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All ideas and info. provided here are to be discussed with your medical professionals. I am NOT Medically trained. I have merely had this vile disease since 1998 - always use your Common Sense and seek expert medical advice.
YOU MAY FIND THE LINKS in text and in the Right Sidebar of Help.
I can NOT vouch for any external site that I may direct readers to & therefore can NOT accept any legal responsibility - this is a personal blog of that which I believe only.
I do NOT believe there are magical cures hidden from us by our medical professionals though there are without doubt cases that seem cured as if by magic. Medical knowledge of this disease is very rudimentary and research frequently profligate but pointless!
However - sticking goji berries in your ear on a moonless night or similar WILL NOT HELP - Nor will the price paid for quackery be it here OR Mexico, Brazil or China!
There are many health care professionals trying their very best with great care and compassion but perfection is a little way off!
Be Minded:
I have cancer - cancer does not have me!

"Cowards die many times before their deaths; The valiant never taste of death but once.
Of all the wonders that I yet have heard, it seems to me most strange that men should fear;
Seeing that death, a necessary end, will come when it will come". - (Julius Caesar - Act II, Scene II).

Thursday 22 October 2009

NHS Wales Budget EVIDENCE in Committee 22-Oct-2009

NHS Wales Budget EVIDENCE in Committee 22-Oct-2009
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Welsh Assembly Government Draft Budget 2010-11: Evidence from the Welsh Local Government Association

From: approx 13:33hrs. to 15:37hrs.

SEE: Highlighted info @ C14:50hrs

Angela Burns: I welcome the Welsh Local Government Society representatives—[Coughs.]
Mr Thomas: Is there swine flu going around?
Angela Burns: It will go in a moment, trust me; I have lived with it for long enough.
Welcome, Steve. We are tight on time today, so I am asking everyone to be fairly snappy in their questions and answers. Thank you for the papers that you have submitted. I invite you to introduce yourself and your colleague for the record. If you would like to make an opening statement, you are more than welcome to do so.
Mr Thomas: I will keep it simple. Councillor Berman is on his way over; he has just been in Cardiff council. To my left is Nigel Aurelius, and he is the assistant chief executive officer of Torfaen County Borough Council and also the director of resources. He is also the secretary to the Society of Welsh Treasurers, so he has an overall view of the piste, if you like, of local government finance.
We do not want to make an opening statement, so if you want to go straight to questions, that is fine.
Angela Burns: Thank you very much indeed.
I will start by saying that I am sure that you have noticed that the budget this year has a different shape, in how it has been laid out and structured, from budgets in previous years, and that is part of a new planning and reporting system that aims to ensure that the link between outcomes and the budget is visible and transparent to all of us who are here to scrutinise it. Would you like to comment on this new structure? Have you found it helpful, and do you think that it is linked sufficiently to outcomes?
Mr Thomas: I think that the structure is okay. It does make it a little bit more difficult to compare with previous years, but it seems to be a more transparent structure. From our point of view, in all candour, we are more interested in the detail of the budget than the structure. However, in general, it does make it more accessible.
Angela Burns: Does it link to the policy outcomes?
Mr Thomas: There are many discussions going on about outcomes, not least of which are the discussions that we are having with the Assembly Cabinet on outcome agreements. I do not think that we have bottomed that out as of yet; there is quite a lot more work to be done on that.
Mohammad Asghar: You acknowledge that the social justice and local government portfolio has received an overall 2.2 per cent increase in comparison with 2009-10. It is one of the few portfolios that has seen a real-terms increase in this draft budget. However, you state that it is by far the lowest increase for many years. Given the current economic climate and the predicted reduction in the overall Welsh block for the coming financial year, is this 2.2 per cent increase in revenue in line with what was expected?
Mr Thomas: To be candid, I think that it is slightly better than we expected. In broad terms, I suspect that if you had applied an equal-pain approach to all of the budget headings that you deal with, our settlement would have been slightly lower. One thing that we have done this year is to undertake some pretty detailed discussions over our expenditure sub-group process. We have made a strong case that, first, we have huge pressures in local government and, secondly, we have taken a pretty massive hit in the recession with regard to investment income and the like. Another problem that we have had is that—and we have said it often enough in this committee—for the past three years we have been in the 2 per cent range on average. Our press release on this stated that this is probably as good as it gets in the current environment. I think that the 2.2 per cent increase, as an average, shows that the Assembly Government is looking to prioritise front-line services, and for that we are grateful.
Mohammad Asghar: It is nice to hear that from you. Do you consider this increase adequate to maintain the current levels of service in local government or do you see the need for local authorities to prioritise front-line services?
Mr Thomas: I think that it is inevitable. Is it adequate? No. The Chair made the point that, despite the fact that it is a good outcome, it is the worst outcome since devolution on an annual basis. However, given the current environment, we have to be very realistic about that. In terms of prioritising services, we are currently holding financial seminars with every council, and I will not disguise the fact that the picture out there is grim. People will have to make some very difficult choices.
I do not know whether it is about prioritising services. I was talking earlier with Nigel and we would be concerned about the idea of protecting some services and cutting others, because I do not think that you can do that. For example, 80 per cent of our funding goes on education and social services, so you cannot just protect those services and make all of the savings that you want from the other 20 per cent. It does not work that way. We will have to look at programmes and be smarter in terms of how we go forward, but the challenges ahead are pretty significant and, in many respects, frightening.
Mohammad Asghar: Thank you for your open and frank remarks.
In your response to the draft budget, you recognise that the Welsh Assembly Government has prioritised front-line services. However, are there any other measures that you feel that the Welsh Assembly Government could have taken in order to further protect services?
Mr Thomas: In terms of the budget that we have had this year, we have seen the gap close between our budget and, for example, the national health service budget. We have had average uplifts of 2.1 per cent or 2.2 per cent, I think that the NHS has had something in the order of 2.6 per cent, and Assembly departments have had something like 2.1 per cent or 2.2 per cent. So, there is, at least in local government—Nigel may want to comment on this—a perception of much more fairness in the approach that has been taken this year. From your point of view, the Assembly Government will be facing, in the next few years, for the first time ever in the history of devolution, significant choices that will involve cuts to public expenditure. So, in the circumstances, which are a £200 million reduction in revenue and £216 million reduction in capital, I think that the right choices were made.
Angela Burns: I have a quick question on that. You made the point that there was better joint working between the Government and the local authorities, and one of the comments that we have made as a committee in various reports is that we have found a significant lack of joint working. What has been the step change? Has something happened to improve this relationship? That would be good news.
1.40 p.m.
You do not need to touch the microphone; it comes on automatically.
Mr Aurelius: The starting point, from my perspective in the finance world, is the expenditure sub-group report and the process behind that. It was much better this year, and it did not lead to a bidding document; every side tried to recognise the difficult times ahead and draw out the financial issues and risks, and the service issues. It was a collaborative process between the local government family and the Welsh Assembly Government and its officials. That was a significant change in the process for this year.
Angela Burns: Alun, do you want to come in?
Alun Davies: I was about to express a degree of surprise. This is a very different Steve Thomas to the one that we have seen in previous years. It seems to me that, although the settlement has got worse, you are saying that it is not as bad as it could have been. I have certainly come across local government leaders who have used more colourful language than that on the subject. We know the economic context for this, and there is no need to rehearse the arguments there, but is there now a recognition that we need to reorganise, if I can use that word, or look at how we deliver services, searching for efficiencies? As you said, the good days are over for a while, and we will have a number of difficult settlements in the years ahead. That has focused people’s minds.
Mr Thomas: The line that we are running with all the councils that we speak to is to use this year to sit down and think through what will happen in the next three to four years. This will be a very difficult settlement to run thorough—I will not sit here and blow sunshine at you. There will be significant problems on the back of this. For example, we still do not know the position regarding specific grants, so there might be cuts there, and that might be significant for us. However, there is still a moderate level of growth, and the result is that we know what is coming: in future years, we will be talking not about growth, but cuts to expenditure. The result is that we have to make the decisions about programmes and types of changes now, in order to prepare for those future years. Some of the discussions that we are having with councils are difficult; inevitably, we are talking about the things that we have to do on a statutory basis, as opposed to the things that are discretionary, and there is lots of examination around lean thinking and business process re-engineering. Efficiency is something that we are examining in great depth, but the scale of the challenge is such that, as I said to someone yesterday, efficiencies are a bit like the Ospreys rugby team—they promise a lot but they never quite deliver what you want. We need to think much bigger than in the past; some of the choices that we face are pretty difficult. I think that Torfaen is talking about a £20 million-plus gap in the next three years; the closing of that gap will involve very difficult choices.
Angela Burns: Alun, you wanted to come back briefly on that.
Alun Davies: Yes, I am interested in that response. One of the documents that you gave us, Mr Thomas, is the 'Eye of the Storm’ document, which was published in July. One of the sentences in the foreword that stands out refers to
'yet another forlorn attempt to chase the elusive chimera of efficiency’.
That, to me, indicates an approach that is perhaps not exactly cynical, but it sounds tired and exhausted; it does not sound like the approach of an organisation that is anxious to seek out and make change.
Mr Thomas: We have been doing lots of work looking at the experience of other countries that have gone through the process that the UK is about to go through. The two classic examples are Canada and Sweden. We recently went to see a lady called Jocelyne Bourgon, who was the head of the Treasury in Canada during the 1990s, when the Canadians reduced their public debt massively. How did they do that? They did not examine efficiency savings as such—they looked at programme reviews. What I mean by that is that you can either take the view that you will slash and burn across a range of services, or you can do it more strategically, looking at distinctive programmes and asking what their value is and whether they are delivering the goods, and if they are not delivering the goods, shut them down. What the Canadians did was absolutely brutal and, by the end of the process, some 23 per cent of the public sector workforce had been made redundant. That is how they got through it. What we are saying is that efficiencies will deliver only so much. In one sense, the language of efficiencies is a plaster to paper over some of the cracks. We need to think much more radically than efficiencies.
