Michael Fallon

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It’s time to slay the bureaucratic monster that’s ruining the NHS

Why is there a layer of bureaucracy between Primary Care Trusts and Whitehall, asks Michael Fallon.

Who actually runs the National Health Service in my Sevenoaks constituency? Is it Dawn Hall, the manager of Sevenoaks hospital, or Andy Burnham, the Secretary of State for Health? There are an awful lot of people between Dawn Hall and Andy Burnham, and most of them aren’t medical at all.

First, there’s the West Kent NHS Primary Care Trust. It has 21 directors, and “around” 350 “commissioning” staff; management costs are £12 million a year. Its accounts reveal a director of strategy and corporate affairs, whose pay last year rose from £90-95,000 to £95-100,000, and a director of strategy and communications, whose pay went up by 10 per cent to £85-90,000. All executive directors received a 3 per cent bonus.

Next, there’s the Kent & Medway NHS and Social Care Partnership Trust, which is mainly responsible for mental health services. Fifteen directors here, including a “director of corporate services” on £75-80,000 a year. Management costs are £11 million.

Then there’s the Maidstone & Tunbridge Wells NHS Trust, which runs three acute hospitals. Management costs increased 7 per cent last year, to £9 million. Reporting to 10 board directors are a corporate development director (£85-90,000), a chief operating officer (£155-160,000), as well as a chief executive (£190-195,000).

Serving the trusts is another – the South East Coast Ambulance Service NHS Trust. It has 13 directors, including a director of corporate affairs and service development (£90-95,000) and a director of human resources and organisational development (£105-110,000). Management costs are £10 million, 6.6 per cent of income, and rose 25 per cent in 2008-09.

But the queen quango of them all is our Strategic Health Authority, NHS South East Coast. It has 14 directors, including a director of communications and engagement who was paid £125-130,000 last year. In 2008-09, its budget was so large – at £313 million – that it couldn’t spend £40 million. Management costs rose 30 per cent, to £16.8 million. Employing 343 staff cost £20 million a year.

So what do they do for us in Sevenoaks at their HQ in Horley, Surrey? Given that the Primary Care Trusts are much larger now, why is there a layer of bureaucracy between them and Whitehall?

The hospital building programme has passed its peak; the trusts have been reorganised; there are numerous regulators, inspectorates and commissions. So what is there strategic to do?

NHS South East Coast’s report boasts a string of successes, including reducing infection, speeding up treatment times and extending GPs’ opening times. But these improvements are delivered by local professionals, not regional bureaucrats. The Strategic Health Authority even claims credit for the Ambulance Trust’s improvement in response times: that’s because we spend £150 million on the latter, not the former. So what’s a strategic health authority for?

Let’s look at that under-spend again. £1.5 million was under-spent on “workforce and development”; £5.6 million (62 per cent of budget) was under-spent on “sponsored services”; £11.4 million (55 per cent) under-spent on “strategic health authority central initiatives”.

If regional bureaucrats can’t even spend the money they have got, why not delegate it straight through to the trusts? There is simply too much management right across the NHS, most of it duplicating, interfering or counter-productive, and all of it diverting resources from the hard-pressed units and nurses who treat real people.

Andy Burnham has inherited this nightmare, but it’s too late for Labour to roll back the bureaucratic monster it created. Exactly half of the entire 1.3 million NHS workforce isn’t treating patients. The real questions are for the Conservative shadow health secretary: Andrew Lansley, are you listening?

Daily Telegraph   23rd October 2009

It’s time to slay the bureaucratic monster that’s ruining the NHS. Why is there a layer of bureaucracy between Primary Care Trusts and Whitehall, asks Michael Fallon

The Vine Magazine:  October 2009

A couple of weeks ago I met a group of Sevenoaks GPs.  They’re the frontline of the NHS in Sevenoaks.  Along with our much-loved local hospital, it’s the GPs who are at the sharp end – seeing patients old and new, working within the budgets set down by the Primary Care Trust, getting to grips with the latest swine flu advice from the Department of Health.

It’s only in the local surgery that you begin to see more clearly just how distorting all the government’s initiatives and targets have been.  Yes, GPs are better paid than ever before. But they’re less free as well – less free to use their professional judgement, less free to offer the services they believe their community wants.

Instead, there’s a raft of rules and regulations, circulars and guidance from Whitehall.  For example, GPs have to offer evening clinics but only in a wholly prescribed way, irrespective of what suits their patients or their practice.

