Mr Chris Grayling (Epsom & Ewell, Conservative)

I beg to move amendment No. 273, in

clause 12, page 5, line 19, leave out subsection (2).

Mr Win Griffiths (Bridgend, Labour)

With this it will be convenient to discuss amendment No. 247, in

clause 12, page 5, line 21, at end insert

', and have regard to the impact of private borrowing by foundation trusts on NHS trusts' access to capital'.

Mr Chris Grayling (Epsom & Ewell, Conservative)

Amendment No. 273 is a probing amendment designed to establish more clearly the Government's intended criteria for shaping the code and, in particular, what is meant in subsection (2) by:

''any generally accepted principles used by financial institutions to determine the amounts of loans to non-profit making organisations.''

Non-profit organisations are diverse and their financial structures differ. At one extreme, for example, is Standard Life, one of Europe's biggest insurance companies; at the other, a local sports club. Clearly, the financial structures within which both of those structures must work in order to secure borrowing are hugely different. Therefore, it would be valuable to understand precisely what the Government mean by ''generally accepted principles''. Why, indeed, is this subsection even necessary?

For a major lender lending to a non-profit organisation, the primary criterion is the ability to pay. The major lender will look at the nature and security of the income that the organisation receives. The nature of the membership of the organisation will also be considered because one issue that a lending organisation will inevitably consider is liability. We touched on that earlier in the debate, but the Minister has not yet dealt with it fully.

A borrower providing finance to a non-profit organisation will ultimately look at the security for that lending, which may be against assets. However, as we know, the core assets of a foundation trust cannot be used as security against lending. Therefore, an additional criterion that a lender will use to judge the security or otherwise of an organisation, its ability to repay and the fall-back if something goes wrong with its revenues, is the strength of the financial substance behind it. With a major limited company, the amount of money against which a lender will usually lend is related to the capital base of that organisation, which is the shareholding base. When Railtrack went into administration, the core value against which the administrator and creditors sought to take action was the money that the shareholders had invested. Ultimately, shareholders are the last group to lose

their money when something goes wrong. The capital that they have invested disappears. In the case of a non-profit organisation, there are no shareholders and no shareholder capital raised through a stock market issue. Therefore, where does the liability ultimately lie? Who ultimately pays the bill or loses their money if things go wrong?

If a typical, small non-profit organisation—the Minister's local Labour party association, for example—were to fall into major financial difficulties, in most circumstances, it is the members who carry the can. I suspect that his local association is not unusual in that respect. If members take on a property liability or fail to pay their tax on time and find that they run into cash flow problems, they are ultimately liable if the creditors come after them. Therefore, one of the generally accepted financial principles that financial institutions will use to determine the amounts of loans to non-profit organisations is whether the money can be recovered against the membership. However, in the case of a foundation trust, the membership consists of those who signed on the dotted line for £1.

With the Bill and the Government's drive towards creating foundation trusts, it is essential to understand what the liability is. Who carries the can? Who pays the bill if something goes wrong? Will the Secretary of State automatically step in, or are the individual members ultimately liable? When a non-profit-making organisation takes out a loan, one key criterion that the lender uses is, ''Where do I get the money from?'' Ultimately, the members are the ones who pay.

In framing the clause, what discussions did the Minister and his Department have with commercial organisations about the criteria that they use? Is the clause based on a substantial exchange of ideas and information? Is there a substantial basis for it? Has the Minister received guidance from the industry on what it would look for from foundation hospital trusts? Will he clarify whether such discussions have taken place?

May I anticipate slightly the issues that the hon. Member for Oxford, West and Abingdon will raise under amendment No. 247? That amendment raises a number of other questions; it is about the impact of borrowing by foundation trusts on the rest of the NHS. The Minister has clarified the fact that private borrowing by foundation trusts will not be able to increase the total amount of borrowing for the NHS. Of course that means that if a foundation trust secures private sector money, that will reduce the amount of public money that the Government have for spending on the health service, so arguably that is a way of cutting Government investment—replacing Government investment in the health service with private money.

I should be grateful if the Minister would address that issue. The provision that we are discussing risks constraining the freedom of foundation trusts to grow and develop their business. Let us suppose that a foundation trust decides to go to the private sector and borrow to buy a clinic. Let us say that the trust has been working closely with the private sector and

subcontracting work to a cataract clinic, and the parent company runs into difficulties and goes into administration. That asset is there on the shelf, waiting to be bought from the administrator. The foundation trust decides that it wants to borrow from the private sector, buy the clinic, expand its own capacity and continue to provide that service to patients. That is a perfectly realistic and reasonable scenario, and we certainly expect the freedoms that will be granted to foundation trusts to come into their own.