Alun Davies: Are you suggesting that the Assembly Government or individual local authorities should follow the Canadian approach?
Mr Thomas: We must examine all the approaches. At the moment, Rodney’s council is looking at a range of options, including the voluntary severance of staff contracts, such is the scale of the challenges. Work is being done with Deloitte to chart the challenges. In the next three years, most medium-sized authorities will face a gap of between £25 million and £35 million. How do you close that gap? You are not going to do it through the traditional efficiency route. You will have to be more radical than that.
Joyce Watson: I am pleased to hear that, at least, there is a better dialogue about the reality of the situation. You spoke about the good times, and they lasted for quite a long time—for the 10 years of this Assembly. Do you not think that, in the good times, local government should have looked at the way it could combine service delivery and at new ways of working and done some of the things that you have just outlined, to see what was really working and necessary?
Mr Berman: I think that local government has probably already been doing that to a degree. I think that there is scope for more collaborative service approaches. However, I think that we should be careful that we do not see this as a panacea that will deliver quickly and suddenly make things more efficient and cost-effective. For example, one of the issues with the shared services project that is being looked at by the authorities in south-east Wales is that it does not start to deliver savings for six or seven years. So, yes, these proposals can deliver savings and provide more efficient services, but they do not necessarily give you the level of efficiency you need as quickly as you need it when you are dealing with constrained budgets. I can talk from the experience of my authority, which has been working on a change programme for the past couple of years, knowing that finances were likely to get tighter in the coming years. When we started the programme, we did not anticipate that that might accelerate because of the recession coming upon us. That has made things a bit tighter than anticipated.
However, for a couple of years, we have been working to get to the point where we can transform the way in which some of the services are delivered. We are looking at things such as how we do our external spend and whether we can get much better value for it. For example, instead of going for lots of small contracts where you tender one construction project at a time and pay out all the costs of tendering because the firms who tender charge you for that in the prices they submit, we are looking at getting into longer-term contracts with providers who can be guaranteed that they will have all of the construction work in a certain area over a period of time. In return, they do not have to keep bidding for the work or wasting money on submitting tender documents, and they can therefore do the work an awful lot cheaper and we both get a share of the savings.
Those are the sorts of things that Cardiff is looking at. However, we started on that approach two years ago and we are only just beginning to get these sorts of partnerships in place. You have to go through quite a long procurement process through Official Journal of the European Union notices for example. However, the fact that we are saying that it is difficult this year does not necessarily mean that councils have not thought about some of the long-term proposals that will help us get through a difficult phase.
Lorraine Barrett: Nigel, you answered my question about the expenditure sub-group and how you work together through that. I want to ask you about the WCVA, which gave some evidence to the committee in a previous session, and expressed concern that the voluntary sector may lose funding as a result of tighter public spending.
1.50 p.m.
How will allocations made in the draft budget impact on funding available to the voluntary sector, either in terms of direct funding or through local authority partnerships? The voluntary sector often feels that it is an easy target. Do any of you have any comment on that?
Mr Aurelius: We have recognised the role that the voluntary sector plays. There have certainly been discussions in our area on this, and we are most keen to ensure that whatever the settlement gives us in the difficult times, we do not make arbitrary reductions in an area that provides many services that would have to be replaced if we made reductions. So, it is going to be about local authorities having an awareness of that and working with their voluntary sector partners to make the best of the settlement that we have. So, I do not sense any knee-jerk reaction to make it an easy target, certainly from our side of the table.
Mr Berman: One of the ways in which funding goes to the voluntary sector is through funding that we as local authorities draw down through numerous specific grants. One of the concerns that we have is that we do not yet have the full picture for the specific grants that will come to us. At the consultative forum on finance meeting, I asked Brian Gibbons and Andrew Davies about the possibility of more specific grants being rolled into the general revenue settlement. The response that I got was that we might need to be careful because some of the specific grants might not be maintained at the same level as in recent years. I appreciate that we are all in a difficult position financially, but the key point is that if we can be advised of the position with those specific grants in a timely manner, we can plan and budget. I have been in the position whereby, as a council, we have set a budget, assuming that a specific grant will remain at a certain level, and have then found that there is going to be a reduction. Then you have problems around whether you can plug the gap. We do not even have the choice of deciding that we want to plug the gap as a local authority, because we will not have allocated anything to do that. Some of that funding is going specifically to voluntary organisations to help them to deliver services, so it would help them and us if we could get that information as quickly as possible, so that we can know exactly what the position is.
Angela Burns: Paul, I think that you wanted to talk about the settlement.
Paul Davies: The Minister with responsibility for local government stated that he proposes to set the floor threshold at 1 per cent for 2010-11. As an organisation, you have requested that the floor is set at that level. Do you consider that that floor threshold is appropriate, given that Treasury forecasts for inflation are running at 1.5 per cent?
Mr Thomas: The problem that you have is that the average level of the settlement is 2.1 per cent and, if you were to set a floor at 1.5 per cent, you would eat into the budgets of councils that are on particularly low levels in any case. On where we are with floor funding, there was always a ready understanding between us and Welsh Assembly Government Ministers that the floor would taper over a period of years. You may recall that, two financial years ago, the first floor was set at 2 per cent. Last year, it was set at 1.5 per cent and, this year, it was set at 1 per cent. I would be being less than honest if I did not say that there has been some concern that some of the authorities in receipt of floor funding have used it to subsidise council tax, and that came out of the finance seminar that we had recently with all 22 authorities in Builth Wells. There is a general view that floor funding, over time, distorts the financial settlement. Funding for the police is a classic case in point. Floor funding across the UK really distorts the police settlement. So, from our point of view, while it is very tough for those authorities in receipt of floor funding, the point is that it is funded by other local authorities. Over a period of time, when they are receiving lower settlements, they will not want to see such huge amounts of funding going across, onto a floor level. Rodney was of the view that 1 per cent is about right, and we have agreed that with the Minister.
Paul Davies: You go on to state in the paper that it is important that the floor mechanism is used to protect services rather than to provide lower council tax rises. How can that be ensured?
Mr Berman: It is partly down to the councils that receive the floor to ensure that they understand why it has been given to them. It has been given to them on the basis that they need it to provide services; otherwise, they would not get a sufficient increase. If they use that floor funding to subsidise a lower council tax, people in other parts of Wales could start to think that they could have had a lower council tax rise if they did not have to give a little bit to those councils, and they could start to ask why those other councils should use it to help their residents when their own residents are not benefiting? There has to be a degree of responsibility. Brian Gibbons made clear when announcing the floor what he expects from local authorities and, hopefully, that message will have got across.
Angela Burns: Did you want to come in on this, Alun?
Alun Davies: Yes. The Minister said that yesterday in the Chamber as well, in answer to a question. The key issue is that this is about investing in core, front-line services, and not about creating a soft landing for local authorities. The Welsh Assembly Government said that, and I think that Andrew Davies said it during a session that we had two years ago, when you were following him. Local authorities said, 'Fine, thank you very much’, but went away and did exactly the opposite. The following year, we had the same debate with you and with the Minister for finance, and local authorities went away and did something very different again. As you know, I have argued for the floor to be held in place because of its impact on authorities such as Powys County Council, but it makes our life impossible if local authorities misuse the funding that is available to them and do not provide funding for core services. Is there a role for the WLGA as an organisation that represents local authorities to say to its membership that there is a need for financial responsibility and realism in the settlement?
Mr Thomas: You can be assured that the annoyance that you are expressing has been expressed consistently within the association. One year, the Isle of Anglesey County Council was in receipt of a 2 per cent floor and set a council tax rise of 1.5 per cent, which was greeted with fury across the association. People felt that it was irresponsible. I did a seminar last week with Powys County Council, when we were asked about council tax levels in Powys. I know that there is a huge debate about this as it is very controversial, but, last year, there was a furore over the costs of switching off the street lighting in Powys, which saved in the region of £250,000. However, a 1 per cent rise in the council tax would have resulted in an extra £400,000, and there would not have been that furore. However, we cannot set council tax for councils.
Alun Davies: I accept that.
Mr Thomas: We have been very forceful in saying that we expect authorities in receipt of a floor to have, as a minimum, a council tax rise that equates to the average across Wales. That would be a minimum. To be fair, a number of authorities in receipt of a floor—and Conwy County Borough Council is a classic case in point—have set a 5 per cent council tax rise in recent years. They have not used it to subsidise council tax; they have used it to protect services. That is exactly how the floor was intended to be used, but factors such as local choice, local politics and many others come into play.
Joyce Watson: That leads me nicely to what I am going to say, which is about local choice and local politics. There are issues about subsidising councils so that they can play politics at any given time by setting very low increases. The new political leader of the WLGA has played that part extremely well in Pembrokeshire, boasting that the council tax rise there is the lowest in Wales. I am pleased to hear that that game is up. I hope that, when the budget has been set, the leadership will come from the front, as you have expressed that it will, from you, so that the services that are needed are protected.
Mr Berman: May I respond to that? I do not think that Pembrokeshire County Council is an authority that has been benefiting from the floor. We were talking specifically about those authorities that have been benefiting from the floor. They get a little from everyone else because they need it to provide services. If you start clouding the argument by looking at what other administrations and councils that are not given that floor funding are doing, we will be getting into slightly dangerous territory.
2.00 p.m.
