Health and Social Care (Community Health and Standards) Bill

Public Bill Committee, 3 June 2003.

Standing Committee E

Clause 14 - Authorised services

John Hutton (Labour, Barrow and Furness)

I beg to move amendment No. 148, in

clause 14, page 6, line 14, leave out from 'for' to end of line 17 and insert

'purposes related to the provision of health care.

( ) But the authorisation must secure that the principal purpose of the trust is the provision of goods and services for the purposes of the health service in England.'.

Win Griffiths (Labour, Bridgend)

With this it will be convenient to discuss the following:

Amendment (a) to the proposed amendment, in

line 5, leave out 'in England'.

Amendment No. 2, in

clause 14, page 6, line 18, leave out subsection (3).

Government amendment No. 149.

Amendment No. 3, in

clause 14, page 6, line 23, leave out 'or require'.

Amendment No. 4, in

clause 14, page 6, line 27, leave out subsection (6).

Amendment No. 5, in

clause 14, page 6, line 37, leave out subsection (7).

Amendment No. 11, in

clause 15, page 7, line 18, leave out subsection (5).

Government amendments Nos. 256, 257 and 259.

John Hutton (Labour, Barrow and Furness)

Amendments Nos. 148 and 149 take us back to that happy time long ago when we started deliberations on this Bill, and to an issue that hon. Members on both sides of the Committee have raised and to which I promised to give further consideration.

Under clause 14(1) and (2), the regulator has discretion over whether to authorise NHS foundation trusts to provide goods and services, for purposes relating to health care, that are not provided to the NHS in England, including services to the NHS in Wales, Scotland and Northern Ireland. There is a proviso that their principal purpose is to provide health care services to NHS patients in England.

The effect of amendment No. 148 would be to remove any discretion that the regulator had about the provision of other health care services. It says that every NHS foundation trust must be authorised to provide health care services, including services for NHS patients from other parts of the United

Kingdom. As with the current clause, it is subject to the requirement that provision of services to NHS patients in England remains the principal purpose.

As we discussed what seems to have been a long time ago, the Bill will allow for people who live on the borders of Scotland to be treated in an English hospital if that is most convenient. More importantly, it allows for NHS patients from any part of the UK to receive care in national specialist facilities in England, if those facilities are being provided by an NHS foundation trust. I hope that that issue has now been put beyond any reasonable doubt.

That is also why I urge the Committee not to accept amendment (a), tabled by the hon. Member for West Chelmsford (Mr. Burns), which would delete the words ''in England'' from the revised text of clause 14(2). I hope that the hon. Gentleman will appreciate from my remarks that that is simply not necessary.

It may be that the hon. Gentleman intended his amendment to have a completely different effect, which was to make sure that NHS foundation trusts can be established for the purpose of providing health care services other than in England. That is not what we intend, as it is a devolved matter. As the hon. Member knows, the NHS in Wales and Scotland is a matter for the Welsh Assembly and the Scottish Executive, respectively, and they have made their position clear.

Government amendment No. 259 is a purely technical amendment that gives NHS foundation trusts the same powers as NHS trusts to provide accommodation and services to NHS patients. There is nothing new in this provision. Similar provisions have applied in the NHS since the National Health Service Act 1977; section 63 is the relevant provision. Obviously, foundation trusts will be limited to using these powers in a way that complies with the terms of that authorisation.

The new subsection 14(2)(a) is also relevant in this context, as it makes provision for NHS foundation trusts to carry on other non-clinical services and activities. Training and research is, of course, an important part of what the NHS does, and certainly falls within the Secretary of State's responsibilities under the 1977 Act.

Under the current version of clause 14(5), the regulator has discretion about whether to authorise educational, training and research activities by NHS foundation trusts. Government amendment No. 149 changes the emphasis by requiring the independent regulator to authorise such activities. The ''may'' is replaced with a ''must'', and I know that Opposition Members will welcome that.

Government amendments Nos. 256 and 257 are technical drafting measures, and are required to ensure that NHS foundation trusts can hold or receive gifts of property on trust to be used for the NHS in both England and Wales. NHS trusts enjoy that power at present, and NHS foundation trusts should not be in a different position. Amendment No. 256 allows them to accept gifts of property to be held on trust for the

purposes of the NHS in both England and Wales. Amendment No. 257 provides for the appointment of trustees for that property.

Amendments Nos. 2, 3, 4, 5 and 11 are more substantive and more objectionable to me. This is one of the areas—there will be several this morning—in which we come up against the ''freedoms and safeguards'' argument. We included the provisions in clause 14, which these amendments want to delete, precisely to balance the new freedoms with appropriate safeguards. I would go as far as to say that these amendments seem like wrecking amendments, but perhaps they are probing amendments. We will come to that point when Opposition Members speak to their amendments.

The amendments would remove important safeguards and put at risk the integrity of NHS services. I shall explain why I believe that to be so. In order to safeguard essential NHS services, under the terms of authorisation, the independent regulator will require NHS foundation trusts to offer certain protected services to NHS commissioners on a continuing basis. Protected services will include essential education, training and research programmes as well as NHS clinical services. The regulator will take decisions on what should be classified as protected, based on—among other things—the criteria set out in clause 14(7), which Opposition amendments would remove from the Bill.

A regulator must protect services in line with his general duty under clause 3, which we have already approved, to act consistently with the Secretary of State's duties under the 1977 Act. Amendments Nos. 2 and 3 would remove the regulator's powers to protect those services altogether. That would jeopardise the regulator's ability to protect the interests of NHS patients; therefore, the amendments are not acceptable to me, nor, I hope, to any of my hon. Friends.

The effect of the amendments could be that NHS patients would be denied essential services, which is clearly unacceptable. Amendments Nos. 4, 5 and 11 are consequential to amendments Nos. 2 and 3 and should be rejected for those reasons.

Chris Grayling (Conservative, Epsom and Ewell)

Welcome back to the Chair after our period away, Mr. Griffiths.

As the Minister rightly said, amendments (a) and No. 2, together with Government amendment No. 148, take us back to our previous debate on the duties of NHS trusts in border areas to those patients who live in Scotland or Wales or to those coming from Northern Ireland to take advantage of services at specialist tertiary centres.

The Minister remarked how strongly Members on this side felt about the necessity to make provision in the Bill for trusts in those border areas to be mindful of the needs of people on the other side of borders. That is particularly important. We debated the Countess of Chester NHS trust, one example of a trust with a catchment area. The hon. Member for the City of Chester (Ms Russell) is in her place.

Since that debate, I have communicated with the trust and was told that approximately one third of the practices in Flintshire use the Countess of Chester hospital as their local referring hospital. About 10,000 patients from north Wales are admitted there annually, and there are approximately 40,000 out-patient attendances from the Flintshire area. Therefore, the importance of getting this part of the Bill correct is extremely significant. We cannot inadvertently set the wrong duties for those trusts.

I am greatly reassured by the Minister's comments. I have reflected on the various amendments before us and am happy to accept the Minister's word that the matter is being addressed. When the Bill goes to another place, I hope he will ensure that any previous elements of the Bill that have been debated can be adjusted accordingly so that the same duties are written throughout this measure. However, I am happy to accept that he has taken on board the points made in that debate, and I am grateful to him for doing so.

Amendment No. 3 is designed to take out the requirement to carry out research or to make facilities and staff available for the purposes of education and training. There is an important purpose behind that, and I hope that after I have spoken, the Minister will be willing to give it due consideration. Our concern is that this is unnecessarily prescriptive and could cause operational difficulties within the medical educational world owing to the unique structure that exists for our medical schools.

The Minister will be aware that in most cases medical schools are part of universities and, as such, they receive their funding from the Higher Education Funding Council for England. The decisions taken about the amount of funding that they receive ultimately flow from the Department for Education and Skills. In February 2003, the Secretary of State for Education and Skills decided to skim off 2.2 per cent. of the teaching budget to invest it in a deposit budget to promote a programme of social inclusion. He said that any institution, including medical schools, that does not have a full and proper wide-ranging programme of social inclusion in place for the next financial year will not receive any money from that pot.

As a result, medical schools have lost about 2.2 per cent. of their budget for this year. The medical schools are saying that they will have insufficient time between the issue of the edict by the Department for Education and Skills and the start of the next academic year to get such programmes in place.

Steve McCabe (Labour, Birmingham, Hall Green)

Will the hon. Gentleman inform the Committee of his position on social inclusion, since he finds this so objectionable?

Chris Grayling (Conservative, Epsom and Ewell)

The hon. Gentleman will not draw me down that line because I do not want to tread on the good offices of the Chair by taking the debate into the area of social inclusion.

A decision taken in the Department for Education and Skills is reducing the amount of money available for medical schools to manage their affairs in the next financial year. Those medical schools are, almost invariably, inextricably linked to their local NHS trusts. Their medical professionals are involved in tuition, giving lectures and teaching students, but they also carry out research and undertake clinical work in the local NHS trusts. The decision to remove 2.2 per cent. of the teaching budget for this year will force medical schools to make decisions about staffing levels, financial commitments to research and the areas in which they can carry out research. That will have an impact, by definition, on the NHS trust that works directly alongside them.

A further example involves the recent research assessment exercise carried out by the HEFC into the effectiveness of the research carried out in medical schools and, correspondingly, the reallocation of funding in medical schools to focus resources on those areas that have particular expertise and excellence in delivering academic research. That change came into full effect during the financial year 2002-03.

As a consequence, over the past 12 months, Queen Mary's medical school—part of the University of London—was forced to significantly restructure its research base to concentrate its specialisms in certain areas. It had to lose some areas of research in which it had previously been involved, in order to make better use of its resources. In the past financial year, Queen Mary's received £2.6 million less research funding from HEFC, and was forced to streamline its medical activities as a result. All medical schools had to go through that same process of rationalisation, with one exception in London.

If a medical school is rationalised and the decision is taken that it no longer needs to carry out research in gynaecology, the gynaecological specialist who has been part of that medical school may decide to seek employment elsewhere because there is no longer a true purpose to being in that school. That specialist will want to work in a medical school in which gynaecology is still a strong part of the research base.

As a result, the local medical school will no longer have a gynaecologist, and the local NHS trust will no longer have that researcher, teacher and senior clinician who doubles up as an operational member of the national health service and a tutor of future doctors. Therein lies the problem, and therein lies the rationale behind amendment (a).

My concern, Mr. Griffiths, is that it risks putting an unrealistic tie on medical schools and on the trusts to which they are attached. Consequently, it would have an adverse, knock-on effect, which would create problems in the operational side of the NHS. The assessment or authorisation that the regulator put together could require an NHS trust to carry out research in several areas. That NHS trust would almost certainly carry out that research in conjunction with the medical school that sat alongside it.

However, when medical schools are forced to drop their half of research because of decisions taken to reallocate funding—decisions taken in the education arena rather than in the health care arena—inevitably some trusts will be forced to drop their half of research also. The risk is that the regulator could require a trust to do something that it was no longer able to do because the academic half of its work had disappeared due to funding changes.

The concern is not that it is wrong for the regulator to authorise trusts to carry out research on the provision of health care, but that the regulator could require trusts to carry out research that the trust was no longer able to do, because of changes within the medical school that sat alongside it. The purpose of the amendment is not to undermine the role of research in the NHS or to undermine the partnerships that rightly and properly exist between the NHS and medical schools, but to accept that changes can and do take place within the medical and research world.

A process of research assessment exercises takes place every few years, which inevitably reshapes the way in which medical research is carried out, so a requirement in law for the regulator to require a trust to do something might cause significant operational problems. I hope that the Minister will consider these issues and, if unwilling to accept the amendment, will give a commitment to explore ways in which flexibility could be left within the system to reflect changes that result from academic and educational decision-making rather than from NHS decision-making.

With regard to other amendments to rule out subsections (6) and (7), the Minster is right to say that there is a philosophical difference between the Opposition and those on the Government Benches about the way in which freedom should be deployed to foundation hospitals. Those subsections are further examples of parts of the Bill that significantly curtail the freedoms of foundation hospitals. The Government do not have the courage of their convictions. It is totally ludicrous to believe that hospitals will drop wholesale the services that they provide to their customers—the services for which their primary care trusts pay. They will continue to deliver as broad-ranging, effective and good a service as they can. Otherwise, frankly, once the national tariff is introduced, hospitals will not have the income. However, they will not have patients either, because doctors will go out of their way to move their patients elsewhere. Hospitals need work to do. They need to offer services. They need to be excellent at what they do, and they need to attract the right professionals.

There is no likelihood that giving hospitals freedom of choice over what services they offer and how they reflect the needs of their community would destroy the services they provide and undermine the NHS. It would do what I thought the Government intended to do, which was to say to local hospital managers that they could have the freedom to run their hospitals. Yet here are two subsections that clearly set up a process of deciding centrally—this time through a regulator rather than through the Secretary of State—what

hospitals can and cannot do. That is just plain wrong. The Government should have the courage of their convictions and give trusts freedom, rather than just a little flexibility to do some stuff around the margins. That is particularly important at a time when the Government are driving the process of reconfiguration within the health service.

It encourages services to move into community hospitals; greater diversity of provision; and the establishment of specialist clinics, such as the regional orthopaedic centre in my constituency, and the diagnostic and treatment centres that are being set up around the country.

The Government say that they are trying to create a flexible environment for health care, but they are not willing to give their hospitals the freedoms that they will need to respond, adapt and develop in that environment. There is no need to straitjacket hospitals by giving the regulator the duty to decide on the range of services. We could and should give foundation hospitals the freedom to meet their own local needs. My party does not believe that the Government are doing that in this clause.

Given the Minister's comments, I shall not press amendment (a).

Amendment agreed to.

John Hutton (Labour, Barrow and Furness)

I beg to move amendment No. 252, in

clause 14, page 6, line 17, at end insert—

'(2A) The trust may also carry on activities other than those mentioned in subsection (1), subject to any restrictions in the authorisation, for the purpose of making additional income available in order to carry on its principal purpose better.'.

Win Griffiths (Labour, Bridgend)

With this it will be convenient to discuss the following:

Government amendment No. 253.

Amendment No. 7, in

clause 15, page 7, line 7, leave out

'which was an NHS trust'.

Amendment No. 8, in

clause 15, page 7, line 8, leave out subsection (2).

Government amendment No. 254.

Amendment No. 266, in

clause 15, page 7, line 8, leave out from 'that' to end of line 11 and insert

'no services be provided to a patient other than an NHS patient, other than in circumstances prescribed in subsection (2A).

(2A) Where a certificate issued by the lead clinician in that speciality states that the services so provided are not needed by an NHS patient with equal or greater clinical need.'.

Amendment No. 195, in

clause 15, page 7, line 11, at end insert

'or 25 per cent.,whichever is the higher'.

Amendment No. 9, in

clause 15, page 7, line 12, leave out subsection (3).

Amendment No. 10, in

clause 15, page 7, line 15, leave out subsection (4).

Amendment No. 414, in

clause 15, page 7, line 15, after 'means', insert '(a)'.

Government amendment No. 255.

Amendment No. 415, in

clause 15, page 7, line 17, at end, insert

', and

(b) other income from private practice received by an NHS foundation trust whether directly or from bodies or persons undertaking or managing private practice in conjunction with that NHS foundation trust or from premises owned by that NHS foundation trust.'.

Amendment No. 262, in

clause 15, page 7, line 17, at end insert—

'(4A) Each NHS foundation trust must produce annually a comprehensive and publicly available report which separately identifies all income received from the provision of any and all private goods and services.

(4B) Each NHS foundation trust must produce annually a comprehensive and publicly available account of the costs to the trust of all goods and services provided privately.'.

John Hutton (Labour, Barrow and Furness)

We have already discussed Government amendments Nos. 148 and 259, and how they clarified that NHS foundation trusts have the powers to provide health care and related services. Government amendment No. 252 furthers that clarification. The powers that we suggest should be in the Bill parallel the current income-generation powers of NHS trusts. In moving this amendment, I see nothing in the Bill that will allow an NHS foundation trust to change the fact that NHS patients receive care that is free at the point of use and delivered on the basis of need rather than the ability to pay. Hon. Members will have read around the Bill, and it should be clear that any income-generating activity must be carried out in a way that complies with the terms of the NHS foundation trusts' authorisation—in particular, the provisions of clause 15, which relate to the capping of private patient activity.

Amendments Nos. 253 and 254 are technical drafting amendments. Amendment No. 253 ensures that the independent regulator has discretion about whether he or she can restrict goods and services that are not provided to the NHS in England. Without that amendment, the regulator would be required to restrict provision of all services that are not English NHS services, including the restriction of services to the NHS in Wales, Scotland and Northern Ireland. Amendment No. 254 is consequential to amendment No. 253; as ''must'' becomes ''may'', the duty becomes apparent.

Opposition amendments Nos. 8, 9 and 10 would effectively abolish the private patient cap. NHS foundation trusts will have a primary purpose to provide services to NHS patients based on need rather than the ability to pay, and free at the point of use. We must ensure that NHS foundation trusts continue to focus on the needs of NHS patients, without distracting management and clinical time and effort from the NHS. The Bill is not designed to prevent NHS foundation trusts from undertaking non-NHS activity. Our priority is NHS patients. The Government will welcome applications from hospitals

that are committed to ending their private work. Paragraph 3.16 of ''A Guide to NHS Foundation Trusts'' states that

''the Government will be particularly keen to see NHS Foundation Trusts applications that propose to convert existing NHS facilities currently wholly used for paying patients into facilities for the exclusive use of NHS patients.''

As drafted, the clauses will place a cap on the income derived from the provision of services to private patients as a percentage of total income. They will prevent those NHS foundation trusts that are NHS trusts from doing a higher proportion of private work than they do today. That will ensure that NHS foundation trust managers and staff focus their efforts on NHS patients to ensure that maximum use is made of all NHS facilities, and that NHS capacity will grow for NHS patients. It is not the role of the NHS to encourage the provision of private health care; its role is to treat NHS patients. These amendments put that primary purpose at risk by allowing NHS foundation trusts to increase the proportion of private clinical work that they can undertake.

Amendment No. 7 applies clause 15 to NHS foundation trusts that were not previously NHS trusts. If the purpose of that amendment is to give the regulator powers to restrict the provision of goods and services generally, it is not necessary. The regulator already has those powers under clause 6(3) and clause 14.

Amendment No. 266 would remove the cap on private charges and replace it with a system that offers—at best—a woolly attempt to give priority to the needs of NHS patients over those of private patients. However, anyone looking at that amendment will immediately recognise that it is fraught with some profound and technical difficulties, not least the difficulty of interpreting the definition of lead clinician and what would happen if a lead clinician was also the consultant offering the private bed. Who would arbitrate if there were a conflict of interest? I understand the point of the amendment, but it would be a bureaucratic nightmare that would be impossible to implement let alone monitor, and those are rather fundamental disadvantages to it.

Andrew Lansley (Conservative, South Cambridgeshire)

I understand that the Minister's purpose in having a cap on private charging is to prevent it rising as a proportion of the income of an NHS foundation trust. If the income of an NHS foundation trust is reduced because of a reduction in its services or the closure of a facility, is it the Minister's intention that a corresponding reduction in the amount of private charges be forced on that NHS foundation trust regardless of whether it continued to provide that service?

John Hutton (Labour, Barrow and Furness)

The answer to that question is clearly contained in clause 15. We have tried to construct the patient cap.

Andrew Lansley (Conservative, South Cambridgeshire)

So, the answer is yes?

John Hutton (Labour, Barrow and Furness)

Yes.

Amendment No. 195, tabled by the right hon. Member for North-West Hampshire (Sir George Young), seeks to extend the cap to 25 per cent. of turnover. That is a very high figure. It would allow NHS foundation trusts to do a significantly higher proportion of private work than they do today. In 2000-01, less than 1 per cent. of all declared revenue for NHS trusts was derived from private patient activity, so his amendment would give a green light to rapid expansion if an NHS foundation trust wanted to expand its private patient activity at the expense of NHS patients. I am not sure if that is entirely what the right hon. Gentleman intends.

George Young (Conservative, North West Hampshire)

Following the Minister's logic, why do the caps not apply to hospitals that do not become foundation trusts?

John Hutton (Labour, Barrow and Furness)

We want all NHS acute trusts to become foundation trusts over the next four to five years. The right hon. Gentleman is right—I hope that some of my hon. Friends who have concerns about these issues will reflect on what he has said—in that the income to be generated from private patients for NHS foundation trusts is more restricted than is currently the case for those acute trusts that are not foundation trusts in the wider NHS. Those who have suggested that private patients will gain at the expense of an NHS patient as we go down this road must look at the Bill and study what the right hon. Gentleman has said.

However, selling private work in this way would distract from the primary focus that NHS foundation trust managers and staff should have on maintaining and improving the quality of services for NHS patients. It may be that the right hon. Gentleman's purpose in moving the amendment is to probe the Government's intentions with regard to our constructing the cap in the way that we have done, but he will make clear his purpose soon.

The arguments behind this are set out in the guide to NHS foundation trust status and in speeches and evidence that my right hon. Friend the Secretary of State, for example, has given to the Health Committee. The Committee may have a rerun of those arguments later this morning; but the purpose and principal objective of NHS foundation trusts is simple: it is to preserve the focus on improving NHS services to NHS patients.

Andrew Murrison (Conservative, Westbury)

I have listened with some interest to what the Minister has said. He displays a huge lack of imagination and ambition for many of the organisations that he wishes to turn into foundation trusts. Will he reflect upon the fact that private work does not necessarily mean private patients? It also covers private services such as occupational health services. Those were obviously left out of the deliberations of the late 1940s—for which industry in this country has suffered ever since.

Some parts of the NHS are showing early signs that they would like to put that right on a contractual basis, by providing occupational health services for firms, for

example. That could well increase the proportion of their turnover that comes from private work. I wonder whether the Minister might like to reflect on that.

John Hutton (Labour, Barrow and Furness)

I would not want the clause to be interpreted in the way that the hon. Gentleman has suggested, as it relates to occupational health services. I would regard that as covered by the income generation activities in which the Bill authorises NHS foundation trusts to take part.

Andrew Murrison (Conservative, Westbury)

My confusion would be eliminated were there a closer definition of private work.

John Hutton (Labour, Barrow and Furness)

That brings us to amendments Nos. 414 and 415, which were tabled by the hon. Member for Cheadle (Mrs. Calton). We have a simple choice in this part of the Bill between the list-based approach—under which particular activities are identified as being in or outside the cap—and the approach that we have taken, which is to create a general capping power in relation to income that is derived from the treatment of private patients, and to give the regulator the job of deciding, on a case-by-case basis where necessary, whether the activity comes within the cap or not. Generally, my experience as a Minister of trying to legislate is that it is better to do so in the latter way, rather than the former.

