police, Alan Given, to the chief executive of Kingston hospital, John Langan, and to the director of education in the royal borough of Kingston, John Braithwaite, they would provide the requested information because they know how important it is. They want the Government to acknowledge a major problem facing our public services. Armed with high-quality information, Government policy would be so much better informed. In addition, points made by Conservative Members about the difficulty of making fine judgments between London and areas outside London, and of reforming outer and inner London weightings, could be informed by data, not by anecdote and prejudice. That must be the way forward. If the Minister takes note of only one point from my speech, it should be that work force planning in public services must be better informed by gathering the relevant statistics.

My final point relates, of course, to my constituency. People who work in public services in London should be congratulated on the fantastic job that they do for our constituents. The quality of life in London is far higher because of their hard and dedicated work. We should take note of the work of temporary staff from Australia, New Zealand and South Africa in our schools and hospitals and thank them for it.

Mr. Burns

They have not got a vote here.

Mr. Davey

The hon. Gentleman misses the point. The nurses from the Philippines who work in Kingston hospital do not have a vote, but I still want to put on record my thanks to them.

Mr. Burns

I was trying to help the hon. Gentleman. He already has the press release for his local papers congratulating those workers in his constituency who have a vote; I was warning him that, having congratulated them, he need not go on for too long about the Australians and others who do not have a vote.

Mr. Davey

The hon. Gentleman is clearly ground down by cynicism. Some of us are value the quality of public services, not only for those who work in them, but for those who require their services. The people being served by the Philippine nurses are grateful for the work that they do. At the end of day, the issue is as much about the people who need the services as it is about those who provide them: constituents who need hospital services and who need the police to answer their 999 calls quickly, and parents who want their children to have the best start in life and the best teachers are asking us to improve public services. They also want us to ensure that those who provide those services are properly recompensed and can afford to live and work in our communities.

I hope that the Minister will take note of the points made by my hon. Friend the Member for Carshalton and Wallington and me, and that he will treat the issue with the seriousness and urgency that it demands.

10.15 am
Mr. Nick St. Aubyn (Guildford)

I congratulate the hon. Member for Carshalton and Wallington (Mr. Brake) on instigating the debate. It is an important subject and, as he will have learned from my hon. Friend the Member for West Chelmsford (Mr. Burns), it has ramifications well beyond London. As a Surrey Member of Parliament representing Guildford, which is similar to my hon. Friend's constituency, I have much sympathy with his argument.

London weighting for public sector workers is part of the wider issue of the range of formulae that the Government use to allocate funding. However, paying public sector workers is not just about funding, but about how much flexibility the system allows for decisions to be taken locally. For example, within the same central funding constraints, one police service might decide to employ fewer police officers, but to pay them more, than another. Those formulae include London weighting, the area cost adjustment—described by Sir John Banham, when he was a member of the Audit Commission, as 42 pages of regression equations—and the market forces factor in the health service, which drives much of the funding for the nurses and other health services workers mentioned this morning.

When I was a councillor in London, there was something called the equalisation fund; it was absorbed into the new way of funding local authorities after the introduction of the new local taxation system and the withdrawal of the local councils' ability directly to collect business rates. The longest-running star of the scene was the Barnett formula, which throws up discrepancies affecting everyone who lives south of the Scottish border. The Financial Secretary has had his ear bent on many occasions by representatives of those living in the north-east of England, who feel most strongly about the way in which the Barnett formula affects them.

Whether we live in London, Surrey, Essex or north-east England, we can hold up our hands and say, "Excuse me, but such-and-such a formula is unfair to our region." Of course, there is a circularity about the application of these formulae, because the more people who are employed in the public sector, the more the weightings for living costs are increased for their area, and the more that feeds through into higher local demands and costs. If public service workers in London have a large pay rise, there is a knock-on effect on the cost of housing; it is unfair to treat one substantial group of workers more beneficially than another; they all compete for the same limited housing stock.

It is important to consider flexibility as well as funding. I heard with interest that there is a 6 per cent. vacancy rate for nurses at the hospital in Carshalton; it might interest the hon. Member for Carshalton and Wallington to learn that, in Guildford, there is a vacancy rate for nurses of up to 30 per cent. and staff turnover of nearly as much in a single year. That is because people living in towns such as Guildford face the same cost pressures as those in central and outer London, but have none of the allowances. Someone who has the opportunity of catching a train to Waterloo every 15 minutes can come into London and obtain the allowance by working in a hospital—perhaps even one on the way to central London, in Carshalton, Richmond or other outer London areas. That is a way of obtaining extra allowance while living in Surrey.

