Witnesses:
Mr C Gowdy ) Department of Health,
Mr D Bingham ) Social Services and
Ms L Owens ) Public Safety
Mr Delaney, Deputy Treasury Officer of Accounts
Mr Dowdall, Comptroller and Auditor General

1.

The Chairperson: Before I commence I want to welcome Mr Ian Summers, who is director of the National Audit Office of Wales, and his colleague Mr Mike Usher. You are very welcome. I would also like to welcome our other two visitors, Mr Amin and Mr Haque, who are on secondment to the Northern Ireland Audit Office from Bangladesh. I hope I got those pronunciations right. You are very welcome and, of course, we welcome Mr Dowdall and his team from the Northern Ireland Audit Office and Mr Delaney from the Department of Finance and Personnel.

2.

We now turn to the matter that we are here to discuss today, and I welcome you, Mr Gowdy, to this your first visit to the Public Accounts Committee and your colleagues from the Department. Maybe you would introduce your team to us.

3.

Mr Gowdy: Thank you very much, Mr Chairman. May I introduce Mrs Lorraine Owens, the Assistant Director in our Pay and Employment Unit, and Mr David Bingham, Director of Human Resources for the HPSS.

4.

The Chairperson: You are very welcome. During this session we propose to explore the Department's responsibilities and its relationships with health trusts and boards. We are particularly interested in the pay, terms and conditions of employment, indeed, all aspects of contracts, that it has entered in with executive directors. The two reports published by the Comptroller and Auditor General in the year 2000 are being taken together in view of the similarities between the two issues covered. We will refer to the two reports as the Pay Report, and the Contracts Report. This is for ease of use and for the benefit of you and the Committee.

5.

I must say that at a time when there is much concern over the financial state of the Health Service and the impact that this has on day-to-day services, there is inevitably considerable public interest generated by such issues as pay increases for senior management and the size of settlements negotiated when contracts are terminated. We are also very concerned at the implications that the terms of the present contracts may have in future, should any contracts be terminated for whatever reason.

6.

I have some questions for you, Mr Gowdy, and then I will pass on to other members of the Committee. Before that, it would be helpful to members if you would identify the various trusts and organisations referred to in the reports before us. Does that present any difficulties for you?

7.

Mr Gowdy: No, Mr Chairman, it does not. In the Contracts Report, Trust A is the Eastern Ambulance Service Trust, which is now defunct. It then became the Northern Ireland Ambulance Service Trust. That was the new trust referred to in the Contracts Report. Trust B, was the former Ulster, North Down and Ards Hospitals Trust, which has now become the Ulster Community and Hospitals Trust. The English Trust that was referred to was the Surrey Ambulance Service Trust. Board A was the Eastern Health and Social Services Board. There are various other bodies referred to - the Northern Health and Social Services Board was a body in which one of the former employees of the Ulster, North Down and Ards Hospital Trust took up employment, and the Eastern Multi-Fund is also referred to. It is an organisation funded within the Health sector.

8.

The Chairperson: Thank you very much. That is helpful.

9.

I see from paragraph 10 of the report that you have concluded that the current system of pay freedom for the trusts is not working effectively and that, as a result, the public standing of the Health Service has been damaged. What have you done to bring this about or to change the system? When does your Department expect to be in a position to control these pay awards?

10.

Mr Gowdy: The issue of pay has been a cause for concern for us for a number of years. I first became concerned about it in late 1997 when we saw some of the pay awards that had been made for the year 1996-97 -a number of trusts had been paying fairly substantial uplifts. In that year four trusts paid increases of over 10% to chief executives.

11.

We were concerned about that in terms of public confidence, and we discussed the matter with the then Minister, Tony Worthington. At that time the Labour Government were concerned about public sector pay generally and were trying to drive down the inflationary pressures on pay. The then Secretary of State for Health, Frank Dobson, decided at the start of 1998 to impose a limit on senior executives' pay throughout the NHS, a limit of 2.7%, which reflected largely a comparative uplift that other staff, notably nurses and doctors, were getting as a result of review body pay awards made for that year.

12.

Tony Worthington decided to introduce the same limit, and this also happened in Scotland and Wales. He issued a letter to all the Chairpersons of Health and Social Services bodies here, which included the trusts, the boards and the special agencies, asking them to apply a limit of 2.7% to the increase in the total remuneration of senior executives. That was seen as a very clear signal that pay should be constrained. That was the first point at which things started to happen.

13.

Later in that year, when the results came out for the pay awards made for the year 1997-98, there were concerns which were picked up by the media in October as the annual reports of the bodies came out. At that stage nine trusts were paying increases of over 10%. This gave added weight to the need to ensure that control was imposed over pay. The then Minister, John McFall, decided that he should ask for this limit to be continued into the next year, but with a 2.6% limit for the 1999-2000 pay year. He also signalled that we really needed to get a tighter grip on pay, and I, as the Accounting Officer, had been saying to him that we needed to make sure that we were able to impose some constraints because it looked as though some of the increases were higher than we wanted in public confidence terms.

14.

When the results came out for the 1998-99 pay year, the year in which the 2.7% limit was to have applied, we discovered that 10 trusts had paid above the 2.7% limit. That strengthened the resolve of Ministers at that stage to get a tighter grip on pay, and we then began to look at the importance of using legislation to do this.

15.

As the Committee is probably aware from the report, trusts were established with a high degree of freedom to run their business. This was a political imperative that the previous Conservative Government had introduced to try to get a businesslike approach within the Health Service and to have a little bit of competition between the bodies providing services. What went with it was the ability to set remuneration levels, and because of this statutory power, there was a concern that ministerial imperatives were not going to have the weight that they deserved. That I think was borne out in practice. For that reason we were subsequently very concerned to make sure that the legislative power was changed, and that has just happened with the passage of the Health and Personal Social Services Bill, which is through its final Stage in the Assembly and is now awaiting Royal Assent.

16.

The Department of Health, Social Services and Public Safety is striving to introduce a new pay system for senior executives and chief executives, and it is hoped that that will be in place next month. It will try to relate responsibilities to pay more transparently and openly.

17.

The Chairperson: Will the Department of Health, Social Services and Public Safety be in a position to control its pay awards?

18.

Mr Gowdy: Yes.

19.

The Chairperson: Paragraph 3·78 of 'Health and Personal Social Services: Executive Directors' Contracts and Termination Settlements' states that the termination settlements cited in part 3 proved to be very costly. What action has your Department taken to ensure that any future settlements negotiated will result in better value for money?

20.

Mr Gowdy: That is a concern. It is evident from the report that once a contract is signed it becomes legally binding and the implications of that are discovered down the line when a termination is made and a settlement is agreed on the basis of the contract that was agreed some years before. The contracts that were made during the period covered by the report left a number of gaps that need to be addressed. The form of contract that was used in the past - the short-term, rolling contract - was seen as an effective way of maintaining strong performances by senior executives. They only had a short-term horizon on their contracts.

21.

However, experience and hindsight show that this has not happened. The Department has made moves to ensure that more of the HPSS staff - preferably all - work on permanent contracts. Those contracts have clear termination arrangements and clearly indicate that settlements must be within clearly defined limits. That was not evident in the cases addressed in the report.

22.

The Chairperson: There are risks imposed by the terms of the current contracts. Has the Department of Health, Social Services and Public Safety carried out any form of assessment as recommended in paragraph 3·43 of the report on contracts?

23.

Mr Gowdy: Yes. When trusts were established there were 40 rolling, short-term contracts - including trusts, boards and agencies - six fixed-term contracts and 104 permanent contracts. Currently there are 18 rolling contracts. That is a decrease from 40 to 18. There has been a substantial change.

24.

The Department has also issued a new model contract which is a much tighter form of contractual arrangement. That is now being considered by people in the Health and Personal Social Services' and by our legal staff. We will also be discussing it with the Department of Finance and Personnel.

25.

The Chairperson: Mr Delaney, has the Department of Finance and Personnel any views on the large pay increases that some trusts have imposed?

26.

Mr Delaney: The Department of Finance and Personnel does not have direct responsibility for that. That is a matter for the Departments, and the legislation allows the trusts the freedom to set the senior management and executives' remuneration packages.

27.

On a more general point, the increases in pay are not significant in overall public expenditure terms. A breach of Government policy creates unwanted pressure on pay levels generally, and we would not welcome that. In this case, when the accounts were published and we became aware of the public criticism of the level of pay, we raised our concerns with the Department and sought and received assurances from it that pay levels would be more tightly controlled in future.

28.

The Chairperson: I am glad to hear that you did that. I would have thought that you would be in a position to influence these matters. You are telling me now that you did try to influence them?

29.

Mr Delaney: When the accounts were published and we became aware of the level of the increases we wrote and spoke to the Department and sought assurances that tighter controls would be brought to bear on pay settlements. That is probably one of the issues described by the Department, which has brought forward model contracts and the change in legislation.

30.

The Chairperson: Are you taking credit for that?

31.

Mr Delaney: Not alone, Mr Chairman.

32.

Ms Ramsey: I would refer you to page 41 of the Contracts and Termination Settlements document and direct your attention to paragraph 3.52 where it says that the settlement for a chief executive of a trust included a car. Why was that allowed?

33.

Mr Gowdy: With hindsight that individual's contract looks to be a very generous one. It gave a number of clear benefits. The nature of the contract was the problem. Although there was negotiation around the terms to be applied, it did allow for lump sum compensation, for pension arrangements and for the trust-owned car to be handed over to him.

34.

Ms Ramsey: Why does the chief executive of a trust need a car at the expense of the taxpayer?

35.

Mr Gowdy: It is fair to say that chief executives in virtually all of the trusts here do not work on only one site. They have to travel around a number of different facilities in different geographical areas. There are something like 400 health and personal social services facilities around Northern Ireland. In each trust area a chief executive has to visit those sites and hold meetings there. We also expect the chief executives to meet with the boards and other trusts and to meet with the Department, so the job necessarily involves a fair amount of travel. If the chief executives did not receive a car they would have to be reimbursed for that travel as most organisations would reimburse their employees. This is not an unusual feature of a contract.

36.

The Chairperson: Do you have a car yourself?

37.

Mr Gowdy: No, I do not; I have access to a departmental car.

38.

Ms Ramsey: On that point, is the car to be used solely for a chief executive's work?

39.

Mr Gowdy: No, a car is there for his work, but it can be used for social and personal journeys as well. The chief executives are subject to taxation for any private use of their cars, just as happens in other employment, including the private sector.

40.

Ms Ramsey: It can be used as a VAT allowance. Is it only chief executives of trusts who have cars?

41.

Mr Gowdy: No, other staff who, by virtue of the nature of their jobs, need to travel about to meet patients and clients and other service users have access to cars. They either have a leased car or they are paid for the use of their own cars. Nursing staff have to visit people in their homes. People have to travel to different places such as residential care facilities. Where that is necessary a car, or payment for the use of a car, is provided as part of a contract.

42.

Ms Ramsey: Will you supply the Committee with a list of all trust managers and senior staff who have cars, including the type and cost of each car?

43.

Mr Gowdy: Yes, we will provide the Committee with those details.

44.

Ms Ramsey: I am concerned that someone can get a car solely because of his employment, yet we are now being told that he can use that car for recreational purposes.

45.

Mr Gowdy: There will be circumstances in which individuals are given cars under lease arrangements which allow them to use those cars for personal and social reasons. The main purpose of providing a leased car is to enable people to fulfil their duties for the trusts or other organisations. They are subject to tax on any private use of the car. We include the money value of that benefit-in-kind within the total remuneration for chief executives and other senior staff.

46.

Ms Ramsey: The Inland Revenue is saying that it can be used as a tax benefit.

47.

Mr Bingham: It is a tax liability for an individual, who is taxed on the car if it is provided to him for personal as well as business use.

48.

Ms Ramsey: So it can be written off.

49.

Mr Bingham: No.

50.

Ms Ramsey: What other benefits are paid to chief executives and directors of the trusts, be they pension benefits, hospitality allowances, et cetera?

51.

