Mr. Nicholson: I am struggling now.

Mr. Khan: My point is this: bearing in mind your answer to Helen about the bottom right-hand corner, is it not inevitable that there will be some variation?

Mr. Nicholson: For the NHS as a whole, there should be a surplus, not a deficit. That is the only way that we will be able to manage all the organisations operating in the system.

Q40 Mr. Khan: What surplus would you look for-0.3%, 1%?

Mr. Nicholson: It must be realistic. There would be nothing worse than just plucking a figure out of the air.

Q41 Mr. Khan: Let us look four years forward. No, let us look three years forward-if the Conservatives win, there will be £19 billion of cuts four years forward. What would be a realistic figure for a healthy surplus three years forward?

Mr. Nicholson: It is not something that I have considered.

Q42 Mr. Khan: I am sorry, but, flippancy aside, do you not think that you should be considering it?

Mr. Nicholson: I agree.

Q43 Mr. Khan: You are saying that we should be looking for a surplus, that it is hoped to break even within 18 months. Is that fair?

Mr. Nicholson: We expect to break even this year and have a surplus next year.

Q44 Mr. Khan: What surplus do you expect next year?

Mr. Nicholson: Something in the order of £250 million.

Q45 Mr. Khan: What is that in terms of percentage of overall spend?

Mr. Nicholson: It is just over 0.3%.

Q46 Mr. Khan: What about the year after?

Mr. Nicholson: Depending on how we do next year, I would expect that 0.5% might be appropriate.

Q47 Mr. Khan: Thank you for that.

One of the criticisms is that there has been huge monetary investment, and one cannot argue about the investment. You started listing the performance improvements-your list was much longer but you were cut short by the Chairman. I accept that there have been huge increases, but the argument and challenge that are made is that the improvements have not been proportionate to the investment. I am sure that you have heard that criticism. How does one assess whether the improvement is proportionate to the money invested?

Mr. Nicholson: One way to measure that is in relation to whether you are delivering your objectives. Most if not all the major objectives that we identified for ourselves over the past few years have been delivered.

Mr. Khan: May I stop you there? This is on the same issue. I assume that you allude to targets. Some people call them national strategies, but we call them targets.

Mr. Nicholson: There are issues around cancer, coronary heart disease, mortality, the number of hospitals built and waiting times.

Q48 Mr. Khan: So if you can tick all those things, there is value for money.

Mr. Nicholson: That is one aspect. The second is productivity: whether we are getting more from every pound that we spend than we have in the past. On some crude measures, the story did not look so good, but you will be aware that the Office for National Statistics took into account quality and the shift to primary care and decided that the NHS improved its productivity overall by about 1.6% over the past five years. We need to increase that-I think that we can do better-but that is the position.

Q49 Mr. Khan: Following that through, my trust has a budget deficit of £21 million. On the criteria that you mentioned, it has saved thousands of lives through treatments for cancer and other illnesses. More patients are going through the hospitals than ever before and more lives are being saved, but it has a huge deficit.

My trust tells me that it has a better financial regime and can see funding problems-there is more transparency-but that it can no longer do what it did previously, which was simply to lift from capital to revenue. Nor can it use next year's money to subsidise this year's problems. Are you suggesting that once my trust gets down to zero and then goes forward, it will be giving value for money and the proportionate improvement will be commensurate with the money invested?

Mr. Nicholson: I am not saying they are not giving us value for money now, because I suspect they are. We are not saying to St. George's, which is in deep difficulties, as are a number of other organisations, "You have to balance straight away." We are saying, "We need to work with you to ensure that the plans for cash release in cost improvements is on a deliverable timetable."

Q50 Mr. Khan: One of their criticisms is that they originally agreed to meet their nil deficit in three years, but they were then told by the SHA one year into a three-year programme that the target was two rather than three years. Their three-year plan was brought forward by a year, which meant that savings could turn into cuts. Instead of the previous position in which they could guarantee that there would be no adverse clinical consequences, there is now the potential for adverse clinical consequences. What was the reason for bringing forward the time scale?

Mr. Nicholson: We will always try to push organisations as far as we can. As you know, the NHS has a long history of setting out reasons why issues cannot be dealt with, and we were keen to drive that forward. There was a negotiation about it.

Q51 Mr. Khan: What happens if they are not in nil deficit and still have a deficit next year?

Mr. Nicholson: I am confident that they will do it.

Mr. Khan: So am I. What happens if they do not?

Mr. Nicholson: Well, we will have to talk to them about it.

Mr. Khan: Right. That sounds ominous.

Mr. Nicholson: Sorry; I did not mean to sound ominous. Either the planning was not right, there is something that they have not done that they should have done or circumstances changed in such a way to make it difficult for them.

Q52 Mr. Khan: How do you disperse the information that you receive from your turnaround teams to other trusts that could benefit from it?

Mr. Nicholson: In a whole series of ways. The finance directors, through the SHA, share that information; a quarterly newsletter comes out from the national turnaround office; and, in different parts of the country, there are what are euphemistically described as "recovery clubs" for organisations that get together to share good practice.

Q53 Mr. Khan: Do you think St. George's will be in a position to apply for foundation status by 2008?

Mr. Nicholson: Yes.

Q54 Mr. Khan: Okay.

This is my final question. In the report you talk about everyone in the business understanding the importance of financial management. Is that a fair summary?

Mr. Nicholson: Yes.

Q55 Mr. Khan: How are you going to do that? How are the cleaners in the wards, the nurses and the junior doctors going to understand the importance of financial management?

Mr. Nicholson: There are two ways in which it works. First, it starts at the top with management teams and the boards of organisations-all boards, medical directors, nursing directors and all the rest of it-understanding the consequences of what they are doing. We are doing a lot of work on that. Secondly, the transparency helps a lot-it is clear now for organisations. One thing that I have noticed over the last six months going around NHS hospitals is that there is a lot of understanding from clinical and other staff about the implications of payment by results. I am sure you will not be amazed at the number of experts there are in hospitals now on how it all works. The level of understanding is growing significantly.

The other issue is at the micro level, where people ask, "What are the financial consequences of decisions that I, as an individual, take?" There is evidence that people are picking that up, too. That is an important part of the message.