Mr. Edward Davey

How much of the allowance would be taken up in the travel costs?

Mr. St. Aubyn

There are indeed travel costs and many employees might be tempted to use a small car and share the transport with someone else working at the same place. That would add to the traffic burden on the roads into London, so the hon. Gentleman is right to raise that issue.

However, let us address the real world. Already, 15 per cent. or more—one in seven—of my constituents commute into London, and a similar number commute every day from other parts of the south-east into my constituency, so there is a massive crossover of commuters. The cost of commuting does not stop people moving to where the opportunities and the jobs are the greatest. If, because of a massive increase in the weighting allowance, opportunities and jobs are concentrated in London, there will be a detrimental effect on services in towns such as Guildford, which already face deep problems.

I am grateful to my hon. Friend the Member for West Chelmsford for mentioning the police force. Surrey Members of Parliament met the county police authority only a week ago. At that meeting, the allowance given to police officers in London was raised as a potential problem. If it is increased to £6,000 a year, we could face increased pressure on retention of officers in the Surrey force, as in the Essex and other forces around London. If we reflect on the reason why the Home Secretary is considering additional funding for police officers in London, we see that it is not all about money: it is also about morale. One of the reasons why the Metropolitan police is pushing so hard for an additional financial incentive is that morale has taken a major blow since the publication of the Macpherson report.

Mr. Davey

Before the hon. Gentleman launches into an analysis based on morale, is he aware that newly recruited police men and women living in Kingston and Surbiton have to rely on housing benefit and family credit to supplement their salaries? That is why they need a housing allowance, which was abolished by the Conservative Government.

Mr. St. Aubyn

I am grateful to the hon. Gentleman for demonstrating that, when the housing allowance was abolished, police officers had access to other forms of support. The rug was not completely pulled from under their feet.

Mr. Burns

I was slightly confused by the comments of the hon. Member for Kingston and Surbiton (Mr. Davey). A police constable's starting salary is £16,000, so even if family credit regime were still in existence, someone earning that amount would not qualify for it.

Mr. St. Aubyn

I am grateful to my hon. Friend for making that point. A police officer in the London area faces the same housing cost pressures as an officer living in the area that I represent. The difference is that the London officer already has a £3,000 salary differential over officers based in the home counties.

To expand my argument, I draw hon. Members' attention to the way in which the private sector deals with these matters. I was interested to discover that Eagle Star, which has offices in London, Chelmsford and Guildford, not only pays a London allowance of £3,200 a year, but pays an allowance in Chelmsford, Guildford, Reading and Slough of £1,100 a year—not as much as a London allowance, but a significant sum none the less. That may reflect the fact that we have the same commuter factors and that living costs are high. Many police officers who work in Surrey live across the border in Sussex, because they find that they cannot afford to live in the area where they work.

The morale of the Surrey police force, which I know well, is high. It has the best success rate in the country on fighting crime—officers there are part of a winning team. That counts for something when someone is deciding where to develop a career. We have a young police force, but, as they get older and their financial responsibilities and commitments grow, there is a strong temptation for police officers in Surrey to say, "I now need extra money, so I will make the move to the Met, or to a part of the country where living costs are lower." Our young police force is dynamic, effective and successful, but there is a hidden cost in the lack of experience that we could suffer if the additional money being given to the Metropolitan police—as is now being contemplated—results in a further influx of police officers into the Met from areas such as Surrey. We could be left facing a serious shortage of officers and, more importantly, a shortage of officers who are experienced in tackling crime in our area.

The subject of nurses from the Philippines was raised and I was glad when Kingston hospital took that initiative. We learned from that experience: bringing in nurses from the Philippines helped us to solve the much greater crisis at the Royal Surrey hospital in my constituency. We can vouch for the quality of training that those nurses were given and the contribution that they have made to our local health service in tackling the enormous increase in waiting lists in the past two to three years.

London weighting is part of the wider issue of the way in which we measure costs from one area to another. The critical factor in the health service is the market forces index. When the Government came to power they inherited two key indices: the index of need and the index of market forces, both of which were applied to about three quarters of the cost of each health authority. It was recognised that the other quarter of health authorities' costs was either not subject to, or not measurable in terms of either social need or market forces. Without any research, the Health Secretary at the time, the right hon. Member for Holborn and St. Pancras (Mr. Dobson), decided to increase the weighting of the health needs index to 100 per cent. of cost, while doing nothing about the market forces index. That meant that more prosperous areas of the country, such as the one that I represent were discriminated against and suffered a genuine cut in funding of 2 or 3 per cent.

