Health Funding

Sarah Newton Excerpts

Tuesday 22nd June 2010 Westminster Hall

[Andrew George (St Ives) (LD)]

I am particularly pleased to have secured this important debate on health funding. I know that the allocation of funding has an impact on a large number of colleagues, particularly those from the north, the midlands and the south-west. I welcome the Minister of State, Department of Health, the hon. Member for Chelmsford (Mr Burns) and the shadow Minister, the hon. Member for Kingston upon Hull North (Diana R. Johnson), to their new posts, and I look forward to their responses.

Although the title gives the impression of a wide-ranging debate, I shall concentrate on a more narrowly drawn issue—the decisions that lie behind the way in which funding allocations for primary care trusts are made. In doing so, I refer to a debate in this Chamber on 18 March 2009 led by the then Member for Wigan and a debate in the House on 17 June last year that was led by me, both on this and related subjects.

When talking about health funding allocations, we speak of the NHS as a national service. The assumption is that funding is provided according to need, and most assume that it is allocated fairly and according to need; but as I have found during my years in Parliament, we may be assuming too much. The funding allocation formula has been reviewed and finessed over time since the inception of the NHS in 1948. However, 13 of the 52 PCTs in the country now receive funding at the floor of 6.2% below target funding. That is many millions of pounds. For example, the Cornwall and Isles of Scilly PCT receives at least £56 million less than the Government admit is needed or should be allocated. The funding formula was most recently altered for the year commencing April 2009.

The purpose of the allocation formula is to make changes on the most objective basis and, as far as possible, to take the matter out of the hands of any political influence. I admit that funding allocation—the weighted capitation formulas and so on—are some of the most dry areas of political debate one can imagine, but I do not apologise for briefly relating their history from the creation of the NHS. Then, of course, people made allocations as best they could in the circumstances, given the uneven pattern of hospital building in the previous century.

In 1970, the Labour Government’s Green Paper on NHS reorganisation included a commitment to a new method of resource allocation. The basic determinant of funding allocation was to be the population served by the area, modified to take account of relevant demographic variables and underlying differences in morbidity. That led to the development of the so-called Crossman formula. Over time, the formula changed to one in which allocations were made according to population, weighted by age, sex and the number of beds and hospital cases. That was further reviewed in 1974 by the resource allocation working party; the result was the transfer of resources from regional health authorities in the south-east to those in the north. The formula was further revised in the early 1990s, and that change resulted in resources being shifted back from the north to the south-east.

One significant element of the formula that has always caused concern to those in parts of the country such as mine was the market-forces factor. It was introduced in 1976, but was significantly altered in 1980 by the advisory group on resource allocation. That informed allocations from 1981-82. It based its recommendations on the new earnings survey, the annual assessment of average wages and salaries in all parts of the country. Cornwall has been at the bottom of the new earnings survey ever since.

What vexed us and others concerned about the allocation of health funding under the market-forces factor was that the poorest-paid areas received the least money. Salaries accounted for about 70% of the market-forces factor, which meant that they had a significant impact on the overall allocation and weighted capitation. Those areas with lower wages therefore suffered; salaries in an area would drag health funding down if they were low.

Throughout the entire debate on the change, we told the Government’s advisory committee on resource allocation that that was clearly unfair, especially as most of those employed by the NHS were paid according to national pay scales. Even those working in the grounds, including those doing building maintenance work, were receiving good money. We felt that the premise on which the calculation was made was unsound. Over the years, we have argued with the Government over the matter. Latterly, however, we persuaded the Government to review the market-forces formula. That review resulted in a change in the funding formula from April 2009.

There is one major element that adds to costs in places such as my area of west Cornwall and the Isles of Scilly. The area includes five inhabited islands—six including St Michael’s Mount—and two substantial peninsulas. It is difficult to provide access to services in that area; providing ambulance services, NHS dentistry and other health services in such a rural context is clearly a great deal more expensive than in suburban or urban areas, but that aspect is not properly taken into account in the funding formula.