It’s a National Service but is it really being run in Sevenoaks’ best interests.  What’s happening at Sevenoaks Hospital?  Despite all the promises of modernisation the Holmesdale Ward isn’t fully open, and the X-ray department has limited hours.  Why are there persistent worries about the future of St John’s Community Health Centre and the role of the community mental health team ?

The answers to these questions can’t be found in our town.  They lie further away, in Tonbridge at the headquarters of the West Kent NHS Primary Care Trust which has a board of 19 directors; at the Kings Hill (West Malling) offices of the Kent and Medway NHS and Social Care Partnership NHS Trust (14 directors); and in Horley, Surrey at the HQ of the NHS South East Coast Strategic Authority (another 10 directors).

Here, in nice offices, hundreds of bureaucrats working for these three NHS quangos direct our affairs.   Our GPs, our mental health services, our community hospital at Sevenoaks, must fit into their budgets, comply with their directives.

Why so much bureaucracy ?   And why is it so remote – miles away from the hospitals and the GPs themselves ?    In my father’s day there was just a single local NHS board; in the 25 years he worked as a NHS surgeon, it didn’t change.   But my 12 years as Sevenoaks MP, all our NHS Trusts have merged and split and merged again – endless, costly change.

The government has indeed spent more on the NHS, and both main parties are committed to protecting its budget.   But is our healthcare better organised?    Ask your GP.

Most commentators are worried about the UK’s public finances, and they are right to be concerned. The Treasury forecast the budget deficit to reach almost 10% this financial year. Public sector net debt is projected to exceed 75% of GDP within the next 5 years. The fiscal stabilisers of lower tax receipts and increased public spending only increase the pressure on Government to borrow further. Under these pressured circumstances, efficiency in the public sector is essential. Every pound the Government spends needs to provide real value for money.

The Government knows this. Over the past five years there have been a plethora of efficiency drives, starting with the Gershon Review of public sector efficiency in 2004, and the Lyons’ Review which investigated relocation in the civil service. Both the 2004 Spending Review and the 2007 Comprehensive Spending Review (CSR) included targets for efficiency savings. Initial targets were a headcount reduction of 84,000, the relocation of 20,000 staff from London and the South East, and annual efficiency savings of over £20 billion.

The Government now plans to make £35 billion savings over the CSR 2007 period. Two programmes were announced to help achieve the target. The Public Value Programme aims to identify areas of public spending with the potential to improve value for money, and the Operational Efficiency Programme is designed to share best practice learned from the private sector across the public sector. In our latest report, Evaluating the Efficiency Programme, we spoke to experts, officials and ministers to investigate the Government’s progress in its drive for efficiency.

Real Savings?

One of our initial questions concerned the previous reported efficiency savings – the Treasury had boasted of exceeding the Gershon target level of savings by more than 20 per cent. The Committee required reassurance about these figures. During the Gershon programme, the National Audit Office had investigated some of the savings that had been made. They found that half the efficiencies were measured with error, a quarter of reported efficiencies were found to be substantially incorrect or not to have occurred yet, and that only a quarter of the reported efficiencies were assessed to represent fairly actual efficiency savings.

I welcome the Treasury’s desire to work with the National Audit Office in evaluating efficiency savings in the future but the Government has claimed to have made significant efficiencies in the past. The Government’s position is not to waste resources evaluating these past efficiency savings. However, the Committee believes that any savings claimed by Government need to be properly quantified. This is important if we are to build confidence in all Government announcements about efficiency savings. At a time where an ever increasing part of the hole in the public finances is to be filled with efficiency savings, it is vital that the public can be sure that these savings are real.

Thoughtful target setting?

The 2007 Pre–Budget Report announced a value for money savings target of £30 billion. This target was increased further to £35 billion in the 2008 Pre-Budget Report. The substantial increase in the target seems to indicate that insufficient thought was put into setting it in the first place.

The Committee was interested to learn how efficiency targets were set. During the inquiry we were told about the Treasury’s method for selecting the latest extra £5 billion increase in the target: they came up with their judgement with no consultation with individual departments. Once the target had been chosen, the Treasury met each department to discuss how each would deliver its target. The Committee conclude that a better outcome would be reached if the Treasury came up with targets with each department. We hope that in the future, the Government consider a more “bottom up” approach to cost cutting so we can believe in a cohesive Government working together.