In some areas, people are, on the whole, healthy and wealthy. However, the NHS is there to serve all the community. The old, the poor and the very sick, who do not have access to private health care or other means, are the ones now being made to suffer as we struggle with the longest waiting list in the country. Yesterday, I had to apologise for coming late to a Committee meeting attended by the Secretary of State for Education and Employment. I had just received a telephone call from the chairman of my health authority outlining the latest cuts in health provision that are having to be forced through because of the budget cuts imposed after election of the Labour Government. I am sorry to say that the Secretary of State laughed when I told him that—he thought that it was a fantastic joke, because he believes that people living in Chelmsford and Guildford and parts of London are so well off that they have ready access to alternative health provision, so they need not worry. He forgot about those who cannot afford those alternatives, just as he forgot about the nurses whom we cannot afford to pay a proper going rate for doing their job so well.

I agree with the hon. Member for Carshalton and Wallington that we urgently need research on and a radical review of all the formulae. The London weighting, and also the area cost adjustment and the market forces index, need to be considered clearly and dispassionately. It is unfortunate that the Government have proposed a review of health service funding that is deliberately weighted towards areas of high social need at the expense of areas such as the one that I represent. I hold no grudge against places such as Gateshead, where there are health problems. However, without being justified by any research, there has been an increase in funding in Gateshead of 30 per cent. relative to Guildford over the past few years. That makes one question whether the formulae, including the London weighting formula, are being applied fairly and equitably.

For a heart test that in our area used to be taken within three months of being needed, there is now a waiting period of up to a year. Not long ago, I heard about a young man of 29 dying of a heart attack because of that wait. One realises that the human cost of applying the formulae inequitably is incalculable. That heart test would have cost £80. The young man was an extremely successful employee in a major company: he had his future ahead of him and was much loved by everyone who worked with him. He was a loss to his community as well as to his family.

I have wandered a little way from the subject of debate, but I have tried to show that one cannot stop at saying, "£100 million here, £100 million there and we'll crack the problem of staff recruitment in London." We know from experiences in our constituencies that that will only open up problems in the areas surrounding London. We need services in which morale is high and people want to work. There must be flexibility so that decisions within funding packages can be made locally about whether money should go on more numbers, or on higher pay for fewer numbers with more experience and expertise.

Our debate is not only about money. In our education system, it is instructive that the unit cost per pupil in the past five years has gone down by 2 per cent. The output—the performance of our children achieving at least five passes at GCSE—has gone up by 3 per cent. The productive use of resources is as important as their allocation. I congratulate the hon. Member for Carshalton and Wallington on securing the debate because it is unfortunate that, under the Government, the allocation and application have suffered in areas such as the one that I represent. He told us that he has problems in his constituency as well. There is a tremendous burden on the Financial Secretary to tell us how he will ensure fairer allocation of resources, and how he will give the greater flexibility on the ground that is desperately needed.

10.33 am
The Financial Secretary to the Treasury (Mr. Stephen Timms)

I, too, congratulate the hon. Member for Carshalton and Wallington (Mr. Brake) on securing this interesting debate, in which important issues have been raised. As the hon. Member for West Chelmsford (Mr. Burns) said, my experience in an east London constituency has made me familiar with some of those issues.

I begin by setting the debate in the wider economic context. After the election, our first economic aim was to achieve a new platform of stability after the decades of boom and bust that we had endured. In our commitment to stability and prudence over the past three years, we have had a single purpose: to build a Britain that is decent as well as modern. Our primary economic priority of building a sound platform of stability and steady growth has been achieved to a remarkable extent. For the third year running, inflation is in line with our target; it is at historically low levels, and is also low compared with rates in other European countries. The economy will grow steadily by between 2¾ and 3¼per cent. this year, and it will continue to follow that trend. Long-term interest rates, once 2 per cent. or more above rates in Germany, are now the same as those in Germany. That shows that people have confidence in a low-inflation future for Britain, thus providing a platform from which we can all plan for the long term with greater confidence.

Mr. St. Aubyn

I do not want to destroy the Financial Secretary's confidence in that glowing report on the economy, but what does he have to say about the skills gap, or about the fact that vacancies are at their highest for more than 10 years, while in the three years of his Government being in office, the number of people taking courses in FE colleges has dropped cumulatively by more than 500,000?

