Nursery Milk Scheme

Dan Poulter Excerpts

Monday 5th November 2012 Commons Chamber

[The Parliamentary Under-Secretary of State for Health (Dr Daniel Poulter)]

I congratulate my hon. Friend the Member for Mid Dorset and North Poole (Annette Brooke) on securing this debate. During her years in the House she has not only shown a keen interest in the nursery milk scheme but has been a strong parliamentary ambassador for the National Society for the Prevention of Cruelty to Children and, since 2006, a champion of Save the Children. That is a long track record of supporting and standing up for issues that matter to children—in this case, the nursery milk scheme. She rightly outlined the tremendous health benefits not only of the nursery milk scheme but of a healthy diet in young children, and highlighted the benefits of drinking milk, given the proteins, minerals and vitamins that it contains. I want to confirm to the House again that the nursery milk scheme is here to stay.

Before I address the points that my hon. Friend raised, it is worth highlighting a few of the issues. While we fully endorse the provision of nursery milk, she is absolutely right to point out that the cost of the scheme has gone up considerably over the past few years. In an average supermarket, a pint of milk costs about 50p to 55p. According to the most recent figures of June 2011, within the scheme there are 23,000 claims—well over 50% of the total—where milk costs 70p to 79p per pint, and almost 9,000 claims where it costs over 90p per pint, which is almost double the cost in the supermarket.

Many hon. Members representing rural constituencies will be concerned that dairy farmers across the country are struggling, and that the increased cost of milk is not rewarding those farmers in the farm-gate price. We must reflect on the cost of the scheme. Since the scheme costs a lot of money, it would be nice if those companies that profit from it also recognised that some of that profit could be passed back to famers in the farm-gate price. The Government and the National Farmers Union do not see that happening as part of the scheme, and although the NFU and the Department for Environment, Food and Rural Affairs support the nursery milk scheme as a way of supporting dairy farmers, it is nevertheless disappointing that companies that supply nursery milk are not supporting our farmers in the way we would like.

As my hon. Friend rightly said, the nursery milk scheme is of long standing and has been running throughout Great Britain since the 1940s. The devolved Administrations in Scotland and Wales fund milk supplied through the scheme to children in their countries, and Northern Ireland has its own, similar scheme—I am pleased to see the hon. Member for Strangford (Jim Shannon) in his seat as usual.

As we know, the scheme funds free milk for around 1.5 million children under five years of age at 55,000 child-care providers throughout Great Britain. Nursery milk is a universal benefit, meaning that child-care providers can claim the cost of milk provided to any child, regardless of the child’s home circumstances. The scheme is valued by parents and pre-school staff, and its health care benefits were thoroughly outlined earlier in the debate.

The Government recognise, however, that the nursery milk scheme is expensive, and the consultation was about improving its operation and ensuring that it remained fit for purpose. The scheme remains largely unchanged since it was first introduced as a wartime measure, and in recent years prices claimed for milk purchased under the scheme have risen significantly, owing largely to third-party agents who seek to make considerable profits by delivering milk to child-care providers. As I said earlier, unfortunately those profits are rarely paid back to farmers in the farm-gate price.

The prices claimed for milk supplied under the scheme have risen significantly, with some claims reaching almost £1 a pint. That has led to a corresponding increase in the overall cost of the scheme. In 2007 and 2008, the scheme cost £27 million, but by 2010-11 that had risen to £53 million—it almost doubled in only four years. If we do nothing, that trend looks likely to continue, with costs potentially rising to £76 million by 2016.

Under the current system, there is no limit on the price at which child-care providers may purchase milk, or even a requirement for each provider to review their milk expenses. In many cases, agents supplying milk handle the claims themselves, rendering child care providers unaware of the price paid. For those reasons, the total cost of the scheme has risen dramatically over the past few years, and although the amount of milk supplied has risen by 25% since 2009-10, the total cost of the scheme has risen by 45%.

[Tessa Munt (Wells) (LD)]

Does the Department of Health have a grip on the procurement process involved in this scheme? When providing milk across the nation, surely we should be able to supply from local sources or distributors. The costs that the Minister mentions seem to have escalated greatly, but farm-gate prices have not changed much. It seems extraordinary that someone has not got a grip on procurement.