Mr Gowdy: We have carried out a very detailed analysis of what has been happening on pay and remuneration. Essentially, there are different contract terms. The remuneration package is made up of basic salary and access to performance-related pay. In some cases, special bonuses have been awarded for particular jobs, and there have also been some benefits such as a car.

52.

Ms Ramsey: May we have a list containing those details for senior staff?

53.

Mr Gowdy: Yes.

54.

Ms Ramsey: There is an issue involving performance-related pay. I am a member of the Health, Social Services and Public Safety Committee and aware of the underfunding in the Health Service. Performance- related pay adds a lot of problems. In my area, if the chief executive cuts services as a result of performance- related pay, he receives a bonus. I have a problem with that.

55.

With regard to the total benefit package, in your introduction you mentioned the restrictions imposed by Tony Worthington. From reading the report, it seems to me that one way of getting around those restrictions was to bolster up pensions or provide better cars. Have you checked to see which trusts have done such things to get around the so-called freeze on the wages of chief executives and senior managers?

56.

Mr Gowdy: Yes. We have a very detailed analysis of all the remuneration awarded to chief executives and   over the last six or seven years. The analysis shows basic salary, bonuses paid, performance-related pay and benefits.

57.

Ms Ramsey: I would appreciate a copy of that also.

58.

Mr Gowdy: I will be very happy to provide the Committee with a copy.

59.

Ms Ramsey: You mentioned earlier that you had sent out a number of letters. At trust level, are you aware of what actions the accounting officer or the director of finance has taken to try to control the expenditure for chief executives?

60.

Mr Gowdy: It is important to say that the remuneration for chief and senior executives is set by the chairperson and board of these organisations. Each of the organisations has a remuneration committee, which comprises non-executive directors, so it is not a case of directors setting their own pay. Pay is determined by the non-executive directors of a board. They meet and look at the basic salary and the performance of individuals, and they determine pay on that basis.

61.

Ms Ramsey: I understand that. However if, as Accounting Officer, you are sending letters to trusts and boards about the whole issue of pay freezes, I assume you are sending letters to the directors of finance also. Do you know how they have tried to deal with the issue in trusts and boards?

62.

Mr Gowdy: We know of certain considerations taken into account by the various organisations, and there are some very important points. We are very aware of the concerns of a number of organisations on two major issues, one being the accounting arrangements, where some organisations regarded the performance bonus paid as relating to the previous year, meaning that it should be accrued in that year's accounts. We know the finance directors were very involved in that question.

63.

The second issue is to do with legality. As we explored the issue, some trusts were telling us of their concern that they would not have been able to fulfil contractual commitments if they had applied the limit. I do not believe that, and I can return to the issue if the Committee wishes.

64.

We know that the executives were concerned about those questions from the advice they gave to boards and remuneration committees. The Minister and I wrote to the chairpersons, the key people in setting remuneration levels. Detailed discussions were held at an official level with a number of such organisations about what they were doing and how they justified it.

65.

Ms Ramsey: Can we have a copy of those letters?

66.

Mr Gowdy: Yes.

67.

Ms Ramsey: It would be interesting to see if the chairpersons wrote any letters in reply.

68.

Mr Gowdy: I can say that, following Tony Worthington's letter - the first point at which the issue of a limit arose - one letter from a trust chairperson raised the potential contractual difficulties. We had no other correspondence until later in the year when, as a result of seeing the figures, we began to challenge what was happening.

69.

Ms Ramsey: I am once again conscious that you might not have the information with you, but can we have a run-down of the total packages awarded to chief executives from 1996, including allowances, pension benefits and cars?

70.

Mr Gowdy: Yes.

71.

Mr Gowdy: Our figures do not include the superannuation element, which is added as a percentage, but we can include it as a special exercise. We can certainly give you the figures relating to all other elements of the remuneration packages very quickly and readily.

72.

Ms Ramsey: Paragraph 3.3 on page 27 of the report says

"the settlement agreements which were signed included a confidentiality clause preventing disclosure to third parties."

First, why were such clauses negotiated into the termination contracts? Secondly, clauses which, for want of a better word, gag people are not acceptable when accounting for public money. Being a cynic, I must ask who was trying to hide what?

73.

Mr Gowdy: There are, of course, two separate issues, one being the maintenance of confidentiality over business information which an individual gathers - I believe that that is legitimate. The second, which is certainly wrong nowadays - something the Public Accounts Committee in Westminster has been saying - is the lack of public transparency over what was happening with these settlements. We are removing any such confidentiality clauses in the new arrangements. I agree with you that hiding things from the public is not in the public interest.

74.

Ms Ramsey: You answered a question concerning the rolling contracts which were used. You say that, of a total of 40 such contracts, 18 are now left. How quickly can you tackle those?

75.

Mr Gowdy: There were 40 rolling contracts out of around 200 in total, but now we have 18, so it is coming down. It is difficult to remove contractual commitments that people already have. If you have a contract, you are not readily going to give it up if you think that it suits you.

76.

Ms Ramsey: I would not give that contract up, but some of them have.

77.

Mr Gowdy: That is the problem, and we have to work to try to make it happen. We have asked employers to enter into discussion with the people who have those rolling contracts in an attempt to try to find a way around this problem. The difficulty, of course, is that we do not want to incur great expenditure by buying them out. There is a balance to be struck here that we are very conscious of. We are trying to work with the organisations to make it happen. We have had some success.

78.

Ms Ramsey: Have you any idea of the time frame for the new legislation, and how much it will cost?

79.

Mr Gowdy: I hope that it will cost us nothing. I hope that it will be possible to negotiate new arrangements. There is a downside to the rolling contracts because they have three-year horizons. They do not give a permanency to the individuals. There is an uncertainty factor there.

80.

We are certainly trying to encourage people to see that there is a benefit in having new, permanent contracts on the model that we want. However, we want to get away from some of the difficulties that we are only too aware of, as the Committee knows, with how we buy those out when it comes to a termination.

81.

The Chairperson: I want to confirm that you will be sending that information, which the Deputy Chairperson has asked for, to the Committee.

82.

Mr Gowdy: We have taken a list of what has been asked for, and we are happy to provide that information to the Committee.

83.

Mr Beggs: I see from paragraph 11 of the report on pay that under current legislation the trusts enjoy a certain freedom when determining pay. What guidance and instruction was the trust given in that area when it was first established? Are you content that it was sufficient?

84.

Mr Gowdy: There is a very important issue here. I, as the Departmental Accounting Officer, never lose accountability for what goes on out there in the health and social services organisations. I felt uncomfortable with the degree of freedom that the legislation gave to these organisations. It was a matter of policy, under a previous Administration, to set it up in such a way that they had the maximum amount of freedom.

85.

We had a number of levers on those organisations. One example was that the legislation that set up the trusts, the Health and Personal Social Services (Northern Ireland) Order 1991, put clear financial obligations on them. They had to achieve financial objectives that were set by the Department. They had to carry out their functions effectively, efficiently and economically. They were required to provide whatever information the Department required.

86.

We certainly were looking for annual reports, and information on their financial position and on their performance against their objectives. We were trying to keep as much of a grip on them as we could.

87.

What was very evident - and this became very evident as we tried to apply the Tony Worthington 2.7% limit - was that the legislation did not allow the Minister to issue a direction to the trusts on the matter. The legislation was, in my view, defective in that sense. That is why we have moved to correct it now. It did allow those trusts to make their own pay arrangements, to make their own annual increases and to operate with a high degree of freedom in putting any pay arrangements in place.

88.

Mr Beggs: I refer you to paragraph 6, which highlights the fact that it was adverse press coverage, particularly by 'The 'Belfast Telegraph'', that drew attention to unreasonable pay increases.

89.

Why did the Department not have any concerns about that and why did it not suggest that there had been a failure in taking action? You referred earlier to the fact that legislation is now moving towards Royal Assent. That issue was first raised in the 1997-98 Annual Report. Why has it taken so long for any legislation to come into being?

90.

Mr Gowdy: As I said in response to the question from the Chairperson, we first became concerned in late 1997 when we saw what had been happening in terms of the pay awards made in the 1996-97 pay year, which were published in the autumn of 1997. As I said, four of the trusts had paid increases of over 10%, so we recognised that there was an issue that needed to be addressed. That was why we discussed with Tony Worthington the importance of having a limit introduced and of doing so at the start of 1998.

91.

Mr Beggs: Did you not recognise that that limit would have no authority without legislation?

92.

Mr Gowdy: I had always believed that a Minister's request - a request from the body politic - would have a lot of influence over an organisation. It is clear, and I will come back to that in a moment, that there is a progression downwards from these high levels to a more satisfactory level, which has all been about trusts becoming very conscious of public displeasure and ministerial concerns. We issued that limit as our first shot.

93.

When we saw that it was not having the effect that we wanted as quickly as we wanted, John McFall upped the ante by putting a lower limit in place for the next year. He also signalled that we would start work on the development of a new pay arrangement and that we would look at the legislative issues. Legislation takes some time. The benefit of having the Assembly here is that we have been able to get this legislation into place quickly. Under direct rule it took over 64 weeks to get an Order in Council through. That was the time frame we were operating within under direct rule. We have been able to advance that very quickly with the Assembly.

94.

Mr Beggs: We were talking previously about percentage increases that various boards were awarding to their chief executives. I refer to figure 3 on page 52 of the report on executive directors' and senior managers' pay, which graphically illustrates the considerable differences in the levels of chief executives' pay in 1997-98. In particular, there are considerable differences between the amount of money that they were responsible for managing and their pay. For example, why were Down Lisburn and Causeway chief executives paid more than those who controlled more significant budgets, such as those of the Ulster North Down and Ards Hospital Trust and the Belfast City Hospital Trust? Can you explain that?

95.

Mr Gowdy: There is a general point that is very important to make and is very pertinent to your question. It is important that I say, and that the Committee appreciates, that running a Health Service organisation is a very difficult job. It is a very complex job; it is a very demanding job. There is a lot of public scrutiny of what happens in the health and social services system. It is also the case that -

96.

Mr Beggs: Do you accept that we are talking about the differences between two similar organisations?

97.

Mr Gowdy: What I was going to say is that it is important to recognise that there are issues to do with the complexity of the task, the level of money that an organisation has and the number of staff. It is not a simple relationship between the income of an organisation and the level of responsibility. Some of the smaller organisations have very complex tasks that have to be managed, and it is important to reflect that.

98.

Mr Beggs: In my health board area we have the Homefirst Trust and the Causeway Trust, both of which provide primary care services rather than hospital services, so they are similar organisations. Do you accept that?

99.

Mr Gowdy: The Causeway Trust has a hospital in its patch, whereas the Homefirst Trust does not.

100.

Mr Beggs: Oh, it has a hospital as well. That is interesting. You seem to be saying that the primary care scene might be more complicated because it has more arms to it. I will go on. The figures in Appendix 3 show that the Homefirst Trust in 1997-98 had a budget of over £101 million and the Causeway £54 million. Homefirst had almost twice as big a budget. Can you explain why Causeway had a higher paid chief executive?

101.

Mr Gowdy: The basis on which individuals are paid relates to the complexity of their job, their performance and the talent, skills, qualifications and experience that they bring to that job. I would not expect there to be spot points which you could say are only determined by the amount of money that is managed in an organisation. What has happened here demonstrates that there is a greater variation than we want to see in the relationship between pay and the nature of the job that an individual is doing. That is why we have been developing the new pay system which will be based on a job evaluation which will take into account the complexities and the amount of money in an organisation.

102.

Mr Beggs: Was there a problem with senior staff being poached by the private sector? How many chief executives moved into the private sector to highlight the problem that they were not being paid enough?

103.

Mr Gowdy: That is a very good point. It is important to bear in mind that public money is being used in the public sector and that we are operating within the pay market here.

104.

Mr Beggs: Did any staff move to the private sector?

105.

Mr Gowdy: No.

106.

Mr Beggs: Was any private sector expertise brought in and attracted by the new higher pay rates?

107.

Mr Gowdy: One chief executive was appointed in 1996 from the private sector.

108.

Mr Beggs: I would be grateful if you could provide details in writing to the Committee about that chief executive and his particular expertise. It is interesting that there was one appointment but no significant changes. Do you accept that this largely resulted in the same people doing the same jobs with greatly inflated pay packets?