On the social side, the impact of salaries and so on, we were pleased that the review resulted in a change in the funding formula for 2009. However, it identified a new set of losers—the 13 PCTs to which I referred earlier, which are currently at the floor of 6.2% below the national target.

Cornwall is £56 million below its target. In the south-west, Somerset is nearly £21 million, or 2.6%, below its target; Plymouth is £26 million, or 5.9%, below target; Devon is over £12 million, or 1%, below target; and Torquay is nearly £9 million, or 3.4%, below its target. Other areas with substantial, gross gaps in funding—those in the minus 6.2% league table—include Derbyshire, which has nearly £73 million less than its target; Lincolnshire, with £74 million less than its target; Nottinghamshire, with £65 million less than its target; and South Staffordshire, with £57 million less than its target.

In contrast, other PCTs receive more than their target and are overfunded in comparison with that target. The vast majority of those fall within the south-east. Surrey receives £171.5 million, or 11.6%, more than its target; Westminster receives £81 million, or 20%, more; Lambeth receives £78 million, or 14.8%, more; Wandsworth receives nearly £65 million, or 14.4%, more; and Kensington and Chelsea receives more than £60 million, or 20.4%, above the target funding. That contributes to health inequalities across the country. I would like the Minister, whom I am looking forward to hearing, to respond to the question of how we are going to ensure that the allocation of funding meets those targets, and does so as soon as possible.

Health Ministers in the previous Government made it clear that we need to be careful not to make catastrophic funding changes to PCTs receiving more than their allocated funding target. Withdrawing funding too rapidly would seriously impact on the health services in those areas. Nevertheless, a formula must be put in place to ensure that those places currently under target are not disadvantaged by remaining under target. For example, this financial year, Cornwall was 6.2% below target and remained there, so we are not moving very rapidly towards our target.

In the previous Parliament, the then Minister of State, Mike O’Brien, said:

“We are committed to moving all primary care trusts (PCTs) towards their target allocations as quickly as possible. In 2009-10 and 2010-11, we have ensured that the most under-target PCTs benefit from the highest increases in funding. Over those two years, the allocation to Cornwall and Isles of Scilly PCT will grow by…12.1 per cent., compared with the national average of 11.3 per cent…The rate at which PCTs will move towards their target allocation in future years will need to be considered in light of a number of factors including population changes, cost pressures and the overall resources available to the national health service.”—[Official Report, 30 November 2009; Vol. 501, c. 529W.]

This financial year, Cornwall has not moved one iota towards its target, which does not really amount to PCTs moving to their target allocations “as quickly as possible”.

[Sarah Newton (Truro and Falmouth) (Con)]

It is marvellous that Andrew has secured this debate so early in the new Parliament, because this is an important issue for everyone living in Cornwall. I applauded the previous Government’s efforts to focus on closing inequalities in health. However, their measure of success, which focused on average life expectancy, did a great disservice to people in Cornwall, as it masks a lot of the problems there. On the face of it, the average life expectancy is way above the national average—

[Mr Mike Weir (in the Chair)]

Order. I remind the hon. Lady that interventions have to be brief.

[Sarah Newton]

I shall wind up, then. The crude measure of average life expectancy covers up many problems of poor health and the cost of providing services in remote, sparsely populated areas to an ageing population.

[Andrew George]

I am grateful to my hon. Friend. She rightly highlights that many factors, including life expectancy, rurality and age profile, need to be taken into account, and we must get the balance right. The history of the changes to the allocation formula—not something I would recommend as bedtime reading—shows that all the factors have been conjured with and balanced over time. It is difficult to arrive at a formula satisfactory to all people.

I want to emphasise the fact that we need to identify and make the allocation formula clear. We need to be able to show that it takes into account the health inequalities across the country and, above all, does not further impoverish the most deprived areas. I represent the poorest region in the UK, yet its poverty was used as a reason not to give it additional funds. Its poverty acted against its best interests, which would have been additional funds, as I explained in my description of how the market-forces factor operated and the impact that it had in some areas.

