This may hurt, by Noel Plumridge

7 Sep 06
Ahead of this week's TUC conference, the chancellor has made clear there will be a 2% cap on public sector pay rises. And with NHS deficits being widely blamed on inflationary pay deals, he is unlikely to make an exception for health service staff. Noel Plumridge reports

08 September 2006

Ahead of this week's TUC conference, the chancellor has made clear there will be a 2% cap on public sector pay rises. And with NHS deficits being widely blamed on inflationary pay deals, he is unlikely to make an exception for health service staff. Noel Plumridge reports

Gordon Brown's tough talking on public sector pay restraint appears to be setting the government on course for an autumn of conflict with the trade unions. Prison officers have already voted to strike and the health unions are growing restive. With the Trades Union Congress annual conference imminent, the chancellor has restated his case for a 2% cap on public sector pay inflation. This ceiling, intended to last until 2011, implies a real-terms reduction in pay after years of relative generosity. It appears that, far from maintaining public sector pay parity with the broader economy, the government is once again seeking to use the public sector as a lever for reducing pay expectations in the economy as a whole, to keep a lid on inflation.

There are particular concerns in the health sector, where there have been gloomy predictions about the impact of generous NHS Plan funding settlements finally ending in 2008. The prime minister's commitment to increase UK health funding to the European Union average share of gross domestic product has now for practical purposes been met. But turning off the financial tap will hurt. And the chancellor seems reluctant to make health, or education, an exception.

In the case of NHS pay, is not the imposition of a 2% ceiling a clear case of closing a stable door long after the horse has bolted? Last year's net £512m financial deficit in the English NHS, which proved enough to bring down chief executive Nigel Crisp and resulted in an embarrassing swathe of hospital job cuts, was widely attributed to the impact of inflationary pay settlements and pay restructuring implemented without adequate funding or even a proper assessment of the likely costs. In the lean times ahead, when the NHS is asked where all the extra money went, will it have to admit it was blown on unaffordable pay rises with very little associated productivity gain?

The reality is more complex. Since 1999, we have shaken to its foundations a pay system that had served the NHS tolerably well for 50 years. Two questions need to be asked: why this pay revolution was considered acceptable, indeed necessary, by the Department of Health, and what has changed over the past 12–18 months to tilt the balance back towards pay restraint and heavy central control.

NHS pay can usefully be subdivided into three principal groups: hospital consultants' pay; GP practice earnings; and the rest. With the NHS now accounting for some 9% of UK GDP, these three payrolls together amount to at least 5% of GDP. The macroeconomic impact of NHS pay is huge.

And pay reform has, for the past seven years, formed an integral part of the modernisation that has underpinned the NHS Plan. Essentially the DoH has been drawing together the numerous pay categories and pay spines associated with various individual health professions into one coherent structure. The process, known as Agenda for Change, is now virtually complete.

One very real reason for embarking on what has sometimes been a tortuous journey has been protection from equal pay claims: an NHS without a consistent job evaluation system had become increasingly vulnerable to litigation and expensive (and embarrassing) court settlements. Another was the optimistic belief that a more rational approach to job design and job planning could squeeze greater productivity out of NHS staff.

Doctors, backed by the powerful and sophisticated British Medical Association, secured separate treatment at a relatively early stage, and the new consultant contract was implemented from 2003. The contract assumes that consultants would on average undertake ten programmed activities (PAs) per week. It requires them to offer the NHS an extra four hours a week of overtime before practising privately.

Around 30,000 consultants have been obliged to agree job plans with their employing trusts, which in principle has allowed trust management to change doctors' working patterns to match patient demand. In return, salaries were immediately increased by an average of 15%. The starting salary of a consultant rose by 36% (from £50,810 to £69,298) between 2001 and 2005.

However, before long trust managers were complaining about the high costs of the consultant contract and the difficulty in negotiating anything tangible in return. In May 2006, a King's Fund report written by Professor James Buchan estimated that the contract was costing some £90m more than originally intended – although some suggest that this is a serious underestimate – contributing to increased NHS financial deficits. Nor did Buchan find much evidence of changes in consultants' working practices. He blamed a combination of rushed implementation, a lack of national guidance and a gross underestimation of existing consultant workloads.

Meanwhile, the other big group of NHS doctors – the general practitioners – were negotiating their own new contract. The 2004 general medical services contract replaced the 1990 GP contract and the long-established 'red book' of primary care remuneration. The new contract reflects the quasi-market already then being reintroduced in the English NHS and mounting concern at the impact of chronic illness. Its quality and outcomes framework (QOF) offers GP practices cash incentives, through a points system, for introducing the building blocks of good chronic disease management, and for other components of high quality primary care. In 2004/05, each point (up to a maximum of 1,050) was worth £70. In 2005/06, the value rose to £120 per point. The system quickly became known as 'points win prizes'.

However, from the outset the most controversial innovation was a basic contract running from 8:30am to 6:30pm each weekday, leaving GPs free to decide not to undertake out-of-hours work. The vast majority did exactly that, forcing primary care trusts to make alternative arrangements for evenings and weekends. Some doctors welcomed the improved work-life balance; others found they could earn substantially more than the £6,000 per year they had forgone through occasional out-of-hours work as a locum. In mid-2005 one newspaper reported that more than 2,600 German locums were flying regularly to Britain to undertake GP locum work, with some earning £2,000 for a single weekend's work.

Earlier this year the new out-of-hours arrangements were reported to the Commons Public Accounts Committee as £70m over budget, based on a National Audit Office estimate. MPs described the new arrangements as 'scarcely believable' and 'a concealed pay rise for GPs'. One cause of the cost overrun that prompted special criticism was a lack of clarity about the scope of the service PCTs are required to commission. This has led to wide regional variations.