Morale

Morale often suffers when spending is tight, as it usually is during efficiency programmes. Improving efficiency often involves change which can make staff uneasy. Looking at HMRC staff surveys shows a significant fall in staff’s view of their own department. Evidence highlighted key factors that had contributed to low staff morale including uncertainty about the future, a lack of understanding about efficiency targets, and the increased pressure of having to do the same job with less resources.

These problems can be overcome. If managers described how their teams will help the department meet their efficiency targets, then uncertainty could be reduced. Staff, who often have the best understanding of the processes on which they work, may come up with valuable suggestions for further efficiency improvements. Improved explanations for the basis for the targets could be provided by the Treasury, and I am sure civil servants are not the only people who would be interested in this information. One way of helping staff deal with increased pressure is to train them effectively so they can deal with new working practices.

Service must not suffer

While the strong push for efficiency is ongoing, ministers and civil servants must not let service quality suffer. It would be easy to save money by providing inferior service, and the Government understands that it should not let this happen. I do not question the intention of the Government to maintain service quality. My concern is about ensuring that measures of service quality are accurate and well chosen. We saw Government measures of service quality showing no reduction during the efficiency programmes, while external organisations provided evidence that quality indeed had worsened. Further thought about measuring service quality is required.

No one disputes the importance of efficiency in Government but more is needed fully to embed a culture of efficiency in our public sector. We need senior civil servants and ministers to have a rigorous understanding about efficiency and incentives that reflect its importance. We need the costs and savings of the different efficiency programmes to be carefully evaluated so that the Government can understand which schemes provide the best value for money. We need Government to identify and share best practice so all can benefit from better public service provision. Efficiency savings are not just a matter of helping to balancing budgets: they are in the interests of us all.

Economy article for House Magazine – October 2009

Putting the economy back on track is the task of every incoming Conservative government.  The challenge in 2010 looks even tougher than in 1979.   In reforming our public finances George Osborne will have in mind throughout the Chindits’ motto – “the boldest measures are the safest”.

Already he’s been radical.  Deaf to siren voices against upheaval, the FSA is to go altogether – convicted of losing five of the ten main banks it was supposed to supervise.  There will be fresh powers for the Bank of England and clearer consumer protection.

But a Conservative government must also be wary of reversing the effect of Sarbanes-Oxley: Zurich, Singapore and New York remain powerful alternative financial centres.  The City of London is not Wimbledon but Silverstone, a grand prix that can move if our infrastructure and tax regime become uncompetitive.  All reforms – corporation tax, top-rate tax, longer-term changes to company financing – need to be judged against that danger.

That means putting our national interest first in Brussels, resisting further supra-national authority and new regulation that restricts innovation.    It wasn’t hedge funds, derivative trading or private equity houses that caused the financial crisis but recklessly directed, poorly supervised risk-taking in mainstream banks that should have known better.

At home, there’s monetary and fiscal policy to tighten after the irresponsible Labour years.  The Bank’s overall record on interest rates has been good, given that the inflation target was changed by Brown to exclude asset prices but its monetary remit will need to be separated carefully from new banking supervision and financial stability duties.

It’s fiscal policy which has to be our absolute priority.  Our new Office of Budgetary Responsibility (OBR) will certainly help Osborne’s Chief Secretary to impose spending discipline but it needs some rules to supervise.    Labour allowed debt interest to become the fourth biggest spending programme – bigger even than schools and defence – an appalling indictment of its economic mismanagement. Why should governments be trusted with deficit financing ever again?

Here we must not forget that Labour went wrong as early as 2003 – twisting its fiscal rules, raising spending too fast, and triggering the structural deficit that left us so poorly prepared for the recession.  2½ million unemployed are now paying the price for Brown’s mistake.

So new rules must convince the public and the markets (and buyers of sterling) that government once again means what it says: that it will stick to its rules, that it will balance the budget again – and keep it balanced.   That may mean some indirect tax rises, balanced by real incentives to individual saving.    It certainly means reducing spending by taking out cost and devolving public services to the point of delivery.

We will restore to the Treasury its proper function of controlling spending, not directing it.  Whilst British business has streamlined, taking out cost year on year, stripping out middle management, outsourcing back office functions and rationalising IT, our public services have grown top-heavy in bureaucracy, and delivered less as a result.   For all the extra public spending, we lag Europe on cancer survival rates, school leaver attainment, youth offending and family break-up.