109.

Mr Gowdy: It was largely the same people doing the same job. Most of them moved across on similar pay to what their previous pay had been. That is not necessarily a bad thing because we need expertise to run these organisations. This is very different from running any other type of business, so moving people from what they were doing before into running the new organisations was not necessarily a bad thing.

110.

Mr Beggs: What training did the Department of Health, Social Services and Public Safety provide to help staff for with additional responsibilities and demands?

111.

Mr Gowdy: It was done on the basis of a reorganisation of the previous system where the Conservative Government wanted to set up trusts as free-standing bodies to run the business in their areas themselves and do so in a competitive way that would set up a degree of market competition in an attempt to drive down costs and produce efficiencies. The people who were taking on those jobs were already very experienced in running health and social services organisations. They brought that experience to the jobs with them.

112.

Mr Beggs: Eighteen out of the 19 trusts had deficits ranging from £52,000 to £11 million at the end of March 2000. To what extent, if any, did the deficits have a bearing on the performance pay awards that were given to chief executives?

113.

Mr Gowdy: It is important to separate the deficits issue from the pay issues. There are two reasons for that. First, the pay issues relate to a period before the deficits emerged. By and large, these deficit problems have emerged in the last 12 to 15 months. Secondly, the deficits issues are related to the demands that are placed on the services that we are running. Most of the deficits occur in the acute hospital sector trusts. That is due to a very dramatic rise in the demand coming through the door, most of which has to be handled on an emergency basis. Emergencies account for 80% of the cases that come through the doors of acute hospitals. They cannot turn people away and close the doors. They have to continue to provide the services, and that has a cost which is reflected in these deficits.

114.

Mr Beggs: Do you accept that some of that emergency treatment could be better handled by improved community care budgets? To a certain extent failure to provide money to that sector is resulting in higher emergency admissions.

115.

Mr Gowdy: There is a very significant issue here. We are underfunded for the level of demand we have to meet. There is a relationship between what happens in a community and in hospitals. If people have to go to hospital, they need beds. If they are discharged, they need beds to go to. I understand exactly what you are saying, and we need to get that relationship right.

116.

Mr Beggs: When double-figure pay awards were made - 1996-97 being a particularly interesting year - how many trusts had deficits in that year? Can you let us have the figures in writing?

117.

Mr Gowdy: I believe that none of the trusts concerned had deficits in that year. I will confirm that in writing.

118.

Mr McClelland: This Committee is not only concerned with the pay awards made to the chief executives, it is also concerned with the matter of settlements. I did not note your full comments but I will check it in report. I think you stated "I, as the Departmental Accounting Officer, never lose accountability for what goes on out there". Given that statement, do you not believe that it was not consistent with your responsibility as accounting officer to give trusts full powers to make termination payments?

119.

Mr Gowdy: The basis on which the legislation governing trusts was formed gave the trusts legal power to make their own arrangements on remuneration and termination settlements. We were constrained from getting directly involved. Since 1997 we have required any organisations making settlements to seek approval from the Department. That is a direct reflection of the concern about how some of these settlements were made. By and large they emerged from contract terms agreed at the time of signing. We are dealing with a legacy of past contracts, which we need to sort out now. This is why we are trying to put this new model contract in place. It will deal with some of these deficiencies.

120.

Mr McClelland: Did your Department take any decisions on issues such as clawback and make them widely known to those responsible for setting up new trusts before 1997?

121.

Mr Gowdy: The clawback issue is important. It is at its starkest in the trust A case where it appears that one individual managed to strike a new job deal in the course of negotiating his termination. We checked the position and the legal advice was that there was no legal obligation on the part of the individual to notify anyone of that because the contract did not require it. There may have been a moral obligation on the individual, at the very least, but that is another issue. That exposed, in very stark terms, exactly what you have been saying. We need a clear clawback arrangement, one that can be invoked once such circumstances occur.

122.

Mr McClelland: Why the delay? Is the clawback in place now, or are you still in the process of considering it?

123.

Mr Gowdy: At present, we are trying to get away from the short-term, rolling contracts, which were in vogue back in the mid-1960s and applied in these particular cases. We have been making progress in reducing their number. We are also trying to move to a much clearer and starker set of terms in a new contract, which is currently out for consideration around all the organisations, the Department of Finance and Personnel and our lawyers. We want to have a clear clawback clause.

124.

Mr McClelland: I do not want to appear difficult, but when I hear expressions like "We are trying to move towards" that seems rather less than adequate, given the nature and size of the problem of termination payments. I would like to hear that "We have moved" or "We have satisfactorily resolved that". I am concerned about the phraseology.

125.

Mr Gowdy: I am not trying to be evasive on this. The problem is that we are stuck with whatever contract was made. If there was no clawback provision, we cannot unilaterally add it in now.

126.

All we can do is try to persuade individuals and negotiate with them - or get the employers to work with the individuals - to move them from the old contracts to new ones. We have had some success in doing that, but we cannot do it overnight. That is our problem. We are stuck with legally-binding documents which people have signed and regard as the terms under which they are employed.

127.

Mr McClelland: You referred to Trust A's chief executive. I refer the Committee to paragraph 3.33. We agree with the Comptroller and Auditor General's concern in that paragraph, as conflicting positions seem to have been put to him about what actually happened in the negotiations over Trust A's chief executive's settlement. It is totally unsatisfactory that even at this stage we do not have a definitive version of the events surrounding that.

128.

Mr Gowdy: I think that you have. The problem is that the memory of those involved in trust A and its successor has not been as good as it might have been. We are very clear from all our papers that the individual who was negotiating on behalf of the new trust was doing so with the full authority of that trust. We have documentary evidence that an agreement was struck between the chairperson of the new trust - the Ambulance Service trust - and the individual who was quite properly doing the negotiation on its behalf.

129.

Mr McClelland: Let me go back to the contractual arrangements that were put in place. What legal advice was sought and given in drawing up the contractual arrangements between the trusts, the chief executives and the boards?

130.

Mr Gowdy: There was always guidance from the Department before the establishment of trusts which set out the parameters for contract terms. When trusts were set up, they were given the statutory power to strike their own contracts, and many did. We have three or four different main forms of contract in trusts. That is what happened in this case. I was very surprised when I learned that there had not been a written contract in trust A for the three individuals concerned. That came as a great surprise and as a matter of some disbelief, because there is a legal requirement to have written contracts. Since 1997 we have expected all organisations writing any new contracts to have clawback terms in place and clear provisions on how settlements would be reached.

131.

Mr McClelland: Can you assure us that legal advice was sought and given when entering into these contracts on conditions of employment and settlements?

132.

Mr Gowdy: I cannot answer that question because the trusts were striking their own contracts. I do not know whether they took legal advice when they were doing so.

133.

Mr McClelland: Would you have expected them to do so?

134.

Mr Gowdy: I would have expected them to, because a contract is legally binding.

135.

Mr McClelland: Can you come back to us with that information? Can you find out whether in each instance the trust did seek and receive some sort of legal advice on the type of contract?

136.

Mr Gowdy: Yes. We will do that. I have seen many of the current contracts and they are all based on a fairly standard model. There are four different types, but they have many common features. They seem to have been legally proofed.

137.

Mr McClelland: I want to stick with this clawback arrangement. I refer you to paragraph 3.12 of the report: "In support of the concession on clawback, the CSA Director explained to the Department that an independent assessment from a Northern Ireland recruitment agency had been sought as to the former Chief Executive's employability in Northern Ireland."

138.

Who carried out that independent assessment?

139.

Ms Owens: It was an organisation called Flexiskills Recruitment.

140.

Mr McClelland: Do you normally use that organisation?

141.

Ms Owens: It is not one that the Department has used.

142.

Mr McClelland: Are you satisfied that that body was able to carry out the independent assessment?

143.

Mr Gowdy: That arrangement was reached between the director and the trust. The Department was not involved in the selection of that organisation, and I do not know anything about it.

144.

Mr McClelland: Do you know if that agency has been used since for that purpose?

145.

Mr Gowdy: We do not know.

146.

Mr McClelland: Would it be possible to find out?

147.

Mr Gowdy: Yes.

148.

Mr McClelland: Paragraph 3.47 of the report 'Health and Personal Social Services: Executive Directors' Contracts and Termination Settlements' refers to

"the former Chief Executive on his subsequent employment with the English Trust"

149.

Do you assent that the potential for employment in England - or anywhere outside Northern Ireland - must be taken into consideration?

150.

Mr Gowdy: Yes. That clawback provision is designed to ensure that a double payment is not made to an individual when he moves from one organisation to another that is funded from a particular Vote - in our case the Health and Social Services Vote. The provision is important because we want to ensure that people are not able to milk the system by getting these benefits.

151.

Mr McClelland: In this case the assessment seems to have been made purely on a person's ability to find the same type of employment in Northern Ireland, and no consideration was given to the probability of his finding similar employment in England. Is that the case?

152.

Mr Gowdy: That was true in this case.

153.

The Chairperson: Will you send the Committee the information asked for by Mr McClelland and Mr Beggs?

154.

Mr Carrick: You said that you are uncomfortable with the degree of freedom given to a trust. You also explained the structure of the remuneration package that was decided upon. Taking account of the additional benefits that were paid as part of the remuneration package, what are your views on the compliance with the respective limits on the annual pay increases?

155.

Mr Gowdy: My remark about feeling uncomfortable with trust freedom was to do with accountability. If I am accountable for all the expenditure that is incurred by organisations in health and social services, I would want to have levers of control to make sure that things were happening properly. Those levers were weakened by the arrangements that were set up in trusts. We are now moving back to the position of being able to control those levers better. We were disappointed that the organisations did not adhere to the limits that were set. The way in which the first limit - which was the 2.7 limit - was applied made it clear that the degree of conformity that I expected was not there. The first issue is that a number of the trusts are arguing that accounting for the payment made in any one year may or may not apply to that or the previous year. The second concerns the possibility that they might be in breach of the law. A ministerial wish cannot override a legal commitment. The organisations expressed some concern.

156.

Having said that, I still believe that some awards made went beyond what I regarded as reasonable given the limit that the Minister asked the trusts to apply. We have seen things move back from that early position to one in which we are more comfortable, though not entirely satisfied. I shall give the Committee a quick snapshot. In the year in which the 2·7% limit was to be applied, 10 trusts paid their chief executives increases above that level, meaning that only nine conformed. No trust paid more than 7·5% that year. You will remember that in previous years trusts had paid over 10%. In the next year, 1999-2000, we still had 10 trusts paying increases above 2·6%, but none awarded more than 5%. From this picture, I believe a degree of conformity is starting to emerge. That is welcome, but it is not yet the degree of conformity that we wish to have.

157.

Mr Carrick: I should like to pick up on the 1999-2000 pay increases. For the record, can you tell the Committee the results of your review? In paragraph 10 of the pay report, the Department announced that it would count any excess in the 1998-99 increases against those for 1999-2000. Did you do so, and if not, why?

158.

Mr Gowdy: Yes. Following the publication of the results for the previous year, the Minister, Mr John McFall, held a number of meetings with trust chairpersons. Certain of my staff and I were also involved in some meetings to try to achieve a greater degree of conformity. We asked for a clawback, and in the analysis we shall provide to the Committee we can demonstrate that a number of the trusts - and particularly the "worst offenders" - reduced awards substantially, in some cases giving no pay increases or making reductions. We have seen an acknowledgement of the need to claw back.

159.

Mr Carrick: I should like to refer you to paragraph 5.26 of the report on contracts and termination settlements, which says that trusts were critical of the adequacy of advice issued by the Department. How many trusts reacted adversely to the findings in your review of pay increases at the end of 1998-99?

160.

Mr Gowdy: As I stated in a response to a previous question, we received one letter from a chairperson following the ministerial letter from Tony Worthington in 1998. When the figures came out and we challenged the organisations, there was a great deal of argument about the two issues I mentioned - the accounting conventions and the legal contractual position. Those questions are important, and no one would wish to overlook them.

161.