Sadly, the hon. Member for South-West Devon (Mr. Streeter) is not with us, but he always refers to the litigious lawyer. That is probably a bit of an oxymoron, but the point is that a list-based approach, whereby things are identified in a schedule or whatever, tends to light the blue touch paper for the worst-case scenario, which we want to avoid, of endless arguments about whether something is in the list. There is a difficulty, and I accept that there is no easy way to resolve these issues in drafting legislation, but the proposal would take us in the wrong direction, because it would be bound to provoke more argument than the approach that we have taken.

I assume that amendments Nos. 414 and 415 are intended to ensure that foundation trust income from private patient activity that is carried out by a subsidiary or joint venture is captured by the private patient cap. I certainly sympathise with the spirit of the amendments and I can understand that the hon. Member for Cheadle wants to ensure that there are no loopholes in the legislation that allow NHS foundation trusts to circumvent the private patient cap. I, too, believe that the cap should not be circumvented, but the amendments are unnecessary. The intention of the legislation is clear on this point. Clause 15(2) refers simply to NHS foundation trust income ''derived''—that is the crucial word—''from private charges''. It does not specify whether the activity is carried out by the NHS foundation trust or another body, such as a subsidiary.

We shall come later to the power in clause 17(5) for NHS foundation trusts to set up subsidiaries or engage in joint ventures, which clearly relates to the power to

invest. An investment is, of course, undertaken with a view to making a monetary return. Any such return from investments will be counted in the total income of the trust. It will therefore be included, I believe, in the private patient cap as defined in clause 15(2). Therefore, NHS foundation trust income from private patient activity in relation to joint ventures and subsidiaries is, I believe, already covered by the cap.

It would be reasonable to expect the regulator also to impose restrictions on the leasing of facilities to other organisations for the provision of services to private patients under the terms of the authorisation. That would be consistent with the spirit of clause 15, but he would also have to ensure that NHS foundation trust activities and income were consistent with their primary purpose of providing NHS services. The NHS foundation trust could not act in a way that undermined its ability to provide NHS services, for example, by leasing facilities to a private provider if that resulted in competition for a limited pool of local staff. That would not be acceptable. For the same reasons that I gave in relation to income from joint ventures and subsidiaries, the issue that the hon. Lady raises in amendment No. 415 would equally be covered.

Andrew Lansley (Conservative, South Cambridgeshire)

Is it the Minister's view that the nature of the requirement to provide services for NHS purposes is sufficiently structured in the Bill so that it would not be possible for an NHS foundation trust to use its capacity for private patients at the same time as that capacity continued to be required for NHS purposes?

John Hutton (Labour, Barrow and Furness)

I am not entirely sure that I understand the question. I am not sure whether the hon. Gentleman is asking about the definition of the private income cap, or whether he is raising a wider question about the co-use of NHS facilities shared between private and NHS patients.

Andrew Lansley (Conservative, South Cambridgeshire)

If I was unclear, let me explain. I was referring specifically to the point that I thought the Minister was making, which is that there is both a cap on private income and a general requirement for NHS foundation trusts to have the principal purpose of providing services for the NHS. My question is whether the duty on the foundation trust to provide services for the NHS is sufficiently tight and that, if it requires that capacity for NHS purposes, it cannot be provided to private patients. That is precisely the point that the Minister was making—that there should be no competition between private and NHS provisions, and that a foundation trust will always meet NHS needs before it offers capacity unused by the NHS to private patients.

John Hutton (Labour, Barrow and Furness)

Yes, that would be my view, and I am sure that the Bill will provide precisely for that.

Amendment No. 262 was tabled by my hon. Friend the Member for Ealing, North (Mr. Pound). The Bill effectively provides for the concern that he raised. I refer him to paragraphs 20 and 21 of schedule 1, which provide for the independent regulator, with the approval of the Treasury, to determine the form of the

accounts of NHS foundation trusts. The accounts will include information that the regulator requires to monitor compliance with the terms of authorisation and statute. That will clearly include information on income from private patients, so that the regulator can monitor the cap under clause 15, and information on investments to monitor compliance with new section (2A) proposed in amendment No. 252. I have every sympathy with the point that my hon. Friend makes, but his points are addressed elsewhere in the Bill. The objective that he and I share is already secured.

Chris Grayling (Conservative, Epsom and Ewell)

This is a gargantuan collection of amendments, but at their heart lies an important point of principle. I shall touch on one or two points made in specific amendments, but also talk about the principle, which is encompassed most specifically in amendment No. 8. The spirit of that amendment is reflected in amendment No. 195, tabled by my right hon. Friend the Member for North-West Hampshire. They relate to the ability of foundations hospitals to operate in partnership with the private sector, which we believe is being unnecessarily and damagingly curtailed by clause 15.

In amendment No. 252, the Government are beginning to acknowledge that the Bill is too restrictive. It allows some degree of extra flexibility to trusts over and above that originally offered and, to that small degree, it is to be welcomed. However, it does not go nearly far enough.

Amendment No. 253, tabled by the Minister, my hon. Friends the Members for West Chelmsford and for Chesham and Amersham (Mrs. Gillan) and I, shows a rare meeting of minds. It is a delight to find both sides proposing the same amendment. It would be churlish of me to point out that we tabled it first, but the Minister clearly takes precedence, and I am sure that we will support him.

Amendment No. 7 is probing. Clause 15(1) states:

''An authorisation must restrict the provision, for purposes other than those of the health service in England, of goods and services by an NHS foundation trust which was an NHS trust.''

The amendment would leave out the words

''which was an NHS trust.''

We want to establish the purpose of treating differently those organisations that apply to become NHS foundation trusts from within the NHS and those—whether private or voluntary organisations, or collections of individuals—that use the provisions of clause 5 to come from outside the NHS, who choose the other path to becoming an NHS foundation trust. Clause 15(1) appears to treat those two categories of applicant differently. I should be grateful if the Minister could explain why that is the case and how those two categories of trust applicants might be treated under this subsection.

Amendment No. 254 is a welcome, watering-down of the clause. The Minister has touched on amendment No. 266. I disagree with the hon. Member for Cheadle about this amendment. We believe that it would severely limit an NHS trust's ability to form joint ventures and would worsen its potential to improve patient care instead of enhancing it. The amendment would take us in the direction of the limits that the Bill

places on a hospital's ability to work with the private sector. The Minister has not thought the measure through to the extent that he should have done, and I hope that he will go back to the drawing board on it.

The clause is an example of politics interfering with sensible practice; it is raw meat to Government Back Benchers. It is not about good patient care or the freedom and opportunity to enhance the quality of service offered in the NHS. It is purely an attempt to send a message to the Labour left that the Bill will not tread on territory if that will make it uncomfortable. To that extent it is reprehensible.

Our amendment is not about allowing foundation hospitals to go private; it is about protecting the partnerships that can and do exist between the public sector and the private sector to deliver high-quality health care. In my view that objective can be significantly damaged, and certainly will be curtailed for future generations, by the Bill.

An active partnership already exists between the private sector and the public sector in a variety of ways. One of the most evocative relates to the issue of pay beds in the health service. Many of the 236 NHS hospitals that work with the private sector offer private wards and private pay beds, which I know evokes strong arguments across the political spectrum. However, amendment No. 8 is not about pay beds in pay wards. It is about the equipment that the NHS needs in the future to deliver first-rate, high-quality care to its patients.

The latest technology costs a great deal of money. It costs hundreds of thousands or millions of pounds to buy the latest equipment to diagnose and treat our patients. Many NHS trusts have already chosen to finance the acquisition of equipment in partnership with the private sector or by selling it some of the equipment's capacity. Without that, NHS patients could not have access to high-quality scanners and other pieces of equipment.

To give some examples, Basildon and Thurrock General Hospitals NHS trust has an MRI scanner used out of hours by private health bodies such as BUPA, and its services are often paid for by private medical insurers. That scanner is affordable because it brings in revenues for the hospital that defray part of its cost. University Hospital Birmingham NHS trust has MRI and CT scanners, as well as radiotherapy services, which are all frequently used by the private sector. Its private health care services department says that the money is significant in paying for and maintaining the equipment.

The Worthing and Southlands Hospitals NHS trust has MRI and CT scanners used by private patients. Kingston Hospital NHS trust is due to purchase an MRI scanner in June, to which private patients will have access. It says that co-operation with the private sector is important. Interestingly, Southampton University Hospitals NHS trust says that private patient use of in-patient services contributed £2.5 million to the trust last year—money that can be spent on patient care.

So what is the consequence of the cap? Let us remember that we are dealing with a measure that states:

''The duty is to be exercised, in particular, with a view to securing that the proportion of the total income of the NHS foundation trust in any financial year derived from private charges is not greater than the proportion of the total income of the NHS trust derived from such charges in the base financial year.''

So what happens in the case of an NHS trust that, today, does not have a private business, or has an extremely small private business, and which then decides that the only way to invest in a new, state-of-the-art MRI scanner is to do exactly what those hospitals that I have just listed chose to do: invest the money and pay the bill by bringing in funds from the private sector? A trust that has no income from the private sector today cannot do that because its proportion is zero. Under the Bill, it is not allowed to do the things that many other trusts around the country are doing.

John Hutton (Labour, Barrow and Furness)

I genuinely think that the hon. Gentleman has misunderstood the Bill. If the trust that he cited as an example wants to treat more private patients to raise more income, it can do that; it just needs to treat more NHS patients at the same time.

Chris Grayling (Conservative, Epsom and Ewell)

The Minister totally misses the point. Subsection (3) refers to the base financial year as being

''the financial year ending with 31st March 2003''

''the first financial year throughout which the body corporate was an NHS trust''.

Basically, ''base financial year'' refers to what is happening today. So, if a trust does not derive any income today from the private sector, that proportion is zero. If it buys a scanner and goes up to 1 per cent., it is breaking the law. Surely that is not what the Minister intends to happen by placing the cap on the trusts.

We could have a long debate about the political perspective on the two sides, what we want foundation hospitals to be able to do and the appropriate balance between private and public sector work. None of us wants our best hospitals to leave the NHS and become private hospitals available only to those who can pay. That is not the aspiration of the Opposition. However, neither do we want a measure that curtails the ability of NHS hospitals to innovate, develop and diversify in a way that enables them to offer better services to all their patients. That is what the measure would permit.

I have another example of how the measure might work. Let us consider a trust that is looking to expand. We will come on to clause 17(5), which relates to the ability of an NHS foundation trust to make an investment. Let us imagine a situation in which that same trust, with little or no income from the private sector, subcontracts some of its patient work to a local private clinic. We know that that happens. Where there are problematic waiting lists, the Government are encouraging the NHS to consider alternative

solutions if they are available. The NHS foundation trust could be subcontracting to a privately-owned service in a specific area. I know that that happens, because in my constituency the old cottage hospital in Epsom, which is an excellent local facility that is owned and managed by a group of local GPs, effectively provides a private service to the local NHS to carry out some of its cataract operations. It is not simply a question of a big private company. Imagine that in a situation involving a clinic of that kind, the parent company went into administration and in order to secure the continuation of that treatment the foundation trust chose to use the powers in clause 17(5) to buy that clinic from the administrator, but it could afford to do so only if it continued to operate the private business that was coming from that clinic as well as the work that was being done for its patients. That decision is taken entirely in the interests of its patients and so it does not lose an important local health care facility. It is only affordable if the trust carries on managing both parts of the business.

That is how I understood the motivation for clause 17 and the kind of investment that a local trust might make. If the foundation trust started with a very low base or even a zero base for its private business, the addition of the cap in subsection (2) might prevent that investment from taking place in the first place. I am sure that it is not the Government's intention.

May I ask the Minister to go away and look at this clause again? The Opposition cannot support such a draconian limitation on the freedoms of trusts, which will curtail their ability to deliver quality health care. Foundation hospitals should be centres of innovation that can step outside the tramlines in order to increase and improve services to their patients. Clause 15 is a mistake and I hope that the Government will reconsider the practical consequences of what is set out in subsection (2).

George Young (Conservative, North West Hampshire)

I should like to speak briefly to amendment No. 195, which amends clause 15. The amendments to clause 15 have been grouped with those to clause 14. I do not understand clause 15. On Second Reading the Secretary of State said:

''The Bill frees NHS foundation trusts from powers of direction from Whitehall that have been in place for umpteen years.''—[Official Report, 7 May 2003; Vol. 404, c. 710.]

Yet under the Bill he is introducing a new restriction. Against a background of freedom for foundation trusts we have this wholly illogical clause 15, which applies only to foundation trusts not to the rest of the NHS. I suspect that it was put in at a relatively late stage as a sop to those in the Labour party who were concerned about the direction of health policy.

There is an element of groundhog day about this debate and the amendment. The first time that I sat on a health Bill Committee was in 1975. Sitting where the Minister is now sitting was a good-looking, intelligent Labour Minister of Health who went on to become Foreign Secretary, namely David Owen. We were dealing with legislation on pay beds. I happened to pick up David Owen's ''Time to Declare'' on my way to the Committee this morning, in which he says:

''The pay-bed dispute today is just a vignette of history, a symbol of how very different attitudes were in the 1970s from the 1990s. But then we were in the last throes of the corporatist state.''

Rather revealingly, after it was all over, he said what he thought:

''When Labour lost the election, the Conservatives repealed our legislation and the whole exercise proved to be fruitless. I, who had supported the phasing out of pay-beds, learnt a valuable lesson, namely that reforms have to have a reasonable chance of taking root for it to be worth embarking on legislation in the first place.''

I do not suggest that the Minister should read all 822 pages of that book, but he might just look at the section on pay beds and read what happened to previous attempts by his party to introduce restrictions through legislation on the independent sector of medicine.

My amendment is a bridge-building amendment. I agree with what my hon. Friend the Member for Epsom and Ewell (Chris Grayling) just said. I do not see the logic of having the clause. If there has to be a cap, the one I propose of 25 per cent. or the current level, whichever is higher, seems more sensible than the Minister's proposal, which was devastatingly exposed by my hon. Friend. The NHS is a dynamic organisation and services that are currently provided on one campus may move to another campus in the interests of rationalisation, improving the quality of patient care and all the rest.

If, for the sake of argument, a set of services provided from Basingstoke hospital were relocated to Frimley Park hospital, the total income from the NHS at Basingstoke would fall and as a consequence its income from the private sector would also have to fall. That seems wholly illogical. If the Minister is minded to go down that path, I suggest that he looks at some exemptions to get round the problems mentioned by my hon. Friend. If he does not, I can see the NHS using its ingenuity to get round the problem by relocating services from hospitals designed to be foundation trusts to hospitals that are not, in order to establish a higher plateau before they become foundation trusts. The Minister is frowning, but I should be surprised if there were not some discussions going on with a view to that consequence.

John Hutton (Labour, Barrow and Furness)

The baseline activity is set out by the Bill, so the sort of gaming that he has described may not be possible.

George Young (Conservative, North West Hampshire)

Subsection (3) states that the base financial year is

''the first financial year throughout which the body corporate was an NHS trust''.

John Hutton (Labour, Barrow and Furness)

That is clause 15(3).

George Young (Conservative, North West Hampshire)

I accept that point, but in relation to those trusts that are not planning to be foundation trusts, will the Minister confirm that if a hospital does not become a trust until 2008, its baseline for those purposes is 2003?

John Hutton (Labour, Barrow and Furness)

That is exactly the case.

George Young (Conservative, North West Hampshire)

In which case, the legislation is much more draconian than a lot of people realise. For the first time under this Labour Government, there is

a cap on the role of the independent sector in the NHS. That is a strong political move for the Government to make. The Minister is frowning, but he confirmed in an earlier intervention that there is no such cap at the moment on NHS trusts. Is that the case?

John Hutton (Labour, Barrow and Furness)

The right hon. Gentleman knows that that is the case because I have already confirmed it. In relation to his wider point about our willingness to use the independent sector to deal with capacity shortages in the NHS, he will know that we are significantly increasing the volume of activity that we have commissioned from the independent sector. His hon. Friend the Member for Epsom and Ewell referred to the new diagnostic and treatment sectors as an example of where we want to expand its role.

George Young (Conservative, North West Hampshire)

Which, if I may say so, is why clause 15 is so illogical. Against the background of everything the Government have done until now to promote partnership between the two sectors, to introduce unilaterally a cap that is retrospective in part goes clearly against some of the more sensible things the Government have done since 1997. It is worth remembering that some 3.5 million trade union members have some form of private health cover. With a working population of 27 million, some 13 million make a regular contribution to their own health care or that of their families. To adopt such a stance towards the independent sector of medicine is a move that the Government will come to regret.

When he speaks later, perhaps the Minister can confirm the following. The Prime Minister has set a benchmark of the percentage of GDP that he hopes the country will spend on health care. Will the Minister confirm that that percentage includes private expenditure as well as NHS expenditure? Therefore, it will assist the Prime Minister in his ambitions to reach the EU average if there is an expansion in the independent sector of medicine. In clause 15, he is trying to impose a rather arbitrary cap on that sector.

What my hon. Friend the Member for Epsom and Ewell said was right. I do not think that there has been a problem concerning the role of the independent sector in NHS hospitals during the last five or six years. If there has been a problem, the Government have kept very quiet about it. If there has not been a problem until now, and the Minister wants to enable and give greater freedom to NHS trusts, I am not quite clear why he wants to bring the cap in. Clause 15 sits uneasily with the rest of the Bill, and I endorse what my hon. Friend said in urging the Government to have second thoughts about it.

Patsy Calton (Liberal Democrat, Cheadle)

In tabling amendments Nos. 266, 414 and 415, I seek reassurances from the Minister about amendments Nos. 253 and 254. If we look at the change that the Government seek to make by removing ''must'' and inserting ''may'' in clause 15, the effect will be to give the regulator some scope and room to manoeuvre in

producing authorisation. That is listed under private health care. Under Government amendment No. 254, the duty becomes a power.

My understanding is that the regulator must exercise a ''duty'', but that once it becomes a ''power'' the regulator may choose not to exercise it. I would be grateful for the Minister's clarification on that matter. Taken together, these could negate all of clause 15 and the restrictions that the Minister seeks to place on the ability of foundation trusts to bring in private health care and, indeed, to increase the amount of private health care to a point at which the foundation trust would no longer be an NHS hospital.

The intention of amendment No. 266, tabled by the Liberal Democrats, is to ensure that clinicians can prevent private patients from queue-jumping in NHS hospitals. Again, I look to the Minister to give some assurance that, as clause 15 stands, queue-jumping will not occur.

Amendment No. 414, which is a drafting amendment, amendment No. 415, and amendment No. 262 in the name of the hon. Member for Ealing, North, seek to ensure that all income derived from private medicine, on or outside the site or premises of a foundation trust hospital, should be taken into account—if, indeed, the cap truly exists. I should like the Minister to give guidance on Government amendments No. 253 and No. 254 so that I may be absolutely certain that clause 15 does, in fact, provide a cap on private medicine within foundation trust hospitals.

Other points have been extensively made by other hon. Members, and I do not particularly wish to discuss any of the amendments tabled by the hon. Member for Epsom and Ewell.

Steve Pound (Labour, Ealing North)

I freely acknowledge that there is an element of political difference between Members of this Committee and this country. I do not propose to rehash all the arguments over the existence of pay beds within the NHS. The right hon. Member for North-West Hampshire mentioned groundhog day; if he were to read Hansard from 1947 to 1948, he would see exactly the same arguments.

That there is an element of pay beds within the NHS, and all that flows from that, is now accepted. The amendments in my name attempt to redress the difficulty of transparency within the financial system—the audit trail. About four years after the NHS and I were born, in July 1948, the Guillebaud report, one of the first in-depth analyses of the effectiveness of the NHS, found it utterly impossible to identify expenditure on joint-site operations.

In my experience of working in the Middlesex hospital, to which I have already referred at tedious length and will doubtless continue to refer over the next few weeks, it was utterly impossible to separate by any form of audit trail the true costs of the private patients' wing at one end of the hospital from those of the NHS hospital which occupied the majority of the

site. As a porter, I cleared out rubbish from both wings, but was paid by the NHS; I changed oxygen cylinders on both wings, but was paid by the NHS.

I am not asking for a recasting of the political basis or ethical standpoint of the entire NHS. I simply want to bring some transparency and honesty into the process. In that, I was greatly reassured by the comments of my right hon. Friend the Minister. Of my right hon. Friend the Minister and the noble Lord Owen, I know whom I would prefer to see standing over me in the operating theatre with a knife in their hand. [Hon. Members: ''Who?''] That would be a tempting prospect, no doubt.

Much that is good in the Bill—there is some good—is to do with improved methodologies in actuarial terms and in diagnostics, and with improved transparency in the service. I ask only that we extend that transparency a little further. We should, perhaps for the first time since July 1948, be completely open and honest about the cost of private practice in the NHS. The hon. Member for Epsom and Ewell paints a wonderful picture of a quaint, sylvan cottage hospital on the southern suburbs of London, in which the staff happily co-exist and treat each other's patients. If I may be presumptuous, Mr. Griffiths, you and I know that, in reality, a clipboard is tied with a piece of string to the end of the MRI scanner, and the staff tick it. That is not true partnership or sharing of facilities.

George Young (Conservative, North West Hampshire)

I am following the hon. Gentleman's argument with great care. Is it not the case that staff currently do not have to tick a box, because there is no restriction on the percentage of income from the private sector, but that under the Minister's regime they will have to tick a box that they do not tick at present?

Steve Pound (Labour, Ealing North)

That is a powerful case for my amendment. There are internal audit trails in the NHS for private care within NHS facilities and for shared pieces of equipment, be they the CAT scanners of my time or the MRI scanners of today.

We need to have a methodology that clearly and transparently identifies that joint usage—not for any party-political purpose, but so that future needs, based on the usage of this very expensive equipment, can be identified. We need to be absolutely sure that we are getting the maximum benefit from the equipment. Transparency will, ultimately, reassure those of us who do not want to see creeping privatisation in the NHS, and it will show that such privatisation is not the purpose of the Bill.

My right hon. Friend the Minister's comments reassure me. If he confirms his earlier reference to the Treasury rules contained later in the Bill, I will not press the amendments.

Andrew Lansley (Conservative, South Cambridgeshire)

I do not propose to follow the structure of the argument advanced by the hon. Member for Ealing, North; rather, I will follow what my right hon. Friend the Member for North-West Hampshire has said. Rather than dispense with clause 15, the Government might care to think about a different

structure for the limitations on private charging inside NHS foundation trusts. My interventions, which the Minister kindly gave way to, point in that direction.

I am becoming confused about pay beds. As I understand it, Government amendment No. 255 was designed to allow pay beds to operate in NHS foundation trusts, much as they do now. Therefore the argument is not really about pay beds. I will give a practical example. At the Rosie maternity hospital at Addenbrooke's, there are several wards, with six single rooms in each. At any one time, the NHS may require between none and six of those for clinical purposes. If not, those beds are available to paying patients.

