“So far, £768 million has been wasted on this failed reorganisation.” -Tom Blenkinsop MP (Lab)

“I am afraid that that is a further repetition of invention by Labour Members, who appear to have been given one or two figures of their own. It is complete nonsense.” -Andrew Lansley

House of Commons, 14 June 2011

The wisdom of the NHS reform plans was called into question by a number of Labour MPs this week, who attacked Health Secretary Andrew Lansley for 'wasting' three quarters of a billion pounds by forging ahead with his plans.

In addition to Mr Blenkinsop's complaint, Barnsley East MP Michael Dugher also placed the level of 'waste' at £768 million on twitter. Meanwhile, Labour's Member for Warrington North Helen Jones said Mr Lansley “has now spent more than £760 million on a botched reorganisation”. Mr Lansley responded by claiming “most of that was pure invention, including all the numbers.”

So where does the number come from? It first appears in an answer to a Parliamentary Question given by the Health Minister Simon Burns on 7 February.

The response notes that “the Government estimates the redundancy costs as £768 million for primary care trusts and £84 million for strategic health authorities,” and refers members to the Department of Health’s Impact Assessment (pdf) for further details.

Mr Burns noted in a subsequent answer to the same question in the Commons that the Government is working on the basis that 60 per cent of workers will be transferred to similar jobs in the new commissioning and arms length bodies being created. Redundancy costs are only forecast to be incurred for the remaining 40 per cent of workers.

In fact, the Impact Assessment reveals that a number of scenarios have been envisaged, with the Government producing forecasts for redundancy levels between 30 and 50 per cent. Across all NHS bodies, it is expected that 40 per cent redundancy levels would cost just over £1 billion, with PCTs bearing £768 million of this.

Interestingly, the Department also calculates a number of other costs not linked to redundancy payments incurred by the reorganisation, totalling £377 million. A 'worst case scenario' could therefore cost the Department of Health just shy of £1.7 billion.

By focussing on one part of the projected redundancy costs – the mid-point estimate for PCTs – the Labour MPs could therefore be underestimating the eventual cost of the reorganisation.

However that is not to say that the figure they have settled upon is correct, at least not in the way that it is currently being used.

This is because the £768 million figure refers to the total eventual cost forecast to be incurred once the redundancy process has been completed. As PCTs are expected to be in existence until at least 2013, the figure is not an estimation for how much has been spent “so far”.

While it isn't clear exactly how many redundancies have already been made, the Impact Assessment suggests that the “cost is assumed to be incurred predominantly in 2011/12 and 2012/13.” (It is also important to note that the Impact Assessment itself dates from before the listening exercise and subsequent recommended changes, and the dates and estimated costs may therefore be subject to change.)

We've been in touch with the three MPs that have used the figure to clarify the issue, and have also put our findings to Labour's Health team, and will update as soon as we've received a response.

UPDATE- 29 June 2011: Labour Leader Ed Miliband today used a different figure for the total cost of making redundancies as a consequence of the NHS reforms: £852 million. This is calculated along similiar lines to the £768 million figure mooted here, but tacks on the cost of job cuts in Strategic Health Authorities. As the Impact Assessment makes clear, the £852 million estimate again uses the assumption that 60 per cent of staff losing their jobs will transfer to other positions in the new administrative bodies.