However, if my understanding of the current situation is correct, such a decision could not be taken without money being taken away from investment in other parts of the NHS. For the foundation trust to borrow the money to buy the clinic and continue providing its services to patients and develop those services, money would have to come off the borrowing available to another hospital elsewhere in the NHS. Surely that makes a mockery of the rationale for creating foundation hospitals. Surely the purpose of the exercise is to create freedoms that allow them to expand and develop their services. I do not see how such a constraint can permit foundation hospitals to have the freedom that they need to develop their services.

Inevitably, if a foundation hospital is in such a position, it will think of other ways of doing things. It might want to buy a new scanner. If it cannot borrow the additional amount without having an adverse effect on the NHS, it might look to lease the scanner. Will the borrowing code take into account classic off-balance-sheet debts, such as long-term leases? Will they have to be reflected in the total amount set out in the limit that each trust has, generated from the core code that the Government will develop? Or will off-balance-sheet financing, such as long leases, not have to be taken into account in the prudential borrowing code?

Lastly, has the prudential code already been developed? At the bottom of page 17, the guide states:

''The prudential code will be made available to applicants during the time period for submission of the initial applications.''

Last week the Government announced their first shortlist of applications for foundation status. One would therefore assume that the time period for submission of initial applications has passed. If so, and if the Government have fulfilled the undertaking that the prudential code would be made available to applicants, one would assume that the code has already been developed. If that is the case, can the Minister outline the shape of that code? If that is not the case, why does the guide say that the code would be made available? If the code has been developed, why does the clause say:

''The regulator must make a code''?

The regulator has not yet been appointed. I imagine that that person will not be appointed for several months, despite the fact that the job has been advertised. Could the Minister state whether the code has been developed, and if so, what it contains? I look forward to hearing his answer.

Dr Evan Harris (Oxford West & Abingdon, Liberal Democrat)

I am grateful to the hon. Member for Epsom and Ewell for making my points for me. I do

not know if that is the start of a new trend. If it is, I do not mind, because he did it very well. I have nothing to add on the basis for the amendment—[Interruption.] Hon. Members should wait. If the Minister will be generous in allowing me to intervene to seek clarification of his answers, I will not repeat the points made by the hon. Member for Epsom and Ewell.

Some may feel that in proposing the amendment, we wish to limit the access of new providers in the market to private capital because of a fear that that would limit the ability of the rest of the NHS to borrow. That is not the case. We believe that the Chancellor of the Exchequer should not have been allowed to prevail, and that the loans should not count against departmental borrowing limits. If the Government had faith in prudential borrowing, there was no need for that to be the case. The consequence of the Chancellor's winning that battle with the Prime Minister and the Secretary of State for Health is that we are in what the hon. Member for Epsom and Ewell described as a zero-sum game. If that is the position, it should say so on the face of the Bill.

This is the point where we and the Conservatives may part company. I argue—as they do—that there is a restraint on the ability to borrow. However, I also argue that that is unfair. The Minister has said that the Government will honour capital allocations for the next three years, and that all trusts will be foundation trusts by the end of that period. If that is the entire allocation—and if there is not another allocation that will be diminished by borrowing in the meantime—the unfairness may not arise. However, if he cannot guarantee either that the honoured capital allocation is the maximum that could have been allocated against the Department of Health's limit, or that all trusts will have the same freedoms—and that they will all be restricted by the limit—there is unfairness between those that can take advantage of the limited freedoms, and those that cannot take advantage of those freedoms and will have their allocation restricted by virtue of the freedom given to new providers. That is the purpose of the amendment. I hope that the Minister will point out where I am wrong if there is not a problem or, if there is, explain how it can be addressed.

Mr Stephen McCabe (Birmingham, Hall Green, Labour)

I want to make four brief points about the amendments. This represents some of the central anxieties felt by those of us who support the general principle of the Bill. I hope that amendment No. 273 will not be accepted. Subsection (2) contains the essential safeguard that stops foundation trusts running up excessive debts and going bust. We do not want that to happen. We do not want the past experience with other trusts to be replicated, so I hope that we will reject the idea.

Amendment No. 247 raises a point that has been touched on several times today. We want to know whether there is extra borrowing capacity as a result of these proposals or whether the extra that the trusts can borrow comes off the NHS total. If it does, it suggests that there could be a preference for those trusts at the

expense of other parts of the NHS. That is a pretty central anxiety for a great many of us. It would be helpful if the Minister could be clear as possible about the status of the code. Some of the chief executives who responded to the initial proposals raised doubts about the financial proposals. They were keen to see what the code would contain. Finally, will long-term leasing be taken into account in the prudential borrowing code?