However, as I understand it—the Minister will correct me if I am wrong—Government amendment No. 255 is designed to allow that practice to continue, and those charges will not be counted as the private charging of that NHS foundation trust for this purpose. Equally, I presume that if an NHS foundation trust were to provide an enhanced hotel service, as it were—an in-house, increased-quality catering service—that too would be ancillary to the goods and services that the NHS provides and would, therefore, not be counted as private charging. Therefore, the issue is really about the balance of the use of clinical capacity in the NHS for private patients who would not—and do not—receive that treatment under the NHS.

There are significant inflexibilities in the current system, and, in time, there will be perversities. My right hon. Friend referred to my intervention about the perverse effects—an aspect that, surprisingly, the Minister seemed happy to confirm. He gave a practical example of such effects.

Another possibility is that facilities or diagnostics for pathology laboratories and forensic services could be transferred between hospitals. Indeed, Addenbrooke's has operated such a scheme for some time. In future, if Addenbrooke's provides local private hospitals with a pathology service, the charges will be transferred between NHS foundation trusts. As a consequence, to live within the cap on local private charging, Addenbrooke's might have to give up some of the other private charges that form part of its financial structure—unless, as the Minister said, it increases its charges on the NHS side as well.

As time goes on, the perversity of this inflexible relationship will be exposed. It will be exposed in other ways as well. I emphasise that I do not claim to have originated this argument. In fact, as one or two Members may recall, the hon. Member for South Swindon (Ms Drown) raised the point during the debate that she initiated on foundation hospitals in Westminster Hall on 7 January 2003. We can state openly in this Committee that the hon. Lady knows a thing or two. I shall flatter her in her absence. It is a pity that she is not a member of the Committee, because she would have a thing or two to say—[Interruption.]

Simon Burns (Conservative, West Chelmsford)

She would be a rebel.

Mr. Lansley: She might prove to be a rebel, but one who knows a thing or two about the way in which the finances of NHS trusts work. She saw it as perverse that if there were substantial changes in NHS trust income, the cap would force down private charging at the same moment when NHS trusts might be losing capacity or failing to attract NHS commissions.

That is all very well, but the current system is designed around such chronic shortages in capacity that no one can ever think of such a set of circumstances without realising that more commissioning must take place and more capacity is required. In due course, we may arrive at a situation—as we have in the past, even under the present system—in which commissioners move away from particular NHS providers. Under those circumstances this system will not allow those providers to go to the private sector to fill unused NHS capacity.

Furthermore, that will lead to distortion. As an illustration, if an NHS foundation trust was to contemplate the purchase of a new MRI scanner, how could it do so on a joint venture basis? How will such joint venture purchases be achieved in the future? Would the current method, of holding scanners in NHS foundation trusts and allowing patients from private hospitals to use them for a fee, work? My hon. Friend the Member for Epsom and Ewell illustrated that scenario. It would not be done that way.

Under the new system, a joint venture arrangement would provide a scanner at a neighbouring private hospital. For example, a scanner might be based in the Nuffield hospital, and NHS patients from Addenbrooke's might be referred to it at a reduced price. The same effect is achieved, but the NHS foundation trust does not have to bear the consequences of a private income cap. It is obvious how distortions might happen.

Another possibility is that a private hospital could consider co-locating with an NHS foundation trust. As things stand, the private hospital might do so on the basis that the land assets will remain in the ownership of the NHS foundation trust. The NHS foundation trust might secure a long-term benefit through substantial rent, but will that rent be treated as private income? Would that force NHS trusts to sell their land assets? Members know from other debates that given that that land would not be considered as land required for NHS purposes, it is likely that such land assets would not be treated as the protected assets of the NHS foundation trust.

The perversity of the system is that this measure forces NHS foundation trusts to behave in a way that may not be to their maximum financial advantage. Therefore, there are some transparent difficulties with the private income cap that the Government have structured.

The Minister helpfully confirmed that, as far as he is concerned, the matter is straightforward—the duty laid upon the NHS foundation trusts is robust. They cannot provide clinical capacity to private patients in circumstances in which NHS commissioners require that capacity for NHS purposes. If I take the Minister

at his word—I assume that he is right—why is the private income cap needed? Surely it follows logically that NHS foundation trust capacity that is offered to private patients is not required by the NHS. The capacity may vary from year to year, but the offering of it and the increase in private patient income that might accrue from its uptake would not have any negative consequences for the provision of NHS capacity as, if it were priced properly, that income would contribute to the overhead costs of the provision of that capacity.

I do not understand why the Minister needs the private income cap. He needs it only for the perverse effect of restricting the ability of NHS foundation trusts, in the long run, to offer unused capacity to private patients. It is not needed to engage in private competition, as he told us that the NHS foundation trusts would not be allowed to engage in competition, as it were, between the NHS commissioners and private commissioners.

Why does the Minister not do away with that provision and, if necessary, write a more explicit provision into the legislation—that NHS capacity must not be used for private patient purposes other than in circumstances in which NHS commissioners have no desire to use that capacity at that time. That is straightforward and could be part of the authorisation. Under those circumstances, why have the cap at all?

Andrew Murrison (Conservative, Westbury)

I have said before that I consider the Minister's aspirations for the NHS, as outlined in this part, to be rather poor. They fail to take into account future developments in the NHS. I listened closely to the arguments of my right hon. and hon. Friends about the possibility of NHS services in a particular area contracting and the legal implications for the private health facilities that those hospitals provide.

That recalls the experiences of the 1950s. I was not alive then, but in the 1980s I was at medical school when I met some consultant physicians who had had to retrain in the 1950s following the closure of a large number of respiratory wards. At that time TB was being brought under control, and there was no need for the number of respiratory physicians that had been required in the early parts of the last century.

Great areas of our health care system have changed in recent years. Respiratory medicine, in particular, used to employ a vast number of health care workers, but has now contracted substantially. NHS provision is dynamic, and rightly so, and my concern is that, in this set of amendments, Ministers are putting a stricture on the NHS that will not take account of future change. As we gripped TB in the 1950s, so I hope we will grip other areas of ill health in the future, such as cancer. This week we heard of an upsetting upsurge in the incidence of breast cancer, for example. Cancer may not be such a problem for us in the future when such areas of our health care are more than likely to shrink.

Under those circumstances, the type of provisions that Ministers have laid out in the Bill will kick in with a vengeance because paradoxically it will mean that we will have to close other parts of our health care system. We must recognise that many doctors in particular work in both sectors. In fact, the majority of doctors do so; there are relatively few who work specifically in the private sector. The majority work predominantly in the NHS. Having to cut back on the private sector may well reduce the number of specialists—

Andy Burnham (Labour/Co-operative, Leigh)

The hon. Gentleman has just used the words ''having to cut back on the private sector.'' If he reads the Bill, he will see that it contains no such proposal. The Bill states that the proportion of income from private work cannot be greater than the proportion of total income from NHS work. If overall work increases, the amount from the private sector can increase. The hon. Gentleman and his colleagues have been confused about that in their remarks.

Andrew Murrison (Conservative, Westbury)

The hon. Gentleman has misunderstood my remarks. I went to some pains to describe the example of TB sanatoriums. That is only one example. Its purpose was to explain how, on a trust-by-trust basis, the contraction in a particular service as it reconfigures may well lead to a reduction in the amount of private health care that that trust is able to provide. That would not work across the service overall, but specifically in foundation hospitals. Because a relatively small number of specialists work in each defined specialty, the viability of some consultant posts may be reduced.

Andy Burnham (Labour/Co-operative, Leigh)

To clarify, my understanding is that the purpose of this clause is not to necessarily restrict or cut back on private sector work, but to ensure that the balance of work carried out by NHS trusts is not significantly altered as a result of NHS foundation status. That seems an entirely proper provision to put in the Bill when we are going forward with a publicly funded NHS.

Andrew Murrison (Conservative, Westbury)

I have no doubt that Ministers do not intend to cut back on any part of health care. What my right hon. and hon. Friends and I are trying to point out is that, paradoxically, that might be an effect of the Bill as drafted. The Prime Minister recently stated his aspiration to bring spending in our health service up to the EU average within five years. That will be woefully short of target if one takes that as the EU spend that will apply in five years. Even with the largesse heaped upon the NHS recently—which is very welcome—we must admit that it will fall a long way short of the average EU spend that will apply in five years as opposed to that of a few months ago—the figure used as a baseline when the Prime Minister made that statement.

Health care in this country is defined by the vestigial nature of its private sector. I regret that the Bill will potentially reduce the amount of money that comes into health services, broadly defined, and to that extent it will do our constituents a great disservice.

Mr. Hutton: I should like to respond briefly to some of the points that have been raised in this interesting debate. The right hon. Member for North-West Hampshire, in his characteristically articulate and fluent style, described this as something of a groundhog day debate. It certainly is. There has been a sense of deja vu about all the debates that we have had on foundation trusts, right from the beginning of the Bill's Committee Stage. The problem with a groundhog day is that it starts at 6 o'clock in the morning. My day certainly started at 6 o'clock, although I did not have the benefit of listening to ''I Got You Babe'' by Sonny and Cher, which would have cheered me up enormously.

One important aspect of this debate is that it has highlighted not just an ideological difference between the Opposition and those of us on the Government Benches, but a paucity of concern from the Opposition about how these issues should be addressed.

The hon. Member for Westbury (Dr. Murrison) said that the clause would reduce the amount of income available from private sources for the NHS. However, that is not a proper and fair reading of the Bill. If he is concerned about the need for a safeguard, what is his proposal? His Front-Bench spokesman proposes no safeguards whatever.

Andrew Murrison (Conservative, Westbury)

The Bill has given the independent regulator a remarkably broad remit, except in one area—the provision of private health care. Given that overarching remit, surely the independent regulator can be trusted to ensure a proper balance.

John Hutton (Labour, Barrow and Furness)

Yes, but the regulator should have a peg on which to exercise that concern. The problem with the amendment that I presume he supports is that it kicks any opportunity to impose such a restriction from under the feet of the regulator. The basic argument is one of ideology, and it will probably be impossible to breach.

The hon. Gentleman, and to a lesser extent the right hon. Member for North-West Hampshire, accepted in principle the need for some cap—although his may not be a cap at all. The argument is essentially one of principle. My hon. Friend the Member for Leigh (Mr. Burnham) made the point perfectly. In fact, I wish that I had used his words in my introduction about the need for clause 15. It provides an essential balance and a safeguard. The prescription offered by the Opposition Front Bench spokesman is that there should be no such safeguard.

George Young (Conservative, North West Hampshire)

How does the Minister survive for six years without any safeguard?

John Hutton (Labour, Barrow and Furness)

I come to that point, because the right hon. Gentleman and his hon. Friends have not appreciated that nothing like clause 15 applies to NHS acute trusts. However, NHS trusts are subject to the overall powers of direction of the Secretary of State. We are now removing those powers of direction in relation to NHS foundation trusts. We do not want, at the same time, to create a situation that he and others have encouraged us to enter. There must be an essential—

Dr. Murrison: Will the Minister give way?

John Hutton (Labour, Barrow and Furness)

I will not give way, because I want to make a point. The NHS is there to advance the interests of NHS patients. Its wider ambition is to have a range of income-generation powers available to support its primary purpose. There must be an essential balance, and I genuinely believe that clause 15 strikes that balance in the right place, in spite of the difficulties alluded to by the hon. Member for South Cambridgeshire (Mr. Lansley).

I shall come to some technical points that have been raised. I do not wish to mislead the Committee, and I may have done so in my reply about why the cap is needed. However, it is a fundamental point, and I must put it to the Committee that the basic premise is to accept or not accept.

Andy Burnham (Labour/Co-operative, Leigh)

Does my right hon. Friend agree that the root cause of the objections from the Opposition is that, effectively, a block is put on their much-trumpeted and heralded policy of using public resources to pay and subsidise people to go private?

John Hutton (Labour, Barrow and Furness)

I agree, but I suspect that we do not want to have a wider debate about the pay-as-you-go health care market that the Opposition now officially espouses.

Chris Grayling (Conservative, Epsom and Ewell)

I hope that the hon. Gentleman will address the points that I raised about a hospital with no current business. Does he not accept that the amendments that we have tabled leave in subsection (1) which provides, through the regulator and the authorisation, a means to provide the checks and balances that the Minister has described without creating the absurdities that would be set up if subsections (2), (3) and (4) were implemented, for the reasons that I described?

John Hutton (Labour, Barrow and Furness)

No, I do not accept that. If I had accepted that, I would not have prepared the Bill in this way. The hon. Gentleman made a point about trusts that have no private patient income. I suspect that this is one of those crunch issues around the architecture that we promote on which it will be impossible for us to reach an agreement because we start from a different place.

We want to ensure that foundation trusts will exercise their new freedoms first and foremost for the overall benefit of NHS patients. That is what clause 15, along with other provisions in the Bill, is designed to do. It is an essential safeguard to set alongside those new freedoms. In constructing any sort of regime, such as clause 15, there will be issues of a technical nature as raised by the hon. Gentlemen opposite. I agree with my hon. Friend the Member for Leigh that there has been a misunderstanding about what clause 15 is designed to do.

The hon. Member for South Cambridgeshire is right about amendment No. 255. We do not want income from that type of source. For example, NHS trusts that provide cable or satellite television, or access to the internet, will not be covered by clause 15; neither should they. Those are important ways in which NHS

foundation trusts could add to their income-generation opportunities, while improving services for NHS patients, and we do not want to get in the way of that.

If we start from the premise that a safeguard is needed, we must define what one should be. The official Opposition propose that there should be no regime of safeguards at all, which would seriously sell short the interests of NHS patients. We have been around this track before. It is important to recognise, as my hon. Friend the Member for Leigh did, that the provision would not restrict the opportunity to treat patients privately if that was what a foundation trust wanted to do. However, the trust cannot do that at the expense of NHS patients.

The hon. Member for South Cambridgeshire raised the issue of spare capacity. It would be possible for spare capacity to be provided for private patients on behalf of NHS foundation trusts, but not if that breached the cap. If a trust wants to provide additional capacity to private patients, it must match that with an increase in capacity and services to NHS patients. If the issue is considered in that sense, one could not present it as an ideological witch hunt against the concept of private patients. We want to strike a balance between NHS patients and private patients, and not have one ruling out the other altogether. That is a common-sense, middle-of-the-road position.

I do not agree with the right hon. Member for North-West Hampshire that clause 15(3) is an arbitrary cap. It simply examines the position of NHS trusts as they apply to become foundation trusts in the base financial year. No one could logically describe that as an arbitrary cap. We are not saying that the cap will be set at a lower level than the ratio of balance between private patients and NHS patients. It will be set at the actual level, which will vary from trust to trust. It is not an arbitrary cap; it relates to and reflects the practice of a particular trust in treating NHS patients and private patients.

The hon. Member for Epsom and Ewell said that if a trust did no private sector work, it would not be able to do any after it became an NHS foundation trust. That is true. However, I am not aware of any NHS trust that does not have some facilities and services available to treat private patients. Perhaps there is one; I am sure that I will find out shortly whether that is so. Like many of his extreme examples, this is a million miles away from reality.

George Young (Conservative, North West Hampshire)

To take the example mentioned by my hon. Friend the Member for Epsom and Ewell, if a trust that had no income from the private sector derived some income in the next two years and subsequently became a foundation trust, would that have to stop because the base year is 2003?

John Hutton (Labour, Barrow and Furness)

Yes. In that scenario, the trust would have to stop, because the base year is set at 2003. That is how the system would operate in that example. All the amendments relate to that issue; the need for—

Chris Grayling: Will the Minister give way?

John Hutton (Labour, Barrow and Furness)

I will not give way, because I have made the point perfectly clearly. All the amendments relate to the need for a safeguard and a cap, clarity about the cap and the calculations on which the cap is based. It is a clear and simple proposition. There is no doubt about how it should apply.

Andrew Lansley (Conservative, South Cambridgeshire)

Although the Minister keeps repeating that point, he has not answered the question. The burden of my contribution was that there is a safeguard, which is that, through authorisation, the independent regulator could provide that the capacity of an NHS foundation trust should not be used for private patients in circumstances in which any NHS commissioner required that capacity. Why can the Minister not accept that as an adequate safeguard, providing greater flexibility?

John Hutton (Labour, Barrow and Furness)

The hon. Gentleman's proposals raise interesting technical issues—

Andrew Murrison (Conservative, Westbury)

So do these.

John Hutton (Labour, Barrow and Furness)

Certainly. I agree, but the hon. Gentleman's solution is not a perfect one. We are trying to construct a simple, transparent and clear framework in which all trusts that are applying to be foundation trusts will know exactly what the position is with regard to their private practice income. In this case, the benefits of simplicity and clarity are important.

The hon. Lady for Cheadle was asked whether amendments Nos. 252, 253 and 254 circumvented the need for the cap. They do not. The independent regulator must apply the private patient cap, although he can use his discretion to restrict further services. When coming to a view about authorisation, there is no question but that the regulator has to apply the cap.

Patsy Calton (Liberal Democrat, Cheadle)

I accept what the Minister says, but I am unclear about where precisely in the Bill that is said. The words will be there in legislation long after we have all gone, and will be interpreted at face value. We should be absolutely clear about what those words mean.

John Hutton (Labour, Barrow and Furness)

We are being clear, and I have tried to be clear to the Committee. Amendments Nos. 253 and 254 do not affect clause 15(2), and no one should be confused about the intention.

The hon. Member for Epsom and Ewell asked why no similar provision is being made for non-NHS trusts applying to be NHS foundation trusts. I made clear why there was no equivalent provision in relation to public benefit corporations coming into NHS foundation trust status under clause 5; simply, there would not be a baseline year of activity on which to base their cap. It would not be possible to apply the provision in the same way to non-NHS organisations that wanted to be NHS foundation trusts. The provision makes perfect sense in that respect.

There has been a long debate on clause 15, and I accept and acknowledge the importance of the issues involved. The debate has revealed an interesting

division of opinion across the Committee about the need for this type of safeguard. There are different points of view on this. On the Opposition Back Benches, there is an acknowledgment in principle of the need for safeguards of some kind, although they are equally problematic. The right hon. Member for North-West Hampshire's suggestion of a 25 per cent. cap on private income would probably mean a twentyfold increase in the volume of private patient activity that a typical NHS trust might be able to take part in were it to become a foundation trust. That would not be sensible. From the Opposition Front-Benchers, the argument has been that there should be no safeguards whatsoever.

This side of the Committee has a choice between accepting the need for some safeguards or for none at all; I believe that there is a need for a safeguard. The safeguards that we have in the Bill are clear, simple and transparent.

Andrew Lansley (Conservative, South Cambridgeshire)

The Minster has been gracious in giving way. When he began, he said that there was something on which he may inadvertently have misled me. He seems to be about to conclude, but I have not yet discovered what it was.

John Hutton (Labour, Barrow and Furness)

That was obviously my intention. I believe that it was the point about spare capacity and whether it could be offered to private patients. The answer is that it could be, provided that it did not breach the patient cap in clause 15(2). If I gave the hon. Member the impression that the spare capacity could not be offered, that was clearly wrong. It may have led him to assume that I did not need clause 15(2). I do not wish to repeat myself. The case for the cap on private patient income is clear, and I take comfort from the interventions that my hon. Friends have made to support the Government's view that such a safeguard is necessary.

Chris Grayling (Conservative, Epsom and Ewell)

The Minister has done a good job of reminding me why I sit on the Opposition Benches and why I will do everything that I can to remove this Government from office at the earliest possible contingency. What an absurdity these arguments are. The Government are saying that they will make it illegal for a trust that is seeking to achieve, or has achieved, foundation status to invest in a piece of equipment such as a scanner and to pay for part of the bill through private revenue.

I have given the Minister examples. The proportion of private income might not be zero; it might be 1 per cent. or 0.5 per cent. Regardless of the figures, in making that investment, a trust that pushed its proportion of private income above its baseline threshold would be breaking the law.

John Hutton (Labour, Barrow and Furness)

No.

Chris Grayling (Conservative, Epsom and Ewell)

The Minister said that a trust that was not on the initial list and invested in a new MRI scanner and then sought to achieve foundation status would have to scrap that scanner if its private income increased from the base year as a result of purchasing that scanner. What an absurdity that is. On that basis,

I have no compunction about asking my right hon. and hon. Friends to support amendment No. 8. It is an act of monumental stupidity, and one that the Government will live to regret.

Patsy Calton (Liberal Democrat, Cheadle)

I would ask the Committee to allow us not to move amendments No. 266, 414 and 415. However, we would like a vote on Government amendments Nos. 253 and 254.

Amendment agreed to.

Amendment made: No. 149, in

clause 14, page 6, line 23, leave out 'may authorise or' and insert 'must authorise and may'.—[Mr. Hutton.]

Win Griffiths (Labour, Bridgend)

I do not propose to hold a stand part debate on clause 14 as amended. The Committee has debated the issue for one hour and 40 minutes.

Andrew Lansley (Conservative, South Cambridgeshire)

On a point of order, Mr. Griffiths. During the debate, we have not touched on whether the independent regulator would, under clause 14(7)(f), be able to undertake regular reviews as was suggested in the ''Guide to NHS Foundation Trusts.'' If you allowed a debate, I would at least be able to ask the Minister that question. That is the limit of my intention.

Win Griffiths (Labour, Bridgend)

As I recall, that matter was briefly referred to during debates on clause 14(7). The issue got an airing; very briefly, I admit. I feel that we do not need to go into it in any greater detail.

Clause 14 (as amended) ordered to stand part of the Bill.

Clause 15 - Private health care

Clause 16 - Protection of property

Chris Grayling (Conservative, Epsom and Ewell)

I beg to move amendment No. 12, in

clause 16, page 7, line 25, at end insert

'but does not include property acquired subsequent to the date of its establishment as an NHS foundation trust.'.

Win Griffiths (Labour, Bridgend)

With this it will be convenient to discuss the following:

Amendment No. 14, in

clause 16, page 7, line 30, leave out 'may' and insert 'shall'.

Amendment No. 15, in

clause 16, page 7, line 30, leave out

'on any terms he considers appropriate'

and insert

'unless he believes the disposal of the protected property will render it impossible to deliver a comparable level of service to that provided on the date of the trust's formation.'.

Chris Grayling (Conservative, Epsom and Ewell)

The amendments are designed to address specific elements of the provisions that the Government are aiming to put in place for the protection of property. We do not want foundation hospitals to dispose of their core assets. Many are in city centres, and most are in prime locations where

they have a large real estate value. We do not want trusts to take advantage of that asset base to raise revenue for whatever purpose they choose.

Equally, we do not want to see them in a straitjacket that would make it impossible for them to modify their asset base to reflect the reconfiguration of services, to change the nature of their asset base or to dispose of any spare property that they do not need. It is their duty to continue to be able to deliver the basic core hospital services. The amendments are designed to address elements of the management of their property portfolio.