Kirsty Williams: I want to turn to the issue of capital. Your paper is quite clear about the sizeable reduction in the capital budget, which seems to be the result of the decision to bring forward capital in previous years, the general reduction that we have had, and the policy of putting capital into the strategic capital investment fund rather than individual portfolios. Capital will reduce by some 11 per cent compared with the previous year. What discussions have you had with the Welsh Assembly Government about the effects of the reduction in capital on local authorities?
Mr Thomas: The real disaster area is capital. I think that I am right in saying that, at the consultative forum on finance, last week, the Minister for Finance and Public Service Delivery talked about something like a 50 per cent reduction in the Assembly Government’s capital budget over a longer period. The implication for programmes is that we will have to phase them in over a much longer timescale than previously. We had a long discussion last week, for which Rodney was present, about the twenty-first century schools programme. The trouble is that that programme will be reduced in capital terms. The school building improvement grant has been reduced considerably this year. I suspect that that will mean the prioritisation of how we go forward on capital projects and a much longer timescale to complete capital projects. We know from Wales Audit Office figures that we have a £2.2 billion deficit in schools capital repairs and funding. That is four times the current Assembly Government capital budget. It raises the issue of whether you can look for other sources of capital over that period.
Kirsty Williams: That leads on to my next question. Your paper talks about innovative ways of trying to address that funding gap. Local authorities can borrow, but the opportunities for borrowing will be difficult given the falling capital receipts that councils are getting. As revenue budgets get tighter, the ability to service debt against prudential borrowing is also limited. Could you give us an idea of the constraints that councils will face on borrowing and of the other innovative methods of funding that may be available to the Welsh Assembly Government in partnership with local government to address that capital shortfall?
Mr Berman: You are absolutely right that there will be constraints on what we can borrow. That will partly be a matter of what we can afford to borrow and what we can afford to pay back. As revenue is tighter all around, you do not have the money to allocate in your revenue to pay back the borrowing. So, the question is how we square that circle. There is not as much capital money coming in directly and it is more difficult to borrow money, so looking at innovative approaches to get funding is the only way to supplement what is there. For example, the joint European support for sustainable investment in city areas fund, or JESSICA, is another option for borrowing money, but you are still borrowing money that has to be paid back.
One approach that I would like the Assembly Government to move on is tax increment financing. That will not work for every local authority in Wales and I appreciate that, but it is now being piloted in England, and I think that Edinburgh is also hoping to take it forward in Scotland. If you can create the right circumstances in which to put some money into a regeneration project, you can bring businesses into an area and those businesses will generate income and pay business rates to the Assembly Government so that more money comes into the pot. If you can say that, in this scheme, you will earmark some of those increased business rates coming in to help to pay back the borrowing that the council has undertaken to implement the scheme in the first place, you have a scheme that generates its own money to pay back the borrowing. If we had not done it, the Assembly Government would not have had the business rates coming in and the council would not have had the funding to implement the scheme in the first place. So, it is almost a way of creating something out of nothing.
I saw that work successfully in Chicago when I was there a few years ago. It had a scheme for which it received money upfront from the Illinois state government to build a fabulous park, Millennium Park. In effect, that built a new layer on top of the railway lines coming into the city. So, a beautiful new park was built on top of a rather ugly part of the city. That park brought lots of new businesses into the area. By securing some of the money upfront, or guaranteeing some of the money that would come in from the business rates from those funds, it helped to pay back the borrowing. It was a win-win solution. If that is going ahead in England through pilots and if it goes ahead in Scotland, with Edinburgh’s waterfront development, I hope that Wales can also look at taking that opportunity. I am not entirely sure whether it requires legislation but, given that that power has been brought forward in England, there will be an opportunity for Wales to get the power at the same time. I have already raised this matter with Andrew Davies and Brian Gibbons and I hope that it can be taken forward.
Kirsty Williams: If the WLGA has more information on that, it may be interesting for it to submit that to the committee for us to consider, outside this budgeting process, as a new way of looking at financing projects in the future.
The SCIF money has been stockpiled into Andrew’s little slush fund, which he can dole out. Can you give us an assessment of how well local government has fared in bidding for that money and in being successfully awarded money as a result?
Angela Burns: I emphasise that no slur is meant by the term 'slush fund’.
Kirsty Williams: No, none at all.
Angela Burns: It is not like Ronnie Biggs’s slush fund. [Laughter.]
Mr Thomas: That is a difficult question because it is almost like being in a league table—if you are at the top of the league table, you will be happy, but if you are at the bottom, you will not be. If you are in receipt of SCIF, you will be delighted, but if you are not, you will not be very happy at all. In the last few days, I spoke to the chief executive of Blaenau Gwent County Borough Council, who is delighted at the outcome for the former steelworks site—and I am also delighted about that, as a resident of Ebbw Vale. However, I also spoke to the chief executive of Flintshire County Council, who is deeply unhappy about what he perceives to be very little money going into north-east Wales in the second and first rounds.
The problem is that SCIF operates in many respects like the old capital challenge scheme that used to be in place: bids were made from which the best were selected, resulting in winners and losers. In many respects, you have to try to target resources, but our members would be concerned about some of the apparent distribution principles relating to SCIF, which they would contest. The first round of SCIF lacked consultation, which the association made clear to the Welsh Assembly Government. There was not a ready understanding of how SCIF operates and, as a result, some authorities lost out in the first round.
Kirsty Williams: Therefore, are the relative successes centred on distribution issues or do local authorities have the capacity to put together compelling bids that find success?
Mr Aurelius: Local authorities have differing levels of ability to make bids. It is difficult to argue against the principle behind SCIF, but we still do not have the full picture on our capital grants. This is about knowing how those grants fit in with the amount of money allocated to SCIF. Given that different authorities are at different stages, it will create that feeling of there being winners and losers. That is probably at the expense of some of the formula grants that those authorities would be getting to keep some of their core infrastructure going.
Alun Davies: Like you, we were all pleased to hear about the funding going to Ebbw Vale this week. We also understand that SCIF will not replace capital funding to local authorities, and we all appreciate that. However, on the use of that fund, Kirsty asked about the capacity in local authorities to access such funding. Often, with strategic investment and capital funding, we also look at collaborative working between authorities. To what extent are local authorities in a position to work together on major capital schemes to provide the Assembly Government with a compelling case for the use of this investment? I accept that it is not everything, but it can help local authorities to deliver re-engineered services and a capital infrastructure that they would not be able to deliver using their own resources.
Mr Berman: The key issue on this is time, is it not? There was very little opportunity for engagement in the first round and there was a lot of dissatisfaction from local government about that.
2.10 p.m.
On the second tranche, I think that we had more opportunity, but the timing was quite tight. The kind of proposals that you are talking about—local authorities working together and putting in a collaborative business case for a collaborative project—can be done, but only if there is enough time. What concerns me is that there is a lack of transparency around the way in which SCIF funding is allocated. Maybe that is the intention; maybe it is intended, because it is strategic, that it should be a bit more under political direction than other, more criteria-based approaches to allocating capital funding. However, there is a bit of a trade off, because if you are not quite sure exactly how the money is being allocated, and you are not quite sure whether you are going to have enough time in order to pull together a bid, you might start that work not knowing if there is going to be a tranche of funding in maybe two year’s time that you might be ready to bid for by then. What we really need is more clarity about where the process is going and perhaps a little more transparency about how decisions are being taken as to which projects are being funded and which are not.
Mr Thomas: In addition to that, SCIF looks like a lot of money, but it is not necessarily a huge amount of money. The upshot of that is that local authorities have big projects and the result is that they will go for projects within their own county borough areas rather than across county borough areas. The other thing that is interesting is that we have put a lot of work into things like the spatial plan in recent years. One thing about spatial planning was the idea of some sort of resource allocation based on spatial planning, but there does not seem to be much of a link in that respect.
Alun Davies: Okay, but there are projects such as the Da Vinci project in Bangor and the collaboration project in Carmarthen. Angela, it might be useful if we included in our report some of what Councillor Berman said in answer to that question. One thing that we can do as a Finance Committee is to help local government access these levels of funding from the Assembly Government, to ensure that, while we understand that capital costs are going to be reduced, people can work together to access this level of capital funding.
Joyce Watson: My question is on the same point—it is almost going around in circles. It is strategic investment money. I was going to throw in the point that you have already mentioned the local development plans and strategic elements within them. I would have accepted that there were bids that have been worked up, because I am assuming that every local authority would have a strategy and a vision, and would know where they wanted to be in five or 10 years’ time. You may call it a wish list or whatever else you like. To that end, I am a little surprised and perhaps a bit confused. What I thought I heard was that you did not have projects ready. Can you clear that up a bit, please?
Mr Thomas: The fund was completely oversubscribed in terms of the amount of bids that went in. It always is. I do not necessarily think that collaborative bidding is the way into SCIF funding. There are big local projects that need funding and, in many respects, the best way to bid is for those big local projects. The Flintshire project that I referred to, around the Mostyn docks area, is a huge project. The Blaenau Gwent project that was successful was a £35 million project on the old steelworks site, which is a big project in its own right. What you are seeing are authorities putting up what are, in many respects, some of their major capital priorities and entering them into a competitive environment. Some have been successful. I listened to one of your director-generals the other day saying that the ones that were successful have the x factor. I am not certain what that x factor is, but we need to get it out there to other authorities, do we not?
Alun Davies: The Carmarthen project is being funded.
Mr Thomas: There is money that has gone in on housing, which is collaborative, and stuff has gone in in terms of civil contingencies and for a centre on a Dyfed-Powys Police site, which is a collaborative project, so clearly there are some collaborative projects, but I think that some of the bigger ones were individual authority applications.
Mr Berman: Some of the collaborative projects that have received funding were not necessarily conceived as projects with the intention of applying for SCIF funding specifically. They will be projects that will have been developed anyway and then, because they have got that project together, it becomes an option to go for some SCIF funding. I think that I was saying earlier that I do not think that you would necessarily want to say 'Let’s try to get a project together on a collaborative basis’ specifically to try to apply for SCIF funding. As Steve said, the SCIF has been so oversubscribed that it would be a risky strategy to adopt.