[Dr Poulter]

My hon. Friend is absolutely right, and that is why the Government launched the consultation in the first place. The scheme was devised in the second world war, and its provisions mean that the Department of Health currently has no role in active procurement. The Government embarked on the consultation in view of the rising costs, and my hon. Friend will rightly feel concern for dairy farmers in her area of Somerset. Profits from this scheme are going to intermediate companies, and the cost has recently escalated out of control. My hon. Friend also highlights the fact that farm-gate prices have not improved as a result of those increased prices and profits for intermediate suppliers of milk.

It is worth pointing out that an important factor contributing significantly to the scheme’s accelerating costs seems be embedded in its design. No mechanism exists to incentivise child-care providers to economise and search for the highest attainable value for money in their local markets, to support their local farmers or to source their milk from a certain provider. Over the last three years, the average price paid for a pint of milk in a supermarket has been 50p, but the average charged by agents is 78p, which is well over 50% higher. That shows that the scheme is rapidly becoming unfit for purpose, which is exactly why the Department embarked on the consultation.

[Annette Brooke]

Until recently, at least one school was not registered in the scheme because it feared the bureaucracy would be too great. A balance must therefore be struck to ensure that schools and child-care providers participate in the scheme.

[Dr Poulter]

My hon. Friend makes a good point. As part of our consultation, we are looking at a number of options as to how we can maintain an effective scheme and ensure that the one we offer and deliver is better value for money.

It is worth looking at the three options in the consultation. The first option was to cap the price that can be claimed for milk. Under that option, an upper limit on the price that could be claimed for milk would be introduced and increased each year in line with inflation in the retail price of milk. In special circumstances, arrangements would be put in place to vary the cap for child-care providers that, perhaps because of geographical isolation and rurality, to which hon. Members have alluded, do not have access to milk priced at the normal market rate.

The second option was to issue e-voucher cards with or without devolved incentives for child-care providers to buy milk economically. Under that option, child-care providers would no longer have to pay for milk and then claim reimbursement from the nursery milk reimbursement unit. On joining the scheme, child-care providers would indicate how many children would normally be attending for two hours or more per day. They would then be credited with a prospective monthly payment equal to the number of pints required, multiplied by a fixed reimbursement rate, which would be set at an average market price per pint.

The final and third option was to contract a company or consortium of companies for the direct supply and delivery of milk to all child-care providers. Under that option, the Department of Health would take a much more active role in procurement. It would contract a company, or a consortium of companies, for the direct supply of milk to all child-care providers registered with the scheme at an agreed price per pint supplied. That is one way to avoid the bureaucratic burden to which my hon. Friend has referred.

[Jim Shannon]

The debate so far has been about the price of a pint of milk. My recollection, like that of the hon. Member for Mid Dorset and North Poole (Annette Brooke), is of a third of a pint of milk. If we reduce the quantity of milk for a small child, would that not reduce the price? Is that too simplistic?

[Dr Poulter]

We will see what the consultation says. One option, which I have outlined, takes into account the bureaucratic burden of the cost on schools. We value the scheme and want to keep it—that is implicit—but at the same time, we recognise that going through a bureaucratic process to claim for milk could increase the cost to nurseries and other child care settings. The third option in the consultation is therefore for direct procurement from the Department of Health. That would help to reduce the bureaucracy in the scheme, although the hon. Gentleman will be aware that there is an allied, parallel scheme in Northern Ireland that operates in a similar way to the schemes in England, Scotland and Wales.

The National Farmers Union values the nursery milk scheme as a well established and highly regarded programme that plays an intrinsic role in society, supporting our dairy farmers as a key part of the supply chain. At the same time, the NFU believes that every attempt must be made to ensure a fair return to the whole dairy supply chain, including the primary dairy farmer. We must not lose sight of that. When the intermediaries are making huge profits, the farm-gate price—the price paid to farmers, who we value, particularly in rural communities—must be recognised in how the scheme operates. For the NFU and all those concerned about the impact of the proposed changes on the dairy market, let me explain that, according to Dairy UK estimates, milk supplied under the nursery milk scheme represents less than 1% of the total value of the UK dairy market; nevertheless, it is an important part of that market.

We are consulting on the scheme. The consultation closed at the end of last month, and we will be considering the representations made. To conclude, I repeat that the nursery milk scheme will continue as a universal benefit. It has huge health benefits for young children, and all eligible children in the care of child-care providers will continue to receive their free milk. We need to establish a system, however, that makes the nursery milk scheme fit for purpose and makes it adapt to recognise the important role that farmers play in the supply of milk—