It is difficult to assess what impact the Budget will have on the future of the PCT allocation formula so soon after the statement, which was made in the Commons today. The NHS Confederation recently estimated that the announcements made by the coalition Government indicate a real-terms reduction of between £8 billion and £10 billon in funding to the NHS in the three years from 2011. According to the King’s Fund, a rise in VAT will lead to an additional cost of £100 million per annum to the NHS budget overall.

My hon. Friend the Minister will no doubt ask where we will find the money to provide additional resources for deserving areas such as Cornwall and the Isles of Scilly, Bassetlaw, and South Staffordshire, and the other places that receive allocations that are further below their target than those anywhere else.

--- Later in debate ---

[Sarah Newton (Truro and Falmouth) (Con)]

I add my support for all the things that Andrew has said. I should like to touch on two ways in which my constituency is affected by the underfunding of the NHS in Cornwall. First, there is the considerable debt that has been acquired by the Royal Cornwall Hospitals Trust. Andrew and I have three hospitals in our constituencies.

[Mr Mike Weir (in the Chair)]

Order. Let me remind the hon. Lady that she should refer to a Member by their constituency, not their name.

[Sarah Newton]

I am very sorry. You will have to forgive a new girl, Mr Weir. I will try much harder next time I speak. It is the first time that I have had the opportunity to speak in a debate, so I apologise for my mistake. As I was saying, the hon. Member for St Ives (Andrew George) and I share, in our constituencies, the three hospitals that are part of the Royal Cornwall Hospitals Trust. It is interesting to note that there has not always been below-target expenditure in Cornwall.

[Mr Mike Weir (in the Chair)]

Order. I am sorry to intervene on the hon. Lady again. She did say that this was the first time that she had spoken in a debate. She cannot speak here unless she has made her maiden speech in the main Chamber. Has she made her maiden speech in the Chamber?

[Sarah Newton]

It was my understanding that the rule had been waived because of the huge number of new Members waiting to make their maiden speeches. I have not yet made my maiden speech.

[Mr Mike Weir (in the Chair)]

I thank the hon. Lady. That has not been communicated to me, but if that is the situation, I will let her continue.

[Sarah Newton]

Thank you, Mr Weir. I appreciate your generosity, because the issue is of vital importance to my constituency.

It is interesting to note that there has not always been below-target funding in Cornwall. If we go back to 1997-98, we find that the funding allocation was just below the average and the hospital trusts in Cornwall were not in debt. A great gulf has arisen over the past 10 years, as has the debt that has accumulated at the Royal Cornwall Hospitals Trust. There are issues and problems at the trust, but the severe financial pressures that it has had to bear because of the unfair funding allocation over the past 10 years have definitely contributed to them, and those pressures are standing in the way of it acquiring foundation status, which would enormously improve its ability to provide excellent care to the people in Cornwall.

The other factor that I should like to mention arises from our geography. It is difficult for people in Cornwall to get to a dentist or a hospital. We have good access to GPs; most people can access a GP within a couple of miles from their home, but not a dentist or hospital. As part of a recent survey undertaken by Citizens Advice Cornwall and Age Concern, 411 people filled in questionnaires on how easy or otherwise it was for them to get to hospitals. The survey showed that a significant number of people are prevented from attending hospital by the costs involved. Of the 411 people who responded, 35 reported that the cost of getting to a hospital stopped them from attending a clinic; 28 said that it prevented them from accompanying someone to hospital; and 115 said that it stopped them from visiting friends or families.

Although I welcome the Secretary of State’s revision of the NHS operating framework yesterday, I hope that future revisions will include an examination of the whole issue of hospital transport. I say that because there is significant evidence to show that the current scheme is not always widely understood by constituents, and that some aspects of it do not work very well for people in remote rural areas who struggle to gain access to a car or public transport to get to hospital. Also, the costs involved are quite considerable for the large numbers of people living on low and fixed incomes in our part of the world.