However, we are looking here at the use of public money to reward people for performance. That fact must always be reflected in the decisions made, both in terms of the current position of an organisation's performance and the resources available to health and social services. We certainly make the point, as we did then, that it was important to make every effort to live within the limits set since Ministers wished to get a grip on public-sector pay and reduce inflation.

162.

Mr Carrick: But only one trust responded?

163.

Mr Gowdy: One trust raised the issue at the outset. After the figures came out and we began to explore them, many of these arguments were made to us.

164.

Mr Carrick: I refer you to paragraph 15 of the pay report, which indicates that 10 of the 19 trusts did not comply with the Department's policy on pay increases. Paragraphs 16-18 cite three examples of non-compliance. Assuming that your conclusions about those cases have not changed, how did you react to Green Park, Down Lisburn and Homefirst Trusts and what sanctions were imposed?

165.

Mr Gowdy: In all these cases the Minister expressed deep concern and meetings were held with Chairpersons. We were getting all the information we needed to determine what had actually happened from the organisations. In a couple of those organisations arguments about accounting conventions became a major feature. We also had, at that point, concerns about contracts raised by at least one of the organisations. We made it clear that what was being required could actually be delivered within the law, and we did see both of those organisations in the detailed workings that we have substantially comeback in the following year. They did make a clawback in the chief executives and senior executives' pay in the following year, 1999-2000.

166.

Mr Cormick: So, they responded to your consultations and you did not have to take any sanction to bring them back into line and make them comply?

167.

Mr Gowdy: There were some difficult discussions with them. These issues are not easy and when people are looking for levels of remuneration, it becomes very personal. We did not want to invoke too many sanctions until we were sure that they understood why we thought this ought to be delivered - both in terms of making sure that Minister's wishes were delivered and that we did not think there was a problem over the legalities.

168.

Mr Carrick: I would like to go back to this issue of the adequacy of advice from the Department, which leads back to paragraph 26 of the pay report which indicates that trusts and appointed auditors were critical about the adequacy of the Department's advice on pay. It seems quite clear to us, Mr Gowdy, that there was a definite failure on the part of the Department to make its intentions clearly known and understood. That in turn has led to a considerable waste of administrative time and legal costs on a controversy which should have been avoided. Would you like to comment on this and try to convince us that when we have turned the corner on this one, it will not happen again?

169.

Mr Gowdy: I would accept, with hindsight, that the advice given by the Department could have been fuller. That is with knowledge of how, subsequently, the organisations were interpreting it. It was a simple request. A Minister said that we had to live within the resources available to us, that we had to bring these pay pressures down - 2·7% is the limit for the total remuneration increase. I would have welcomed a debate with the organisations if they had felt that there were difficulties. We really did not have that until the problem came out later in the year - by that time it was a little bit too late. If we were doing it again we would put fuller, clearer advice in place. There is a legal issue bouncing around at the moment. There has been one tribunal case, and a number of others are to be heard. It is because of a misunderstanding and a misinterpretation. It appears that a number of trusts, in applying the Minister's requirement, have taken the view that the Minister was saying that you cannot pay performance pay. They then assessed their staff for performance pay and told them that they would have got an increase but for the Minister preventing it. That was not what we were saying. We were saying "Use this 2·7 limit to meet your contractual commitment, but live within that limit". There is no absolute guarantee in anybody's contract that he will get a particular amount of money extra each year. There are no limits that guarantee that.

170.

The Chairperson: Were you saying that you did not need to take any sanctions?

171.

Mr Gowdy: I get into a slight difficulty here.

172.

The Chairperson: I gather that from the tone of your answer. That is why I am coming back to it.

173.

Mr Gowdy: The convention is that Departmental Accounting Officers do not reveal the advice given to Ministers by civil servants. However, I can say that consideration was given to punitive action against some of the people involved in the organisations, but that was considered inappropriate. In the event we secured an understanding with the organisations, and in most cases - not all - they came into line in the following year. For that reason we felt that that approach had been vindicated.

174.

Mr Close: I refer to the last point. Consideration was given to a form of penalty, but it was decided that that would not be prudent. Is that correct?

175.

Mr Gowdy: Without revealing the content of the discussions that took place between Ministers and officials, I can say that two main courses of punitive action were considered. Could we enforce the removal of pay to return to the 2.7% limit in some cases? Legal advice was that we could not. Once the money had been paid, if the process had been properly followed, we could not unilaterally take it back. Therefore, that course of action could not be pursued.

176.

The second course of action was to ask some of the key people in the organisations whether they felt that they had properly discharged their public responsibilities, with the obvious answer being that if they had not, they should no longer be there. It was considered that that was not an appropriate course of action for a number of reasons, not least because of the issues regarding interpretation and accounting arrangements and because we were moving towards devolution and Ministers did not want to create unnecessary public controversy at that time.

177.

Mr Close: In a reply to an earlier question from Mr McClelland you used the phrase "milk the system". Obviously you were speaking about how to avoid milking the system. Do you agree that there is a public perception that there is milking of the system and that that is why consideration was given to more punitive action?

178.

Mr Gowdy: I used the phrase "milking the system" when referring to the negotiation of the contract arrangements. On the pay issue, it is important to say that I do not think that any of the chief executives or senior executives were feathering their own nests. Remuneration committees made up of non-executive directors always take the decisions. However, public concern was evident about some of the increases that seemed to be dramatic and out of line with public expectations.

179.

Mr Close: Some of them were.

180.

Mr Gowdy: I agree. Some of the increases were indefensible.

181.

Mr Close: I want to home in on the issue of the Department's overriding responsibility. Paragraphs 1.3 and 1.4 of the report on executive directors' contracts and termination settlements set out the overriding responsibility of the Department for the provision of health care and the responsibility of the boards and trusts to the Department. Paragraph 1.3 states that the Department

"is statutorily required to provide or secure the provision of integrated health and personal social services in Northern Ireland, and ensure their effective co-ordination."

The term "effective co-ordination" is very important. Paragraph 1.4 states: "Boards and Trusts are responsible to the Department."

Do you accept those facts?

182.

Mr Gowdy: Yes. The Department is statutorily required to do so by the Health and Personal Social Services (Northern Ireland) Order 1972.

183.

Mr Close: In the light of that do you think that it was right and proper to step back, to adopt a Pilate-like attitude towards the determining of the terms and conditions as indicated in page 21, paragraph 2.2?

184.

Mr Gowdy: This was a political philosophy adopted by the Conservative Government. It was their view that to make the Health Service more efficient it had to be broken up into providers of services and people or organisations who purchased services. This was meant to achieve a competitive environment that would result in efficiencies and costs savings. It was a political philosophy that drove this creation.

185.

As Departmental Accounting Officer, responsible for the money, it is very uncomfortable to have the responsibility, but to have fewer levers of controls than one would wish. That is where I am uneasy about the arrangements. Most organisations in most circumstances deal properly with public money, and I have no concerns about them. We work well together. When you see situations like this and see the public concern, you are very clear that control is needed to avoid those things happening in the future.

186.

Mr Close: Did you feel totally shackled?

187.

Mr Gowdy: Not totally. I did believe that when Ministers issued their requests, as Tony Worthington and then John McFall did, that the organisations would respond. I was disappointed when we did not have the degree of conformity that we expected.

188.

Mr Close: No doubt this was expressed initially to the Ministers.

189.

Mr Gowdy: At the end of 1997, or early in 1998, we discussed the need for public sector pay to be properly controlled, as was happening across the public sector generally. We also discussed how it could be invoked. Under the previous arrangements before the legislation came into effect, the Department could issue a determination signed by me on behalf of the Minister, which was legally binding under the Health and Personal Social Services (Northern Ireland) Order 1972, saying what would happen. We discussed the legal provision as it existed when trusts were set up and we did not have that power.

190.

Mr Close: Do you agree with me then that the prime reason for the confusion and inconsistencies that took place rests on the lack of departmental control?

191.

Mr Gowdy: I do not think so. There was a view in some organisations that they had the power to determine their own remuneration. There were concerns in some organisations about the relativities between themselves and other organisations. Our earlier point about the table in the document detailed how some organisations with large incomes were paying their chief executives considerably less. There was a concern about those invidious comparisons. Some organisations felt that they owed it to their staff to give them reasonable increases. That was not what we expected, and we were disappointed that that happened in some cases. I can only speculate on the motivation of some of the organisations. I would have expected a greater degree of conformity than occurred.

192.

Mr Close: When you were dealing with the section about the difference between size of budgets and salaries paid I recall that you referred to "the complexity of the job" as being a controlling or dictating factor. I am sure you would agree with me that so far as complexity of jobs is concerned, there is no job in the Health Service more complex than your own. That leads one to wonder how you in your particular position felt.

193.

Mr Gowdy: There is none more uncomfortable than mine - apart from the Minister's, I suspect.

194.

It is always difficult when looking at an individual's pay because we have to consider what an individual brings to the job, what talents or expertise he has. You might wish to recognise that people bring particular talents, skills and depth of experience and pay them more than someone raw out of university. There is always a need to reflect upon the individual situation.

195.

The organisations face different pressures in different years. It is often important to reflect that in rewards because people have struggled through problems and have overcome them. There is probably a need for a little bit of flexibility but not one that gets us into the public perception problem that we have here.

196.

Mr Close: In paragraph 2.7, page 22, the report states that when the trusts were first established the majority of senior staff were transferred on permanent contracts from the bodies which were replaced. As the Department had issued guidance on contracts, pay and transfer, which is described in paragraphs 2.5 to 2.7, did the Department check that the guidelines had been complied with?

197.

Mr Gowdy: There was quite significant turmoil in the system because of the changes that were happening. There was a degree of checking, but not in every case.

198.

Mr Close: Could you quantify that degree?

199.

Mr Gowdy: I cannot. I have seen from the papers that there was some checking, but I do not know to what extent that can be quantified. However, we can try to do that if that will be helpful.

200.

Mr Close: Do you agree with me that it could have been superficial?

201.

Mr Gowdy: I would put it as high level, being sure that the framework was there and letting the organisation get on with it. That is the way I would put it.

202.

Mr Close: It would obviously benefit the Committee if we could have a note on that with details.

203.

Mr Gowdy: We will be happy to do that.

204.

Mr Close: What proportion of senior executive staff transferred to the new trust in their existing posts?

205.

Mr Gowdy: We believe it is the majority. I do not have the figures here, but we could collate them quickly and provide them to the Committee.

206.

Mr Close: There was a reference earlier to one in 1996. At what level did that take place?

207.

Mr Gowdy: There was a chief executive appointed to the Ulster, North Down and Ards Hospital Trust who came from the private sector. We had a number of open competitions for some of the other trusts' chief executive appointments. However, successful applicants from within the health and social services system largely took those up.

208.

Mr Close: Was there any form of job creation - any sort of exercise undertaken at an enhanced level of remuneration for the duties?

209.

Mr Gowdy: Trusts were advised that they should engage consultants to have a look at the pay position. I do not have the actual figure, but a number of organisations engaged consultants to get the initial pay provision right.

210.

The Department had requested there be limits applied to any pay increase when individuals moved from one organisation to another. However, the main determination of pay was to be through the review carried out by the organisations themselves.

211.

Mr Close: Can you quantify those substantial means? Were the parameters 10% to 15%?

212.

My Gowdy: They were normally up to 10%, but in exceptional circumstances - if it was a much bigger job for example - they could go up to 15%.

213.

Mr Close: Can we have a note on how that works in practice? I find it difficult to assess how your Department was able to assure itself that key staff were paid appropriately in the light of what you have been saying. You did not give us the evidence enabling us to confirm that there was an appropriate level of pay.

214.

Mr Gowdy: The problem really goes back to this issue of the statutory position of trusts who were left with a legal power to devise their own remuneration arrangements. We could not legally intervene in the setting of those remuneration terms. We tried to set a framework within which they would operate, but the legal power was not with us but with the trust.

215.

Mr Close: I accept that, and that is why I began by speaking about the overriding responsibility. Although legal power lies with the trusts, the Department still has a responsibility to do its utmost to ensure that the correct procedures are followed. I am trying to satisfy the Committee and therefore the public that the Department accepts and responds to its responsibility. People should not think that, because the trust has a legal responsibility, the Department left them to get on with it, not concerning itself with the consequences.