Angela Burns: Alun, you had something to ask about efficiency savings.
Alun Davies: We started discussing efficiency gains, and I recognise your concern that, all too often, efficiency gains are simply a euphemism, and that they are not necessarily a financial strategy. Are you aware of authorities that have to make efficiency gains over and above the target to balance their budgets at present?
Mr Thomas: I think that every authority is having to do that. The piece of work that I referred to by Deloitte looks at future budgets. One thing that has happened in the past few years is that the low-hanging-fruit efficiencies, as I describe them, have been made. Our settlements over the past two years have been in the range of 2 to 3 per cent. We have not had a year in the last three that has gone over 3 per cent average, as is the case in health, for example. The result is that many efficiencies have been made. Councils can quote you figures, and there are figures in the expenditure sub-group report that have set out where efficiencies have been made and are continuing to be made. For the future, we are saying that efficiency is one of the menu of opportunities available to us, but it should not be seen as the only one. Sadly, some of the things that will occur will not be about efficiencies; they will be about cuts. There is no getting away from that.
The efficiency target in one sense is meaningless. Having a target for efficiencies makes no sense whatsoever. I suspect that my colleagues in Torfaen and Cardiff have surpassed their efficiency target every single year.
Alun Davies: We have had this debate before, and I remember very well our big, colourful debate of two years ago, when you said that there were no efficiencies to be made, none at all. You said that authorities had made all the efficiencies years ago. Now the ESG tells us that £136 million-worth of efficiency savings were made that were not about cutting back core services, but were about making the delivery of services more front-line focused and ensuring that they were provided as cost effectively as possible. We found that we can make these savings. No-one would argue for a moment that you can do that year on year based on an entire financial structure—I accept that. How long will that be sustainable, and have you discussed the medium-term sustainability of the efficiency savings programme with the Assembly Government?
Mr Thomas: In a radio interview the other day, I said that there is no such thing in the Welsh public sector as a 100 per cent efficient organisation. It just does not exist. There are always things in the system that you can go for. One interesting thing that has been happening in recent years in local government is the very large transformational programme that Cardiff is running, looking at the totality of the business. Many other councils, such as Torfaen, Neath Port Talbot, Powys and Blaenau Gwent, have introduced something along the lines of systems theory, in which they stripped out processes. The classic case in point, which the Minister for finance talks a lot about, is the disabled facilities grants process in Neath Port Talbot, which has gone down from 270 processes to 20 processes. Blaenau Gwent now turns housing benefit applications around in about an hour, down from 30 days. So, huge efficiency gains have been made in process-based services. The trouble is, how do you do that in schools, in social care, or in some of the larger services? These are not process-based services, and it is difficult to make that level of efficiencies.
I think that where we are at on this is that we need to look at the totality of local government funding, and the result is that, as I say, you can continue to squeeze efficiencies, but something must eventually give, and I am afraid that cuts will happen.
Alun Davies: To what extent have you discussed this with regard to efficiency savings with the Assembly Government? The Assembly Government is asking for 1 per cent year on year. You seem to be saying, 'Fine, Minister, we can make some savings’, and we understand that, but it is year on year. So, to what extent do you believe that this policy is sustainable?
Mr Thomas: Have we had discussions with the Assembly Government about it? Ad nauseam. The recent consultative forum for finance is a classic case in point, because members state the view that they will continue to drive efficiencies through the system, but they also feel that there is only so much that can be driven out of the system as efficiencies, and the result is that the scale of the challenge is such that we will look at other things, and they will include pay, pensions, the level of the establishment, and services themselves and the scale of those services. We must start looking at more than efficiencies, and I would also apply this to you in the Assembly Government. The Assembly Government will see cuts, as will local government, and you must start looking at this.
2.20 p.m.
Alun Davies: We are not the Assembly Government; there is a difference. [Laughter.] However, the difference is clear. To conclude this line of questioning, the Minister repeated in amswers to questions yesterday that there is a possibility of reorganisation or bringing public bodies together—not only local authorities, but others as well. Will this approach release efficiencies?
Mr Thomas: I was a reorganisation manager in the mid 1990s for Caerphilly County Borough Council, and I could not tell you to this day what we saved by doing that reorganisation—I do not have a clue.
Alun Davies: Is that because of you?
Mr Thomas: I could not give you an all-Wales figure—I have no idea. Reorganisation comes up as the stock answer to some of the issues. If we are to reorganise local government, it should be done at a time when public expenditure is rising, not falling.
Mr Aurelius: There are efficiency savings to be made from collaboration as opposed to reorganisation, and not just between local authorities, but inter-sector collaboration between social care and health in particular. There are efficiencies in that regard from collaboration rather than reorganisation.
Mr Berman: The key for us is not to look at a year-by-year approach—we must be planning in the longer-term. If you are going to achieve genuine efficiencies, such as what Steve is talking about, we are looking at a business process re-engineering approach in Cardiff, and the  connecting south-east Wales board is trying to look at that across south-east Wales. Mechanisms can take two or three years to bear fruit, but they can deliver long-term efficiencies. We have to think along that line; this is not just a temporary dip in public finances—we all accept that this will be the case for a few years, and we must get wise to that and plan ahead. That is probably a better approach than looking at reorganisation. Reorganisation would lead to a lot of energy being diverted into other arguments and structures, and the eye would be taken off the ball in service delivery. As Steve said, if that is done at a time when money is already tight, there will potentially be more service cuts than a more long-term collaborative approach.
Angela Burns: Thank you. I am conscious of the time, and I want to get to Oscar’s question, which is the last one, because it is very important. So, I ask everyone to be succinct.
Joyce Watson: We have already touched on the reference in your paper to not having received details of specific grants that will be made available to you in 2010-11. You said that that information needs to be made available as soon as possible. However, in his statement on the settlement, the Minister stated that £600 million of specific grants will be made available to local authorities, but that he is still working through those details. Given the Minister’s comments that there will be £600 million in specific grants, what has led you to suggest that there may be reductions in those grants?
Mr Aurelius: The current level of grants is around £670 million. A number of those will be going into the settlement, but there is still a big gap down to £600 million—I think that the Minister said 'over’ £600 million. We need clarity and detail, because it is very difficult to put the overall headline settlement into context unless you know the level of grants. Many of those grants provide services and fund posts. So, we need the detail of the grants, and there is still a big gap between a figure of over £600 million to where it currently is, even allowing for the figures in the settlement.
Joyce Watson: Have you had any discussions with the Minister on that?
Mr Thomas: As Rodney mentioned, we had discussions last week. There was an example last year of a specific grant being cut at the eleventh hour, which caused a lot of problems for council budgeting in the sixth form education funding formulae. The later the discussion, the more problems it causes. So, early decisions on this matter are vital.
Chris Franks: We have already touched on hypothecation, but I am going to come back to it, if I may. You say that you want to move away from hypothecation, but how can you demonstrate that the removal of dedicated funding grants will not simply mean that they disappear into general funding, and that the projects for which this money has been earmarked will not suffer?
Mr Berman: The issue is that we can free up cash by moving more grants into the general settlement. At a time when finances are constrained, we have to look at those opportunities. There was a recent case where Ynys Môn council was allocated a grant of £5,000 from the education department for some specific purpose—I cannot remember what it was—but it worked out that the bureaucracy around the grant, in the forms that it had to fill in and the officer time that it would have to allocate to fill in those forms, would cost it more than £5,000. So, it returned the grant, because it was not worth its while having it. That is an extreme example, but there are lots of particularly small grants to do with education, and questions remain as to whether they all have to be grants, whether people have to fill in forms at the local government end to get those grants and whether civil servants have to then assess those forms and decide whether the boxes have been ticked and then send the money back. All of that absorbs money that could be spent on providing services. We have to get away from the particularly small education grants, and that is just is one example.
How to get to the point at which the Assembly Government feels that it is getting the same outcomes from these grants is partly a matter for the Assembly Government. We are talking about outcome agreements. We need a little more clarity about how those outcome agreements will sit with other agreements, such as the improvement agreement. We do not necessarily want too many different layers of agreements that could potentially pull us in different directions. I do not think that, in principle, local government would have an objection to a sensible system that allowed us to demonstrate that we were still delivering on certain priorities. The key is finding the right scale and the lowest level of bureaucracy.
Chris Franks: You will be pleased to know that, when it comes to education grants, this committee thinks along the same lines as you. I do not believe that you have illustrated how a Minister could be confident that you would not just put the money into general services and that specific projects would not fall by the wayside. If we as a committee have to go to the Minister and ask, 'What are you going to do about what we asked in the report a few weeks ago?’, it would be helpful if you could give us clear examples of how that can be demonstrated.
Mr Thomas: We are still in discussions with the Assembly Government about the new understanding between the Assembly Government and local government in Wales. Part of that new understanding, as Rodney says, is a move towards outcomes as opposed to specific grants. It wants to be able to give us money to deliver certain outcomes. That does not have to be in the form of a specific grant; the Government wants an outcome at the end of the day, whether that is on the older people’s strategy or school uniforms. Someone told me the other day that there seem to be three grants for school uniforms at the moment. What we are saying is, 'Set the outcomes, say what you want us to deliver, and let us deliver those outcomes, but do not do it in the form of specific grants’. I could save you £3 million tomorrow if the Government were to stop auditing specific grants; it is a waste of public money.
There are issues around specific grants and around their administration that need detailed examination. When you get to the level of specific grants that we have currently, a lot of administration is tied up in them. If you look at Scotland, you will see that the Scottish Government and the Convention of Scottish Local Authorities, our sister organisation, have agreed that £2 billion of specific Scottish grants will, over time, go into the RSG. However, set the outcomes that you want.