Amendment No. 12 relates to later acquisitions of land that might be acquired through the rights that will come up in clause 17 to make further investments. The amendment would add

''but does not include property acquired subsequent to the date of its establishment as an NHS foundation trust.''

That allows a trust to modify its investment portfolio. Let us say that a trust acquired a clinic and chose subsequently to dispose of part of the land; perhaps it chose to close that clinic down on a separate site and to move its facilities to its core site. It is then left with an asset that has been providing a core service to the trust.

I gave an example earlier of a trust using a cataract clinic that it had acquired; if it had been able to do so under the restrictions we discussed earlier. The trust might subsequently choose to move the cataract service to its own site. Arguably, under the definition of protected property, that cataract clinic would be a protected site, because it is a core part of the service that the trust is using to provide basic health care services to its patients. Our argument is that where the trust subsequently invests in a property and chooses to reconfigure its services, it should have the freedom to dispose of that property if it chooses to do so.

I hope that the Minister can either explain that he does not envisage the protection measures applying to property acquired subsequently or say that he is prepared to offer some flexibilities so that when trusts make subsequent investments and acquisitions, those acquisitions are not automatically pulled into the core straitjacket afforded by the provisions under protective property.

Amendment No. 14 concerns the power of the regulator. Clause 16(4) states:

''The regulator may give approval under subsection (1) on any terms he considers appropriate.''

Imagine a situation in which a trust comes forward with a proposal to the regulator to make a property disposal as part of a reconfiguration of its services. It has met all the criteria for doing so, it is proposing changes in a way that will not affect its core services and it is meeting all the requirements expected of it by the regulator.

However, the Bill still only gives the regulator a general sense of the direction his decision must take; it is not an obligation. The regulator ''may'' give approval even if all the criteria have been met. We want to be able to say that if an NHS foundation trust has done its homework, put together a credible proposal for a reconfiguration of services that involves

changes to its property portfolio and met all the sensible criteria that it should be expected to meet, the regulator should, at that point, be obliged to accept it. The word ''shall'' should replace the word ''may''. It is simply a matter of finding where the balance of power lies.

Our view is that foundation hospitals are about local freedom and not centralised freedom, subject to reasonable safeguards in a number of areas. The balance of decision-making and the balance of power should reside with the trust rather than with the regulator. If a trust does its job properly, the regulator should not be able to turn around and say that he does not want it to go ahead anyway. That is the purpose of amendment No. 14.

Amendment No. 15 further addresses the issue of the circumstances of disposal of property. We tabled it because of the nature of our national health service at the moment. If the Government pursue their current strategies, it is inevitable that the NHS will see a significant reconfiguration of services over the next few years. The document ''Keeping the NHS Local—A New Direction of Travel'' sets out a vision of a number of services that are currently carried out in hospitals, and will be carried out in foundation hospitals once they are established, moving into the community.

In a number of areas, including mine, primary care trusts are setting out a clear strategy to change purchasing patterns; to buy more services for community hospitals; to devote more resources to the primary care sector and to community hospitals; and to reduce the workload and the capacity problems in major hospitals. In some areas, that is likely to lead to the closure of hospital sites. In my constituency, we are debating the future structure, location and provision of hospital services at Epsom General hospital, St. Helier hospital and a theoretical future third site.

We are going into a period in which NHS services will be under major review. Purchasers may ask trusts to reconfigure services, to do less and to allow services to be bought in through community hospitals. We must not place a protective straitjacket around those trusts that would make it difficult for them to respond to the changing requests of their purchasers. That is why we fear the scale of the straitjacket being proposed in clause 16.

The purpose of amendment No. 15 is to change the balance of power and to make the regulator a watchdog rather than a decision-maker. The purpose of the amendment is to show that we accept that trusts will make decisions in the next few years that will involve changing their sites, changing the configuration of services on their sites and changing the way in which they work.

We must ensure that the foundation hospital status that this Bill would afford those trusts is not abused in a way that would remove assets from the health service that could no longer be used for patients. We must not tie foundation trusts up and create a situation in which they cannot respond to a national strategy, through directions like that in ''Keeping the NHS Local—A New Direction of Travel''. Equally, we must ensure

that they can respond to the pressures that will come from primary care trusts to change the way in which they operate.

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

The hon. Gentleman is talking a lot of sense on this mater. However, there is a further pressure; not just from primary care trusts and Government policy, but from quality watchdogs. Watchdogs might say that it was no longer safe to provide a certain level of service—such as high-risk maternity services—in a certain building or a certain trust and that those services must be provided in another area. I hope that that does not happen too often, but I hope that it happens when appropriate.

However, the wording of amendment No. 15 might prevent that quality from being introduced and safeguarded, because of the words ''comparable level of service''. There might be no such service, and the wording of the amendment might tie hands too tightly.

Chris Grayling (Conservative, Epsom and Ewell)

The hon. Gentleman has made an interesting point, which I will be happy to consider and which, I hope, Ministers will consider. If the Minister accepts the general direction in which the amendment is trying to take the Bill, we will be perfectly happy to see a different draft that takes into account the circumstances that the hon. Gentleman has described.

This amendment is not intended to change the protections that the Government have afforded NHS patients through the Bill. It attempts to reflect the practical nature of the job of today's NHS managers. The amendment accepts that foundation trusts will have to evolve and change the services that they offer, and the amendment will ensure that they have the flexibility to do so.

The regulator should be there as a watchdog to ensure that, in changing services, managers do not remove from patients the resources, the property, the assets or the means of delivering those services. The amendment gives managers the freedom to make the decisions that they need to make in response to a changing world.

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

The amendments address the important tension that exists between wanting both freedom for foundation trusts and a strategic oversight of the best use of property assets in the NHS. I understand the point that the hon. Member for Epsom and Ewell made. He wants to see the maximum amount of freedom with a predisposition—a default situation—wherein foundation trusts are free to make changes to their estates in order to keep pace with their plans, as well as with the modern NHS. All hospitals need to do that.

The problem is that hospitals are not isolated islands and ought not to be seen as such. They work within a community, and there is some concern about two-tierism. The risk of giving too much freedom to foundation trusts to dispose of property in the context that the Government are setting up is that it will not

necessarily be done in the context of the whole NHS. There must be some strategic oversight, which at a regional level must be democratically accountable.

Although that debate is for another clause and another day, I should like the Government to specify the criteria that the regulator is expected to use. Obviously, they cannot be prescriptive at this point, but I want reassurance from the Government, when we discuss the amendments, that there will be close co-ordination between the regulator and the strategic health authority—or whatever the Government are likely to change that to in the near future—to ensure that things are done holistically in each area.

Being too prescriptive presents a difficulty, because the regulator will be required to be alert to issues that may not appear to be particularly commercial or even that popular with local users, but which may be fundamental issues of quality. The one advantage of the Government's wording is that it is less prescriptive of the regulator in those respects. There is the issue of the transparency of any decision that the regulator makes, but that would be the case whatever the wording. I hope that the Minister will be clear on what consultation the regulator will carry out when making decisions about which properties to designate and which disposals to approve under clause 16(4).

The debate is interesting, but the fundamental questions cannot necessarily be dealt with by the amendments tabled. We are still failing to address the question of what forms the basis of strategic planning in a health service in which there are greater freedoms for one than for others and there is no democratically accountable way of controlling how those freedoms are used. I hope that we will have a chance to continue the debate on those wider issues another time.

John Hutton (Labour, Barrow and Furness)

I agree with the hon. Member for Epsom and Ewell that clause 16 must not create a straitjacket. He is correct that, by definition, the NHS is an organisation that will always be subject to change and reconfiguration. That is so, rightly, because it is a science-based service. Science changes, and therefore the provision of services must change to reflect that. We do not think that we are proposing a formulation in the Bill that will, in his language, create a stranglehold on the ability of NHS foundation trusts to properly manage the property with which they are entrusted on their establishment.

However, that is the nicest that I can be to the hon. Gentleman about his amendments. He says that he accepts in principle the need for some safeguards because of the importance of those assets. However, his amendment would effectively remove those safeguards for any assets that NHS foundation trusts subsequently acquired. Under his proposals, those could never be designated as protected assets. Therefore, the regulator would not at any time be asked to consider whether to approve the sale or disposal of those assets. The hon. Gentleman cannot argue that there is a need for a safeguard on one hand and then comprehensively ride a coach and horses through the safeguard.

I understand the point that there needs to be flexibility in the way in which those assets are used, although I genuinely believe that the Bill will provide that flexibility. However, important safeguards must be built into the legislation so that crucial assets that are fundamental to the delivery of NHS services in a locality cannot simply be asset-stripped in the way that the hon. Gentleman described. We will not allow that to happen, and clause 16 is the mechanism that will ensure that it does not.

There is a slight problem with amendments Nos. 14 and 15 in relation to clause 16(4), which relates to whether the regulator can attach conditions to the sale of the protected asset, rather than whether he must approve the sale of the protected asset itself. The amendment tabled by the hon. Member for Epsom and Ewell turns that around and requires the independent regulator to approve the sale, subject to that one condition added in the amendment. That is neither sensible nor useful.

The hon. Gentleman has asked the hon. Member for Oxford, West and Abingdon (Dr. Harris) and myself to reflect on the criteria that the independent regulator would be likely to use to come to a view on which assets should be protected. First, the independent regulator will look at clause 14(6) in relation to those services that the NHS trust is, or may be, required to deliver. Clause 16(3) and the general duty under clause 3 must also be considered by the independent regulator to make sure that the NHS foundation trust provides comprehensive health care that is free at the point of use. Through a combination of devices and routes, the criteria to be applied by the independent regulator in deciding whether to dispose of protected assets are already contained in the Bill.

I agree with the hon. Member for Epsom and Ewell that there is often a time when protected assets—fundamental assets—must be disposed of; a classic example is when they are being re-provided elsewhere, and we have been given examples of that today. None of us, in our right minds, would want to stop an NHS foundation trust disposing of an asset in that way, because the disposal would facilitate and almost certainly help to finance, through the private finance initiative, the provision of that alternative service.

We must be clear that the Bill will not stop those disposals. I understand where the hon. Member for Epsom and Ewell is coming from, but I advise him that the Bill, as currently constructed, is not a straitjacket; nor does it form a stranglehold by NHS foundation trusts on proper asset management. His proposal that any future assets could never be designated as protected would run the risk of accomplishing what he argued we should not do, which is to make sure that proper safeguards are built in to these arrangements. Clause 16 seeks to do that and although I have ended up on a sour note, which I did not intend to do, I could not in a month of Sundays recommend acceptance of the amendment. However, we share common ground that a series of protections must be built into the Bill. Our proposals strike the right balance between freedoms and essential protections.

Chris Grayling: I failed to clarify to the Minister the situation that I was attempting to address. One example relates to investment and assets above and beyond the initial asset base of the trust. If the trust wishes to purchase an asset, it might look to secure future investment on that property, and it might need to take on a mortgage to buy that property in the first place. For example, if a trust bought a plot of land and took out a mortgage to buy it, the trust would be borrowing against the security of that site in order to expand its services. However, if that site automatically became a protected site because of the nature of the services carried out on it, it could not have a mortgage.

That is the kind of constraint that the straitjacket would place upon trusts. I accept and understand that, and I do not want to debate the rights and wrongs of the Government's rationale of saying, ''We set up the foundation trust with an asset base and we want to judge the core assets of that asset base in relation to the provision of a health care service.'' The trust cannot asset-strip. There will be bits of peripheral property that no one would have a problem with the trusts hiving off. However, if a trust decides to invest in the way that I have described, the straitjacket may take effect, and a mortgage may not be taken out, because of the provisions of the Bill.

John Hutton (Labour, Barrow and Furness)

The hon. Gentleman is right. We do not want protected assets to be the subject of mortgages in the way that he has described. That would drive another coach and horses through the failure regime, which I hope we will discuss later this afternoon. If there is an existing range of financial creditors who have a prior claim on those protected assets, the failure regime that we have constructed will be redundant. We will not allow that to happen either.

There are several ways around the problem that avoid that restriction. I agree that if that were the only way to raise capital and to finance the new provision of assets, there would be a difficulty. We are providing additional financial resources through the new financing facility, which we discussed early on. Crucially, and most importantly, the borrowing security described by the hon. Gentleman that is most likely to be available will be security on revenue flows, which will be dependent on the volume of activity that the trust generates.

There will also be an opportunity to raise capital on the strength of security provided by non-protected assets that the NHS trust might own. It would be unusual for that to be the only route through which the financing of such a new asset would have to take place. We should remember that—as we discussed earlier—the Secretary of State also has the ability to make loans and grants available to foundation trusts. Therefore, there are several ways around that particular problem.

The hon. Gentleman is right in one respect; the basic architecture of clause 16—we will come up against this matter in later provisions of the Bill—is to avoid any suggestion that protected assets could be subject to mortgages in the way that he has described. It clearly would not be in the long-term interests of the NHS if such a creditor were able to claim preference or priority over that asset in the event of failure of NHS

foundation trusts. That would clearly jeopardise the provision of NHS services. We have always made our priority clear on that.

Chris Grayling (Conservative, Epsom and Ewell)

I do not intend to press these amendments to a vote. This is another bit of the jigsaw puzzle of constraints on the freedom of NHS foundation trusts to operate. It is one area of potential development that they will not be allowed to pursue and one element of the straitjacket that might be applied to them across the whole range of their services and the ways they operate, which ultimately reinforces the view that the Bill is all talk and very little substance. That said, I do not intend to press the issue to a division, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

In order to move things along, I tried earlier to bring up an issue that I now want to raise. However, the Minister omitted to deal with it. I am sure that he has an answer prepared, but he was just keen to press on with some of the direct issues around the amendment.

The issue is the consultation on some of these matters. The regulator, rightly, must consult with bodies over amendments to authorisation, and the Minister has also put on record the general requirements to consult when authorising an application. I should be grateful if the Minister clarified the requirements for consultation on the designation of property, as there are none in the Bill.

I am not so much concerned about locally loved buildings, although that is an important factor. It is not necessarily the role of the regulator to always protect bricks and mortar. However, I am interested in the consultation outside the foundation trust about the best use of that NHS property, even if it is not necessary for the trust to use it for health services. What fate would be best in the context of the local NHS and the regional NHS as a whole?

I cannot see that there is any requirement on the regulator to consult, and I am not even sure that this is a particularly transparent process. If foundation trusts and the regulator are not going to run into problems as soon as this starts, it might be best that it be made much clearer both that there will be a transparent process and that local people—other than the public constituency of the trust—and other local stakeholders, such as non-foundation hospitals locally, the strategic health authority and others, will have a say in deciding whether the sale of the asset as proposed is necessary.

John Hutton (Labour, Barrow and Furness)

I am sorry that I did not respond to that point earlier. We dealt with some of those issues in the consultation process that considered the establishment of NHS foundation trusts. We shall later discuss the application to NHS foundation trusts of the general obligation to consult local communities about any

substantial change to the pattern of services. In both of those areas, the hon. Gentleman will find an answer to his question about what consultation process would normally be attached to any agreement that the regulator has made to dispose of protected assets in clause 16.

Those assets are fundamental to the provision of core NHS services, and it would be difficult to imagine any disposal of those assets not triggering the normal requirement to consult with the local community about the provision of NHS services. In reaching his decision to approve or otherwise a disposal of a protected asset, the regulator should have regard to the outcome of that consultation process. There is no specific provision in clause 16 that deals with consultation, but the pathways on which the issues would be addressed are dealt with in other parts of the Bill or in other legislation attached to it.

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

I am grateful to the Minister for his explanation. However, he did not address the point that I made, which is not that the regulator must be sure that it is not a core service—I accept that the regulator has a duty to ensure that—but that there may not be a necessary core service for that NHS trust. The best option may be to use that property for another part of the NHS in the local area. That is not the part of the equation that the foundation trusts have to think about; they have to judge whether it is a core service for them. It is not part of the regulator's thinking, because he has to look at it solely in terms of the services provided by the NHS foundation trusts. I should like some reassurance that the needs of the NHS generally will be considered and that the regulator will have regard to that, because the NHS foundation trust may not have regard do likewise.

John Hutton (Labour, Barrow and Furness)

I can give the hon. Gentleman that assurance, because that takes us back to our discussion on clause 3. In discharging his duties under the Bill, the regulator must take into account the fundamental duties that apply to the Secretary of State in ensuring the provision of a comprehensive and free at the point of use national health service. He must take into account those wide elements to any decision to change the configuration of services locally, which the disposal of protected assets might trigger. I hope that the hon. Gentleman is reassured by my affirmative reply.

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

I am reassured, but I should like clarification that under clause 16(4) the regulator, under one of the conditions that the Minister described, could say that it was applicable to allow disposal of this property. However, if the regulator felt that it was necessary, he would be entitled to say, ''As long as it is offered for use by the rest of the NHS first''.

Mr. Hutton: The current wording provides a very wide discretionary power to the regulator to attach whatever conditions he thinks appropriate, and it might well cover the point that the hon. Gentleman has raised.

Question put and agreed to.

Clause 16 ordered to stand part of the Bill.

Clause 17 - Financial powers

Win Griffiths (Labour, Bridgend)

We now come to amendment No. 263, but the hon. Member for Ealing, North (Mr. Pound) is not here to move it. Is someone prepared to move the amendment formally?

Simon Burns (Conservative, West Chelmsford)

On a point of order, Mr. Griffiths. The hon. Member for Ealing, North is the nearest that we have to a rebel in this Committee. Has he forgotten to be in his place, or has the Whip nobbled him because the Government do not like the amendments?

Win Griffiths (Labour, Bridgend)

That was not a point of order.

Amendment proposed: No. 263, in

clause 17, page 7, line 34, after 'money', insert 'only'.—[Mr. McCabe.]

Win Griffiths (Labour, Bridgend)

With this it will be convenient to discuss the following:

Amendment No. 264, in

clause 17, page 7, line 34, at end insert 'direct'.

Amendment No. 18, in

clause 17, page 7, line 36, leave out subsection (2) and insert—

'(2) The trust shall have no constraints on its right to borrow except as outlined in subsection (3)'.

Amendment No. 161, in

clause 17, page 7, line 36, leave out subsections (2) and (3) and insert—

'(2) The trust will have certain limits on its rights to borrow, as outlined in subsection (3).

(3) The trust's borrowings shall not endanger, or incur the loss of protected property, as outlined in section 16.'.

Amendment No. 19, in

clause 17, page 7, line 38, leave out subsection (3) and insert—

'(3) A trust's total borrowings shall not exceed 100 per cent. of its total revenues without the approval of the regulator.'.

Amendment No. 146, in

clause 17, page 7, line 38, at end insert—

'(3A) In calculating these limits, no regard shall be had to any borrowing incurred under the Private Finance Initiative.'.

Amendment No. 21, in

clause 17, page 8, line 6, at end add—

'(7) A foundation trust shall show the total value of all its liabilities on its balance sheet.'.

Chris Grayling (Conservative, Epsom and Ewell)

You will not be surprised to learn, Mr. Griffiths, that I do not wish to speak to the first two amendments in that group, but to amendments Nos. 18, 161, 19, 146 and 21.

Amendments Nos. 18 and 19 need to be read together. They attempt to introduce a ceiling on borrowing limits to NHS foundation trusts, at a level that is generally accepted as prudent in the commercial world. A gearing level of debt to income of 100 per

cent. is a fairly standard measure of affordability for a private corporation. It establishes a much more prudent and sensible limit on borrowing than the restrictions that the Bill puts forward otherwise.

Frankly, we are concerned that the level of restriction on foundation trusts' ability to borrow cuts away and undermines many of the benefits that foundation hospitals experience in other countries, where they have much greater control over their own financial affairs and are not subject to centralised prescription over what they can and cannot do financially. It is our view that the Government's approach—that hospitals can have freedom, but freedom in a straitjacket—which is applied to many sections of the Bill, is wrong and flawed. That is ironic, because the Government have had a difficult time with the Bill. There has been a Back-Bench rebellion, although not, sadly, in the Committee. However, we know that those Labour Members who sought to express themselves in the Chamber about the principles of the Bill were not given the opportunity to bring those arguments to the Committee.

Mike Hall (Labour, Weaver Vale)

On a point of order, Mr. Griffiths. Some of those who did not vote for the Bill in the Chamber refused to serve on the Standing Committee.

Win Griffiths (Labour, Bridgend)

We have all heard that comment.

Chris Grayling rose—

Mike Hall (Labour, Weaver Vale)

The hon. Gentleman should withdraw what he just said.

Win Griffiths (Labour, Bridgend)

Order.

Chris Grayling (Conservative, Epsom and Ewell)

I suspect, Mr Griffiths, that I would be trespassing beyond your strictures if I were to be diverted down that route.

We must not restrain foundation trusts from delivering a high-quality service. The Government are getting the worst of both worlds; they have all the difficulties of convincing those who are doubtful about the rights and wrongs of foundation hospitals, and all the political difficulties that that brings with it. However, they are also failing to implement effectively the principles of foundation hospitals. They are not giving foundation hospitals the freedom to truly deliver improved services. They are placing them in a position in which they will be able to make improvements only at the margins. That will ultimately be a lost opportunity.

We want to put our view on record that the constraints in the Bill are far too great. Borrowing should be an area in which there are much greater powers—within the control of the governing bodies and boards of directors of foundation hospitals—and where the limits placed on borrowing should be prudent rather than prescriptive. The measures that would implement the prudential code, which will place limits on authorisation, are almost certainly going to be highly prescriptive, and will not give hospitals the real freedom to innovate, to expand and to develop

their services. There is a powerful opportunity, but the Government are failing to offer hospital trusts the chance to take advantage of it.

Amendment No. 146 is a probing amendment; it is none the less extremely important. Many of the hospitals that seek foundation status will have been involved with PFI projects on either a small or large scale during the past few years. Many of them have built up substantial liabilities that must be repaid across a 20 or 30-year period. Some will be entirely new hospitals, which have been PFI-funded to the tune of hundreds of millions of pounds. The typical bill for a new hospital is anything between £200 million and £400 million. The recent building of new hospitals—or substantial additions or modernisations to existing hospital buildings—has been carried through the PFI scheme. The PFI scheme brings with it substantial long-term liabilities with regard to debt repayment and the provision of services by third-party providers. By any stretch of the imagination, these liabilities are as substantial as a conventional bank loan or debt payment.

What is the position for those trusts? How will the overall borrowing framework that the Government intend to set up through the regulator reflect the long-term liabilities that have been built up through PFI? Will the prudential borrowing limits imposed on a hospital trust reflect those liabilities? It is conceivable that a brand new hospital, with a huge liability to repay debts for its buildings, would have the ability to carry on borrowing if the PFI element was not reflected in the prudential code. That hospital could then increase its liability and increase the challenge in finding the funds to repay its liabilities.

On the other hand, an older hospital without the new buildings would find itself less able to develop, modernise and improve for the future. We touched upon that in an earlier debate, but we still do not truly understand the status of PFI and PFI liabilities as part of the borrowing framework. This amendment is designed to extract from the Minister some clearer indications as to how those liabilities will be handled.