216.

Mr Gowdy: It was a question of giving people the power, authority and responsibility to do things properly. There is no point in having a dog and barking yourself.

217.

We told the trusts that they would have to run the organisation and deal with all the complexities and difficulties. We gave them the responsibility of doing the job properly. We required remuneration levels to be published in annual reports. We picked up on things at that point, but we did not carry out an independent examination of the levels struck for particular jobs.

218.

Mr Close: That was wise, for that is where the buck stops.

219.

Mr Gowdy: In hindsight I should have felt more comfortable if that had been done. However, when people are paid substantial amounts of money, you have to give them the responsibility and let them get on with it without always looking over their shoulder. We were trying to operate with a light touch.

220.

Mr Close: Would it be fair to say that when the trusts were established there was no significant injection of new management with private sector business expertise, and that the existing management was simply paid private sector style increases and bonuses?

221.

Mr Gowdy: I do not believe an injection of private sector management expertise would necessarily be the right answer. Health and social services organisations are businesses, but only up to a point. Much of what happens in these organisations is very complex - they have their own unique style, arrangements, difficulties and management problems to overcome.

222.

The right approach was to translate people's experience from the old organisations into the new. There were a number of open competitions that allowed people who wanted to sell their skills to do so, but few people put themselves forward for the competition. The people who got those jobs were very experienced managers, so I felt happy that we had good people in those positions.

223.

Mr Close: Did those people bring with them - or acquire - additional responsibilities?

224.

Mr Gowdy: Yes.

225.

Mr Close: So was this the justification of the enhanced pay and bonuses?

226.

Mr Gowdy: Yes. The trusts were being created as new organisations. My predecessor placed accountable officer status on them as well, and that makes clear the chain of accountability running from them, through me, to you. They were expected to run their businesses in a fairly autonomous way. They had the responsibility for negotiating contracts, setting prices, negotiating with health boards to provide services and so on, so this was a different category of job from the one before.

227.

Mr Close: Did someone have less responsibility because those people had more? Obviously the Health Service was being run by someone before those jobs were created.

228.

Mr Gowdy: There were differences in the balance. All these organisations continued to provide services that had been there before. The hospitals and social services were still there, so what took place was a reorganisation of the structure. There were some additional jobs created because the system being set up required transactions to be undertaken and accounting arrangements to be put in place. Therefore it was a different type of organisation and way of running the business.

229.

Mr Close: Did some people have a reduction in their salaries because other people were assuming their old responsibilities?

230.

Mr Gowdy: The balance was probably at its most focused where the boards were concerned. They moved from having total responsibility to a commissioning role, but the nature of that role placed different responsibilities upon them too. They were suddenly in a competitive market situation where they had to negotiate.

231.

The net effect of this was to increase the amount of business rather than reduce it.

232.

Mr Close: We are all subject to public perception and to the careless accusation of too many chiefs and not enough indians. Less finance was available for the "coalface", and health suffered as a result of additional responsibilities at the top.

233.

Mr Gowdy: I agree. We saw the creation of a new structure which put in place a whole new raft of management. Suddenly we needed directors of planning and finance in a wide range of organisations. There was therefore a net increase in jobs created. That was a by-product of the way the Government of the day wanted the system to operate.

234.

Mr Close: The cost of termination settlements is put at just over £1 million. In January 2001 the Department of Health, Social Services and Public Safety published the cost of various procedures in 'The Belfast Telegraph'. Bypass cardiac operations cost £7000, hip replacements £2000, knee operations £3011. There could have been 515 hip replacements or 2060 day case surgeries for that £1 million. There could also have been 41 more nurses. How can you justify the value for money?

235.

Mr Gowdy: Value for money is the key consideration in all such matters. It would be wrong to leave the impression that the £1 million was a loss of public money. Most of it was the capitalisation of pensions for individuals who were leaving. In other words their pension entitlement was brought back to a sum which would be attributed to them and which they would have been entitled to anyway having made pension contributions. The £1 million includes a substantial element of pensions which would have to be paid anyway. Therefore that was not a loss to the public purse.

236.

We get some loss in payments in lieu of notice or compensation payments for loss of office. That is a much smaller amount of money and is considerably less than £1 million. We did not see a dramatic bite into the ability of the Health Service to do what it is supposed to do.

237.

Mr Close: What is the current waiting list for hip replacement operations?

238.

Mr Gowdy: I do not know the figure off the top of my head.

239.

Mr Close: Can you give a rough estimate?

240.

Mr Gowdy: There are a few hundred people who have been waiting for more than 12 months. We can provide the Committee with the exact figure.

241.

Mr Close: Would it be a couple of thousand people?

242.

Mr Gowdy: No.

243.

Mr Close: Finally, do you think that people waiting over a year for operations would be satisfied with your reply on value for money?

244.

Mr Gowdy: There would be no comfort in the public domain if they felt that any money which had been wasted could have gone into the provision of the service. Some settlements took resources out of the system, but it was substantially less than the £1 million figure. These cases were the only terminations, apart from one other more recently. There have not been many redundancies, terminations or severance arrangements.

245.

People are entitled to get the pension they have earned over their years of service. The figures here reflect that. I do not believe that we have seen a diminution in the ability of the service to provide the sort of operations to which we have referred.

246.

Mr Close: People are entitled to their pensions.

247.

Mr Bingham: Yes. They are entitled.

248.

Ms Morrice: I was glad to hear Mr Close begin by talking about things other than providers and purchasers. This is also about patients, nurses, doctors, and the "coalface" workers. I should appreciate it if you could you give me an idea of the average salary of a nurse in the Health Service and compare that with the average salary of junior and senior doctors. Could you give me those figures - if not off the top of your head, then in writing?

249.

Mr Bingham: You spoke of the average salary of a nurse, but there are many different grades. A nurse starting, on an E grade, could be on £15,000-£16,000. A G grade, who would be a ward manager, could be on around £29,000. A junior doctor -

250.

Ms Morrice: Are G grade nurses the highest level?

251.

Mr Bingham: No. The highest nurse, a director of nursing, could be on over £40,000 plus.

252.

A junior doctor, with the new settlement we have had recently, could be earning in the region of £35,000-£50,000.

253.

Ms Morrice: How many hours per week for that?

254.

Mr Bingham: It would depend - I honestly do not know.

255.

A consultant's starting salary would be about £50,000, but with merit awards can go up to £120,000.

256.

Ms Morrice: The average earnings in the statistics of 1997 are £70,000-£80,000 for these chief executives. The pay is therefore well above what a nurse receives, with the exception of consultants.

257.

We have discussed a fair level of remuneration and appropriate salaries. How do you gauge this? Does it depend on hours per week? Is it a matter of financial responsibility or of saving lives? How do you value a nurse, a junior doctor and a chief executive and make such a difference in the pay?

258.

Mr Gowdy: All of us who work in the health and social services see our task as providing services for patients, to treat people, save lives and improve their quality. That is what we do. That is the rationale for everything we are trying to do. There are those who work with individual patients - the nurses, the doctors and so on. There are those with overall responsibility for ensuring everything a trust or health service organisation is supposed to do happens.

259.

Nurses' and doctors' pay rates are set on a UK basis. There are pay review bodies who examine the responsibilities, the nature of the task and so on before setting the salaries. We have no freedom to do anything else, for it is a nationally determined set of pay rates.

260.

Ms Morrice: Yet consultants come in and set the salaries of chief executives.

261.

Mr Gowdy: The boards of the trusts and other organisations are responsible for setting levels of pay. It is a complex, difficult and demanding job running such organisations. The chief executives and the senior executives are the people tackling the problems which arise. If a nurse or doctor has a difficult issue, they refer it to the managers, who are the people who must get staffing levels right and deal with all the problems of underfunding and so on.

262.

Ms Morrice: Could a chief executive work as many hours per week as a junior doctor?

263.

Mr Gowdy: Chief executives have contracts which require them to work all the hours needed - I know that in normal weeks they work very long hours. In times of difficulty they work almost every hour available. It is not an easy job when something happens. If you get a major incident or there are problems to be tackled the chief executives and their staff are there doing the business.

264.

Ms Morrice: The salient comparison for me, which makes the issue difficult to understand, is that a junior doctor, who is in charge of saving life and who works long hours has a salary very different from that of a chief executive not in that position.

265.

Mr Gowdy: I do not wish to undervalue the work of nurses, doctors and staff in the social services, for they interface with the patients and do a vital job. I should like to see them properly remunerated, but we are stuck with the national pay arrangements. We are conscious that junior doctors work very long hours. We now have the Working Time Directive, which requires a closer degree of control over the number of hours they work, and we are trying to get them down to acceptable levels. At the same time it is important to remember that junior doctors are in training and learning to deal with patients. They need exposure to the problems that come through the door of the hospital. Some junior doctors have said that the problem is not necessarily the long hours, which enable them to see a large number of patients. Rather it is the fact that they have to work long hours all the time, and they do not feel they are properly valued for what they do. We must get a proper sense of value in the system.

266.

Ms Morrice: They should get the proper reward for what they do. I visited the Ulster Hospital recently and saw trolley waits which are now called chair waits because patients have to sit all night in a chair if they cannot be treated. Nurses told me that they worked overtime because there were not enough staff. I do not believe they even applied for the money for the extra half hour or so they worked. There is also the issue of loss of skills and the need for nurses to be brought in from the Philippines, and so on. This is because the workers at the "coalface" are not getting the rewards to which they are entitled.

267.

Mr Gowdy: We are facing astonishing levels of demand in the health and social services. In the past five years the number of new cases coming through the doors of accident and emergency departments has increased by 11%. Approximately 570,000 cases present themselves at accident and emergency departments each year, and that is reflected in other areas such as the number of in-patients treated, and the number of day patients and community care packages. The demand levels have risen dramatically - by 11% to 15% over five years. During that time the population has only increased by 2%. Levels of demand are far outstripping the resources available to deal with them so the system has to cope with that. The sort of problems you have seen are a reflection of the gap between our funding and the demands for which we have to provide.

268.

Ms Morrice: With regard to the report, the high level of salaries, the contracts and the termination arrangements for the top end of management are totally out of balance with the other extreme, which I shall not call the bottom - the "coalface" perhaps.

269.

Mr Gowdy: We ask everyone to do difficult and demanding jobs, but we ask chief executives and senior executives to manage in adversity. It is relatively easy to manage when you have all the resources and everything is fine. However, when the demand coming through the doors cannot be met, we ask people to manage very substantial problems. They need to be rewarded properly, and indeed all the staff who work in the health and social services and deal with those issues deserve the recognition the public wants them to have.

270.

Ms Morrice: Paragraphs 3.3 to 3.6 of the report state that the former chief executive of Trust A, while keeping within the law, took your Department for a ride by negotiating a maximum settlement, moving to a new job in the National Health Service only a week after the departure, and yet not having to pay anything back. What is your feeling about having been taken for a ride?

271.

Mr Gowdy: It is fair to say that that was a loss of money, and we should have had the power to get it back. Having said that, the individual negotiating the arrangements was left in a difficult position and did his best in the circumstances. At that stage, the normal advice was to go for a rolling contract. The chief executive concerned did not have a written contract, and that made negotiations very difficult. The individual who negotiated tried to insert a clawback provision, and tried to keep the contract as tight as possible.

272.

Ms Morrice: Obviously his best was not good enough.

273.

Mr Gowdy: The trade unions were arguing that there were grounds for legal challenge because the Department's advice had not been introduced formally. The individual quite reasonably felt that the answer would be to take it to the Labour Relations Agency for conciliation. A settlement was then negotiated between the parties.

274.

The real problem lay in that the individual was negotiating with a director who did not release information about his immediate re-employment in a related body.

275.

Ms Morrice: Did anyone ask him whether he had a job in mind?

276.

Mr Gowdy: It was a matter of a negotiation between parties where each was trying to secure the best outcome for themselves. The individual director was not likely to offer such information.

277.

Ms Morrice: Legal costs resulting from the settlement made for the former executive of Trust A, once again meant that money was not available for clinical purposes. What are your views on that?

278.