Chris Franks: Are you making progress?
Mr Thomas: Yes.
Mohammad Asghar: This question is on our armed services personnel, who are close to my heart. The Minister recently announced plans to apply a 50 per cent discount to second homes for armed services personnel. He stated that any loss of income to local authorities as a result would be made up in the revenue support grant. I have three questions for you. At this stage, have any estimates been made on how this may impact upon local authorities in terms of loss of income? Secondly, have you had any discussions with the Welsh Government on how this will be reimbursed via the revenue support grant? Finally, are you confident that any such reimbursement will be an additional allocation, rather than a redistribution of existing funds?
2.30 p.m.
Mr Thomas: To update you on our position, our council met the week before Brian Gibbons announced this. We fully supported applying the discount. We simply wanted to make sure that there was equality in the position across the United Kingdom.
Cost is a very difficult issue. We have been working with some Assembly officials on this, and establishing the cost is difficult. Instinct tells you that the cost will not be huge, but I cannot give you a precise cost today because I just do not know. The discussion that we have had with Brian Gibbons was on the principle of full reimbursement and I think that the intention is there to do that. My gut instinct—Nigel is more qualified than me on this—is that this will not cost huge amounts of money. At the same time, I cannot give you a precise figure.
Mohammad Asghar: So, it means that you do not have contacts with the armed forces.
Mr Thomas: We have contact and we are working on the figures, as we speak, and are trying to work out how we go forward. We are getting the information from the armed forces to do that in terms of allocations. The trouble is how to apply it. Do you, for example, apply it retrospectively, or do you just apply it to current members of the armed forces? If you apply it retrospectively, you are talking about a lot of money. There is a range of issues around this.
Angela Burns: Thank you very much for coming here today. I thought that you fudged my opening question about the clarity of the budget. I am reinforcing that view because you must have used the words 'seek further clarity’ around 50 times in this discussion; you obviously do not think that the budget is as clear as you would perhaps have liked it to have been in terms of the information.
Mr Thomas: You saw through us, Chair.
Angela Burns: I will let you off that slight fudge, but I just wanted to make that point. Thank you very much for coming here today. I appreciate your time and I am sorry that we have over-run slightly.
We will now take a few minutes to grab a coffee, after which the national health service finance directors will come in to see us.
Gohiriwyd y cyfarfod rhwng 2.32 p.m. a 2.37 p.m.
The meeting adjourned between 2.32 p.m. and 2.37 p.m.

Cyllideb Ddrafft Llywodraeth Cynulliad Cymru 2010-11: Tystiolaeth gan Gyfarwyddwyr Cyllid GIG Cymru
Welsh Assembly Government Draft Budget 2010-11: Evidence from Welsh NHS Finance Directors

Angela Burns: I welcome our witnesses this morning. Please introduce yourselves for the record.
Mr Davies: I am Paul Davies, and I am the finance director for the Cardiff and Vale Local Health Board.
Mr Lewis: I am David Lewis, and I am the finance director for Cwm Taf Local Health Board.
Angela Burns: Thank you for coming here today to discuss your responses to the Welsh Assembly Government’s draft budget proposals. Do you have a brief statement that you would like to make before we start the questions?
Mr Davies: It would be useful to make a few comments. You have received our paper, but it is worth acknowledging at the outset—we did this last year as well, but it is much more evident in this year’s budget—that the public sector is facing significant challenges in terms of the economic downturn. The national health service finance directors fully recognise that and this is about how we respond to that positively and constructively.
High-quality and safe patient care is key to the work of the NHS; we cannot compromise on that—that must be our raison d’être and key objective. So, all of the decisions and actions that we take are around safeguarding that basic principle. In simple terms, it is about the right care being carried out at the right time and in the right place by the right people. If you can do that, then you can do a lot more with the resources than that currently achieved.
We stressed in the paper that we are facing unprecedented challenges as a result of the economic downturn and the demands on the service, and it is about how we manage those challenges with the required transformational change that we need to make, which is around the right care at the right time for all. There are two key issues in that—achieving much greater clinical engagement with the front line and the shop floor of the service, and much more constructive partnership agreements and arrangements with our local authority and other stakeholders. I believe that the reorganised NHS allows us to do that better.
Angela Burns: David, do you want to add to that?
Mr Lewis: No, that is fine.
Angela Burns: I seek clarification on one matter to begin with. Looking through your paper and the Government’s report, it seems that you have a 2.6 per cent increase in revenue at the moment, which is 0.7 per cent down on the indicative numbers. I understand that you should not believe everything that you read in the press, but it says here that 'NHS finance directors say that they are facing a shortfall in funding of 5 per cent in the Assembly Government’s draft budget’.
2.40 p.m.
That is courtesy of the BBC. Could you clarify where you think you are?
Mr Davies: We recognise that the 2.6 per cent is slightly down on the budget plans over the three years, but it is slightly more than we anticipated because, given the economic downturn, we thought that we would face an even more difficult challenge. Having said that, we recognise that there are underlying costs that the NHS will always have to meet, but they are becoming more pronounced. There is the obvious inflation cost, and we have assessed that to be 2.7 per cent, so, effectively, the 2.6 per cent award or uplift in funding will be taken up by inflation costs. The question then is: what other costs will we be faced with in the coming year? The key cost will be continuing healthcare. We have seen that over the last two years, and, projecting into the future, we will start to see significant increases in the cost of continuing healthcare. That is the cost for frail, elderly patients who require ongoing support. Then there are the high-cost drugs coming through the National Institute for Health and Clinical Excellence, and the cost of sustaining the Access 2009 targets, which are particularly challenging, but also very important. We also have to meet other costs associated with statutory compliance and policy changes. Our view is that, on the assumption that inflation is paid for, we would have to absorb around 5 per cent in other costs. That is why 5 per cent is the calculation given in the paper.
Kirsty Williams: I want to ask you about one of those specific cost pressures, around NICE high-cost drugs, which is probably one of the most high-profile issues that the National Assembly for Wales has to deal with. When new drugs become available, there is pressure to have them funded. You say that that amounts to 1 per cent of the 5 per cent that you are looking at, but, at the same time, we have drugs on patent that will come off patent soon. My understanding is that seven of the top 20 drugs that are currently prescribed are due to come off patent within the next couple of years, allowing cheaper, generic drugs to be prescribed in their place. Could you give us an idea as to whether you have looked specifically at the balance between paying for new drugs and potential savings in prescribing that might come about because of off-patent drugs becoming available?
Mr Lewis: The all-Wales medical strategy group looks at this in the context of public health and takes that rounded view into account. It is looking ahead, with a detailed database of drugs that are becoming available and that are coming off patent, just as we do locally, within local health boards, with regard to the high-cost drugs that are increasingly used. We also look at which drugs they are replacing. So, our 1 per cent assessment is a net increase as opposed to a gross increase.
Alun Davies: Thank you for your evidence. The sentence that leapt out at me in reading the paper that you provided for us was in paragraph 2.8:
'While it is clear that there is always scope for further efficiencies and improvements, it is doubtful that the service has the ability to manage such a shortfall without serious repercussions for service delivery’.
What do you mean by that?
Mr Davies: When you look at the next five years in the context of the economic downturn, we expect that the NHS can, at best, expect a flat budget. It will not grow, but, hopefully, it will not shrink either. We can see that, over the next five years, there will be on average anything between a 4 and 6 per cent increase in costs, which will have to be managed. We totally accept and recognise the need for the transformational change agenda, which is about doing things completely differently. The question—and this is the question that the finance directors are posing—is around moving from the current position to that transformational agenda, which will take a great deal of work, and organisational change. In the interim, there will be challenges. We are facing challenges today, in 2009-10, as we described to the committee last year, when we knew that we would be facing these challenges. We know that, going into next year, we will continue to face those challenges.
We are facing an unprecedented challenge in terms of the resource available and the demands on it. We are responding positively, but it is a matter of recognising that we are having to make difficult choices now in the short term as we move to the transformational agenda, which is about ensuring that we have the right care, at the right time, in the right place.
Alun Davies: Thank you for that. However, that was a very abstract answer, was it not? You used the word 'challenges’ a number of times. I want to know what the serious repercussions for service delivery are that you referred to in your paper.
Mr Davies: Looking at the current financial pressure that we are under, in my organisation, we have a £10 million deficit, and we have to break even: that is our plan. We know that, in the short term, we have to make some difficult choices about staff and holding vacancies to a point that we would not normally wish to do because that is what is necessary to balance the books. Likewise, we have to prioritise investments. We have a range of targets that we have to deliver under the annual operating framework; there are 25 in total. Our view is that Access 2009, which is the waiting times target, is the top priority, together with the target of a maximum four-hour wait in relation to emergencies. However, we then have to look at the other targets, and we have to prioritise things. Are we going to be in a position to deliver services across the whole range of those priorities? My view, and I think that it is also the view of the NHS, is that we have to do our best but that there is a serious question over whether we can deliver them all.
Alun Davies: So, the serious repercussions would be the non-delivery of targets. Is that correct?
Mr Davies: The non-delivery of services.
Alun Davies: Services rather than targets?
Mr Davies: Yes.
Alun Davies: With regard to your financial planning, we are aware of the broad thrust of financial planning at a UK level and the impact that that will have in Cardiff. To what extent are you planning ahead knowing that you will be facing a flat budget? As you say, let us make the assumption that that is what you will have for the purposes of this discussion. Knowing that, what financial planning strategies are you putting in place to ensure that you protect services and invest in front-line services? I am interested in what you said about this move to a transformational agenda, because I assumed that, through the reforms that you put in place this autumn, you were already on that journey. This afternoon, you make it sound as though that is a journey that is still a year ahead of you.