Amendment No. 21 states:

''A foundation trust shall show the total value of all its liabilities on its balance sheet.''

In recent years, the Government's favourite way of spending money without admitting it has been to shift it off-balance sheet. Across the public sector, substantial liabilities have been built up that do not appear on the national books. The public sector borrowing requirement figures each year—the total national debt—do not reflect the tens of billions of pounds of liabilities that the Government have built up through PFI and through other off-balance sheet schemes.

My party does not want to see the future of the national health service being built on the back of off-balance sheet accounting. This amendment is designed to write into the Bill a simple and straightforward provision; that the balance sheets of an NHS trust should reflect all of its liabilities, whatever those may be. That is not something that is practised in the

Exchequer today, but it should exist on the balance sheet of these books. I hope that the Minister will accept that principle.

Steve McCabe (Labour, Birmingham, Hall Green)

I should be grateful if the hon. Gentleman clarified something for me, because I may have misunderstood. Am I correct in thinking that he is saying that total liabilities should be shown but that, for the purposes of additional borrowing, they should be discounted? Is that a logical position to adopt?

Chris Grayling (Conservative, Epsom and Ewell)

No, I am not suggesting that they should be discounted. Amendment No. 146 is a probing amendment; it is there to clarify the Government's position and to seek an explanation from them regarding the status of the PFI debt within the borrowing framework. Amendment No. 21 is a direct request to the Government to have the books of an NHS foundation trust show all of its liabilities. If the trust owes £300 million for its new hospital, it is not unreasonable that we should be aware of that.

In accounting terms, there are many forms of off-balance sheet debt that do not need to be shown formally in the structures of a balance sheet. That does not mean that good governance should not require the trust to say, ''And, by the way, we have these liabilities as well''. That is what we are seeking to achieve. That does not happen at national level; it is not reflected in

the PSBR figures. There should at least be a line underneath the figures that says, ''We also owe all this extra money to our PFI provider for the new wing that we built last year''.

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

I understand the point that the hon. Gentleman is making about amendment No. 21, and I agree with it. I am confused, however, about his position on amendment No. 146, although I understand the nature of probing amendments. Does he believe that regard should be had to liabilities incurred under the PFI that would show on the balance sheet if amendment No. 21 went through?

Chris Grayling (Conservative, Epsom and Ewell)

I am simply seeking clarification from the Government about what will happen to the liabilities. My own view, as set out in amendment No. 21, is that a foundation trust should show the total value of all its liabilities. The real question, which underlies amendment No. 146 and the previous two amendments, is whether we are going to tell a trust that has a new wing or a new hospital, and has already gone beyond the total liability amount permitted by the regulator under the prudential code, that it cannot borrow anything again, because it has already built a new wing.

It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o'clock.

Griffiths, Mr. Win

(Chairman)

Anderson, Janet

Bailey, Mr.

Burnham, Andy

Burns, Mr.

Burstow, Mr.

Calton, Mrs.

Casale, Roger

Dowd, Jim

Fitzpatrick, Jim

Gillan, Mrs.

Grayling, Chris

Hall, Mr. Mike

Harris, Dr. Evan

Hepburn, Mr.

Hutton, Mr.

Jones, Mr. Jon Owen

Lammy, Mr.

Lansley, Mr.

McCabe, Mr.

Murrison, Dr.

Pound, Mr.

Russell, Ms Christine

Thomas, Mr. Gareth

Ward, Claire

Young, Sir George

Standing Committee E

Clause 17 - Financial powers

Peter Atkinson (Conservative, Hexham)

I remind the Committee that with this we are discussing the following amendments:

No. 264, in

clause 17, page 7, line 34, at end insert 'direct'.

No. 18, in

clause 17, page 7, line 36, leave out subsection (2) and insert—

'(2) The trust shall have no constraints on its right to borrow except as outlined in subsection (3)'.

No. 161, in

clause 17, page 7, line 36, leave out subsections (2) and (3) and insert—

'(2) The trust will have certain limits on its rights to borrow, as outlined in subsection (3).

(3) The trust's borrowings shall not endanger, or incur the loss of protected property, as outlined in section 16.'.

No. 19, in

clause 17, page 7, line 38, leave out subsection (3) and insert—

'(3) A trust's total borrowings shall not exceed 100 per cent. of its total revenues without the approval of the regulator.'.

No. 146, in

clause 17, page 7, line 38, at end insert—

'(3A) In calculating these limits, no regard shall be had to any borrowing incurred under the Private Finance Initiative.'.

No. 21, in

clause 17, page 8, line 6, at end add—

'(7) A foundation trust shall show the total value of all its liabilities on its balance sheet.'.

For the assistance of Members, the selection list for tomorrow's sitting is now available in the Room. I remind the Committee that all questions necessary to dispose of proceedings on part 1 will be put at 7 o'clock this evening. If we have a Division in the House during this sitting, which we no doubt will, I will suspend the sitting for a quarter of an hour. If there is a second Division, I will suspend for 30 minutes, and so on.

Steve Pound (Labour, Ealing North)

On a point of order, may I apologise unreservedly to you, Mr. Atkinson, for not being present just before 1 o'clock to move the amendment that I tabled, which my hon. Friend the Member for Birmingham, Hall Green (Mr.

McCabe) generously moved? Unfortunately I was being made up for Sky News at the time. It takes a long time to make me passably human, so I could not leave in the middle.

Simon Burns (Conservative, West Chelmsford)

Further to that point of order, may I seek your advice, Mr. Atkinson, on whether it is more important to be in a television studio or to attend to one's parliamentary duties in a Committee?

Peter Atkinson (Conservative, Hexham)

Fortunately, it is not for the Chair to rule on that question. The Committee has heard the apologies of the hon. Member for Ealing, North (Mr. Pound), although the Chair of course deprecates occasions on which hon. Members are not present to move amendments in their name.

Chris Grayling (Conservative, Epsom and Ewell)

Welcome back to the Chair after recess, Mr. Atkinson. Those two points of order have given me the opportunity to pick up where I left off this morning, because a moment ago the Room was lacking Liberal Democrats, but now the hon. Member for Oxford, West and Abingdon (Dr. Harris) has arrived, so I can finish answering the point that he raised in an intervention just before we broke for lunch.

To recap briefly, the amendments to which I was speaking concern the powers and abilities of trusts to borrow and how they report such borrowings. Amendments Nos. 18 and 19 are designed to change the basis on which borrowing limits are applied to foundation trusts. Amendment No. 146, which the hon. Gentleman questioned me about, is designed to ensure that foundation trusts that have in recent years been part of major PFI schemes, perhaps to build a new hospital or new wing or to develop a new dimension of their services, are not disadvantaged when the new arrangements are put in place.

If current PFI financing is set against a trust's total liabilities when its right to borrow further is assessed, a significant number of our leading hospitals may be unable to take advantage of the extra borrowing rights. The odd situation might arise whereby hospitals with new buildings would be able to borrow no more for extending services, and those without new buildings would not be able to take on the substantial financing that they would need to build them, so there are some contradictions in the provisions. The amendment's purpose is to ensure that if a hospital had just opened a brand new PFI wing that took it over the borrowing limit that I expect to be set out in the prudential code, it would not then automatically be subject to a total moratorium on buying new scanners, for example.

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

I do not claim to be an expert on the matter, but is the hon. Gentleman concerned that those hospitals would be treated relatively badly because they would have to finance the pay-off, whereas trusts in a different position would have capital charges to pay back? Is there a way of ensuring that the capital charges in a public scheme are treated in the same way as the costs in a private finance scheme? That might get round the

problem that simply because something was privately financed, the hospital might not qualify for prudential borrowing if those liabilities were counted.

Chris Grayling (Conservative, Epsom and Ewell)

That will depend very much on the trust's level of capitalisation and the final public capital totals that the Government will set for trusts that do not have private sector liabilities. I look forward to hearing the Minister's explanation of how this will be handled. Let me explain my concern. If a brand new hospital has just spent £300 million, it will have to repay that money, but is it the case that, because that total liability is vastly in excess of the prudential borrowing codes level, it will have no further powers to borrow, even for a small specific purpose?

Peter Atkinson (Conservative, Hexham)

Order. I remind the hon. Gentleman and other members of the Committee that they should address the Chair. I say that not for my benefit, but because Hansard staff have difficulty hearing them if they address the other end of the Committee.

Chris Grayling (Conservative, Epsom and Ewell)

I apologise for that, Mr. Atkinson. I hope that I have answered the question asked by the hon. Member for Oxford, West and Abingdon.

The last amendment in the group has a simple purpose with regard to however liabilities are handled in accounting terms. This is the important distinction between the amendments. We want to understand how PFI will be applied to the prudential code, and to ensure that a hospital with a PFI legacy is not disadvantaged by the code. Whatever the situation and however the finances are accounted, we believe that all liabilities—conventional on-balance-sheet liabilities and what might have been set up as off-balance-sheet liabilities—should none the less be reported back, so that the full, true financial picture of the trust is reflected in the report that it makes to its members and the public as a whole.

Andrew Lansley (Conservative, South Cambridgeshire)

In the next group is amendment No. 124, on which I should like to make a few remarks, if I may—[Interruption.] I shall wait for the next group if that is more convenient.

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

I risk to speak to amendment No. 161, which is in my name and those of my hon. Friends. I expected to contribute to an ongoing debate on amendments Nos. 263, 264 and, to a certain extent, 265. [Interruption.] I expected to speak about amendments Nos. 263 and 264, but if the hon. Member for Ealing, North (Mr. Pound) is going to make a contribution on those, I shall wait to hear him speak.

The clause is interesting, because it defines how free, in borrowing terms, foundation trusts will be. We have generally taken the view that, if trusts are to have proper decentralisation and financial freedom, it seems wrong unnecessarily to limit their scope to borrow, because the freedom then becomes a phantom, and the idea of the experiment with providers is to ensure that there is a reasonable approach.

We thought that the simplest way and the minimum required would be for the regulator to set as a limit the borrowing that, in his opinion, would not threaten the asset that he considers it necessary to protect, under clause 16. That is a prudential borrowing code. It does not have upper limits or what are, by necessity, artificial limits. It is much clearer, because in the end—[Interruption.] The Minister thinks that it is not clearer. Perhaps because our code is less defined—I accept that—it may not be as clear, but it would certainly provide more latitude. If one is to encourage the use of the freedom to borrow and to identify ways of levering into the health service alternative means of finance as well as of management, the Secretary of State or the Prime Minister, rather than the Chancellor of the Exchequer, should set out the approach to the limits on borrowing.

Our amendment offers the logical minimum restriction. It states:

''The trust's borrowings shall not endanger, or incur the loss of protected property, as outlined in section 16.''

That would be for the regulator to decide. That is the sort of requirement that operates in organisations outside the public sector. True voluntary organisations and mutuals have a duty to ensure that they do not put at risk that which is essential to their asset base. I should be interested to hear why the Minister adopted his approach. Even though we have concerns about the Government's model, the imposition of foundation hospital status and some of the issues relating to the winners and the losers, we do not oppose the greater freedom to borrow for this sort of model. We have tried to show that with this probing amendment.

We had an interesting interchange with the hon. Member for Epsom and Ewell (Chris Grayling) about the consistency of his amendments and the nature of the probing amendment on private finance, which is a big issue. A number of hospitals are now saddled, some would say blessed, with the need to pay back at much higher rates than could be obtained from public capital the costs of a private finance scheme. Many have insufficient beds to provide the capital that they need. Many hospitals with big PFI projects will be keen to get foundation status. It would be interesting to hear how the Government plan to treat that because it could put a brake on the ability to borrow. It is best if I leave it there.

Steve Pound (Labour, Ealing North)

I rise to speak briefly to amendments Nos. 263 and 264. I am almost alone, as I do not have a cohort of supporters behind me. I am trying to define precisely the core role and function of the financial regime that will apply in a foundation hospital. The Committee's blood could be curdled many times over by tales of the financial adventures of some of our formerly state-owned organisations. I do not imply that foundation hospitals will go the way of many bodies that I could list, but it is worth putting down a marker in the form of these amendments.

The key one is amendment No. 264, which would inserts the word ''direct''. Hon. Members will be aware that subsection (1) reads:

''for the purposes of or in connection with its functions.''

That is too loose. There is an element of elasticity that slightly worries me. I would be slightly happier were the word ''direct'' used to qualify that.

Chris Grayling: Can the hon. Gentleman envisage a situation in which to meet a shortage of radiographers a trust might invest in a local college to expand the number of places available to radiographers and ensure an eventual flow of trained people? Would that not constitute an indirect, rather than a direct, investment in its services and therefore be effectively outlawed by his amendment?

Steve Pound (Labour, Ealing North)

That is an important point. I would hope that any reasonable human being, even a member of the Conservative party, would recognise the direct link there. I did not want to spell it out, but I am talking about many hospitals, particularly in the south-east of England, that have capitalised on their land bank and the asset value of their property holdings in a way that has quite demonstrably not been directly in connection with their core function of providing clinical services. I hope that that is in the past. I am reassured by some of the comments that the Minister made earlier. Were it a question of nourishing a future crop of radiographers I would see it as a sophisticated, flexible, mature and responsible action rather than anything that can be denigrated by association with asset stripping.

Jim Dowd (Labour, Lewisham West)

I am deeply grateful to my hon. Friend, who was in the Radio Five Live studio when the amendment was being moved, for giving way. Into whose custody would he entrust interpretation of the word ''direct''? Would it be a job for the regulator or, as is more likely in such matters, a job for my learned friends?

Steve Pound (Labour, Ealing North)

Whatever else I achieve in my short tenure in the House, let it never be said that I provided succour for my learned friends. They do perfectly well for themselves, and many of them have part-time jobs here. I hope that the word ''direct'' is sufficiently unambiguous that even a cunning counsel would resist the opportunity to reinterpret it. I am talking about something specific, and I shall be happy to hear the Minister's response. I hope that we all agree that the core function of the NHS should be the health of the nation.

John Hutton (Labour, Barrow and Furness)

I understand where my hon. Friend is coming from on amendments Nos. 263 and 264, but we would end up in the wrong place is we accepted them, because they would clearly prevent NHS foundations trusts from borrowing money to support their income generation schemes. Generally, that would not be a good thing, but it is the only way that I can interpret his reference to the word ''direct''. He clearly wants to confine the opportunity to use investments to the provision of clinical services. As we all know, however, a range of other things done by NHS foundation trusts and NHS trusts form an important part of their overall level of provision and service for patients.

Dr. Harris: Like what?

John Hutton (Labour, Barrow and Furness)

What about child care facilities for NHS staff? My hon. Friend the Member for Lewisham, West (Jim Dowd) may be right: the amendment might look like three cherries on a fruit machine for lawyers, and being one myself I am not usually averse to such measures, but on this occasion it would clearly not be right. In other words, the unnecessary introduction of an element of ambiguity into the Bill would be unhelpful, because it would make it much harder for NHS foundation trusts to invest in a range of initiatives and actions that would generally benefit the provision of services that did not fall within any reasonable interpretation of the word ''direct''.

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

I asked, ''Like what?'' to provoke the Minister into giving a good example of what he means. Can he give other examples?

John Hutton (Labour, Barrow and Furness)

There is a long list of examples. The hon. Gentleman needs to acquaint himself with the range of income generation schemes in which NHS foundation trusts take part. Another, which I have seen it at first hand—perhaps the hon. Gentleman and others have seen it—is investing in sheltered housing and key housing support schemes to help to ease recruitment and retention problems.

One could play with words, arguing that such schemes are related to clinical service and are therefore direct. I would rather not play with words, because it could unfairly and unnecessarily restrict the freedom to borrow and invest. I share the hon. Gentleman's concern, but I believe that he would end up in the wrong place. Such an unwelcome restriction would militate against some of the innovation and enterprise that we would like to be facilitated in the public sector.

I have a much greater problem with amendments Nos. 18, 19 and 146. They are designed to give NHS foundation trusts almost absolute freedom to borrow up to 100 per cent. of their total income, with no reference to the regulator, no prudential borrowing code by which to abide and no regard to their ability to service any debt repayments arising in the formulation. That would be daft. It would present an unacceptable risk of financial failure, given the services that NHS foundation trusts provide, particularly the core, protected services.

The hon. Member for Epsom and Ewell spoke of his concern about the formulation of the code. From our consultation with the private sector, we know that lenders generally find comfort in the prudential code and do not advocate the course of action that he proposes. He also raised several concerns about PFI. To use the expression of the right hon. Member for North-West Hampshire (Sir George Young), there is an element of groundhog day to this debate, as we have covered the matter before. The hon. Member for Epsom and Ewell has banged on about PFI borrowing counting against the prudential borrowing code, but I made it perfectly clear two weeks ago that that would not happen. There is no question of total PFI

borrowing scoring against the foundation trust's prudential borrowing code, and I am happy to repeat that for the third or fourth time.

As the hon. Gentleman will know, the structure of the PFI deals means that it is likely that the acute trust will take on contractual liability to make payments for the lifetime of the PFI contract. That will clearly affect its cash flow and, in that sense, its prudential borrowing limit, as it will be determined by reference to its ability to service debt repayments. That is a sensible and prudent way to proceed. It is euphemistically called the prudential borrowing code, but the name is right. Individual borrowing rates will ensure that all external borrowing and other long-term liabilities are kept within prudent and sustainable levels, capital expenditure plans are affordable and management decisions are taken in accordance with professional good practice. Those are all positive reasons to leave the Bill as drafted.

Amendment No. 161, which was tabled by the hon. Member for Oxford, West and Abingdon, would allow NHS foundation trusts to borrow without limit provided that protected assets were not put at risk. I do not regard that as a proper safeguard against financial failure. Even without being able to secure borrowing against protected property, an NHS foundation trust could run up unaffordable debt, and that level of risk is simply not acceptable for organisations that provide an essential public service.

The hon. Member for Epsom and Ewell spoke to amendment No. 21, which, again, is unnecessary. I do not know how many times I have referred to paragraphs 20 and 21 of schedule 1, but I shall happily do so again. They provide for the independent regulator, with approval from Her Majesty's Treasury, to determine the form of NHS foundation trust accounts. The accounts will contain information that the regulator requires to monitor compliance with the terms of authorisation and statute, including information on borrowing so that the independent regulator can monitor compliance with the prudential borrowing limit. I am sure that the points raised by the hon. Gentleman will be dealt with when it comes to determining the format for NHS foundation accounts; otherwise the regulator's ability to do his job properly would be impeded.

This has been an interesting discussion, but for the reasons that I have outlined, I do not think that anything of substance has been raised in the amendments proposed by either my hon. Friend the Member for Birmingham, Hall Green or Opposition Members that would convince me to accept them.

Chris Grayling (Conservative, Epsom and Ewell)

I have two points to make on the back of the Minister's comments.

The first point is that as we progress through the Bill, the Minister says time and again that we need to provide both the freedom to act and a check and balance. If he genuinely believes that foundation hospitals are the right way to generate improved service through local autonomy and control, why will he not give the management of those trusts the same

freedoms that other organisations enjoy? The borrowing limits mean that they are constrained not by the case that they can make to potential borrowers or by a demonstration of their ability to pay, but by a code established at the centre.

In establishing the financial principles, it would not be unrealistic to give foundation trusts the freedom to borrow within the parameters of an independent judgment of their ability to repay made by financiers in the same way that they assess other organisations every day of the week. We will not agree; I simply wanted to put that point on the record.

My second point is that one weakness in accounting in recent years has been that off-balance-sheet debt does not appear in the accounts. If the Minister can give a clear assurance that in setting up the parameters, the regulator will be instructed effectively to enact the direction set out in amendment No. 21, that will be fine. However, many corporate failures have taken place simply because ingenious management, constrained by what it can do through conventional channels, has sought alternative ways of working.

Given the likely constraints on borrowing as a result of the establishment of the prudential code, some management teams will consider other ways of financing the things that they want to do. Given that liability is not easily established, as we know, it is not unreasonable for the members of a trust and the public looking at the accounts to expect a simple statement of the trust's total off and on-balance-sheet liabilities. It is simply prudent to ensure that a trust provides such a statement. I hope that the Minister will ensure that that is part of the guidance from the regulator. I am happy to accept his word that that is the case, but I stress to him the importance of that point. That said, I shall not press the amendments to a vote.

Steve McCabe (Labour, Birmingham, Hall Green)

The Minister has got us on this one. Astonishing though it is, my hon. Friend the Member for Ealing, North would like me to withdraw the amendment. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Chris Grayling (Conservative, Epsom and Ewell)

I beg to move amendment No. 20, in

clause 17, page 8, line 3, at end insert—

'(5A) A trust may use the assets acquired as a result of an investment in a body corporate as security to secure funding to make further such investments.'.

Peter Atkinson (Conservative, Hexham)

With this it will be convenient to discuss the following amendments: No. 124, in

clause 17, page 8, line 6, at end add—

'(7) An NHS foundation trust shall have the power to direct surpluses generated from any of its activities towards the provision of goods and services under the NHS, but it will not have the power to distribute surpluses generated from the provision of NHS goods and services towards any other activities or by way of a distribution to its members.'.

No. 265, in

clause 17, page 8, line 6, at end add—

'(7) Each NHS foundation trust must publish annually a complete list of every company and body in which investments are held.

(8) No employee or director of an NHS foundation trust shall obtain any direct or indirect personal pecuniary advantage from any investment by the trust concerned.'.

Chris Grayling: The purpose of amendment No. 20 is to strengthen the ability of the foundation trust management to expand and develop its services. Subsection (5) says that trusts have the power to invest in

''forming, or participating in forming, bodies corporate''

''otherwise acquiring membership of bodies corporate.''

In the past two or three months the Government have, with the astute purchase of an American company, Life Resources Inc., given us a snapshot of how that might happen. A deal was struck shortly before last Christmas that was designed to secure the long-term supplies of non-UK blood plasma for NHS patients. There was a problem with supply, and the NHS decided to step in and buy the company to guarantee the supply of its products to the NHS.

That was a sound decision, and it was generally welcomed at the time. It highlights the steps that an NHS organisation might want to take to secure access to a particular service or product. It is perfectly conceivable—indeed, it is my belief, but the Minister will correct me if I am wrong—that subsection (5) is designed to offer foundation trusts the ability to take similar steps when they want to secure access to a particular product or service, or to expand their horizons to strengthen the range of products and services that they can offer people.

It seems logical that if foundation trusts are to follow that path, we should give them the right to use the assets acquired as a result of investment in a body corporate as secure funding to make further such investments subject to the prudent approach that lenders would always take in such situations. It is common practice in the commercial world when buying a couple of businesses to reduce one's finance costs or to secure additional finance by securing the assets of one part of the acquisition against another. There are all sorts of bits of financial engineering that enable companies to take on additional capacity, to make acquisitions and to do what subsection (5) describes to acquire membership of a body corporate.