Mr Gowdy: It is always unfortunate when we have to go to the law to sort things out. It would have been preferable to have had a tight contract in place. I am very critical of the trust for not having given their staff written contracts. Having started from such a base, things were inevitably going to go badly wrong, and they did.

279.

Ms Morrice: Why were clawback clauses not incorporated into the termination settlements of the second former chief executive and the former directors of organisation development and finance of the Ulster, North Down and Ards Hospital Trust, even though the Department had advised that they be included?

280.

Mr Gowdy: I am not sure why that happened. An individual set of contract arrangements had been worked out by the trust at that time. As it turned out, those arrangements were rather generous in the provisions they made for termination. I do not know why clawback clauses were not included.

281.

Ms Morrice: Paragraph 3.70 of the contracts report states that the termination settlement offered to the former director of operations of Board A included a clawback clause, yet the clause was not enforced when he took a job in another body in the health sector. What body did the director go to? Does the Department agree with the auditor and the executive that the body concerned qualifies as a health body?

282.

Mr Gowdy: The individual went to the Eastern Multi-Fund, which was a management group set up to administer GP fundholding in the North Down/Belfast area. It was not funded directly by the Department or the boards. The money came through the GPs, who were receiving payments for running GP fundholding. An argument has been made, particularly by the Eastern Board, that such a body cannot be legally construed as being one that is funded from the health and social services vote. The rule is that we should not be paying when people move between organisations funded from the health and social services vote.

283.

Ms Morrice: Are they not funded from the same vote at Westminster?

284.

Mr Gowdy: It was a similar arrangement, and there was concern when there used to be multi-funds operating in England. The multi-funds in England qualified as Health Service-funded bodies. The Health Service has received legal advice from the Eastern Board that says that it is a challengeable point in law whether a body is Health Service-funded. There is also a letter on file which demonstrates that the individual was given a written assurance before he left the board that he could go to an organisation of that type without penalty.

285.

Ms Morrice: That situation is unacceptable, as has been seen from the public concern expressed. How will we make sure that this does not keep happening?

286.

Mr Gowdy: It is unacceptable. There needs to be a greater consistency in the contract arrangements and a clear understanding that, if there is a move from an organisation funded in the Health Service, a clawback should automatically be made. The Department is using the legal power given to it by the Health and Social Services Bill and is putting a new model contract in place which all organisations will be expected to use as they make new contracts. Those two factors will make a significant difference.

287.

Mr Dallat: References are constantly made to case (A) and case (B), and there are other means to hide the identity of the culprits. Is the Health Department in favour of the Comptroller and Auditor General naming and shaming boards, trusts, chief executives or any individuals who have benefited from public funds and who are not named in the comprehensive and detailed reports.

288.

I should welcome your support for greater public accountability. I have no doubt that the Comptroller and Auditor General would seize the opportunity to do so.

289.

Mr Gowdy: In the current political environment openness and transparency must always be demonstrated. It is not right to hide things. However, I am concerned there might be witch-hunts against individuals who may not have been responsible for the deals struck. The remuneration may have been provided by a remuneration committee and it would be wrong to blame the individual because they had been paid in the way that they had. However, I entirely accept the validity of openness and transparency.

290.

Mr Dallat: Anyone who reads these reports would not believe there could be a witch-hunt. There are scandals contained in the report, and the names of those involved should be made public rather than our spending hours discussing the report without naming those involved.

291.

It may be claimed that Mr Delaney, a representative from the Department of Finance and Personnel, covers the Health Department's back - and all other Departments' backs - in these matters. He ensures that the things which are badly wrong are put right. In the future would you welcome more direct contact with the Comptroller and Auditor General so that the public can be sure that the red tape - that, I believe, currently exists - can be cut with a direct onslaught against the shameful waste of public money.

292.

Mr Gowdy: All my working life in the public sector I have been aware that we are answerable to the body politic. The Public Accounts Committee's role is vital in drawing out those issues, exposing problems and ensuring that lessons are learned. I take that very seriously, and I welcome the scrutiny. It may be uncomfortable sitting in this seat, but it is the right thing to do.

293.

Mr Dallat: I feel this exercise is very useful. However, I am worried about what may happen in the future - how the issues highlighted in these reports will be dealt with, and how we can cut the red tape between your Department and the public auditor, who is responsible for the reports.

294.

In paragraph 4·8 of the report it says

"A number of Trusts employed private sector consultants to advise on their remuneration of Chief Executives and Executive Directors."

How many different consulting firms were employed by the 19 trusts in order to establish that simple fact?

295.

Mr Gowdy: We do not know. As we said, we shall check that information and provide a note for the Committee.

296.

Mr Dallat: Why did the Department not seek out the advice centrally?

297.

Mr Gowdy: When those organisations were established the responsibility for striking remuneration rates was left to those bodies. We operated at a fairly high level - we set some principles at a 10% to 15% point - but we left them to get on with it. It was not seen as appropriate for the Department to do those things centrally, since the political rationale was that they should operate as autonomously as possible.

298.

Mr Dallat: Did you enquire about what was happening in the rest of the United Kingdom? That seems to be an obvious thing to do.

299.

Mr Gowdy: Yes. That was a feature of what was happening in the rest of the United Kingdom. Consultants were engaged to undertake a fair amount of this work, and again it was left to the organisations to do so.

300.

Mr Dallat: But you must be aware that in Scotland it was done by the Scottish Health Department as a single contract.

301.

Mr Gowdy: Yes. We understand that it was done with the agreement of the bodies concerned. We did not go down that route because we were conscious that it was not happening in England or Wales. We did not learn about the Scottish approach until afterwards.

302.

Mr Dallat: In view of that, would you agree that this approach was much better value for money?

303.

Mr Gowdy: I do not know. If you compare the pay of chief executives in Northern Ireland with the pay in England, you see that those in Northern Ireland are at the bottom end of the scale of Health Service pay rates. Northern Ireland has not seen the same mushrooming of salaries as elsewhere.

304.

Mr Dallat: Surely, based on your own admissions today, there is an absolute mess. Anything would have been better than what did happen.

305.

Mr Gowdy: I accept that it was disappointing that some trusts were paying quite substantial increases when public sector funding arrangements were required to be tight and economical. However, we moved quickly to attack and address that problem. We have, as the figures demonstrate, seen a substantial pulling back to a much smaller level of increase than we had at the outset.

306.

Mr Dallat: I know that we are probably repeating things, but Mr Beggs correctly pointed out that the chief executive of the Causeway Health and Social Services Trust, which is one of the smallest he named, was among the six highest paid. You suggested that the existence of the hospital might be a reason for that. I am not sure whether that can be entirely justified, for the public has expressed a good deal of concern about that hospital. Its intensive care unit was closed on one occasion, and it frequently diverts patients to other hospitals.

307.

I shall not go into the details, but I should like a written answer that can better justify why that chief executive should have had one of the highest pay awards of all the 19 trusts, given that it is one of the smallest.

308.

Limits were imposed by the Secretary of State in 1998 and 1999, and that was a relief for everyone in public life because they realised that someone had finally woken up to what was happening. Has the Causeway Health and Social Services Trust fallen into line with those recommendations?

309.

Mr Gowdy: The Department will provide a full breakdown of that information. The Causeway Health and Social Services Trust has been paying within the limits set by the Minister in those years.

310.

Mr Dallat: The NIAO sought legal opinion on a selection of the rolling contracts - as shown in paragraph 4.17 of the contracts and termination report - and on one of the permanent contracts, shown in paragraph 4.22. A number of deficiencies were discovered in both. Will the Department act to correct all the contracts?

311.

Mr Bingham: The new model contract which the Health Service is currently working on has been sent out to employing authorities for comment, ensuring that any loopholes exposed in the report are fully closed.

312.

Mr Dallat: Has any compensation been sought by or been payable to staff who have agreed to change their contracts?

313.

Mr Bingham: No. We have asked those employing authorities who have staff on the rolling contracts to negotiate them. We do not expect there would be any remuneration or compensation for staff changing to a permanent contract, and we would not support them if they did.

314.

Mr O'Connor: Mr Gowdy, how long have you have been Accounting Officer in the Health Service?

315.

Mr Gowdy: I have been the Departmental Accounting Officer since March 1997.

316.

Mr O'Connor: Is it fair to say that most of what has happened has occurred during your time as Accounting Officer?

317.

Mr Gowdy: On the pay issue, yes.

318.

Mr O'Connor: I do not want to slate you for something that is not your fault. Paragraph 4.7 of the contracts and termination report shows that the executive directors of certain trusts were appointed without open competition. In some cases there was to be a limit of 10% of the executive's former salary added to their new salary. Did the Health Department check that the rule was complied with? If so, what did they do about it? If not, why did they do nothing about it?

319.

Mr Gowdy: I cannot answer that. I shall examine the Department's records, but I believe that no check was undertaken at that time.

320.

Mr O'Connor: As Accounting Officer, should you not have had a degree of personal responsibility to ensure that it was done?

321.

Mr Gowdy: As we discussed earlier, we left the organisations to strike their remuneration arrangements because that was the statutory basis on which they were operating. They were all required to list their chief executives' and senior directors' remuneration in their annual reports. It was at that point - in late 1997 - that I became concerned about the pay increases being awarded in some cases. Therefore the Department was checking, but it was after the event.

322.

Mr O'Connor: Do you concede that the pay increases given and the bonuses consolidated into the following year's pay were a means of ensuring that people got more money? They even tried to pervert the figure of 10%, never mind the figures of 2·6% and 2·7%. That was given a great deal of exposure, and there have been various stories of executives phoning the Department and asking if it would be possible to have better cars for senior executives or if they could get away with other ploys. Can you assure us that, if that happened, it was robustly rejected? What is your opinion on the way consolidated bonuses will affect people's pensions and any future termination settlements?

323.

Mr Gowdy: Consolidation was a difficult thing for the organisations to defend. I know that there were differences between different trusts in what the contracts said. There were three or four forms of contract. One was where the individuals got a basic salary and that was all - it was uplifted each year. In the second type of contract there was a basic salary plus a performance bonus, which was consolidated into that basic salary. The third form of contract was a basic salary and performance bonus that was not consolidated. In those circumstances it is easy to see that if a limit of 2.7 had been applied some organisations might have felt that their chief executive and senior executives would be disadvantaged against others who already had a consolidated bonus in their contract.

324.

It is my understanding that that is why some of the organisations felt that they had to do it. However, it amounted to a fairly substantial injection because, as the report says, in some of the instances there was a basic salary uplifted; there was a bonus paid which was then consolidated into the pay; and another bonus was paid. Some of that is because of the accounting conventions where the bonus relates to performance in the previous year and, therefore, it is argued that it should be accounted for under that year. However, I feel that it was all public money, and Ministers were saying, "We want limits applied here", so I find it a difficult point to defend.

325.

Mr O'Connor: I am glad you find it difficult to defend, because I do not believe that there can be any defence of it. To touch briefly on another issue, we see something in the pay report that Mr Dallat and Mr Beggs referred to. The Chief Executive of the Mater makes £67,000 a year, and the Chief Executive of Foyle makes £66,000 per year. The difference is that the Chief Executive of Foyle administers over three times as much money as the chief executive of the Mater. You were talking about people having responsibilities and having to maintain some degree of parity, but surely there is a disparity there. When you look at the money people are making for the work that they do, it appears that, if the person in the Mater is justified in making £67,000 per year, the Chief Executive of Foyle should be earning over £200,000 per year for doing three times the amount of work. Is that what you are saying?

326.

The Chairperson: Are you advocating that?

327.

Mr O'Connor: No. I am not advocating that. I am asking the Accounting Officer if that is what he is telling us.

328.

Mr Gowdy: No, I take your point entirely. It is very valid. We must have a pay system which recognises the difficulty and complexity of different jobs. It is actually very difficult to compare the Mater with the Foyle Trust. They do different things; they have different levels of demand; they have different problems to address. I do not want to say that one was necessarily better or worse than the other. They are both very important components of the health and social services system.

329.

We need a pay system which says a number of features are important in determining pay. One of those is the amount of money you deal with, another is the nature of the task that you have to undertake and a third is your individual contribution to solving the problems which the health and social services face. We need a system which acknowledges these things and makes fair comparisons between people.