Mr Davies: I will kick off on this one. The first thing, which is so important, is that the reorganisation that we have just begun over the past three weeks and was prepared for over the past six months will, I think, enable the NHS to be in the best place possible now in terms of its structures. I believe that the removal of the boundaries that we had previously will integrate the service in a way that has never happened before. In the context of the transformation, the Assembly Government—and this is so important—has required each of the new local health boards to construct a five-year plan. Those five-year plans are about putting in place changes that will make things completely different. Over the past three or four years, as we have been making the savings, it is fair to say that many savings have been to do with housekeeping, avoiding the duplication of waste and making the best use of our resources. However, they have not been to do with making those fundamental changes that will take place through the reorganisation.
On the time frame, year 1 starts in April 2010, and, from then, we have to start putting that transformational agenda in place. It will take two to three years to put in place. We are working on it now, and it will bear fruit, but we will see that coming through much more in two to three years.
Mr Lewis: As Paul said, the new organisations are only three weeks old, but we have been working on this for a while. Having a much smaller number of bodies—with seven health boards and the existing trusts—gives us the opportunity to work much more closely together, but also to work more closely with our partners. It really does provide us with an opportunity. Looking at some of our major cost pressures around, for example, continuing healthcare, this gives us an opportunity to look at those in a fundamentally different way, to look at our current capacity and the amount of money currently going out of the health service for continuing healthcare and ask whether we have the opportunity to put those two things together and produce a better service model. A financial benefit in terms of the bottom line will also fall from that. I believe that that is what the new health boards are all about. It is about getting the service right, and the finances flow from that.
2.50 p.m.
Kirsty Williams: Mr Davies, you said that you felt that the new structures represented the best place for the NHS to be in to deliver, and I think that when you say 'deliver’, you are talking about delivering for patient care.
Mr Davies: Definitely.
Kirsty Williams: Is it going to save us any money?
Mr Davies: Yes.
Kirsty Williams: How much?
Mr Davies: Let us put it into context. When I say 'the right care, at the right time, at the right place’, it is not meant to be a glib statement; it is so important because we do not get it right at the moment.
Kirsty Williams: I know that.
Mr Davies: Far too many patients end up in the wrong place—either being hospitalised when they should not be, staying in hospital too long, or staying in primary care when they should be in hospital. All those mistakes, or non-optimal behaviours, are poor patient care and are extremely expensive. We believe that there is at least 20 per cent that we are not using appropriately within the total budget. Were we to do so, we would see that improvement come through, and it would not detract from patient care—in fact, patients would get a better deal.
Kirsty Williams: With all due respect, we were having exactly the same conversations 10 years ago, when I chaired the health committee. One wonders why, if those conversations were taking place 10 years ago and there was a realisation in the service then that that was the case, we have not been able to do anything about it in those 10 years. It does not give me a great deal of confidence that we can do anything about it in the next 10 years.
Putting the issue of getting people into the right place aside, in terms of administration, we have gone from having an awful lot of organisations to having relatively few. Surely we should already be seeing a return on savings in administration, let alone from moving patients around? How many NHS managers have been made redundant as a result of the reorganisation?
Mr Davies: None.
Mr Lewis: We have a no-redundancy policy in the NHS in Wales.
Kirsty Williams: One can see that there might be reasons for reorganising around commissioning and political reasons and to get rid of the purchaser/provider split, but have all those NHS managers and administrators who were working under the old system just been fitted into the new system?
Mr Davies: You are right; it is inevitable. We have gone from having 37 organisations to having 10, because there are seven local health boards and three other—
Kirsty Williams: One wonders whether there are a few chief executives hanging about the place.
Mr Davies: There is no doubt that there will be, in the short term, a way of correcting the organisation costs and the structures. It is important to say that, given the challenges that the new LHBs face, particularly with the transformational agenda, we need every pair of skilled hands available. There is nobody in my organisation who is earning money sitting about. They have to be fully deployed, and their skills are entirely appropriate for some of the transformational work that we need to do.
Mr Lewis: That was the very point that I was going to make. In the last 10 years, that group of managers has provided that capacity.
Kirsty Williams: They have not done that in the last 10 years. We are asking the same people who have not done that in the first 10 years to do it in the next 10 years.
Mr Lewis: Yes, but we are now getting them to concentrate on that transformational change as opposed to managing 32 organisations.
Alun Davies: 'Correcting the organisation costs and the structures’ is quite a euphemism. I am not entirely sure what you meant by that. How are you making these cost savings? You said that 20 per cent of your resources are not properly allocated or delivering. You do not mean 20 per cent of the total health budget, surely?
Mr Davies: I believe that, in total, 20 per cent of our current resource is not being optimally applied.
Alun Davies: When you say 'resource’, you mean finances and staff, is that right?
Mr Davies: It is staff, capacity, beds, and so on. It is about asking whether we are making the best use of that £5 billion, and we are saying that we are not.
Alun Davies: So we are talking about £1 billion.
Mr Davies: It is £1 billion that we are not utilising appropriately.
Alun Davies: No doubt we will want to return to that.
How are you going to make the cost savings that you have said are available to you in the health service? Where will they come from?
Mr Davies: We are making major savings, and there is still significant opportunity to do that. The first issue relates to the workforce, which makes up 70 per cent of our costs. We are examining our skill mix, which is not necessarily the right one with regard to the staff on wards and in clinics. It is about making sure that you have the right skill mix to meet the needs of patients. We have a workforce turnover rate of around 7 per cent, so you would expect vacancies to accrue, and you would expect changes to then be made to the workforce as staff leave, and we do that. We employ bank and agency staff, using expensive agencies, but we have to move to a position where we have sufficient established substantive staff, as that would avoid having to do that. Over the last few years we have seen additional nurses being trained and other professionals coming in, and we no longer have problems relating to vacancies. At one time, two or three years ago, we had a major problem in attracting staff. In a general sense, that is not now the case.
We spend 20 to 25 per cent of our money on non-pay items, such as drugs and consumables. We do not buy those in the best way, but, more importantly, we do not necessarily use them in the right way. Let me give you one example: in the case of hip replacements, we still stock around 10 different hip joints. We need to move, with clinicians, to a rational point where there are no more than three. I appreciate that doctors get trained in different work, and they get trained to deal with different joints, but they have to get retrained to use the agreed standard hip joints. If you have to stock 10 different hip joints, you can imagine what the Aladdin’s cave looks like, whereas if you were to only stock three and use those three, you could buy them in a better way and there would not be the potential for obsolescence that arises from only certain ones being taken off the shelf. So, there are big opportunities in relation to procurement. There are also housekeeping measures, namely the day-to-day things that all our staff identified, such as the use of paper towels, looking at energy costs, or reusing furniture; there are always very good examples, which staff get on with and carry out. That always represents around 1 per cent of the 5 per cent target that we aim to achieve.
The key, and what we have not been good at to date, is the service change, that is, the transformational change. We are beginning to see it now. I will give you one example of which I am aware: in Cardiff, we invested £800,000 in the Cardiff East Locality Team. It is a multidisciplinary team, which is consultant led and which is made up of clinical staff: nurses, diagnostic staff, therapy staff, and so on. That team works in the field. It is connected to a hospital, so it has access to hospital facilities, but it links much more with GPs. If a GP has a concern about a patient at home, the GP would, typically, refer the patient to hospital, perhaps inappropriately, and this could result in a lengthy stay and other things happening. CELT visits the patient, supports the GP, and, by and large, can make sure that the patient retains the package of care in the home. We have evaluated CELT, and it is currently saving an amount that is the equivalent of the cost of a ward. A ward would typically cost us about £2 million a year; the team costs £800,000. So, it does not take a lot of mathematical skills to work out that it is better for the patient and that it is more cost effective. It is that type of transformational change and redesign that we have to get into.
One thing that I wanted to challenge, which is an area where the Assembly Government plays an important role, is that of pump-priming, because the challenge is setting up the team while you are still running the wards. That is why the spend-to-save investment is an opportunity. As it happens, CELT was supported by the Assembly Government through the £50 million continuing healthcare allocation, which we received last year. So, creating this team is one way in which we have tried to be innovative.
Alun Davies: You have said two things this afternoon that I find quite extraordinary: first, given the budgetary pressures, there will be serious repercussions for service delivery, meaning that the NHS will be unable to deliver whole areas of services; you then said that £1 billion is, potentially, not being used correctly. Surely it is your role as NHS senior managers to ensure that that £1 billion is used on patient care, on front-line service delivery, and is not wasted, as you appear to be saying, because of all sorts of poor management decisions and poor management processes. Those two things seem to work out.
3.00 p.m.
Mr Davies: That is the challenge.
Mr Lewis: That £1 billion that we have been referring to should not be seen as all waste and poor management. Although some of that £1 billion is probably currently being used on direct patient care, we were asking whether that care was being undertaken in the right way and in the right place.  
Alun Davies: That is about management, is it not? It is about how you deploy your resources.
Mr Lewis: That comes back to the transformational change that we are keen to support the clinical leaders to undertake.
Angela Burns: Alun, I would like to bring in others on this point. We will start with Joyce, then Oscar, Chris and Kirsty.
Joyce Watson: I want to explore a little more about the management. You gave a number of examples and started by saying that you had faced unprecedented challenges. I cannot imagine that the financial challenges are unprecedented, unless you are very new to the NHS. You mentioned specifically the example of the use of bank and agency nurses—and I warn you that I am on my hobby horse here—and the issue is not the type of nurse that you use, whether those nurses are paid by the bank, the agency, or are employed by you, but the management of staff. I am only aware of one reason for the use of bank nurses, and that is insufficient capacity within the hospital to deliver care to the patient with the correct staffing levels with the existing staff. You then have to call in the recruits, because there is no slack to allow for sickness. I have focused on this point because of the heightened awareness that you must have when talking about a possible flu epidemic in Wales. The current system operating in Wales has to be addressed. Are you addressing this, because this could hit us and hurt us pretty quickly?