Mr. Timms

The hon. Gentleman draws attention to a remarkable feature of the economy: more than 920,000 more people have a job than at the time of the last election—the highest number in our historys—and the unemployment rate is at its lowest for 20 years. At the same time, there are 1 million vacancies on offer across the UK, many of them in London; we are in a remarkable situation in which many more opportunities are available for people. All of that contributes to the optimism that all of us can share about the future. The stability that we have achieved is the precondition for high employment, higher living standards and strong public services. By building on the platform of stability that we have achieved by meeting national economic ambitions, we can realise the security and opportunity for all that we want. That is also the context in which we can achieve our ambitions for the services provided by public employees, on whom the debate has focused.

I remind hon. Members of the ambitions for Britain in the coming decade that my right hon. Friend the Chancellor set out last November. There is the ambition of prosperity, so that in place of our historic under-performance against other countries, we have a faster rise in productivity than our competitors, closing the productivity gap that has opened up. There is our full employment ambition, in contrast to years of high unemployment. We want employment opportunity for all, with a higher percentage of people in work, on a durable basis, than ever before. There is our education ambition, so that instead of lagging behind other countries and suffering huge disparities in our educational attainments, we ensure educational opportunity for all with the aim that, for the first time, at least half of our school leavers go into higher education and achieve greater skills, to respond to the point made by the hon. Member for Guildford (Mr. St. Aubyn). There is our anti-poverty ambition, so that, in contrast to the rise in inequality and poverty in recent decades, we ensure that every child has the best start in life as we halve child poverty in the next 10 years.

Alongside those ambitions are our ambitions for the services provided by public employees. Instead of inadequate public services that fail to guarantee opportunity or security, we are now investing for the future in strong public services that are there when people need them. We need to secure long-term answers to the long-term challenges that we face—an approach that was set out clearly in the Budget, when my right hon. Friend the Chancellor announced the largest ever sustained increase in NHS funding, and in the intensive review of the NHS led by my right hon. Friend the Prime Minister. That approach is at the heart of this year's spending review as we match new investment in public services with further modernisation.

As part of our commitment to public services, we believe in a firm and fair approach to public sector pay that takes account especially of the need to retain, recruit and motivate staff. Those are the issues on which most hon. Members have concentrated today. Overall pay, like all other costs, must be contained within the framework of spending plans in the comprehensive spending review, supporting the service delivery targets set out in the public service agreements. Across the public sector, the delivery of high-quality services is the key priority. Public sector pay must continue to be set in a prudent, disciplined manner that is clearly focused on recruitment and service delivery objectives. Specific considerations, including recruitment and retention in London, must be taken into account as necessary.

I emphasise that this is not merely a question of pay. The initiatives in the "Modernising Government" White Paper recognise the importance of having the right structures. Pay systems must be flexible and provide the right rewards and incentives for those working in the public service. The initiatives being taken in the national health service and in teaching are on the right path: such reforms provide more flexible pay systems, which help to deliver high-quality public services with appropriate rewards.

We welcome pay reform that addresses the circumstances and requirements of individual groups and helps to deliver output targets. That benefits those who provide public services, and, therefore, those who use them. Such a targeted approach is right. In comparison, the hon. Members for Carshalton and Wallington and for Kingston and Surbiton (Mr. Davey) implieds—without making their view explicit—that the answer was simply to raise the pay of everybody who works in public service in London. However, it is better to recognise where there are difficulties and where change is needed, and to respond accordingly.

Mr. Burns

The Financial Secretary is, by implication, criticising the hon. Member for Carshalton and Wallington, whose remarks he paraphrases as implying that the only solution is to pay more in London. However, will the Financial Secretary not accept that that is his right hon. Friend the Home Secretary's sole solution to the problems of recruitment and retention in the Metropolitan police?

Mr. Timms

There are different issues facing different parts of the public service. My suggestion, with which the hon. Gentleman would probably agree, is that different solutions are appropriate to different circumstances in each of the public services. I shall speak in a moment about the issues facing the police.

Mr. Brake

I agree that different solutions are needed for different cases. However, the key issue that I raised in most of my remarks—I did not call for big increases in London allowances—is that no information is available on which the Financial Secretary can draw up different solutions for different scenarios.

Mr. Timms

It is not for me to draw up the solutions; it is a matter for those who are responsible for providing the health service, employing teachers and employing the police in London. It is important that such decisions are taken in the right place, by those who deal with problems of recruitment and retention where they arise. It would be wrong to impose a pan-London solution, irrespective of the particular circumstances in each case.