The amendment is designed simply to give NHS management greater freedom to do that. Although we may not want them to use their core assets as security for acquisitions, we should accept that if they are investing in a body corporate there is no possible reason why they should not be able subsequently to use the asset value of that investment, especially if it proves to be successful and generates additional wealth for the hospital. Why on earth should we not allow them to secure additional funding for a further investment on the back of the gains and assets base within the acquisition that they have already made?

I hope that the amendment is not controversial. It is certainly not designed to create endless liabilities on behalf of trusts; it is intended to give management greater flexibility in developing and enhancing the

services that the trust can offer. I hope that the Government can accept the proposal in this or a similar form.

Steve Pound (Labour, Ealing North)

I speak to amendment No. 265 in my name. The amendment stands as a monument to honesty, transparency and best practice, and it is not intended to be probing or wrecking. [Interruption.] Am I at the right page? I beg your pardon, Mr. Atkinson. It is just that a look of pain crossed the face of the hon. Member for the hon. Member for West Chelmsford (Mr. Burns).

Peter Atkinson (Conservative, Hexham)

Order. I thought that the hon. Gentleman was speaking in support of amendment No. 265.

Steve Pound (Labour, Ealing North)

I was. I am far too solicitous of the young puppies on the Opposition Benches. As I said, I hope that this is an uncontroversial amendment. It is not supposed to be a wrecking or probing amendment; it is more of a pecking amendment. It is trying to penetrate the carapace of actuarial obfuscation that occasionally occurs in large corporations and possibly in foundation hospitals. It would simply require that the foundation trust annually publish a complete list of all the organisations, bodies and companies in which investments were held. I am making it a basic requirement that no one gains any pecuniary advantage from investing in those trusts or companies.

I am not implying that there are people motivated by avarice working in the national health service. I worked in it for many years and can vouch for the honesty and probity of all those who still do so. However, it would be helpful for us to put down a marker to say that we would not encourage the practice of not publishing investments or even of individuals in the foundation trust having advantages from specific investments, for the obvious reason of conflict of interest. I move the amendment in the interest of avoidance of that end and in the interests of transparency and honesty.

Andrew Lansley (Conservative, South Cambridgeshire)

I was so excited about addressing amendment No. 124 that I jumped the gun slightly. Now that we have reached it I shall attempt to excite the Committee about it. It serves two purposes. I confess that the Government might not want to adopt it, because it is designed to elicit an understanding on my part of how the Government intend to achieve two purposes. I looked for them and anticipated that they would be there, but they were not.

The first purpose is the maintenance of effective competition in the independent sector. The Minister will acknowledge that there are places where there will be competition, and that in the independent sector there should be competition where the NHS is not engaging in subsidised competition. There should be an accounting separation between the publicly subsidised activity of NHS foundation trusts and other activities of a commercial nature that are not directed towards the provision of services to NHS patients.

Linked to that purpose is ensuring that surpluses generated from NHS activities—through taxpayer resources—are retained and directed towards the provision of additional capacity and additional service to NHS patients. In previous debates we have learned that surpluses can be generated from such activity. That may be a basis on which new capacity is offered in many trusts. I do not doubt that it is the intention of NHS foundation trusts to use surpluses generated from their NHS activity for NHS purposes, but, given that we expect that to be the case not only for the generality of trusts but for all trusts in all circumstances, why is there no provision to add that safeguard?

I deal now with the second purpose. The Minister has been reminding us of the necessity of certain safeguards and this seems a logical one. I have linked it, in amendment No. 124, to another safeguard. When we were discussing public benefit corporations—which NHS foundation trusts will be—it was implicit in the discussion that they are like companies limited by guarantee in that they are not profit distributing. It may be implicit, but I cannot find it stated explicitly. I cannot see the place in schedule 1, for example, that makes it clear that NHS foundation trusts or public benefit corporations under schedule 1 will not be able to make a distribution to their members. The Minister may tell me I have missed it, but as far as I can see I have not. However, as we are working on that assumption, it should be expressed in the Bill. As it is not, amendment No. 124 provides a fair basis for expressing it.

John Hutton (Labour, Barrow and Furness)

Amendment No. 20, tabled by the hon. Member for Epsom and Ewell, would mean that NHS foundation trusts could use any assets acquired through investments as security to make a further investment. If the hon. Gentleman's intention is to allow money to be so reinvested, I can tell him that the Bill already allows that to happen. Therefore, the amendment is unnecessary, provided, of course, that such borrowing is within the prudential borrowing limit.

However, if the hon. Gentleman's intention is to allow fiscal assets to be used as security for borrowing, it would be acceptable under the Bill as drafted—it is clearly within the terms of the Bill—provided that those assets were not classified as protected under clause 16. I shall not rehearse the argument about the need to protect assets under that clause as we have been over that territory extensively and I have expressed my views on the matter. It is important that NHS foundation trusts are not able to dispose of, or use as security for borrowing, assets that are required for the provision of essential NHS services, as it would jeopardise the continuity of the provision of such services.

Amendment No. 124, tabled by the hon. Member for South Cambridgeshire (Mr. Lansley), is interesting. It has two elements: the first would prevent NHS foundation trusts from using surpluses gained from the provision of NHS services in any other

activities, apart from NHS activities. In view of everything that the hon. Gentleman said, I would be surprised if that were his intention, given that the amendments are largely designed to free NHS foundation trusts. The amendment would have the opposite effect. As there was with the amendment tabled by my hon. Friend the Member for Ealing, there is also a problem about how this amendment would affect the wider income-generation opportunities available to the trust, for example. I imagine that it was therefore a probing amendment, as it would restrict the opportunities for the foundation trust to invest assets more widely in support of its activities.

The second element of amendment No. 124 is more substantive: it is about distributing surpluses to members. I can reassure the hon. Gentleman that he is right; there is no express provision to that effect in the Bill, but that is because it is not needed. The financial regime already prevents NHS foundation trusts from distributing surpluses to members. As statutory corporations, NHS foundation trusts have only the powers granted to them by statute. Clause 17 does not give them the power to distribute or invest money other than in connection with its statutory functions. The hon. Gentleman has made a good fist of it but in legal terms his amendment is not needed.

Amendment No. 265, tabled by my hon. Friend the Member for Ealing, North, would require every foundation trust to publish annually a list of all the companies and bodies in which it holds investments. In addition, it would prevent any employee or director of an NHS foundation trust from gaining any personal advantage from any investment made by that trust. For example, NHS foundation trust employees could not hold any stock or be employed in a company in which an NHS foundation trust had invested.

It is important that foundation trusts should be accountable for their investment policies and there is no doubt that the regulator will need that information in order to perform his functions, especially those under clauses 15(2) and 14(2). The trusty support mechanism in schedule 1(20) and clause 10(2) already means that NHS foundation trust accounts will be in a form prescribed by the regulator and open to public scrutiny, as they should be. Thus the first part of the amendment is unnecessary.

I have a more fundamental anxiety about the second part of the amendment. It is right that the policy for NHS foundation trusts should not become a vehicle for people on the governing boards, directors or employees, to derive significant pecuniary advantage. I agree absolutely with the hon. Gentleman on that point. However, it would not be in line with our aims of encouraging enterprise and innovation to require NHS foundation trusts to impose a total ban on the involvement of employees or directors in the ventures that such a trust may properly set up or invest in in pursuit of its functions. Imposing a ban would cut directly across our line and practice in other not-for-profit organisations such as charities and higher education institutions. It is seen as perfectly proper that academic staff in universities should have an interest in promoting research that has financial

benefits for the individual, and for the university as the investor. That is an obvious parallel, given the educational and research activity that occurs in many NHS trusts, and in those that want to become NHS foundation trusts.

I agree with the hon. Gentleman insofar as we are talking about transparency and openness. The regulator will certainly want to address those in his guidance to NHS foundation trusts on governance and corporate probity. I am sure that he will want also to draw on existing material published by bodies such as the Higher Education Funding Council and the charity commissioners. Again, I have a pleasant sense of deja vu about the amendments, but for the reasons that I have outlined, I would urge the Committee not to accept them.

Chris Grayling (Conservative, Epsom and Ewell)

I seek one point of clarification. If a trust generates surpluses and reinvests them in the acquisition of a body corporate, and in doing so further increases its revenues, will it be able to secure from the regulator a change to the code against which it is allowed to borrow; and will that change be something that can happen at any stage, or can it happen only once in every one, two or three years?

John Hutton (Labour, Barrow and Furness)

Clause 17(3) includes a provision for an annual review of the prudential borrowing limit, but if the revenue available to the NHS foundation trust were to increase as a result of a successful investment or income-generation scheme, it would affect its overall borrowing limit because the resources available to service debts would have increased. It would clearly have an impact—I think that I am right in saying that, but I shall get confirmation later.

The borrowing limit is set out in the authorisation for the NHS foundation trust. Under clause 9, it is possible for that to be varied on an application by the NHS foundation trust. It would be possible to review the prudential borrowing limit ahead of the annual review provided for in clause 17, if the NHS foundation trust felt it necessary to do so.

Chris Grayling (Conservative, Epsom and Ewell)

I am grateful for that clarification. I am happy to withdraw the amendment.

Andrew Lansley (Conservative, South Cambridgeshire)

I accept what the Minister had to say; I understand that, as there is no power to distribute to members, there is no need for a prohibition. I understand also the need for NHS foundation trusts to use resources generated from NHS activities to provide what might be regarded as services ancillary to its NHS activities, and that child care facilities may be a good example. However, it is important to recognise one of the long-term protections that will be needed: NHS foundation trusts should not become vehicles through which surpluses generated by publicly funded activities inside the NHS can be directed towards commercial activities outside the NHS on terms that are anti-competitive in relation to commercial providers.

As far as I am aware, we can probably be reasonably comfortable about that, because if NHS foundation trusts were to engage in that sort of behaviour, competition legislation would bite upon it. Such

behaviour would be protected only insofar as the NHS foundation trusts were undertaking their public duties, which is the provision of goods and services for the health service under the NHS; otherwise they would expose themselves to anti-competitive legislation under the competition rules.

John Hutton (Labour, Barrow and Furness)

I am grateful to the hon. Gentleman for allowing me to give the clarification and confidence that he seeks. He should remember that clauses 6, 14 and 15 already provide for the terms of authorisation to restrict activities that fall outside the NHS foundation trust's primary purpose. Under clause 14, it is the provision of NHS services that is the principal purpose that the foundation trust has been set up to secure.

Andrew Lansley (Conservative, South Cambridgeshire)

I am suggesting that an additional protection may be needed if an NHS foundation trust is engaged in its primary purpose but has a small adjunctive service. For instance, it might provide a local engineering service, perhaps for medical equipment, and begin to commercialise it. If that were subsidised out of NHS activity, it would expose itself to scrutiny by the competition authorities for doing so on an anti-competitive basis. I think that we are protected on that and so I will not pursue the matter any further. If I am mistaken, I am sure that the Minister will write to us.

Steve Pound (Labour, Ealing North)

My right hon. Friend the Minister has spoken with great skill about my amendment No. 265. He has answered my concerns about subsection (7) completely. I still have problems with the Government's reluctance to accept subsection (8) as set out in the second part of the amendment. I cannot understand how we can countenance a situation in which a foundation trust can invest money in a company and an employee of that trust can gain pecuniary advantage. We are told that were the amendment accepted it would create an unfortunate precedent for other national bodies, but that is an argument for cleaning them up rather than amending this. I am normally the most biddable of people. My right hon. Friend usually needs little effort to convince me but I have grave doubts about this.

John Hutton (Labour, Barrow and Furness)

I am sorry that I have not persuaded my hon. Friend on this occasion.

Steve Pound (Labour, Ealing North)

I have not finished yet.

John Hutton (Labour, Barrow and Furness)

We are not giving to NHS foundation trusts or their employees any financial advantage that is not currently exercisable by employees of NHS trusts. These freedoms are already available—rightly so—to encourage innovation and public sector enterprise. It would be a sad day if we lost them.

Steve Pound (Labour, Ealing North)

My response would be that I hope we are starting down a different road. NHS foundation trusts are a different beast from those we have known before. We should use this opportunity to breed a better beast. The fact that it exists at present is not a persuasive argument. However, I recognise that it

would probably be inappropriate for me to seek to divide the Committee on this occasion as several hon. Members want the matter to be discussed in another place and in the Chamber.

Amendment, by leave, withdrawn.

Clause 17 ordered to stand part of the Bill.

Clause 18 - General powers

Chris Grayling (Conservative, Epsom and Ewell)

I beg to move amendment No. 474, in

clause 18, page 8, line 8, leave out

'which appears to it to be'

and insert 'that is'.

This amendment need not take up more than a couple of minutes of the Committee's time. It seeks to avoid offering opportunities to the Minister's past profession and his former colleagues. The phrase

''which appears to it to be''

seems extremely woolly for a piece of legislation that should be tightly and carefully worded. We cannot see why ''anything'' needs to be subject to interpretation; surely the phrase ''that is'' is an acceptable alternative. It is a minor improvement that we hope the Government can accept.

John Hutton (Labour, Barrow and Furness)

The hon. Gentleman said that the drafting was woolly and unacceptable. I can reassure him that it is taken from legislation that his party introduced.

Simon Burns (Conservative, West Chelmsford)

That does not mean it is good.

John Hutton (Labour, Barrow and Furness)

Indeed, but it has certainly stood the test of time. Paragraph 16 of schedule 2 to the National Health Service and Community Care Act 1990 states:

''an NHS trust shall have power to do anything which appears to it to be necessary or expedient for the purpose of or in connection with the discharge of its functions''.

It has not had any undesirable or outlandish consequences, and I have no reason to assume that it will on this occasion.

There is one other problem with the amendment. Clearly, someone must decide what is necessary or desirable for the purposes of a foundation trust discharging its functions. Generally, it is better for that to be the responsibility of the organisation's management and governors rather than, as the amendment would require, another body. In this case, that would be the independent regulator. The amendment could be interpreted as requiring every exercise of an NHS foundation trust's function to be subject to individual approval by the independent regulator. That would be ridiculous.

Chris Grayling (Conservative, Epsom and Ewell)

I am not sure whether I agree with the Minister's interpretation, but I am grateful for his clarification of the reason for the wording. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Chris Grayling: I beg to move amendment No. 16, in

clause 18, page 8, line 9, at end insert—

'(1A) An NHS foundation trust shall have the power to pay remuneration and allowances to any person without reference to future national agreements on pay negotiated by the NHS.'.

We now go back to a significant point of principle and difference between the Conservatives and the Government. The amendment is designed to provide a foundation trust with the freedom to set its own pay rates. The Minister will undoubtedly talk about the freedom available in ''Agenda for Change'', but I dispute that and challenge the need for any straitjacket to be placed on NHS foundation trust managers who seek to take decisions aimed at enhancing and strengthening patient care.

It is extremely difficult for NHS trusts, particularly in the south of England where housing and other living costs are disproportionately high in comparison with other parts of the country, to secure the staff they need, whether ward nurses, surgical doctors, utility staff or laboratory technicians. There is a huge difference between the financial position of a young nurse on a salary of £18,000 to £20,000 a year in Surrey and that nurse's equivalent in Durham, Scotland, Wales or other parts of the country. The average house price in those areas means that a young couple—a teacher and nurse, for example—who are married or living together can easily afford to pool their salaries to buy a small starter home in the early stages of their career. That is simply not possible in other parts of the country, including my constituency, and too many of our public sector professionals are faced with the task of trying to get subsidised public sector housing.

As the Minister and all Members who represent constituencies in the south of England will know, there is no easy solution. However, trusts in areas of the country with either general or individual staffing issues—the inability to fill one post or the desire to recruit someone with specific expertise, for example—should be able to deploy their financial resources in a way that enables them to secure the skills they need to run their hospital and deliver the treatment their patients expect.

That is the purpose of amendment No. 16. It puts down a clear marker to say that if we are going to have foundation hospitals that are truly free and able to take decisions in the interests of their patients and the communities that they represent, they should not be straitjacketed by national pay agreements that do not reflect the realities of the local labour markets.

The Government are clearly wising up to that fact, and they should take credit for doing so. I do not think that they have gone far enough, but during the Budget debate the Chancellor of the Exchequer referred to the problem and talked about the need to create regional conditions in pay. He spoke about establishing regional retail prices indices to enable the public sector in particular to take more informed decisions about the pay and labour market realities in individual areas.

In response to a question from my hon. Friend the Member for Woodspring (Dr. Fox), the Secretary of State for Health said:

''It is right, as my right hon. Friend the Chancellor of the Exchequer said, that we need to recognise that there are different labour market conditions in different parts of the country.''—[Official Report, 29 April 2003; Vol. 404, c. 142-43.]

To that extent, there is common ground between the Government and us. The difference is in how we would address those problems. The steps that the Government have taken to deal with the situation, predominantly through ''Agenda for Change'' and by saying that there should be a 30 per cent. flexibility ceiling for local employers, are welcome as far as they go, but they do not go far enough. An artificial ceiling is being created that does not need to be there. The figure of 30 per cent. sounds huge, but it is not when one thinks of the salary level of, for example, a junior lab technician in the national health service. Thirty per cent. may be £4,000 a year.

Furthermore, in parts of the country, one can hire a lab technician on a relatively low wage, and in other parts one cannot. In one part of the country, employers may be able to get the people they need for £15,000 or £20,000 a year, but in another part of the country they may need to pay them £20,000, £25,000 or £30,000. That decision can and should be taken locally by managers considering the budgets available to them and saying, ''Look, we have a critical hole in our staffing. This laboratory lacks a key person. If we cannot fill the post, we cannot provide a service, so we need to go that bit further to fill the gap.''

I experienced that directly in my constituency recently. This is a very good example. A lady who was on a waiting list for a bone scan at St. George's hospital in south London had been waiting 11 months for her treatment. Her appointment date was after 12 months. About three weeks before she was due to go in for her treatment, she received a letter from the hospital, saying that owing to chaos in the department over the past few months, the hospital was unable to provide her with the treatment at that time, and offering a new appointment date 12 months further on. That lady will therefore have a two-year wait for that bone scan. The reason is that the hospital lacks key people in the department but, under current NHS pay structures, has no ability to say, ''This is an unacceptable situation. We have to deal with the problem. Let us pay someone more to come in and do the job.''

The Minister knows that any number of skilled professional medical practitioners have chosen to leave the NHS to go into commercial industry or entirely into the private sector, yet we are not giving our trusts the ability to say, ''We need that person back. We will go and get them.'' Currently, national pay and conditions structures preclude that from happening. I accept that the Minister is building in some flexibility through ''Agenda for Change'', although as my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton) said in Health questions earlier, the first vote on ''Agenda for Change'', involving radiographers, has gone against

the package, and it is far from clear that the Government will be able to implement that new contract structure.

In reality, we do not need, and we should not need, to place these constraints on our health service managers. There are huge issues at individual locations, where individual posts need to be filled urgently and where patients will suffer quite badly even if only one post goes unfilled. That is why we must give hospitals the freedom and flexibility to say, ''This is important. This is the right use of our resource. We will go out and get that person.''

That is the purpose of the amendment. We want hospital managers to have those powers. An artificial 30 per cent. ceiling is not needed. With regard to the principle of foundation hospitals and managers having freedoms, we have heard how their freedoms to borrow are curtailed and we are now hearing how their freedom to employ staff on their own terms is curtailed. The only freedoms that they really have are to decide who can vote for the foundation hospital boards. We strongly believe that if foundation hospitals are to achieve what they should achieve, this is one of the fundamental freedoms that their management teams must have. We urge the Government even now to think again and give them that freedom.

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

This is an interesting debate and one that we have not had properly so far, certainly on the Floor of the House, because the Government's position seems to change regularly. However, there is no doubt that this is a difficult area, because a balance has to be struck between the wish to provide independence for this significant part of the trust's turnover and the need to ensure that there is not what the Government sometimes describe or used to describe as poaching, but now describe as a return to competition instead of collaboration. It is a difficult position. The Liberal Democrats are not opposed on principle to local pay, locally responsive pay and, for what it is worth, the resultant pay inflation that will allow the public sector to compete with the private sector in areas where it needs to.

There is not ideological opposition to local pay as there used to be—in the Labour party as well. To an extent we already have local pay in two ways: first, we have cost of living allowances that differ greatly from one area of the country to another. They are not sensitive enough; they are not adequate, but they are different, which means that take-home pay is different, although it is supposed to monitor living costs. Secondly, in the appointment, recruitment and pay of agency staff there is an unregulated local pay situation where nurses often leave the NHS to get a better deal from trust money through an agency.

Chris Grayling (Conservative, Epsom and Ewell)

Does the hon. Gentleman agree that one of the problems with local allowance structures being set within national pay frameworks is that they can create major distortions within the locality that local management is unable to address? On one side of the London boundary compared with the other, staff

can be paid up to £6,000 a year more in different public services. Local managers do not have the ability to break out of those structures and to remove the distortions that that creates in the local labour market.

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

Clearly, if one were to have a system of local pay, in the ideal world it would be locally responsive for people who can respond to the local labour market conditions and do not have to accept an allowed regional imposition of pay flexibilities or cost of living allowances. In those areas I have some sympathy with the hon. Gentleman. But he did not mention the poaching of staff—although I am sure he recognises the issue—regardless of there being some trusts that can borrow more or keep more of a return from selling assets and other things.

Even within the same sort of provider model some trusts are blessed in inheriting a capacity that means that they do not have to spend over the odds buying in extra capacity through agency nurses or expensive contracts with the private sector. Such trusts will be in a better position and will be able to attract staff effectively because there is not an excess of staff at the moment and it will be some years before there is. They will attract their staff from other NHS hospitals that do not have either the flexibility on resources because the foundation trust has a different provider model, or which, even within the same model, are afflicted with historical capacity problems, whether they be in the acute sector as I have just described or in the social care sector.

If in one area there are not enough nursing homes and much of the capacity is taken up with delayed discharges, the trust will be spending greater resources to open up new beds to replace those that are blocked. That is not really a sign of bad management on its part, yet it will effectively be punished. So we need to find a way out of that dilemma. Its impact will be that struggling trusts will struggle even more because the only way they will be able to compete is to pay inflation that they cannot manage. Those that are already doing well will do better.

I hope that the hon. Member for Epsom and Ewell will recognise that as a threat, risk and problem and will address what he would do to deal with it.

Gary Streeter (Conservative, South West Devon)

I agree that this is an important discussion, to which I hope to contribute in a moment. Does the hon. Gentleman recall that the Minister sought to reassure us the other day that clause 27, entitled ''Co-operation between NHS bodies'', was the primary safeguard to prevent hospitals from bidding against each other and poaching? Is he reassured by that safeguard?