Mr Lewis: I would like to pick up on the point about swine flu. I am sure that everyone is aware that the Assembly Government has been doing a tremendous amount of work on planning for a swine flu epidemic, which is inevitable. We are starting on that now; the second wave, as it is called. Staff will be affected by swine flu; we will not just see an increase in the number of patients, it will increase acuity levels on wards. There was an announcement this morning on the special allocation to increase the number of ventilators that we will all have available. We have already planned for the increase in the continuing-care and high-dependency space available in most, if not all, of the acute units that we have available. So, all of our planning has gone ahead. We are taking administrative staff out of their areas to help out at distribution points for the vaccinations to ensure that we are relieving as much of the pressure on clinical staff as possible.
However, that is almost a side question with regard to whether we are planning for swine flu, which we are doing. On your main question about the use of the bank and agency staff because of the pressure on the wards, we know that, over the last few years, generally, the acuity level of patients on wards has increased. That is what we are experiencing. The proposed models of care that we are now talking about, particularly the community primary care model that is being proposed by Dr Jones, is about having a look at how patients come into the hospital and are discharged from hospital, getting the total model right and getting the balance right, particularly at the emergency ends. Usually, when people ask us to look at the length of stay in hospitals, we see that some of the longer stays are generated by emergency patients and not elective patients. We have undertaken tremendous improvements to the elective process; the transformational change is about the emergency process.
Joyce Watson: Shall I go on to my questions?
Angela Burns: No, not yet, because a couple of people have supplementary questions on these initial statements.
Mohammad Asghar: I am very concerned about this. The Assembly Government gives over £5 billion to the NHS to cater for 3 million people. I have just heard someone say the word 'inefficiency’ in reference to providing the public with an NHS service, which is alarming. Do you not think that a bigger adjustment needs to be made? As you said, £1 billion is a lot of money in anyone’s book. So, how will you regroup and reuse it properly?
Mr Davies: I wish to avoid the headline that somehow we are wasting £1 billion. The word 'waste’, in common parlance, suggests that the money is being thrown—
Mohammad Asghar: You said 'inefficiency’.
Mr Davies: It is important to state that the NHS, in my experience over the last 30 years, is a hard-working organisation; it is filled with staff who get on and do their jobs. What is important is that they do the right job, that they are given the right tools with which to do so and that the right care is provided. Therefore, we are not saying that £1 billion is being wasted, but that the £1 billion could be used in a much better way. It would be wrong to leave this room and state that £1 billion is being wasted by the NHS; it is wrong to record that and wrong for the headlines to state as much.
I will give you an important example that relates to the number of follow-up attendances in our out-patient clinics. We have a number of out-patient clinics, as you all know, which people attend for consultations with a consultant and to have tests. They are then given treatment or a further consultation, but how many patients return for a routine follow-up? We have been examining our different specialties and with regard to many of those specialties, the number of people who return is too high. It is not that the clinic is not doing good work, but the question is whether there is a need for that patient to return for a follow-up consultation. In some specialties, it is crucial for that patient to return for a check-up. However, if the patient needs a follow-up consultation, does the consultant need to do that or would it be better for a nurse-led clinic to carry out a series of examinations to see if a complaint or illness had returned? So, this could be done more cost effectively than is currently the case. That is an example of how you can turn some of that £1 billion resource into something different.
Angela Burns: Thank you for that. Before I bring in the others, I would like to state that at no point was a view expressed that NHS staff were not doing their jobs correctly. It is unfortunate that every debate on the NHS—on whether it provides a good or bad service and on whether or not it is efficient—always centres on the view that we must not do anything mean because of these poor hard-working doctors and nurses. You can talk about the NHS in fairly pragmatic language—and our job here is to scrutinise—without casting aspersions on the work rate of those in the NHS, because no-one is talking about that. However, that does not mean that we should keep our hands off the NHS and not consider whether or not the NHS is efficient. That is what the committee is trying to get at.
Mr Lewis: On the NHS workforce, I am sure that everyone is aware of the report that came out in England not long ago, which suggested that it should get rid of 10 per cent of its NHS staff. That is not our view of the NHS in Wales. However, we have to look at the cost of staff and how we use them; that is what we are saying. This is about considering whether there is any room to reduce the cost of staff as opposed to the number of staff.
Mohammad Asghar: May I continue with—
Angela Burns: No, because there are a lot of questions to get through. Do Kirsty and Chris want to come in on this before we continue with Joyce’s questions?
Chris Franks: Yes. I am pleased to hear about the Cardiff East Locality Team project, of which I was aware. You indicated that it saves the equivalent of the £2 million cost of a ward, which is great, because it is a better service and is more cost effective. However, that ward does not close, does it?  It stays open. So, am I right in thinking that the cost is £800,000 for CELT, but also £2 million for the ward? More patients are being treated and some in better circumstances. Can you elaborate on that?
3.10 p.m.
Mr Davies: Let me elaborate on that example, because it is particularly important. Where I work, in Cardiff, we have seen such levels of demand for beds over the last two or three years that our occupancy rate has sometimes been over 100 per cent. We have had to open up capacity outside our normal funded capacity to cope with the demand. What CELT and examples like it have done is allow us to reduce our occupancy. For the first time, we now have some empty beds, which means that patients are not trapped so that they cannot move from one service to the other. There is a bit of headroom and a bit of slack. That slack, according to the Office for National Statistics, ought to be about 15 per cent. We should be running occupancy at 85 to 90 per cent, but we have been in the high 90s and sometimes hitting the ceiling. CELT, as well as the investment in the continuing healthcare field, has relieved some of the pressure. It has also meant that, in Cardiff, we have reached 93 per cent of our four-hour accident and emergency target. While that is not good enough, as we have to get to 95 per cent and above, it is one of the main reasons why that headroom has benefited the service.
Chris Franks: As a follow-up question, I have heard of the call to arms for administration staff to help with the impending problems. Why do we not use those administration staff more frequently when it is not an emergency?
Mr Davies: Are you talking about swine flu?
Angela Burns: Chris, I do not think that that is appropriate. That is a policy question and we are not the Health, Wellbeing and Local Government Committee. I cannot allow it unless you can tie it very firmly to the budget.
Chris Franks: All right. I will watch out for other questions along those lines.
Angela Burns: Thank you. Kirsty, is your question a quick one?
Kirsty Williams: Yes, it requires a 'yes’ or 'no’ answer. Is your ability to transform the agenda to redirect the £1 billion assisted or hampered by the Minister’s commitment to no redundancies and no hospital closures?
Mr Davies: When you look at the challenges that we will face over the next five years, you will see that it is about making a shift from hospital care to community care. I believe that we will see a reduction in capacity, and I see that redefining the role of our hospitals. It is not a case of closing them but of redefining what they do. I believe that it will mean fewer beds because there will be equivalent beds either in patients’ homes or in the community. I do not necessarily translate that into wholesale changes vis-à-vis district general hospitals being closed, but I do see a realignment of the services that they deliver in future.
Mr Lewis: I am old enough to have lived through a previous period of redundancies. I know what the impact will be on staff morale and, during this transformational change, we need morale to be as high as possible.
Joyce Watson: I think that we will come back to the budget now. Could you tell me, please, what impact, if any, bringing forward capital resources has had on your capital plans for 2010-11?
Mr Davies: The increase that we have seen in capital from the Assembly Government has been extremely important. It features in the new way of doing things. For example, we have now submitted our final business case to replace Whitchurch Hospital. That will go, hopefully, as long as it is all approved. That is so important in the context of the new ways of working, which are about establishing community services and not the old asylum arrangements. So, capital is a springboard for making sure that we can carry out this transformational change. As I have said before, things like spend to save and some of that seed corn and investment are so important to make the change, because you cannot change the existing service before you try to put a new service in place.
Joyce Watson: So, has bringing forward the capital budget from next year to this year made any difference? Have projects been accelerated? Will there therefore be no loss of investment, or is there insufficient capital resource to meet the plans intended for next year?
Mr Davies: We have not seen any specific implications. I am not aware of any. However, it has meant that we have had to phase projects slightly differently, because managing the totality of the capital allocation is about ensuring that a scheme does not suffer from huge volatility in the expenditure from one year to the next. I would say that it is about prioritising and managing it in a more constructive manner to live within the resources.
Joyce Watson: Have you put any bids in to the strategic capital investment fund, known as SCIF, for any trusts or local health boards for the second tranche of projects?
Mr Lewis: On the second tranche, we are involved in the Merthyr Tydfil health park, which is very much a joint venture with the local authority. That is the way of the future.
Joyce Watson: Great. That is fine.
Angela Burns: Lorraine wants to ask about the financial pressures.
Lorraine Barrett: Yes. You may have answered this, but do you have anything to add to your prediction that financial pressures are likely to exceed proposed allocations by 5 to 6 per cent? That was mentioned in some of your answers. How have you reached that figure of 5 to 6 per cent? You say that there is scope for efficiencies and improvements, and you have given us an idea of some of those, but do you think that that is a realistic and sustainable method of providing financial balance?
Mr Davies: As part of advising our boards, our job is to assess the likely demands on the service and, therefore, the cost consequences of those demands. Over the past couple of years, we have seen a reduction in the level of additional resource, and we know that that will flatten to a position of little or no additional growth. Therefore, to ensure that we continue to meet the demands and deliver high-quality care, we have to come up with different ways of improving our efficiency, by reducing the average length of stay, for example, and ensuring that patients who could be treated as day cases are treated accordingly as opposed to being treated as in-patients, or ensuring that patients who could be treated as out-patients are seen in a nurse-led clinic as opposed to coming in as a day case. You are always looking for the best appropriate care, which is good for the patient and much more cost-effective for the service provider and deliverer, which is our case.