I was interested by the point that the hon. Member for Carshalton and Wallington made about biomedical science, although it is not a matter for which I am responsible. He seemed to suggest that a problem in a particular part of the health service in Llandudno must apply in London as well. I thought that that illustrated well the need to focus where on those difficulties are being experienced in the health service, rather than say that a problem affects everyone in London when, in fact, it is much more tightly defined.

Mr. Edward Davey

The Financial Secretary says that he does not have responsibility for these matters because it is up to other people to make employment decisions. Will he confirm that he and the Treasury have responsibility for statistics? Will he confirm that it is within either his remit, or that of his ministerial colleagues, to ask for the collection of the statistics needed to analyse the problem that we face in London with recruitment, retention and high turnover in the public sector? He could ask for those statistics to be collected.

Mr. Timms

The hon. Gentleman is right: the Office for National Statistics is indeed responsible to the Treasury. However, those matters need to be and can be dealt with much more effectively locally, service by service. He should not pin his hopes on some huge central data collection exercise to tackle the issues involved; rather, the problems should be dealt with in a more devolved way. I am sure that, on reflection, he would agree.

Mr. Davey

Will the Financial Secretary give way?

Mr. Timms

Not again—I should like to make a little more progress first.

Within the overall public spending allocations, responsibility for pay, including the payment of London weighting, rightly rests with the wide range of different public-sector employers. They include not only Government Departments but local authorities, which are independently elected, autonomous, and largely independent of central Government; we do not intervene in their day-to-day affairs or in negotiations on their employees' pay and conditions. The detail of terms and conditions is, rightly, a matter for local authorities to determine. Local authorities are also responsible for funding the pay agreements of teachers, the fire service and the police, although the agreement for teachers is determined by the school teachers pay review body, and arrangements covering firefighters and police are determined by formulae over which the authorities have no control.

The Government expect local authorities to take a responsible line on the pay bills that they control. We want a firm and fair approach to public and private sector pay alike. In the public sector, that means pay settlements that take account of the need to retain, recruit and motivate staff within the framework provided by the spending plans of the comprehensive spending review.

Mr. St. Aubyn

Is it not true that many public services' statutory responsibilities are so specific and so clearly defined and so much of their revenue comes from Government grant that they have little flexibility about the number of employees, and, therefore, over how much they can pay?

Mr. Timms

The hon. Gentleman asks several questions. A good deal of flexibility is available to local authorities over how many staff they employ. It is for them to make the difficult choices that face local councils in deciding how to tackle local problems. It is important that such decisions should continue to be made by those responsible for front-line services.

The NHS employs more than 100,000 staff in Greater London, and the cost of London allowances is approaching £250 million a year. The pay review body for nurses and associated groups in the NHS has recommended large increases in London allowances in the past two years—13.5 per cent. in 1999, because no national increase had been made since 1995, and 3.4 per cent. from April. The Government have accepted those recommendations. A qualified nurse working in central London will receive an allowance of £3,030 a year. Unions representing most non-review-body groups have agreed to an imaginative three-year pay deal that includes increases in London weighting allowances of 13 ½per cent. for 1999 and 3¼per cent. for 2000. Other public sector employers are similarly responsible for their own pay determination agreements. For example, London weighting allowance was consolidated into the salaries of London Underground employees in 1992, and the cost of living in London is one of the factors taken into account in annual pay settlements.

Some key public sector groups, such as doctors, nurses and school teachers, have an independent pay review body that make recommendations on their pay. The Government consider the recommendations of those pay review bodies. We have, I am glad to say, succeeded in moving away from the sequence of staged pay settlements that characterised the behaviour of the previous Administration. We have accepted the main pay recommendations for the past two years exactly as proposed by the pay review bodies. Public sector employers need to work within the resources available to them under public spending plans. Both public and private sectors must continue to be responsible about pay for the sake of our economic stability, which we need to secure for the longer term, if we are to build on our success. Existing spending allocations were agreed in the 1998 spending review; the review for 2000 is under way and will allocate resources to deliver the Government's objectives for public services over the next three years.

The cost of living and working in London is greater than in other parts of the country and systems of London weighting have developed in response. In practice, some organisations have specific London weighting allowances that reflect the distinction between inner and outer London; some have allowances intended to meet particular recruitment and retention requirements; and some have consolidated their weighting into basic rates of pay or pitched their rates of pay so that basic salaries reflect the situation. All those arrangements are intended to reflect the additional costs to both public and private sectors and to help the recruitment and retention of the staff needed to deliver services in London.