However, in financial terms, the greater cost to the NHS has come from the core new GMS contract and GPs' propensity to earn markedly more than estimated. Practices in England achieved a 91% QOF score in the first year, compared with DoH predictions of 75%, leaving primary care trusts around £200m out of pocket. By the start of 2006, it was reported that average GP earnings had reached £100,000 per year, with UK GPs better paid than any others outside the US.

The third principal category of NHS pay, covered by Agenda for Change, encompasses more than 900,000 non-medical staff, ranging from nurses to therapists to office workers: everyone, in fact, except senior managers and a few other specialised staff. Here pay reform has taken longer, because of the complexity of the negotiations and the practicalities of implementing such a huge change. Standard pay scales, working hours, annual leave arrangements and terms and conditions are being applied to groups of staff that previously enjoyed widely differing employment terms.

A long-running obstacle – how private firms contracting with the NHS for support services could be persuaded to offer Agenda for Change terms to around 100,000 support staff, in line with government pledges – was finally resolved in October 2005 when the DoH reluctantly agreed to provide around £100m in extra funding. Although the new Agenda for Change pay spines are being backdated to October 2004, some staff have still to be assimilated, so the full cost of the new pay structure is not yet clear. But inevitably there are more gainers than losers, especially at the lower end of the pay spectrum. Nurses' starting salaries, for instance, were increased by 6.2% to £18,114 while ambulance staff have had a pay rise of 10–20%.

So why, having gone to such lengths to stuff NHS staff mouths with silver, is the government now determined to cut pay in real terms? The answer lies in the context of the NHS Plan, and in what's changed subsequently.

NHS pay reform has been but one strand of government strategy in addressing a key – perhaps the key – policy objective since 1997: how to improve public perceptions of the NHS. By 1999, the government was convinced that reducing waiting times, especially for hospital surgery, was crucial. But hospital occupancy levels meant that sustained improvement would need increased capacity and, in reality, more capacity would require more clinical staff.

So a medium-term strategy took shape, along the following broad lines:

  • Improve NHS pay, as a short-term boost to recruitment and retention
  • Set up a programme to encourage workforce flexibility and destabilise the NHS culture of professional silos, focusing especially on using the 'skilled but not registered' labour pool to fill staffing gaps
  • Recruit overseas to fill vacancies. This has taken two forms: initial large-scale recruitment of trained foreign health professionals, most visibly nurses from the Philippines and Spain (following well-worn paths previously trodden by nurses from south Asia, the Caribbean and Ireland). Then, measures to open up NHS-funded provision to overseas competition, especially via the new multinationally owned independent sector treatment centres (ISTCs)
  • Meanwhile, quietly flood the market with trainees, transforming the labour market over a five-year period and gradually making the three previous measures superfluous.

The strategy has been remarkably successful. The Changing Workforce Programme, established in 2001 as the tool for workforce re-engineering, had a predictably short lifespan: it disappeared along with the rest of the Modernisation Agency in 2005. But its culture of job flexibility and a more generic workforce has taken root, and large-scale migration of unqualified workers from eastern Europe since 2004 is increasing the opportunity to replace expensive qualified staff with a less rich skill mix. ISTCs already provide some 10% of elective surgery in England and offer an ideal vehicle for long-term overseas competition. The spectre of competition is now starting to reach into primary care, threatening even GP earnings.

Meanwhile, as planned, the new workforce development confederations, created explicitly to protect training funding from raids by cash-strapped local health economies, commissioned unprecedented numbers of training places. Despite initial ideas to the contrary, NHS training funding was never brought into the new payment by results hospital funding system. By the summer of 2005, as trainees matured into qualified health professionals, the stories of unemployment were emerging. The BMA was complaining of 'doctors who've been turned down for hundreds of jobs and now have no idea what they're going to do'. The Chartered Society of Physiotherapy was pleading on behalf of basic grade physiotherapists unable to secure work. Perhaps most telling of all, spending on agency nursing, a reliable indicator of nurses' confidence in their employability, was declining steadily, from 5.1% of the pay bill in 2003/04 to 4.2% in 2004/05 – its lowest level for six years. The labour market had turned.

Yet two important questions remain. One is whether NHS pay reform needed to be so expensive. Would GPs earning an average of £90,000 a year, for instance, have served the NHS's needs just as well? In short, was the DoH out-negotiated in the rush to meet an implementation timetable? A 2005 review of dermatology services in Bristol, covering 29 GP practices, concluded that GPs with special interests, widely seen as a means of bringing services closer to patients, offer poor value for money even compared with traditional hospital consultants. The GPs were 76% more costly.

The other is even more worrying: did the NHS actually have enough capacity all along but fail to use it? NHS commissioning processes often disregard variations in demand and capacity, and crude cost-cutting does unwittingly reduce capacity further. And, in creating all that new capacity, what happened to productivity and efficiency?

Nevertheless, the turning labour market means that Gordon Brown can now rein in NHS pay. The health professions will not like it, and the trade unions certainly don't, but in the changed environment of 2006 they might not have the leverage to prevent it.

This autumn will be the crunch time for health unions. Several years of accelerating reform in the English NHS have provided the union movement with popular support across a range of fundamental issues. Unison, Amicus, the Royal College of Nursing and the BMA have combined to lobby against privatisation; pension changes remain an open sore among health workers; and pay could now become the grievance that tips the NHS into an autumn of industrial action. In the 1970s a Labour government attempted to impose a 5% pay cap, and fell. It would be ironic indeed if, after all the recent increases, NHS pay should prove to be this government's Achilles heel.

Noel Plumridge was manager of the Changing Workforce Programme from 2001 to 2003. He spent many years as an NHS finance director

PFsep2006

Did you enjoy this article?

AddToAny

Top