330.

What we have seen happening - and you are right to point it out - is that unacceptable variations have occurred as a result of the freedoms in pay introduced in 1991-92.

331.

Mr O'Connor: I should like to stray off the subject a bit, since we are talking about these trusts. For instance, in my area we have the Northern Board, and within that we have the Homefirst Trust and United Hospitals. These are supposed to negotiate with the board for the money they receive. Would you not agree that this is a false set of procedures? The reality is, if United Hospitals do not allow their hospitals to be used, or if Homefirst does not allow its staff or property to be used, then the service cannot be delivered.

332.

The whole idea of tendering and competitiveness is pie in the sky, for there are no alternative arrangements which can be put in place for nurses and doctors to deliver services to people in those areas.

333.

Mr Gowdy: It is important that quite a few services be assessed each year with regard to the population's needs. Regional services will be provided for the whole of Northern Ireland from some hospitals and some of the other services. It is very important that we plan properly to get the right number of staff and the right facilities in place, so that those services can be delivered. The same applies at local level. The Northern Board needs to look very carefully at how many hip operations are needed, what other services will be needed, and then negotiate with the hospitals in their area to deliver them. Plans must take account of the number of nurses and doctors, equipment and all the consumable items which go with running these services. That is why we have a distinction between commissioners and -

334.

Mr O'Connor: I understand exactly what you are saying, but if I decide as a provider to tell the Northern Board I want to charge £10,000 as opposed to £7,000 for doing a heart by-pass, you have no choice but to pay it. There is no other way you can have a service provided to the people in that area, for there is no competition. All this business of negotiation and competition is based entirely on a set of false premises.

335.

Mr Gowdy: I share the view that the system set up was designed to deliver something that cannot be delivered. I do not believe that we can run the health and social services like a competitive business.

336.

Mr O'Connor: So we do not need 19 trusts and four boards any more. What we need is a Department working in conjunction with the Departmental Committee to deliver services to the people of Northern Ireland and reduce the fiasco of maladministration we have seen over the past four or five years.

337.

Mr Gowdy: We must look very carefully indeed at how we organise our services in future. The current arrangements need to be assessed. The Executive has announced that a review of public administration will be undertaken. I cannot say what the outcome will be.

338.

Mr O'Connor: But you will ensure that your voice is heard in that context?

339.

Mr Gowdy: I certainly want to make all the points about getting our system right.

340.

Mr O'Connor: We have already touched on the issue of clawback. It is encouraging to see on pages 52 and 53 of the contract report that the number of permanent contracts has increased, while the number of rolling contracts has dropped significantly.

341.

In the context of permanent contracts, do you see any potential for the idea of a fixed-term contract to ensure that the best person is in the job at any given time? If someone has a permanent contract, there is no contract renewal incentive.

342.

You have said that the number of rolling contracts has come down to 18. We welcome that information, but when was the last rolling contract put in place?

343.

Mr Gowdy: Concerning the first point, it is exactly as you say. A fixed-term contract was previously seen as a good way of ensuring people recognise that, unless they perform well, their contracts will not be renewed. There is a legal problem about fixed-term contracts. If the job continues beyond the fixed term, the individual has some contractual rights which can be carried forward. It is only if someone is doing a job for a particular period after which the job ends that there is no legal case.

344.

Mr O'Connor: In any given circumstances in Northern Ireland, the Health Service is always changing. There are always new responsibilities. Even your own responsibilities are not the same today as they were a month ago. The reality is therefore that a new set of circumstances could prevail at any time which would allow you to change anybody's contract.

345.

Mr Gowdy: The point that you are making is very valid. We have got to make sure that people who are earning the sums that we are discussing feel the cold draft of accountability on their necks. If they are not performing, questions should be asked about their continued employment. All of us understand that as a principle. We do not necessarily need to have fixed-term contracts to achieve that. We need performance systems which address the issues.

346.

Mr O'Connor: You talked about legal advice and said you currently have 18 rolling contracts. Do you anticipate that, if you came to another Public Accounts Committee meeting this time next year, you would be able to tell us that the figure has been significantly reduced?

347.

Mr Gowdy: I certainly hope so. We are seeing a reduction. We are trying to encourage people to negotiate onto permanent contracts. As I was saying earlier, we want to be very careful not to incur expenditure in doing so. We have to move carefully, for people have contractual rights. I am confident we shall see a substantial decrease by this time next year.

348.

Mr O'Connor: Paragraphs 1.10 and 3.43 of the Comptroller and Auditor General's report state that some of the termination settlements placed "onerous" demands on the Health Service, and Ms Morrice referred to it. Obviously trade union representatives are there to get the best deal for their members. Are you confident that we have learned lessons and that people will be queried about their job prospects and whether they have negotiated? I know you dodged the issue when Ms Morrice asked you, but do you feel that when a termination has been negotiated the first thing which must be taken into account is that every pound that person gets is a pound less for patient care? People should deal with the termination of contracts as if the money were being used to treat their own mother in hospital. It is money that is treating somebody's mother in hospital. We talk about money - a few thousand here, a few thousand there. The Health Service is a large organisation and a drain on public resources, but is extremely important to people. We must show them that it is a caring organisation, and that any performance-related pay is based on genuine performance.

349.

In my own area, Homefirst, occupational and speech therapy are a total disaster. The waiting lists are probably the longest in Northern Ireland. Nevertheless, the chief executive gets performance-related bonuses. This cannot go on. We have to call a halt somewhere. I agree that people should be paid for what they do. However, at the moment we seem to be paying private sector wages for public sector accountability.

350.

Mr Gowdy: I agree that lessons have been learnt from this. It is clear that we need written contracts everywhere. We need the ability to claw back money in circumstances where someone gets a job elsewhere in the Health Service. We must be very clear that the contract should be on a uniform basis so that we have consistency in our approach. Those contracts should be ones which everyone feels will provide the best value for money for the Health Service as well as protecting the rights of the employees, which is also an important issue.

351.

In relation to pay, there is a clear message in all of this that freedoms can never be unfettered. We must have accountability and control. We need a greater degree of consistency, openness and fairness about the way in which the pay system operates.

352.

The public must feel confident that people are being remunerated fairly and that money is not being diverted away from patient care, but being used properly.

353.

We want to recognise the skills and the value of the staff at every level in the health and social services. Therefore, we need to pay proper rates of pay for that. We have learnt that we need legislative power to ensure that things happen if they are not going to happen of their own accord. We certainly need a system with which you and we feel comfortable, and which is fair and reasonable.

354.

We need to have a new pay system in place and to work closely with all the organisations in the health and social services - both at senior management level and at board level - to make sure that there is an understanding of the importance of managing public money properly.

355.

The Chairperson: Earlier you told us, or you reminded us, that this question of trusts was the Conservative Government's idea. [tape erased]

356.

Was there any discussion or concern in your Department that the matter would lead to such a free-for-all? Was your Department not concerned about it especially in pay and salaries?

357.

Mr Gowdy: When the Conservative Government established trusts, the goal was seen as getting greater efficiency out of the system. Finding a way of managing things in a way that would drive the cost down would produce more money to be used on services. Competition was seen as the way to do that but it drove costs up and got us into problems about the exercise of freedom, for people will exercise freedom the way they feel they should.

358.

By definition the exercise of freedom by different organisations will mean that variations will creep in. Those variations have left us with what we have seen here regarding contracts, termination arrangements and the pay rates people get in different organisations. You might wonder why they are so different when they look like they are much the same animals.

359.

The Chairperson: I am not sure whether that answers the question of what they had concerns about at the time.

360.

Mr Gowdy: I was not there at that time. I do not know what precise concerns our predecessors had in the early 1990s. The Department was working under the political instruction of the Ministers of the day, who genuinely believed they would produce a much more efficient system. The emphasis was on making that happen.

361.

The Chairperson: The members have all had a chance to ask questions, and you have answered very well. You will be pleased to hear that the Deputy Chairperson wants to ask you one or two more questions. Mr Beggs also wants to put a question. You have been very forthright in your answers up to now. You have earned the right to be brief in your future answers.

362.

The Deputy Chairperson: I have a number of questions. I shall accept some of the answers in writing. How many chief executives got bonuses due to performance related pay? What was the performance they carried out?

363.

You said that trusts had no written contract and that it was not legal. Were the people involved in this case disciplined? If not, are they still working for the same trust?

364.

Can we have a list of the trusts and boards not complying with the recommendations? The Minister, as far as I am aware, appoints these chairpersons. How many of them are still in position?

365.

The committees you say were set up under non- executive directors are also appointed by the Minister. How many of those non-executive directors are still in position?

366.

You say that many chief executives spend a great deal of time in Northern Ireland. In the Eastern Board, in the last four years, chief executives have spent 541 days outside the North. If they remained within the North, they would not have to spend as many hours involved in their jobs.

367.

The Chairperson: When you talk about the North, do you mean Northern Ireland?

368.

The Deputy Chairperson: I mean the North of Ireland.

369.

Mr Gowdy: We have all that information about the performance-related bonuses and so on, and we shall write and let you know. The individuals involved in the Trust A case - those who were responsible for the contracts issue - are no longer there. We shall be able to provide you with the information on the other issues.

370.

There are questions which need to be asked about days spent outside Northern Ireland. I do not necessarily take the view that people should not go to meetings and visit other places if they bring back lessons and there is a value in doing so.

371.

Mr O'Connor: They are always on courses - golf courses.

372.

Mr Gowdy: Not to my knowledge.

373.

The Chairperson: The Public Accounts Committee actually went to Dublin recently to try to learn some lessons.

374.

The Deputy Chairperson: Not for 541 days.

375.

The Chairperson: If there are any questions which you did not answer, please let us have those in writing.

376.

Mr Beggs: The Public Accounts Committee is about examining the failings of the past and drawing out lessons for the future. You mentioned we are approaching a review of public administration, and many people will believe that this will heavily involve health boards and trusts.

377.

What is your Department - and through the Deputy Treasury Accounting Officer what is the Treasury - doing to minimise expensive termination costs in any new contracts which may be entered into over the next year or two? Will new contracts be designed with that in mind, and what obligations will there be for boards and trusts to follow the guidelines the Department may wish to set?

378.

Mr Gowdy: We are very conscious of the risk that any change or reorganisation could lead to very significant costs. There are one or two ways we are looking at, and that is without knowing what the outcome will be because that will obviously be a very important determining factor.

379.

We have a unit in the Department which tries, in any reorganisation, to provide opportunities to move from one job to another. It is a sort of brokerage arrangement, and we see that as being a most fundamental part of any change, enabling us to say to people that, although their job is no longer there, there is another opportunity here. It may be at a different level, and the people affected may have to accept that they are going to be at a lower level, but a job will be there.

380.

We shall try to ensure that costs are minimised in that way. We shall also want to be very careful about the contract arrangements. It is important for us that we get the rolling contracts as low as possible so that, if there are any terminations to be made, we minimise the costs.

381.

Mr Delaney: The Office of the First Minister and the Deputy First Minister is leading the review of public administration. All Departments will be inputting into that, and it will be a very important process.

382.

We have already agreed with the Department that we shall provide an input into the type of new model contracts talked about. They have their own people and experts who can look at that, but an additional look at the clauses and issues raised by the Department of Finance and Personnel can give an extra assurance that the legal terms under which people are employed are clear and unambiguous. We do not want to get into legal squabbles over what exactly is involved, and we want to remove some of the more contentious clauses you have covered today.

383.

We can see a large number of issues and a good deal of homework from what we have to do with the Department and, indeed, the Comptroller and Auditor General's Office. We must study carefully the report your Committee is making today. We shall be very active in bringing that forward. I am not sure if you want me to go into other points.

384.

The Chairperson: I am quite content with your answer.

385.

Mr Beggs: I take it that you would not want to be back here in a number of years running exactly the same report.

386.

Mr Delaney: Absolutely. One of the issues opening up in Government, and one of the benefits that has been covered by the Department, is local accountability. It is making us address corporate government and accountability issues. Are we getting value for money, and can we remove red tape? At the end of the day on this particular issue, are people paid fairly, and are they open on how that happens? These are key issues for the Department and also, generally, for the Department of Finance and Personnel.