The answer isn’t to slash and burn across the board – why should well-run councils, schools and police forces suffer the same cuts as the inefficient?   Instead, we need to get away from quantum targets. What matters isn’t whether we have more or fewer police officers or doctors than Labour: it’s letting chief constables, school heads, NHS Trust executives deciding themselves how to deploy their staff.

That means cutting away the thickets of bureaucracy and “guidance” – from Whitehall, regional offices, ACPO, Royal Colleges, BMA, education authorities – and letting managers manage.  Setting pay to reflect local labour markets, sharing back-office functions or out-sourcing them altogether.   Let the best frontline managers keep what they save; but the worst-performers lose control of budgets they fail to manage.

This will require iron discipline – from the shadow cabinet.  They must resist special interest pleading, stop worrying about “postcode lotteries” (locally-managed budgets will produce very different results), and help drive the radical revolution in public services that our people deserve.

Speech to Central Banks Communications Conference, Clare College, Cambridge, 3rd September 2009

Hegel’s dictum that “The owl of Minerva flies at night” probably applies as much to the conduct of monetary policy as to any other theological or philosophical exercise.  There may be greater sensitivities, a technical language of its own, but the truth is the same.  Monetary policy cannot change the past, nor can it direct the future.   But it can learn, and guide us in preparing for the challenges ahead.

Central banks are after all in a strong position of authority.  They have emerged from the post-inflationary 1990s blinking into the sunlight.  They seem to tower above elected governments. Their governors have become national figures, even TV faces. They alone have retained the credibility that other more political institutions seem to have lost.

But monetary policy is not the sole ownership of the central banks, much as their stake has increased over the past decade or so.  The provincialism of money is as legitimate a criticism as the provincialism of time.  Interest rates affect us all, and belong to us all, through our society and across generations.   For example, the current concern about public debt interest – now strikingly our fourth biggest spending programme – and the morality of deficit financing both raise profound inter-generational considerations.

Our stake here in the UK is officially overseen by the Treasury Select Committee.  Of course, the media themselves are also leading scrutineers. Earlier publication of MPC minutes, the study of members’ public speeches, the decoding of the governor’s inflation report conferences all demanded a new specialism of MPC-watcher.  The supply-side has responded in kind.

But Parliament has its role too, enshrined in the original 1998 legislation.  It conducts confirmation hearings for new MPC appointments; it holds public evidence sessions on each quarterly inflation report; and it reports to the House from time to time on the overall operation of monetary policy.  This work provides opportunities and focus for the media too.

The confirmation hearings have perhaps been the least successful.  Only one candidate – Christopher Allsop in 2000 – was specifically rejected by the Committee, and his appointment was re-confirmed within hours by the Chancellor himself.   Allsop’s only real fault was poor preparation, and subsequent candidates have had no difficulty, though at least one appeared to mislead the committee over the length of term he was prepared to serve.

More importantly, the committee has been critical of the way in which appointments were made.  Under Gordon Brown’s chancellorship these were often disgracefully dilatory, even when vacancies were well-signalled, and occasionally open to the charge of cronyism (one candidate appeared to have been appointed over the phone in Tokyo by the Chancellor’s special adviser – his former employee).  The committee has persistently called for appointments to be properly advertised, and selections to be made from an established pool.

There was particular concern over the two Deputy Governorships.  Criticism back in 1998 of the Chancellor’s power to appoint four external members of the MPC missed the point that he also appointed the Governor and his two Deputies – in effect controlling seven of the full nine members.  This came to a head in 200 when both deputy governorships were filled simultaneously by former Treasury civil servants.

These criticisms have been partly addressed.  Appointments are now advertised, and made in better time.  The system might be improved further by providing that a member should not vote until confirmed.  And the appointment and terms of both the governor and his deputies need to be put beyond political interference.

The public evidence sessions on each Inflation Report have proved more constructive, and are closely followed by market-watchers.   The five attendees are selected by the committee, not by the Bank, and are quizzed on their voting record, their interpretation of the data and the reports that they file on the speeches and visits that they have made.   Over two hours or more, MPs are able to tease out MPC thinking on the economy and the future direction of rates.

Again, there are weaknesses.  The governor can dominate, and the committee sessions come after his own press conference, where the more fertile ground may have already been dug..   MPC members rarely disagree violently in public.  And MPs’ own hobby-horses are often too easily paraded.