In the civil service, for example, weighting allowances were largely translated into recruitment and retention allowances some years ago. Since then, responsibility for pay and grading has been delegated from the centre to Departments, and many Departments and agencies have consolidated them into base pay. That has allowed a more flexible arrangement, so that it is possible to concentrate extra help on problem areas rather than having a blanket provision, which was a feature of past arrangements. Within available resources, public sector employers need to tailor their pay arrangements, including those for London, to meet their own circumstances and their particular recruitment and retention needs.

Mr. Burns

Will the Minister give way?

Mr. Timms

I need to make headway, so I shall not give way now.

In the health service, regional offices are being asked to set out regional action proposals to reduce vacancies and turnover in all trusts, to expand the nursing work force across the region, and to target the worst performing trusts and improve their performance. We have allocated £4 million to consortiums for return-to-practice initiatives to follow up the recent successful nurse recruitment campaign that aimed to bring back into the health service the qualified nurses referred to by the hon. Member for Kingston and Surbiton. By last September, there were more than 5,000 more qualified nurses working in the health service than there had been a year earlier, so the initiative has been successful. London and the south-east have particular problems that account for one half of the three-month vacancies across the country. A small team that focuses on recruitment and retention will work across those two regions and link with the central recruitment and retention unit at the Department of Health. That will assist hospitals in the constituencies of those hon. Members from London and the south-east who have spoken in the debate.

In recognition of the Prime Minister's saying that teachers are the change makers in modern society, the latest report from the school teachers review body accepted that there are particular problems in London, but noted that recruitment and retention difficulties vary considerably between London boroughs, schools—I can personally confirm that from what happens in my constituency—and subjects. The review body is committed to finding out more about the problems in London, to gather some of the data for which hon. Members have been asking, and to establish why funding for London does not more often find its way into discretionary recruitment and retention payments. It will give details on the outcome of its findings in its next report. On 30 March, my right hon. Friend the Secretary of State for Education and Employment announced a training salary for post graduate trainee teachers of £6,000 a year, which will take effect from 1 September. It is hoped that it will attract more people into teacher training and a teaching career.

In response to the hon. Member for Carshalton and Wallington, I must say that retention in the police is not a major problem. According to data from the Confederation of British Industry, in 1998–99, the rate of turnover in the Metropolitan police was about 7 per cent. compared with 19.3 per cent. for the whole economy, but less for the public sector. However, there have been recruitment difficulties, which are being dealt with through the police negotiating board whose negotiations are under way. As was mentioned, there has been a referral to the police arbitration panel to take forward those negotiations. One of the particular problems facing people in London is, as the hon. Gentleman said, the high cost of housing.

Mr. Burns

Will the Financial Secretary deal with the London weighting allowance and say what impact it will have on police in the home counties?

Mr. Timms

As I said, discussions are under way with the police negotiating board, which covers salaries in the Metropolitan police and those outside London. I have no doubt that such issues will be a factor in the discussions.

The hon. Member for Carshalton and Wallington asked me to say more about the proposals of my right hon. Friend the Deputy Prime Minister. The housing Green Paper entitled "Quality and Choice: A decent home for all" proposes a new starter home initiative designed to help key workers and others on low incomes to buy their own homes in areas of high house prices and high demand. It is a consultative document: we have not defined which key workers should be helped, or the income thresholds of those who should benefit from it. I suspect that they are likely to vary from one locality to another. We are consulting on all such matters at present and asking for views on the help that should be offered, such as whether we should offer interest-free loans, cash grants or help with shared ownership, and which key workers should be the target of the initiative.

We shall be looking for innovative proposals that build on the range of existing low-cost, home ownership schemes. It is our intention that detailed proposals for the initiative, including the amount of funding available for it, will be announced later this year, in the light of responses to the consultation and decisions under the Government's spending review for the next three years. Proposals will be invited from registered social landlords and others. Hon. Members might be interested to know that my right hon. Friend the Secretary of State for Health recently announced the appointment of a national nurse housing co-ordinator, to act on our intention to have more affordable homes for nurses throughout the country.

The Government are offering in the public sector something for something. We value public services and the people who provide them. We want our public services to thrive and we need to demonstrate the value that we place on them, inside and outside London, through the pay and conditions that we provide. Equally, we need those in public services to work with us to bring about the changes that will modernise the services, restore public confidence in them and equipsthem for the challenges of the future. In that way, we can provide confidence for the future for the users of those services in London and elsewhere, and for those who work in them, too.

Back to