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

No, and I was coming to the Government's position. However, I thought that it would be wise to set out the problem and then to say briefly how we would tackle it. Identifying the problem is not just a matter of saying to the Government, ''Yah boo, your approach is not correct.'' There may be a different way and it may not surprise the Government that our model of local pay involves the ability of local

health service commissioners, who ultimately pay the bill, to be able to raise money through tax-varying powers locally. The hon. Member for West Chelmsford (Mr. Burns) is always surprised and shocked to hear a good idea, but he has heard this one before. [Interruption.] Well, what I would call a good idea and what he thinks and hopes would be a bad idea.

Simon Burns (Conservative, West Chelmsford)

I am still waiting for the policy paper that the hon. Gentleman promised me.

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

I am guilty of assuming that the hon. Gentleman is able to go to a website.

Simon Burns (Conservative, West Chelmsford)

The hon. Gentleman promised me that he would personally make a policy paper available to me before the recess.

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

I said only if the hon. Gentleman was sufficiently abrasive and nasty and he has been too pleasant. If he carries on, I will give him a paper but he ought to pay as he has huge amounts of outside funding that we do not have. [Hon. Members: ''Withdraw.''] I will not follow that line. I am not withdrawing anything.

The key issue, if there is to be local pay, is that those who pay the bills locally must have the ability to respond to labour market pressures and a competitive environment. There is no denying that if there is flexibility in pay for NHS staff there will be competition in the labour market, especially when staff are in short supply. Local people must have the ability to say, ''We think that it is worth ensuring that we can compete in this area and pay what is necessary to have well-trained, well-motivated NHS staff, based locally, not indirectly employed through agencies, and we need to introduce that system. If we do not, those without resources will get poorer as they will be unable to compete in a more flexible labour market.''

The Conservative party needs to address that fundamental problem. It is not a fanciful suggestion; such things are already happening and we have not heard the Conservatives' proposal to tackle the matter. [Interruption.] The hon. Member for Chesham and Amersham (Mrs. Gillan) says that it is the Government's problem to sort out these matters. It is the Government's problem, but one has to come up with an alternative.

In the interim, we propose having realistic living cost allowances, which many parts of the country do not have at present. That is why many no-star trusts are made scapegoats. They perform badly because they have no capacity. They have the greatest difficulty in recruiting all hospital staff, especially nurses, and staff for the care home sector. The data is clear; the shortage of care workers is greatest in the south-east, in the social care sector and in the NHS. Until the trusts that are struggling have the ability, through the commissioners and their contracts, to increase resources locally, introducing the proposed flexibility will make matters worse.

I now come to the point made by the hon. Member for South-West Devon (Mr. Streeter). The Government say that there will be no poaching and

also that foundation trusts will have the ability to offer more than a neighbouring trust. I have never been able to understand their position on that. I make a genuine plea to the Minister to explain how the proposed flexibility can be used in the present tight labour market—that is a generous way of putting it—without it involving poaching and therefore a breach of the duty not to impact badly on other trusts.

The hon. Gentleman was right to draw attention to clause 27, amending the Health Act 1999, which states that there is a duty of co-operation between NHS trusts and NHS foundation trusts. There is a fundamental inconsistency between Ministers talking in the current pay climate and labour market climate about increased flexibilities to pay more and about a duty of co-operation. I know that the Minister is keen to address those key issues, but I am not sure that he always has the time to get round to doing so. I hope, however, that he will address the issue of how those two statements might match. That is a challenge for all parties, and the Conservative party needs to explain what it would do about non-foundation trusts or about NHS trusts that are simply unable to compete because they do not have the resource base to do so.

Chris Grayling (Conservative, Epsom and Ewell)

Has the hon. Gentleman considered the fact that the labour market is not so flexible that people simply up sticks and move around ad nauseam? One does not move from one part of the country to another at the drop of a hat. If all NHS trusts were to become foundation trusts, which is what we would choose, surely he would accept that those trusts would be able to provide an attractive framework for all employees and would be more strongly and clearly placed to attract people into the health service, which is the real problem. Does he accept that we are not attracting back from the private sector people who gave up the health service, and we need to make it attractive for them so that they will come back?

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

I do not believe that the private sector will lose all its staff to foundation trusts, especially in the current climate. I have examined this carefully and have found that, generally speaking, if an employer advertises for nurses at a higher rate than the local NHS rate, it will be nurses working in other trusts who are looking to move on who respond. Some people working in these professions are reasonably young. They are mobile and will move for better pay, or better conditions—pay is not the only thing that is important, as has been pointed out several times.

It is not enough for the Conservative spokesman to say that everyone will be on a level playing field if all NHS trusts are foundation trusts, because some NHS foundation trusts would still spend much more than others when buying extra capacity because of capacity constraints outside their control, such as delayed discharges consequent on an inadequate supply of social care settings and domiciliary or residential care at the social services level. In those circumstances, the issue is not about foundation trusts versus non-foundation trusts, although that is relevant to the Bill, but about those people who are in a losing position having no option for raising extra revenue. The policy

that I propose is attractive because it allows commissioners to recognise the problem and to tell the electorate, ''We need the resources if we are to compete and have a well staffed, well motivated and well trained work force, and if you, the local consumers of the service, want such a work force, it must be paid for.''

Chris Grayling (Conservative, Epsom and Ewell)

We have had extensive debates during the Committee's deliberations about the role that tertiary centres would play and about the difficulty in defining their constituencies. Where a tertiary centre had sought to take the steps that he described, will the hon. Gentleman explain how it would go about raising taxation?

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

That is a fair question, which the Liberal Democrats have also addressed. We propose the earmarking of national insurance contributions, so there would be regional variations in our national health contribution. We would place strategic health authorities in a democratically elected regional tier with accountable health policies. It is tertiary centres that are planned with strategic health authorities.

I respond to the hon. Gentleman's point because it is important that policy recognises that the tertiary centres—the specialist centres—must also be looked after. He may not agree with the solution, but I hope that he will recognise that we have at least considered the problem.

The Opposition cannot support the amendment without a solution to the problems that I have mentioned. The Government's policy is a mess because it is neither one thing nor the other. With regard to clause 27 and those flexibilities, the Government are trying to have it both ways. When they are criticised by their Back Benchers for ''two tierism'', they point to the duty of co-operation, but when they are confronted by the Conservative party calling for more pay flexibility, they talk up the ''Agenda for Change'' and the 30 per cent. flexibilities as part of their proposal. They say different things to different groups of people, because they are in an impossible situation—[Interruption.] I have been consistent about this. The Minister does do that. It may be said that everyone does it, but with regard to this measure, the Government must outline a consistent approach to solving the problem.

Gary Streeter (Conservative, South West Devon)

I hope to be brief in supporting the amendment, although the debate is an important one. The provision is a litmus test of the true measure of freedoms being granted to foundation hospitals. I can see no reason why a foundation hospital, having set up the safeguards required by the Bill, and having given ownership to local people, set up the board of governors and appointed the non-executive directors, cannot decide the pay levels necessary to recruit and retain staff, to make the organisation effective and excellent in the locality.

My primary motivation in speaking in support of the amendment is the knowledge that I have gleaned from tackling problems on a weekly basis in my constituency. The south-west has very low wage levels,

but very high house prices, and that precludes many people, especially young professionals, from buying their own houses, and means that many organisations in the west country struggle to recruit and retain sufficiently high quality people. If hospitals in the west country are to flourish and attract the right sort of skilled, medical clinicians, we must set those hospitals free to pay what is necessary in that locality to attract that quality of staff.

I appreciate that those issues may not be easily understood by all members of the Committee, and that there are parts of the country where, for example, house prices are still relatively low. I recently went to Manchester, and was stunned that there were streets of houses in central Manchester that were boarded up—they could not be given away. [Interruption.] It is absolutely true. It was in the centre of Manchester six months ago. I was taken around streets—I cannot remember the street names—where at least a third of the houses were unoccupied. People had handed the keys back to the building societies because those houses could not be sold—there were insufficient buyers.

Andy Burnham (Labour/Co-operative, Leigh)

Will the hon. Gentleman give way?

Gary Streeter (Conservative, South West Devon)

I will give way to the hon. Gentleman, as he has more local knowledge, but I can confirm that that is what I saw.

Andy Burnham (Labour/Co-operative, Leigh)

I should be grateful if the hon. Gentleman could tell us where in central Manchester that was. If he has been to Manchester recently, he will find that there has been more regeneration and investment, and that it is probably one of the most desirable places to live in the country.

Gary Streeter (Conservative, South West Devon)

I am grateful for the hon. Gentleman's intervention, but I said that I could not remember the names of the streets. I will consult my diary and get back to the hon. Gentleman if he is particularly interested. It was but six months ago, so perhaps he needs to spend a little more time in his own constituency, to find out what is going on there. My point, however, is—[Interruption.]

Peter Atkinson (Conservative, Hexham)

Order. The Committee is getting rather excited and noisy.

Gary Streeter (Conservative, South West Devon)

In South Hams, where the average salary is £14,000, the average house price is £140,000. Clearly, those sums do not add up for young people seeking to get on to the housing ladder.

What prevents the Government from giving the foundation trusts the freedom to decide what salary levels to set? I know that there is a legitimate concern about poaching. We do not want a health service in which people are perpetually moving from one hospital to another, simply for an extra £500 a year. However, there is a solution other than clause 27, which I was not convinced was a complete safeguard

when I first heard of it. However, perhaps the Minister will persuade me in his response, as I know that he is listening carefully to every word that I say.

It is possible to determine whether salary levels set by a foundation trust are designed to poach staff from competing hospitals in that region or are fixed at the level necessary to recruit the right quality of staff. A trust could produce evidence to show that it cannot attract the right staff at level X, but can at level Y, to justify the salary settings. If foundation hospital trusts can meet that test and prove that they are setting the levels necessary to attract, recruit and retain those skilled workers, they should have the freedom to set salary levels.

It is no good to say that that will give us regional variations. I sit on the Select Committee on Housing, Planning, Local Government and the Regions, and there has been talk about regional variations, but there are variations within regions, too. Decisions on salary levels should be for local directors of the foundation trusts, and I see no reason why that cannot be the case. A lot of money is currently wasted in the health service by paying for agency nurses and stripping developing countries of some of their high quality nurses to bring them over here for high salaries. It would be far better, and much more moral, to allow each hospital trust to pay what it takes in its locality to attract and retain the right level of staff.

I do not see why the Government will not accept the amendment. I will listen carefully to the Minister's response, but I suspect that they will reject it simply because they do not want to devolve too much real power to the hospital trusts. They already have sufficient safeguards, and this is one point on which they should budge: let the hospitals decide how much to pay their staff.

Simon Burns (Conservative, West Chelmsford)

I rise in support of the amendments. I represent a constituency 35 miles north-east of Westminster, and we as a community are just too far away from London to benefit from the London weighting allowance, although other parts of Essex to the south do benefit. My local hospitals of Broomfield and St. John's, in the Mid-Essex Hospital Services NHS trust area, have some extremely dedicated and first-rate staff, not simply consultants and doctors, but nurses and ancillary staff who, although all-too-often forgotten, ensure the smooth and effective day-to-day running of the hospital for the clinical and nursing staff. There are also professional staff, such as the pathology workers.

One accepts that working in the health service is a vocation, but it is not exclusively a vocation and the levels of pay are far too low considering what has happened during the past eight years, particularly in the past four years, to house prices in the area. As my hon. Friend the Member for South-West Devon said, salary levels are so low compared with the average house prices that there is no possibility of a single person—a nurse, for example—being able to afford to buy their own home on a mortgage, however modest that home might be. Looking through the

advertisements for houses in the Chelmsford area, whether they are for a modest house or a flat, it is difficult to find anything under £100,000.

That is why it is important to introduce a power, as the amendment would, to allow foundation trusts to have some flexibility in deciding remuneration to take into account local circumstances. As the Minister has said, the Government's intention is that in the next four to five years all hospitals will be able to secure foundation trust status. We would have liked the policy to have been unveiled with one step, rather than several steps, to achieve that aim, but we welcome the fact that since announcing their original intentions, the Government have backtracked and agreed that all hospitals can seek foundation status within a relatively short time.

The Minister may say, with some justification, as my hon. Friend the Member for Epsom and Ewell said, that there is already flexibility in the system, but it is not flexible enough for some parts of the country where there has been an inexorable increase in house prices. Two years ago, the Government introduced the cost of living supplement for nurses. It was particularly perplexing to my constituents in Chelmsford that although the county of Essex borders London, Hertfordshire and Cambridgeshire, it was not among those that received the cost of living supplement for nursing staff in the first year, although, if I remember correctly, Dorset, Wiltshire and Bristol were included. The Government took the extraordinary decision to exclude a county close to London, where there had been large increases in house prices and relatively modest levels of remuneration, but fortunately the matter was rectified in the second year. That helped to alleviate the problem, but it was not radical enough.

The Government boast, rightly in some respects, that the concept of foundation hospitals is a way of freeing the health service as primary care trusts have been freed by receiving 75 per cent. of funding to commission care locally. But I wish that the Government would be bolder and take a further step, which is the logical conclusion of their rhetoric and the intention behind foundation hospital trusts. I therefore hope that the Minister will accept the amendment or at least think further about what lies behind it and return to the matter at a later stage or in another place. I hope that he will recognise that the proposal is a way of redressing a significant problem in some parts of the country where the flexibilities that are already in the system do not accurately and realistically reflect what is happening on the ground.

It is genuinely difficult in Essex and the other home counties for a single person working in the health service, especially if they are relatively young and new to their career but want to make progress in it, to find affordable housing, particularly if they want to buy a property on a mortgage rather than renting, and the system is not helping them. As one of my hon. Friends said, those who live in the parts of the country where house prices are much lower are not affected to the same degree as those in the home counties. I hope that the Minister will give the amendment some clear thought and not dismiss it in an instance.

Mr. Hutton: I want to make three brief points in response to the debate, which we have had before. As many hon. Members have said, there is a familiar feeling to it.

An obvious but important point to make about the amendment is that it is preposterous to suggest that NHS foundation trusts should or would even want to have a statutory right to ignore future national pay agreements when the vast majority of their staff will be employed on nationally negotiated terms and conditions of work.

Anyone who sat back and thought about that for a second would realise what an absurd proposition it was that NHS foundation trusts employed staff on those terms and conditions, but that the Bill, once enacted, would say that none the less the employer was specifically entitled to reject any issue arising under those national terms and conditions. That would be ridiculous and needs to be treated with complete derision. It is an absurd proposition.

Secondly, the hon. Member for Oxford, West and Abingdon rightly said that we needed to address this important issue. We have done so in the Bill. We have set out the freedoms that NHS foundation trusts will have. The proposal would not give NHS foundation trusts additional freedoms. They already have significant freedoms to be flexible about how they employ their staff. NHS foundation trusts have the power to employ staff.

The hon. Gentleman says it is right that we should set out our proposals. We have done so. We have our statutory duty of co-operation, which I would not dismiss quite as quickly as he did. We now have a proposition from the Conservative party about how we deal with the proposal: NHS foundation trusts can completely ignore national terms and conditions even though they employ staff on them and will do so under ''Agenda for Change''. That is one way of dealing with the problem, but it is an absurd way. However, we have not heard the hon. Gentleman's way of dealing with the problem. He has tabled no amendments to deal with what he rightly described as a genuinely difficult issue.

There is a certain mythology around the subject that rests on the fundamental misunderstanding that only the creation of NHS foundation trusts will somehow generate unfair competition and the poaching of staff. That is completely untrue. People need to get rid of their rose-coloured spectacles, which have dominated the debate on both sides to a very large extent. Far from being an artificial cap or arbitrary imposition on flexibility, ''Agenda for Change'' deals with the issues in a way that the Opposition have completely failed to understand. It is possible to go beyond the 30 per cent. premia if necessary.

The hon. Gentleman clearly has not read ''Agenda for Change''. I shall send him a copy, which he can peruse at his leisure. I believe that there is sufficient flexibility in it to deal with local problems of recruitment and retention. For the Committee's information, no applicant for foundation trust status

has told my right hon. Friend the Secretary of State that it wants nothing to do with ''Agenda for Change''. I do not anticipate that they will.

We should all get real about the issue. It is a hobby-horse, which has been used on this occasion as a rather crude instrument to attack the fundamentals of the policy. There is a fundamental misconception of the understanding of ''Agenda for Change'' and of the freedoms that the Bill gives to NHS foundation trusts to employ staff. There are no restrictions in the Bill on their ability to employ staff. The hon. Member for South-West Devon needs to have another look at the text of the proposed legislation.

The suggestion is completely misplaced on every count—in the amendment, in the lecture given by the hon. Member for Oxford, West and Abingdon, and in the Opposition's misunderstanding of ''Agenda for Change''. The amendment is not helpful: it was not designed to be. In the hon. Gentleman's correct analysis, it was designed to identify what he regarded as opposites. I do not believe that to be the case.

It is possible, as we have set out in the Bill, to encourage greater local flexibility, to have a better, more transparent national pay system, which we will have with ''Agenda for Change'', and to ensure as far as we can within the confines of the legislation that NHS foundation trusts have the proper approach to these freedoms. It is in no one's interest to have a ''beggar your neighbour'' approach to pay, with one part of the NHS robbing staff from another. That is completely ridiculous. There is a confined labour market; there are shortages in the recruitment of staff to the NHS, which is obvious to us all. However, when considering the proposal objectively or reasonably, one cannot say that the Bill contains anything that will exacerbate that difficulty.

Another canard that needs to be nailed is that NHS foundation trusts will somehow receive a secret bung of cash that they can use to top up pay and poach staff from elsewhere in the NHS. That is completely untrue. [Interruption.] I accept that it has not been suggested in this debate, but it has in others: that NHS foundation trusts will somehow have access to additional resources through the commissioning process. They will not, because of the national tariff and for the reasons that I set out earlier.

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

I will accept that point if the Minister will accept that in the first instance NHS foundation trusts will be three-star trusts, which generally do not have the capacity constraints or the cash constraints that lead them to fail in the star rating system. It is not the hospitals or trusts with the huge deficits that are the candidates for foundation hospitals. It is not those such as the Oxford Radcliffe, which have spent huge amounts on building capacity. Three-star trusts start with an advantage because of the way in which the selection is made. Will the Minister accept that at least?

John Hutton (Labour, Barrow and Furness)

No, I certainly will not. It is not the case that one NHS trust receives additional or somehow unfair funding or resources that other trusts do not

receive. They are funded on the same basis. It is interesting to consider three-star trusts, for example, and the range of communities that they serve. Some three-star performers are in very deprived areas, serving some of the poorest people in the country, and they do a brilliant job in terms of both clinical outcomes and financial management. The issue is financial management and probity. The way in which those organisations are run makes the difference. Three-star trusts are not given hidden bungs or unfair advantages.

We have been round and round the houses, but there is nothing new in the proposal. There is no reason in principle, and there is certainly no reason in terms of the drafting of the legislation, for the amendments to be acceptable to any of my hon. Friends. For that reason, I hope that they will give them a wide berth.

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

Will the Minister answer this question, which is the main one? How will clause 27 prevent a foundation trust that is short of, say, radiographers—I accept that this could happen already if there were freedom on pay; foundation trust status is not a requirement for it to occur—from advertising radiographer posts at significantly more than the going rate in the NHS in that region to capture a greater number? How will the provision work? If the Minister could explain that, perhaps he could satisfy the concerns expressed by hon. Members on both sides of the House.

John Hutton (Labour, Barrow and Furness)

I have attempted, clearly unsuccessfully, to do that on several occasions. Let me spell out the situation for the hon. Gentleman again. If the actions of an NHS foundation trust jeopardised the ability of neighbouring trusts to exercise their functions in delivering NHS care, it could be in breach of its statutory duty in respect of partnership. The independent regulator of NHS foundation trusts could intervene if that were so. The simple point is that there is a way to try to address the problems. We have tried to strike the right balance between freedoms and flexibilities and the overall integrity of the NHS. It is up to members of the Committee to decide whether that balance has been struck properly.

What is completely bogus about the amendment is the suggestion that NHS foundation trusts would welcome the so-called freedom that it would give them, given that all the bodies are more than content, in view of the progress in ''Agenda for Change'' and the structure of that deal, to accept moving to NHS foundation trust status on the basis of implementing ''Agenda for Change''. There is no desire for the amendment among the applicants or, I believe, in the NHS. It harks back to the old days of the Tory approach to regulating the NHS, which Government Members should not endorse for one second.

Chris Grayling (Conservative, Epsom and Ewell)

I am not surprised by the Minister's response, and he will not be surprised to learn that I do not agree with him. I can see no possible benefit in not giving NHS management the proposed power. I am not in the slightest bit surprised that all the foundation trust management teams are not lining up in his office to say, ''Please get rid of 'Agenda for Change'''. That

seems to be a good way of ensuring that one is not on the shortlist to go forward for foundation trust status. I do not doubt for a moment that most management teams, most of the time, would prefer to operate within agreed pay limits, because that takes away work for them. However, that does not mean that they should not have the freedom to set pay rates to meet their local needs. If they decide that the framework that has been created for them is not right for their local needs, they should have the power to adapt what they do to local circumstances. The frameworks that the Government are putting in place to enable these bodies to achieve that are simply unnecessary. Ultimately, they should have the freedom to set pay rates if they need to do so at any future point. I gave the Minister a specific example of a situation in which, frankly, an NHS chief executive needs to go out and headhunt staff to fill a gap.

That said, time is moving on, and I shall not force the amendment to a vote at this time. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 256, in

clause 18, page 8, line 15, leave out 'in England'.—[Mr. Hutton.]

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

I beg to move amendment No. 416, in

clause 18, page 8, line 16, at end insert ', provided that the trust assumes vicarious liability for actions undertaken on their behalf by staff.'

I shall be brief, as I hope for an answer tonight. The amendment was suggested by the Royal College of Midwives in order to deal with a potential problem. The college obviously has an interest in the issue of vicarious liability. The amendment would put a rider on the ability to employ staff. It is a probing amendment.

The Minister will know of the problems in obstetrics and gynaecology and the resulting litigation bill. The question was raised whether foundation hospitals would take on vicarious liability. At present, NHS trusts assume liability for actions undertaken by staff on behalf of the trust. The trust takes out insurance to cover the cost of litigation, which means that the cost of claims does not have to be met by NHS employees. Indeed, the NHS litigation authority takes on responsibility. I checked that question with that authority, but the person to whom I spoke was not certain of the answer. I hope that the Minister will take the opportunity to clarify that there will be no difference for trusts; it would be a significant added burden for them if it was not done automatically, and that would be a risk for the NHS.

John Hutton (Labour, Barrow and Furness)

I hope that I can reassure the hon. Gentleman. The common law already provides that employers are liable for the actions of their employees when acting in their capacity as employees. NHS foundation trusts will not be in a different position to NHS trusts. The amendment is completely unnecessary. The general position is that common law principles are referred to in legislation only when it is

intended to modify them or disapply them. The amendment has no such intention, and is therefore likely to have the opposite effect to the one intended.