Finally, there is the committee’s longer-term work in monitoring the effectiveness of the new system.  To date, this has taken the form of a major report on the MPC’s first ten years, and the more recent series of contributions to the debate following the financial crisis that began in 2007.   Here, the process is by its nature a two-way street, and the governor has paid tribute to the committee’s role in influencing the debate and championing the necessary reforms: important improvements have now been made to the bank’s rescue powers.

In the earlier years when inflation was low and within target, this parliamentary work, though an important part of the process of accountability, was perhaps less interesting.  It is, however, not unreasonable to ask with the benefit of hindsight why the committee didn’t make more fuss about the Chancellor’s switch from RPI to CPI in 2003, or ask more searching questions about the exclusion of asset prices from the Bank’s thinking.   But a benign economic environment undoubtedly tempered the rigour of accountability.

The challenges now are more difficult.  Communication and explanation obviously need more attention when the direction of rates is changing, and even more so when rates increase. Quantitative tightening will be a major factor in the battle against inflation.  In addition, monetary policy is being complicated here in the United Kingdom by the Bank’s new role in promoting financial stability and its likely adoption of macro-prudential tools to damp down the next excess of exuberance.  Each of these will require additional attention to communications.

First, any increase in rates could be extremely painful, not least if it begins whilst our economies are still fragile and emerging from the recession, and are combined with increases in either direct or indirect taxes to rebalance the public finances.  Central banks will be seen as directly increasing the cost of living, as householders face steep increases in mortgage payments and as businesses face higher borrowing costs.  The role of the Treasury representative on, or rather at, the MPC, which has received perhaps less attention than it deserves, may well become more important as fiscal and monetary policies once again rub up against each other.

MPC members themselves will also face the new challenge of explaining the pace and logic of quantitative tightening as large quantities of the paper that the Bank originally purchased are released back into the markets.  How this programme will be handled within the over-arching inflation remit will be a real test of the Bank’s ability to command confidence in the City.  It may also have to be finessed alongside an incoming Conservative Government’s extensive programme of bank privatisation.

Third, the Bank will have to communicate its new role in securing financial stability.  Its financial stability committee will have to work separately from the MPC, though both will be answerable to Parliament (as well as to the Court).   Here, there are some real challenges.  Financial stability has been widely invoked over the past two years but rarely defined.  Like treason, it might be unpopular if it was: an end to innovation, no more above-average returns – few would be content with financial stability offered by one’s bank or pension fund manager.

What do we mean by financial stability ?  How do we measure success in securing it?   An economy in which no bank or building society failed might be very scelerotic; certifying lists or sectors that might enjoy special protection would discourage innovation and new entry.  Our financial services industry might come to resemble in structure the chaibols of South Korean manufacturing.

But financial stability cannot be left as a technical issue.  Its opposite has had extremely damaging consequences for every household in our country.  Politicians are answerable too for the ineffectiveness of the governor’s sermons because we established his church.  But in giving him this new role, formally under the 2008 Banking Act, we failed to agree any yardsticks by which to measure the Bank’s performance, not just in getting market participants into church but in making them believers too.

One answer here might be to release more official data to the markets.  Were we really able, before 2007, to grade properly the financial performance of the high street banks ?   Their audited ccounts were no help, and the ratings agencies even less. Only a handful of specialist analysts and banking correspondents track certain banking data.   Why shouldn’t the Bank publish more, allow more comparative data to be made available, and worry less than the FSA currently does about the sensitivities of individual institutions?

Unless we have such yardsticks, it will be difficult too for the Bank to deploy its new macro-prudential tools with the conviction of external support.  To take one obvious example: unless there is common agreement about disturbance and anti-social behaviour, how can we judge whether the party is sufficiently out-of-hand for the punchbowl to be removed ?

The final challenge is a broader one.  Markets – financial, economic, political – are now open to all.  The new media have made a democracy of what were once specialist communications crafts.   Peter Jay’s lofty retort that a paragraph he had once penned as economics editor of the Times was only meant to be understood by three people “and you weren’t one of them” and Chairman Greenspan’s reported remark “I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said” now look not only too clever by half but remarks of a by-gone era.

Good clear communication is now itself part of monetary policy, given that almost as much attention seems to be given by rate-setters to the decision that the markets are expecting as to the decision itself.  This is of course a function of fixed decision dates which didn’t apply when governments had sole control.