387.

The Chairperson: Mr Dowdall, do you wish to make any comment?

388.

Mr Dowdall: I do not wish to comment, but one point might be helpful. Mr Gowdy mentioned, in response to one of Mr Close's questions, that only four termination settlements had been reported on but that there had been one other recently. It would help the Committee in formulating its report if it had a complete overview of termination settlements. Will the Department provide details of that other settlement?

389.

Mr Gowdy: Yes.

390.

Mr O'Connor: Mr Gowdy mentioned something about model contracts. Is there going to be a departmental lead given to the trusts and boards on all aspects where they have a legal responsibility? We saw about 23 different equality schemes. In future will the Department produce an equality scheme they can all adapt to their own needs, rather than costing the service thousands of pounds. We appreciate the need for equality and equality schemes, but to have 23 different ones seems completely daft. We see, in all these different equality schemes, the potential for equality schemes to raise their head in future.

391.

I am happy enough to accept a written answer.

392.

Mr Dallat: Chairman, is there any other business?

393.

The Chairperson: No, not during the public session. If there is any other business you want raised let us know, and we will raise it at the next meeting next week.

394.

Thank you for your attendance and forthright answers. This Committee acknowledges the good work the Health Service does on a daily basis and the constant demands on your services. We feel that is all the more reason why money spent on the Health Service should be spent well, and that point has been made during the session.

395.

I am sure that it is something the public, and certainly this Committee, will keep a close watch on. The next time you come here you will perhaps be able to defend this in more stringent terms. Though your defence and answers were impeccable and forthright, there were times where you had a little difficulty as far as the content was concerned.

Written Submissions

During the Public Accounts Committee evidence session on 22 February on NIAO Reports on Health and Personal Social Services Executive Directors Pay and Contracts and Termination Settlements, I undertook to provide members with additional information on a range of issues that they had raised. This information has now been compiled.

I enclose at Annex A in tabular form details of the basic salary, performance-related pay, the taxable benefits of leased cars or car allowances and the employer's superannuation costs for the Chief Executive and Directors (other than Medical Directors) in each Health and Social Services Trust. These figures represent the financial transactions relating to each individual in each year of the Trust's operation.

In some instances these figures do not correspond with the figures published in the Trust Annual Report and thus in the Northern Ireland Audit Office Report. As I explained to the Committee during the evidence session, this is due to the fact that some Trusts used an accounting convention in compiling their Annual Reports whereby payments made in one financial year relating to an earlier period are accrued to the earlier year for accounting purposes. The tables at Annex A, however, have been compiled on a consistent basis, whereby the figures all relate to the decisions on remuneration made in the year in question.

The benefits identified for car leases are not cash payments to the individual but are the Inland Revenue assessment of the taxable benefits of a leased car, as determined in accordance with Inland Revenue rules P11D. In those cases where car allowances have been paid, the benefits identified are the actual sums paid.

A number of letters and press statements were issued by the Ministers, John McFall and Tony Worthington, in relation to the pay restrictions for Senior Executives in the 1998/99 and 1999/00 years. During the course of the 1998/99 year the Department received one letter from the Chair of the South and East Belfast Trust expressing concern about the Minister's 2.7% restriction on pay increases in the 1998/99 year. Copies of this correspondence (which were copied to all Trust Chairs for information) are attached [Annexes B, C & D].

There was however a significant amount of correspondence on the 2.7% restriction between the Department and the Trust Chairs throughout the monitoring process that took place after the 1998/99 year had ended.

Details of the Trusts operating a car lease scheme are set out at Annex E. Over half the Trusts operate Car Lease Schemes for Chief Executives and Directors. Under the Car Lease Scheme the individual is offered a three-year lease covering the cost of a base car, road tax, insurance and regular servicing.

The Committee requested details of the type of car leased and the taxable benefit to the individual as assessed by Inland Revenue; this information has also been included in Annex E. In total, 43 leased cars, 1 emergency vehicle and 9 car allowances are provided.

The Committee asked for an explanation of how the "slotting-in" of existing Directly Managed Unit General Managers and Directors into the post of Chief Executive and Directors in the new Trusts had worked in practice. On the establishment of each new Trust, a chair and (usually) five non-executive directors were appointed to oversee the instigation of the business of the Trust. Chairs and non-executive directors received induction training from the Department and were advised that their first task was to consider making appointments to the posts of Chief Executive and the other executive director positions. As part of the process for considering applications for Trust status from former Units of Management, the Department commissioned studies of each organisation from independent Management Consultants with considerable experience of management within the NHS. They were asked to advise on the management capacity and capability of the management team as a whole and of the individuals making up that team. These reports were shared in confidence with the Chair of each new Trust and formed part of the decision-making process in considering executive appointments. In most cases, the existing General Managers and Directors were then "slotted in" to the new Trust management positions.

The Committee also asked for details of the number of Chief Executive and Director posts that were filled by candidates from the private sector. A summary of the Chief Executive/Director posts filled by open competition is at Annex F. One Trust Chief Executive post, at the Royal Group of Hospitals, was filled by open competition on establishment in 1993. In this instance, the incumbent Unit General Manager at the Royal Hospital was successful. In addition, a total of 44 posts (2 Chief Executive and 42 Director posts) have been filled by open competition since Trusts became operational. Four of these posts were filled by candidates external to the Health and Personal Social Services. These include:

• Mr Orr-Burns appointed as Chief Executive at the Ulster Hospital Trust in 1997. Mr Orr-Burns was a qualified Accountant and previously worked as manager for Mobil Oil in Malawi.
• Mr L A Stead was appointed as Director of Finance in Craigavon Area Hospital Trust in September 1994. His previous employer was Northumberland County Council and prior to that he held the post of Financial Director/Company Secretary for a private sector company in Manchester. His earlier experience included a variety of financial management positions within ICL, Cawoods Fuels Ltd and Short Bros.
• Mr Steven Hare was appointed Director of Human Resources in the Northern Ireland Ambulance Trust in October 1995. He was a member of the Institute of Personnel and Development and was previously employed by the Training and Employment Agency.
• Mr Aidan Sherrard (MIPD) was appointed as Director of Human Resources in the Northern Ireland Ambulance Trust in August 1997. He was previously employed as Director of Personnel and Corporate Services in the Northern Ireland Electricity PLC. Prior to this he worked with the Southern Education and Library Board.

I can now confirm that 15 Trusts engaged consultants to advise on the remuneration of their Chief Executive and Directors. The companies engaged were PA Consulting (7 Trusts), Hay Management Consultants (6 Trusts), KPMG (1 Trust), After Today Partnerships (1 Trust). A breakdown of this information is at Annex G.

As already noted, Trust Chief Executives were appointed in the main through the "slotting in" of the existing Unit General Manager. The decision to do this was approved by the Chair and the non-executive Directors of the new Trust and, provided they were satisfied that the Unit General Manager was the right person to be Chief Executive, then the "slotting in" process was applied. If a Unit General Manager was slotted into the Chief Executive post, the Department's advice was that the Unit General Manager's salary might be enhanced by up to 10% (exceptionally, up to 15%) to recognise the additional responsibilities associated with the post of Chief Executive.

The Department did not carry out a formal monitoring exercise at that time to ensure that this guidance had been adhered to. Subsequently, in 1994, the Department issued guidance on Corporate Governance issues which required Trusts to publish in their Annual Reports details of the remuneration paid to or on behalf of the Chair, Chief Executive, Executive members and Non-Executive members of the Trust.

The Department did recommend that Trusts should seek expert advice on the appropriate level of Chief Executive's pay and a number of Trusts did seek expert advice, as detailed in Annex G. The percentage increase actually awarded by each Trust is shown at Annex H.

The Committee also raised the question why the Chief Executive of Causeway HSS Trust received a salary greater than that of other Trust Chief Executives who had responsibility for much larger budgets. The Department had no role in setting the Chief Executive's salary. It was the then Remuneration Committee of the Causeway Trust, on advice from Management Consultants, which took the decision where the Chief Executive's salary should be pitched and the Department has not been able to determine the extent to which any such comparative judgements were made. It is fair to make the point, however, that salary levels are not based solely on the size of budget managed but will also reflect factors such as the complexity of the job and the skills, experience and expertise of the individual appointed.

Trust Chief Executive remuneration packages provide for basic salary, access to performance-related pay, leased cars and pension contributions.

The purpose of performance related pay is to reward managers who achieve a more than competent standard of work. All Senior Managers in the HPSS have a set of objectives agreed by their line manager for the year from 1 April to 31 March. Managers are subjected to an Individual Performance Review where their performance for the year is measured and ranked in one of 5 bandings according to how successfully their objectives have been met. Trusts used their pay freedoms to develop individual performance management systems.

Trust Chairs and Non-Executive Directors are appointed by the Minister. Appointments are generally for a period of four years, with a maximum period of appointment of eight years permitted.

The Department's Corporate Governance guidance also required Trusts to establish Remuneration Committees, comprising the Chief Executive and two Non-Executive Directors to advise the Board about remuneration and terms and conditions for Chief Executives and other Executive Directors. The Chairs and Non-Executive Directors responsible for making pay awards to Trust Chief Executives in the 1997/98 and 1998/99 years were permitted to continue with their appointment until the end of their respective period of appointment. Three Trust Chairs have recently been replaced having completed full terms of office.

Details of the HSS Trusts deficits during the period April 1993 to April 2000 are at Annex I.

In drawing up contracts of employment, 10 Trusts sought advice from the Central Services Agency Legal Department, 3 Trusts engaged the services of Solicitors Brangham Bagnall & Co, 1 Trust sought advice from Hay Management Consultants and the remaining 5 Trusts did not seek legal advice. A breakdown of this information is at Annex J.

In the case of the termination settlement for the Chief Executive of the Ambulance Trust, the company Flexiskills Recruitment was engaged to assess future employability. This company has not been used by any of the other Trusts and I understand that it is no longer in operation.

In the course of the evidence session, I mentioned that, since the NIAO Report on Executive Directors' Contracts and Termination Settlements, there had been one further termination settlement that the Department had monitored. Mr Dowdall had felt that it might be helpful for the Committee to have an overview of all termination settlements made and asked that details of this settlement be provided. The case I mentioned related to the Director of Children's Services in the Homefirst Community Trust.

The contract of employment allowed for up to twelve months' pay in lieu of notice and, for officers over 50, consideration of early retirement benefits. The person took early retirement on the grounds of ill health in February 2001. The total settlement came to £75,570: £70,000 was paid to the Senior Officer concerned, £5,405 was paid in legal fees and £165 for a psychiatric examination and report. He was found medically unfit and therefore had an entitlement to make application to Superannuation Branch in relation to early retirement on medical grounds. He received a pension and lump sum in line with his entitlements under the HPSS Superannuation Scheme. He agreed to vacate his employment with the Trust on the basis that the Trust paid him a sum of £70,000 as compensation in respect of all obligations, which the Trust may have. This payment was also in full and final settlement of any and all claims which he may have in relation to statutory entitlement, contractual rights, or at common law against any or all officers or members of Homefirst Community Health and Social Services Trust, or the Northern Health and Social Services Board. A settlement over and above his pension entitlement was felt necessary by the Trust in light of the litigation being brought by the employee. The proposed settlement was seen and approved by the Department.

As Public Authorities in their own right, Health and Social Services Boards, the HSS Trusts, the Special Agencies, the HSS Councils and the Fire Authority were each required to produce an Equality Scheme for submission to the Equality Commission. (Guide to Statutory Duties, Equality Commission for Northern Ireland - Chapters 3,4 and Appendix 3).

There has, however, been a great deal of sharing of information and best practice in taking forward our Equality duties between the Department and its associated bodies. This includes the work of the Health and Social Services Equality Liaison Group which the Department established and which is currently co-ordinating the two Stage consultation on the prioritisation of policies for equality impact assessment.

The Department intends that this HPSS-wide collaborative approach to fulfilling our statutory equality obligations will continue and can give an assurance to the Public Accounts Committee that this will include any future development of Equality Schemes.

ANNEX A