I give the hon. Gentleman the absolute assurance that employees of NHS foundation trusts will be covered by the common law duty for vicarious liability in exactly the same way as other NHS employees.

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

Will the relationship between the NHS foundation trust and the NHS litigation authority be the same as it is currently for NHS trusts?

John Hutton (Labour, Barrow and Furness)

Yes. NHS foundation trusts will be able to access schemes administered by the NHS litigation authority in exactly the same way as NHS trusts.

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

In the light of that, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 18, as amended, ordered to stand part of the Bill.

Clause 19 - Information

Chris Grayling (Conservative, Epsom and Ewell)

I beg to move amendment No. 23, in

clause 19, page 8, leave out line 24 and insert 'the regulator requires'.

Peter Atkinson (Conservative, Hexham)

With this it will be convenient to discuss the following:

Amendment No. 193, in

clause 19, page 8, line 24, at end insert

'such information to be less in aggregate than that required of the trust before it became a foundation trust'.

Amendment No. 457, in

clause 19, page 8, leave out lines 25 and 26.

Amendment No. 458, in

clause 19, page 8, line 28, at end add

'subject to such request not being supplementary to information currently provided under the existing powers of the Secretary of State.'.

Chris Grayling (Conservative, Epsom and Ewell)

The amendment would remove a power that we believe is unneeded. Why does the Secretary of State need to specify to the regulator what should be the information disclosure requirements of the foundation trust? Why should it not be a matter for the regulator and the trust to work out together? The Secretary of State does not have a great track record when it comes to setting appropriate and sensible levels of bureaucracy and paperwork. We see no benefit in inserting the Secretary of State into that relationship.

The amendment would remove the phrase

''the Secretary of State specifies to the regulator''

and insert the words ''the regulator requires''. That would be a prudent amendment: the regulator would still be able to extract from foundation trusts information that was appropriate for the regulator to use when making his report to Parliament and when ensuring that NHS foundation trusts make public enough information about their financial and constitutional affairs, and about their performance in

the services that they deliver. There is no possible reason to allow the Secretary of State to decide what the regulator needs; surely that can be done by the regulator himself.

Amendments Nos. 457 and 458 offer two options to the Government. They are designed to make a similar contribution and are to some extent mutually exclusive, but I hope that the Minister will accept the principle in one of them.

Our problem is with subsection (1)(b), which says that an authorisation

''may require an NHS foundation trust to disclose other information to the regulator.''

That is surely taken into account in paragraph (a), so there is unnecessary duplication. The provision does not add anything to the Bill.

The Bill also provides:

''The regulator may require any other health service body to disclose any information to him which he requires for the purposes of his functions.''

Why should we give the regulator the power to ask any other health service body to deliver any information that the regulator decides that he requires? We should not give the regulator the power to seek information from NHS bodies other than foundation trusts over and above the information that the Secretary of State already requires to be provided to Government.

We are simply considering the status quo, and it is perfectly reasonable for the regulator to ask the same question of other organisations in pursuit of his judgment about, for example, the nature of an authorisation that should be given. It is also reasonable for the regulator not to have powers to request information over and above the existing powers of the Secretary of State.

These are tidying-up amendments, designed to reduce bureaucracy in a system in which there is too much. I hope that they are not controversial and that, if the Minister does not accept the substance, he can accept the direction and will acquiesce with steps to ensure that the provision of information is carried out with as little impact as possible on the operational side of the trust's activities.

Andrew Lansley (Conservative, South Cambridgeshire)

I should like to express the apologies of my right hon. Friend the Member for North-West Hampshire for not being able to be present to speak to amendment No. 193.

The amendment is fairly straightforward and self-explanatory. If the intention of the legislation is to lift regulatory burdens and compliance requirements on foundation trusts to help them to do their job, that should be carried forward into clause 19(1)(a). Although the NHS foundation trusts should comply with the general requirements on the NHS to provide information for audit and other purposes, the aggregate of that information should be less than was required of them before they became foundation trusts. That is the burden of the amendment.

Mr. Hutton: I cannot accept any of the amendments, and I shall set out the reasons why. Clause 19 serves two distinct purposes, the first of which is to ensure that the Secretary of State has the information that he needs to set standards, allocate resources and plan provision of health care across the NHS in line with his responsibilities under the National Health Service Act 1977. That means collecting information from all parts of the NHS, including NHS foundation trusts, for national policy development, funding decisions, manpower planning and tracking performance throughout the NHS. Those matters go further than the regulator's specific functions, and it would be inappropriate for the independent regulator to decide what the Secretary of State should have. That is why I am unable to accept amendment No. 23 and the consequential amendment No. 457.

However, it is true that we do not want to replicate existing data collection, and to the extent that amendment No. 193, tabled by the right hon. Member for North-West Hampshire, is designed to minimise data collection, I have a great deal of sympathy with it. However, we want to consider information requirements from NHS foundation trusts as a subset of that required from other NHS bodies. We want to continue the work that is under way to streamline further the information that is required to be sent in to the centre.

Gary Streeter (Conservative, South West Devon)

We are all concerned about the quantity of reporting requirements imposed on hospitals at present, and we hoped that those requirements would be lighter under the foundation trusts regime. Will the Minister assure me that the amount of information required by the Secretary of State under the provision and the format in which it is required will be the same as that required by the regulator, so that the hospital trusts will not have to produce the information in two different ways, thereby increasing cost, time spent and bureaucracy?

John Hutton (Labour, Barrow and Furness)

Obviously, that would be an ambition to which we would sign up. In practice, there is no doubt that the range of information required from foundation trusts will be narrower in scope than that required from NHS trusts, which will reflect the difference in performance management responsibilities over the actions of NHS foundation trusts. As the hon. Gentleman knows, that will no longer be the direct responsibility of the Department.

The second purpose of clause 19 is to ensure that the regulator is able to obtain the information that he needs to set the terms of the authorisation, to monitor NHS foundation trusts' compliance with the terms of authorisation and statutory obligations, as well as to investigate breaches. In so doing, the independent regulator may need access to information from sources other than NHS foundation trusts. For example, he may need information from primary care trusts on their commissioning needs, or on the services that they have received from NHS foundation trusts.

We do not expect the independent regulator routinely to collect data from bodies other than NHS foundation trusts, nor that the provision of that

information will place a significant burden on them. He is most likely to require specific information in cases in which he needs to take specific action, such as varying the terms of authorisation or investigating breaches. It is true that the information that he requires may differ from that submitted to the Secretary of State, and that is why amendment No. 458 is also not acceptable. I cannot accept amendments that would restrict my right hon. Friend the Secretary of State's ability to carry out his duties with respect to the NHS, or would restrict the regulator's ability to monitor compliance with the terms of authorisation. I am afraid that this group of amendments would do both.

Taking a more bipartisan approach, I share some of the wider concerns that were expressed. The Secretary of State and I do not intend to duplicate or set up parallel systems of bureaucracy related to NHS foundation trusts. That would run counter to our ambitions for foundation trusts, and to the way in which we would like to see the NHS of the future develop.

Chris Grayling (Conservative, Epsom and Ewell)

I thank the Minister for those points of clarification. May I raise one further area of concern? The regulator sits fairly and squarely in the foundation hospitals camp, but he is being given the right to seek information from primary care trusts, who are the buyers of the service. The Minister will be aware that acute hospital trusts and primary care trusts sometimes end up in significant disputes over financial matters. It therefore seems curious that the regulator may be given powers of access to information from the primary care trust that go beyond those held by the Secretary of State today. Will the Minister assure me that such a situation could not arise, and that there is nothing that the Secretary of State would be precluded from seeing relating to the way in which the primary care trusts have been set up to which the regulator, as someone who works with the supplier of services to the primary care trusts, would have access?

John Hutton (Labour, Barrow and Furness)

I would not rule out the possibility that that could be the case. However, the hon. Gentleman is wrong in his characterisation of the regulator as being in the NHS foundation trusts camp. I am sure that hon. Members on both sides of the Committee would accept that it is appropriate and necessary for the regulator, if he is to do his job properly, to have the right to seek information from primary care trusts, because they are significant partners in the whole exercise of improving NHS services through NHS foundation trusts. It would be bizarre if the regulator were not able to approach primary care trusts to request information, because that would impede his ability to monitor compliance with the terms of authorisation and the general progress made by the foundation trust.

We are not creating a Gestapo: the provision is not an inappropriate manifestation of unnecessary powers. We are trying to find the right balance between giving the regulator the tools that he needs to do the job properly and ensuring that my right hon. Friend

the Secretary of State is still able to take an overview of performance right across the NHS, including the performance of NHS foundation trusts. I am sure that the Bill, as currently drafted, strikes that balance, and it is for that reason that I am not able to accept the amendments that the hon. Gentleman has tabled.

Chris Grayling (Conservative, Epsom and Ewell)

I am grateful to the Minister for that clarification. It is conceivable that a dispute could arise between a foundation trust and a primary care trust over a significant amount of money and, because of the consequential impact on the finances of the foundation trust, the regulator would feel the need to intervene and take a close interest? Under these powers the regulator would also have the right to examine the other side of the argument and inspect the books. I am slightly anxious about the implications of that when there are genuine disputes between two NHS bodies. That said, I am happy not to pursue the issue. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 19 ordered to stand part of the Bill.

Clause 20 - Entry and inspection of premises

Andrew Lansley (Conservative, South Cambridgeshire)

I beg to move amendment No. 194, in

clause 20, page 8, line 31, at end add

'such an inspection to be coordinated with the CHAI'.

I move the amendment on behalf of my right hon. Friend the Member for North-West Hampshire. Once again it is a practical suggestion in the same spirit as amendment No. 193. The intention is to relieve the burdens of compliance on foundation trusts and permit them to do their tasks with the minimum amount of interference. Although it is understood that the authorisation might require the regulator to enter and inspect premises of an NHS foundation trust, the requirements of the Commission on Health Audit and Inspection and the regulator should be co-ordinated to ensure that what is happening in the foundation trust is examined once rather than twice in order to minimise interference with management. I hope that the Minister can accept that practical suggestion.

John Hutton (Labour, Barrow and Furness)

I am delighted to accept—[Hon Members: Oh!]—the hon. Gentleman's argument, but not necessarily his amendment. I agree that there should be proper and effective co-ordination. However, the regulator needs these separate and independent powers of inspection. The argument for co-ordination is well made. I simply refer the hon. Gentleman to clause 47(8), which requires the regulator and CHAI to co-operate in the exercise of their respective functions under part 1 of the Bill. The point that the hon. Gentleman seeks to make has already been acknowledged in a later part of the Bill.

Mr. Lansley: I am grateful for the Minister's response and for drawing my attention to that part of the Bill. On the understanding that it will be used in that respect, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 20 ordered to stand part of the Bill.

Clause 21 - Fees

Simon Burns (Conservative, West Chelmsford)

I beg to move amendment No. 22, in

clause 21, page 8, line 34, at end add

'subject to the regulator only having the power to set fees at a level that recovers his annual running costs apportioned across the total number of NHS foundation trusts.'.

I shall be brief as this is a very straightforward amendment. It would add a proviso that the fee should be set at a level that restricts it to the recovery of the annual running costs across the board. I hope that the Minister will agree with the philosophy behind the amendment, even if he feels that it is unnecessary to put it in the Bill. There have been complaints over a number of years that levels of fees imposed—usually inspection fees—have increased significantly above the rate of inflation. Although no one would disagree that the cost of the work done should be recoverable, to set a fee above that level, which might be construed as having an element of profit in it, would be unwelcome and unnecessary. I hope that the Minister can at least give the Committee a commitment that he will expect the fee levels to be restricted to the costs of the work carried out, and not an opportunity for a future Chancellor of the Exchequer to use this as a system of generating additional funding.

Gary Streeter (Conservative, South West Devon)

I hope that my hon. Friend the Member for West Chelmsford does not mind me asking a couple of questions in support of his argument. This is an interesting amendment to an interesting clause. I want to probe the Minister a little. Will the fees paid to the regulator replace any fees that hospitals currently pay to the centre? My concern throughout the Bill has been that rather than setting the hospital trusts free, we might be adding bureaucracy and costs to them.

Is it the case that the entire cost of running the regulator's office will come from the foundation trust? Perhaps it says so in the guide and I have missed it. Can the Minister confirm that that is the intention, or will there be additional money from the centre to run the office; top-up fees to pay for part of the services or something of that nature?

Will the Minister give a ballpark figure for the hospital trusts being set up next year? Some thought must have gone into the matter. What kind of annual fee are we talking about; £1,000 a year, £10,000 a year or £100,000 a year? I have no feel for the figures from the document in front of me. Has the Minister given

thought to the matter, have there been discussions and do the applicant trusts know the fee they are likely to pay?

John Hutton (Labour, Barrow and Furness)

I am grateful to the hon. Member for West Chelmsford for tabling amendment No. 22. I will try to give him the assurances he seeks. It is not the case that the power to set fees could be used as a hidden form of taxation in the NHS. As he will know, the independent regulator has no power under the Bill to generate or distribute surplus funds to anyone. That means that as a matter of law the independent regulator will not be able to charge fees that exceed the total expenses of his office.

The hon. Member for South-West Devon asked a number of intriguing questions. He will not be at all surprised, because he has done a job like this himself, that I am not in a position to give him any detailed estimates about the fees the regulator might charge. That will depend at least in part on the number of NHS foundation trusts. As he knows, the Bill says that the fee must be reasonable. By law, that prevents the independent regulator from charging fees that exceed his expenses.

The hon. Gentleman asked me indirectly when we intend to move to a situation where fees are levied by the independent regulator. I am not sure that I can be specific about that point today. He will know that separate commencement orders can apply to different sections of the Bill. We will not commence the provisions in clause 21 until it is appropriate to do so. We have made it clear that the running costs of the independent regulator will be met by my right hon. Friend the Secretary of State for the foreseeable future.

Simon Burns (Conservative, West Chelmsford)

In the light of the Minister's assurance, which I warmly welcome, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 21 ordered to stand part of the Bill.

Clause 22 - Trust funds and trustees

Simon Burns (Conservative, West Chelmsford)

I beg to move amendment No. 459, in

clause 22, page 8, line 36, leave out from beginning to second 'for' and insert

'An NHS foundation trust may appoint trustees which the regulator can approve'.

Again, I can be brief. In many ways this is a probing amendment. As hon. Members will see, clause 22 deals with the appointment of trustees for an NHS foundation trust to hold property on trust. I do not think that anyone in the Committee would regard that as an unusual or unreasonable proposition. The amendment seeks to change significantly who appoints the trustees, from the Secretary of State to the NHS foundation trust. Given that it is the foundation trust's property, it would be a reasonable proposition for the foundation trust to make the appointment and to have some check on the power to allow the regulator to approve the trustees.

The NHS foundation trusts would appoint the trustees and they would be subject to the approval of the regulator, which is more logical and fair than for the Secretary of State to do so. Unless there is some complicated legal reason under existing law, I am not sure why the Secretary of State has to have a role. The important thing is that there are trustees; given that one concedes that that is crucial, surely it would be better for the foundation trust to make the appointments, subject to the approval of the regulator, who will be independent of the foundation trust, rather than the Secretary of State.

John Hutton (Labour, Barrow and Furness)

I understand the hon. Gentleman's argument that the Secretary of State should not be involved in the appointment of trustees for NHS foundation trusts. My right hon. Friend currently makes appointments of charitable trustees to NHS trusts. I reassure the hon. Gentleman that the appointments function will be delegated to the NHS Appointments Commission, as it is now.

However, safeguards are needed to ensure that the charitable funds held by NHS foundation trusts are properly administered. That includes ensuring that the charitable assets are used to provide benefits for patients and for the purposes for which they were intended. For all but relatively small funds, that means that there should be independently appointed trustees to administer the funds and the appropriate body to appoint the trustees is the NHS Appointments Commission, which has the necessary expertise and independence. I give the hon. Gentleman my absolute assurance that it is not a back-door way in for my right hon. Friend to control the assets of NHS foundation trusts. The Secretary of State does not have a direct role in that regard. The proposal is a continuation of existing arrangements, with the added bonus of delegating the appointments function to the NHS Appointments Commission.

Simon Burns (Conservative, West Chelmsford)

I am grateful for the Minister's explanation, which I accept. I assure him that I did not think that the proposal was a Machiavellian way of giving the Secretary of State back-door powers to control property. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 257, in

clause 22, page 8, line 39, leave out 'in England'.—[Mr. Hutton.]

Clause 22, as amended, ordered to stand part of the Bill.

Clause 23 - Failing NHS foundation trusts

Simon Burns (Conservative, West Chelmsford)

I beg to move amendment No. 412, in

clause 23, page 9, line 30, leave out 'subsections (3) and' and insert 'subsection'.

Peter Atkinson (Conservative, Hexham)

With this it will be convenient to discuss the following:

Amendment No. 407, in

clause 23, page 9, line 30, at end insert—

'(1A) Where a notice under subsection (1) has been issued to an NHS foundation trust by the regulator, the NHS foundation trust may make an appeal in writing to the regulator.'

Amendment No. 408, in

clause 23, page 9, line 34, leave out subsection (3).

Simon Burns (Conservative, West Chelmsford)

If the Committee will forgive me, I will deal with amendments Nos. 407 and 408. Although amendment No. 412 comes before the others, it is incidental to amendment No. 407, which is a probing amendment in one respect but which raises an important issue.

Clause 23 refers to failing NHS foundation hospitals. Rightly, the Government recognise that this is not an ideal world and thus there may be circumstances in which a foundation trust fails and needs to be taken over. It would be irresponsible of the Government not to have a clause to deal with such an eventuality. However, I am slightly worried that clause 23(1) lays down the rules and procedures that the regulator should adopt if he is satisfied that an NHS foundation trust contravenes or fails to comply with any term of its authorisation, and so on. It states what the regulator can do by issuing a notice to the trust to take action as outlined in the Bill.

Although that is a logical and reasonable course of action, I am concerned that there does not seem to be any opportunity in the procedures—unless I am mistaken or it has been hidden later in the Bill—for the foundation trusts to explain their actions to the regulator if they feel that it is warranted, or to appeal against any findings or instructions by the regulator. I should have thought it reasonable for a foundation trust to have that power.

The regulator may not agree with a foundation trust, having heard its explanation and justification of why it believes that he was incorrect or unfairly using his powers. However, the trust should have the opportunity to make its case and to try to persuade the regulator that he is wrong; or that it may not yet be the appropriate moment for him to exercise his powers because it has seen the errors of its ways or understood that it must improve its compliance with the original authorisation. I will be interested to hear the Minister's response.

Amendment No. 408 is a probing amendment, because subsection (3) reads:

''The regulator may require the trust, the directors or the board of governors to do, or not to do, specified things or things of a specified description within a specified period.''

I am not a lawyer, but I suspect that that is correct legal terminology and a necessary catch-all expression; I was going to say that it covered a multitude of sins, but that is probably the wrong expression. However, as I do not fully appreciate what the provision is getting at, I should be grateful if the Minister said what are the

''specified things or things of a specified description''

and what is a ''specified period''? Who specifies those things? What restrictions or safeguards are put on the specification, and who checks that the specified things are in order? I am sure that there is a simple answer to those questions, and any lawyers on the Committee

will probably have guessed it before the Minister starts his explanation. However, us humble non-lawyers would appreciate the benefit of his legal training.

Gary Streeter (Conservative, South West Devon)

This will be a brief point in an attempt to be helpful. When I first read the clause, I thought that I misread it, so I reread it several times. I thought that it was trying to say something that it is not trying to say; that when a regulator has the opportunity to serve a notice on a hospital trust, he should first serve a notice specifying the breach and giving a reasonable period in which the breach should be rectified. Only then could the regulator move on to use some of the more draconian and incisive powers in the clause.

However, the clause, as I now read it, says that if the regulator believed that a foundation trust was contravening some of its terms and conditions or trust authorisation, he could move straight to serving a notice to remove all board directors and impose interim directors. That might be the appropriate action, but it might also be heavy-handed and too precipitate. Would it not be better to build into the clause an obligation on the regulator to serve a notice to specify the breach and give the trust the opportunity, within a reasonable time frame, for that breach to be rectified before he can move on to the step of intervention as detailed in the clause?

John Hutton (Labour, Barrow and Furness)

Under normal circumstances, the independent regulator will have no reason to become directly involved in NHS foundation trust affairs. However, he clearly needs a range of powers at his disposal to ensure that, if an NHS foundation trust significantly breaches its terms of authorisation or statutory obligations, he can take appropriate action to rectify the situation to protect the interests of NHS patients. The words ''significantly breaches'' are important in this context. Simply removing governors or directors under clause 24(4) or dissolving the trust under clause 25(5)—which would broadly be the effect of the hon. Gentleman's amendment—would be more draconian, to use the term of the hon. Member for South-West Devon, than would be required; nor would it necessarily help to bring an NHS foundation trust back in line with its terms of agreement.

For that reason, the regulator of an NHS foundation trust should have a wider range of powers—these are contained in clause 23(3)—to require the foundation trust to take specific action to remedy the failure. That is also why amendments Nos. 408 and 412 should be rejected.

The hon. Member for West Chelmsford asked me to give an example. The independent regulator might require that, on the basis of a recommendation from CHAI, the NHS foundation trust meet, for example, certain quality standards within a set time period. He might also ask CHAI to carry out additional reviews or inspections. If the amendments have been tabled with a view to ensuring that the regulator does not interfere indiscriminately in the running of an NHS foundation trust, I can assure the hon. Gentleman that

the regulator will deal proportionately and objectively with such trusts. In broad terms, I would characterise the regulation of NHS foundation trusts as light touch. As I said, the regulator's powers to intervene under clause 23 will be limited to where failure is significant.

On amendment No. 407 and the appeal to the regulator, clearly he is under a general duty to act reasonably and proportionately. He will act independently and objectively in his dealings with NHS foundation trusts. Any action that he takes must be proportionate and must take account of all available evidence. Evidence from the NHS foundation trust itself would therefore always form a natural part of his decision whether to intervene. For example, if a CHAI report indicated a potential breach of the terms of authorisation, the NHS foundation trust would have an opportunity to prepare a response that the independent regulator would consider alongside the CHAI report in deciding whether any action was appropriate.

As with the Secretary of State for Health, there is no formal mechanism for appeal against the independent regulator's decisions, but as the hon. Member for South-West Devon knows, the independent regulator would clearly be subject to a judicial review in relation to his decisions.

Simon Burns (Conservative, West Chelmsford)

I am grateful to the Minister, because I thought he made a significant and helpful point about an adverse CHAI report. I also heard what he said about judicial review, which is the ultimate weapon that one would hope to be able to avoid almost at all costs. Could he have given other examples than CHAI, where the foundation trust would not have an opportunity to make representations to the regulator?

The rest of the debate is in Hansard.