Angela Burns: Oscar, I think that some of your questions have already been dealt with.
Mohammad Asghar: Part of the question has already been answered. However, you state that a number of NHS bodies are currently experiencing deficits in spite of efficiency measures. In your opinion, how long can that continue before it begins to impact on front-line services and staffing levels?
Mr Davies: We are doing everything to ensure that our front-line services are maintained. It is so important that we do that. All the attention has been on ensuring that we are as efficient as we can be in the back-office function, so that we do not spend money unnecessarily on those staff and those services not on the front line. Even on the front line, we need to ensure that we are not using money inappropriately.
We are in an unprecedented situation at this time, in the context of the difficult challenge of balancing the money that we have against the demands made on it, and we have to make difficult choices. We have to restrict the appointment of staff—there is no doubt about that. We have to review areas such as study leave. We will have to take some exceptional decisions that are not sustainable going forward, but they are necessary while we work through this transformational agenda.
3.20 p.m.
Mohammad Asghar: What measures do you want us to take to address this matter?
Mr Davies: It is about acknowledging that, while we are going through this adjustment process, issues will emerge. Certain changes might be regarded as being too painful, and so people will not accept them. It is about acknowledging that a degree of noise will come out of this, which is inevitable as we move through this transformational change process.
Angela Burns: You say the words 'transformational change’ in such a quick way, but I am with Kirsty on the impact that these tightened times will have on front-line services. I find it a bit hard to get my head around the illogic of preserving and protecting every single job in the NHS, despite the massive consolidation into seven health boards. There must be a huge number of back-office staff. I understand the game only too well from personal experience of making people redundant and of being made redundant. You are saying that no-one will lose their job and that you will not spend an extra penny on back-office functions, but if you are consolidating three payrolls into one, three human resource departments into one, three accounts departments into one, and so on—and forget all the people on the front line; these are the people at the rear—how will you maintain all that and still preserve front-line services so that there is no detrimental impact on them? I simply do not follow the logic of the financial argument here.
Mr Lewis: There are examples of where we have done it. On the question of redundancies, the other side of that is that there is a 7 per cent turnover of staff in the NHS. We must use that 7 per cent turnover to look very carefully at every vacancy that crops up to see whether it needs to be replaced. When we talk about the back-office functions, it is not just the staff costs. By bringing three payrolls together, you save on the non-pay transactional part of that process as well. So, we are not just talking about saving on the staff costs of back-office functions; it is also about the non-staff cost, and that is where you make that saving. If we have a no-redundancy policy, everyone must accept that we have to be scrupulous in looking at the 7 per cent turnover of staff, as that must provide us with an opportunity.
Angela Burns: On the 7 per cent turnover of staff, I understand that that is not equal. Is that 7 per cent turnover mainly in front-line staff or back-office staff?
Mr Lewis: It is across the board. It is a combination, and it is different in different areas. However, as I said earlier, it is 10 per cent of the cost of staff as opposed to 10 per cent of staff. That is what we need to look at, and there is a lot of work going on in every hospital on how we roster off-duty periods. Every nurse director would say that there is still a lot of scope to look at the efficiency with which we use staff. That will bring pay costs down without getting rid of staff.
Mohammad Asghar: I understand that 75 to 80 per cent of your budget goes towards salaries. We discussed earlier, and you were a bit embarrassed about it, the 20 per cent of inefficiencies. Is that the remaining 20 per cent, rather than partly in the salaries? I need to clarify that side.
Mr Lewis: The 20 per cent is across the board.
Mohammad Asghar: 'Inefficiency’ was your word.
Mr Lewis: As I said before, we employ staff who work diligently. The question is whether they are doing the right job. It is about making sure that we apply that differently. So, the 20 per cent that we are talking about is the total, not the non-pay aspect.
Alun Davies: I am not sure that I understand your answers to some of these questions either, because, in streamlining the management, for which we have been arguing for quite some time, by cutting out some of the management frameworks and some of the management tiers and structures, you are making huge savings. We must ensure that we increase the services that are available to the public, so that we increase hospital, clinical and community services. However, the people whom you are releasing by streamlining the management are not the same people whom we need to deliver clinical services.
Kirsty Williams: If you were a private business and had too much of one thing and not enough of another, you would have to make changes.
Alun Davies: I do not understand how, if you are saying, 'We need extra nurses to provide this new service’, you can then say, 'We’ve got a couple of accountants going spare; let them do it’. That is not the way that it works.
Mr Lewis: We did not say that.
Alun Davies: It is what you seem to be saying.
Mr Lewis: No, that was in answer to a specific question in relation to swine flu, and we are preparing—
Alun Davies: I am not talking about swine flu; I am talking about the reforms that you say are releasing additional resources for front-line services. That is the point that I am making. My priority is to ensure that all the resources that are available—that is, every penny of the £5 billion—is spent on providing health services to the people who need them. I am not suggesting for a moment that you are saying something different to that, but my question is how are you making all the savings and to what extent can those savings be realised in the provision of front-line services?
Mr Davies: To take the example of CELT, when we appointed that multidisciplinary team, it cost £800,000. The staff were not new; they were drawn from our experienced pool of staff. It is about looking at different skills and applying people differently. People are up for development and change, because they can see the wisdom of doing that. It is about taking some of the staff who are working on wards and moving them into a different environment. It is about training and skill. Ultimately, it is a question of whether to close that ward. When you shift enough resource and services to the community and you have bought your occupancy levels down to a level where you have enough headroom, you have to start to reduce costs in your hospital. You want to ensure that your patients get the right care in the right place. Hospitals currently tend to be the place where the majority of care is provided, in cost terms, not contacts, and it is about how you make a shift whereby you start to release some of those costs. You are right that that 7 per cent turnover does not always fall neatly in the right places, but you have to work on that, and that is also about retraining staff.
Kirsty Williams: Mr Davies, you know as well as I do that we have been trying to do this over the last 10 years, but every time that there is any discussion about a trust closing beds because, quite rightly, it has transferred a service into the community, which is a much more appropriate place for the vast majority of people who are being treated, there is public uproar. In the minds of the public, beds are the NHS; that is what it is about. So, there is uproar at any suggestion of doing that, because, if you keep doing so with a variety of services, you will have a building full of empty wards. You will then have to ask about the future of that particular institution. However, you know as well as I do that, in response to public uproar, the Minister has understandably said that there will be no closures, because of the political difficulty that that creates for her. It is perfectly understandable why she has done that. However, your ability to create change is hampered, because, in moving those resources, inevitably, some things that have been done in the past and that are held dear by the public will be redundant.
Mr Davies: We have had a number of discussions with the public and the representatives of the community health councils, and you are right to say that there has always traditionally been a focus on the beds; that is what is seen as being important. At the same time, people are aware that, if the care that was previously provided in that facility is provided much better elsewhere, there is a recognition and understanding that that makes sense. The question when we close a ward is whether we can now invest in a second CELT team. I think that people support that, because they can see the wisdom of actually making better use of the resource rather than keeping the current facilities in a way that is totally inappropriate.
3.30 p.m.
Kirsty Williams: Good luck.
Angela Burns: Thank you for that. I will now draw this to a close. There are a few questions that we have not asked, but I will write to you on those. My general concern, having read your paper, is that front-line services will be squeezed because we are getting a bigger and bigger back end, despite the fact that the 7 per cent works across the board. You have mentioned that you will be doing a huge transformational agenda. I totally appreciate that you have new ways of working, but all of the things that you have talked about, such as this CELT ward and so on, is all about front-line services. You still have not explained to me very clearly how the NHS is able to redeploy money—not just save money—from the back end of the organisation to the front end. The front end needs good equipment, good staff and good training. We have this consolidation, for which I can see the logic, to the seven boards, but I would still like to understand where the extra managerial staff are going. They cannot be retrained to be doctors and nurses. Where are they going? Your human resources departments could, in three organisations, have been 100 people three times over, but as a result of the consoldiation, are you now saying that there is one human resources department that is 300 people minus 7 per cent? That is just illogical. In all my years in business—and I know that other people around this table have been in exactly the same situation with organisations that have amalgamated—there has always been a fallout. I just cannot understand what you are doing with the excess personnel.
Mr Davies: To respond very briefly, I think that there are two issues for me. We mentioned shared services in the paper. It is a very important agenda within the NHS. In south-east Wales, where David and I work, we currently have a very active programme whereby we will bring together plans to amalgamate our back-office functions, in terms of providing a better service and reducing cost much more in terms of economies of scale. We have seen the experience in north Wales, where it has worked very successfully, and we believe that there are many benefits in doing that.
In the context, as you say, of staff falling out of the reorganisation, I believe that, in the next year or two, the agenda that we are currently faced with will mean that we need every one of those managers. The planning and the change that we will enable the front-line services to make, will need the right tools and the right skills and resources. I believe that many of those managers will be very active in doing that. Over the next two years, that will be a key kick-start for us in terms of making that programme work.
Alun Davies: It would be good to revisit this in subsequent years.
Angela Burns: Yes. Thank you for that, Mr Davies. I am interested in your answer and I appreciate your time. Are there any final, brief questions? I see that there are no more questions. In that case, I thank you for coming to see us today. I appreciate your time.
We will now take a very quick break and we will then press on with a very welcome guest, the public service ombudsman.
Gohiriwyd y cyfarfod rhwng 3.33 p.m. a 3.37 p.m.
The meeting adjourned between 3.33 p.m. and 3.37 p.m.  

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