Sir George Young (North West Hampshire, Conservative)

To follow up the point developed by the hon. Member for Birmingham, Hall Green (Mr. McCabe), I must observe that the Minister is caught between a rock and a hard place. If he agrees with his hon. Friend and says that despite the heroic work envisaged in the Bill no extra money would go to foundation trusts, he must then confront the chief executives of the foundation trusts, who will ask what is the point of it all. In replying to that question, he must disappoint either his hon. Friend or the chief executives of the foundation trusts.

I should like to raise a different point, which builds upon what my hon. Friend said. Subsection (2) refers to

''generally accepted principles used by financial institutions to determine the amounts of loans to non-profit making organisations.''

I hope that the Minister can be open about the amount of work that has already been done by his Department. Although formally this is a matter for the regulator to decide, much of the work has already been done by the Department. It would be helpful if he could confirm that the process is roughly as follows. A foundation trust will look at what is called its pre-cash flow, which is any surplus that it has on its income over its expenditure plus its depreciation allowance. That is then fed into a number of equations.

Many hospitals in the south-east have no surplus. The North Hampshire Hospitals NHS trust runs at a deficit. The question of using that part of the pre-cash flow to determine the prudential borrowing limit is rather academic. Many hospital trusts have only their depreciation allowance. Which of the formulae that have been explored by the Department will be recommended? The amount that a trust can borrow varies substantially according to which benchmarked ratio one chooses. One of the ratios is the debt service cover ratio—the number of times that the debt, which is the interest plus principal, can be serviced by the pre-cash flow.

If one applied that ratio to the North Hampshire Hospitals trust it could borrow about £12 million. Its depreciation allowance would withstand that sort of debt. That allows a ratio of two. In other words, the pre-cash flow has to be twice the interest and the principle.

The Department are considering other ratios, such as debt to net revenue, which is the percentage cost of servicing the debt—principal and interest—as a percentage of the total revenue of the trust. I understand that the figure being considered is 4 per cent. If that figure were applied to the North Hampshire Hospitals trust, it could borrow £28 million, as opposed to £12 million if it used the

debt service cover ratio. The amount that can be borrowed therefore varies widely. The third ratio, which is being considered under the prudential capital code, is the interest cover ratio—ICR. That applies to the number of times that the interest could be serviced by the pre-cash flow. The ratio being considered for that is three. Under that formula, the hospital in my constituency could borrow £21 million.

It is clear that the trusts have got some way round the course in applying, and I would have thought that the Department must have some idea which of the ratios it is likely to recommend to the regulator. Without that sort of information, it will be difficult for a trust to know whether it is worth applying to be a foundation trust. A trust could make a rough guess at what it might get if it did not apply to be a foundation trust, but it needs to know how much it could borrow if it applied and was successful. In the case of the hospital that I have mentioned, that could be anything between £12 million and £28 million. That could not be borrowed every year, of course, because the pre-cash flow would have to service the debt incurred in year 1, and could not be applied to fresh debt in year 2.

Mr Chris Grayling (Epsom & Ewell, Conservative)

In the commercial world, there are two other factors that could affect the borrowing powers of a trust. The first is whether it has assets beyond its core assets—some trusts will be much better endowed than others. Secondly, borrowing against assets to secure new treatment services, such as new clinics, will generate additional revenue and affect the formulae. However, under the rigidity of the Government's proposals, neither of those would be permissible.

Sir George Young (North West Hampshire, Conservative)

My hon. Friend is right to say that a trust cannot use regulated assets as security, although those would normally be taken into account by a financial institution. Regulated assets are expressly precluded by the Bill.

I hope that the Minister will be open and indicate to the Committee which of the ratios his Department are working on, to give some guidance to trusts on how much they might be able to borrow were they to become foundation trusts.

Mr Andrew Lansley (South Cambridgeshire, Conservative)

I am interested to hear what my right hon. Friend has to say, and I shall not attempt to add too much to it, except by contributing one thought. As I understand it—the Minister will correct me if I am wrong—the issue that my right hon. Friend did not take into account is the interest that must be paid on public dividend capital. The limit will be applied on the total indebtedness of the trust; it is not a limit on additional borrowing, but on total borrowing. Within that limit on total borrowing, the existing public dividend capital will be netted off.

I do not know the circumstances of the hospital in my right hon. Friend's constituency, but if it were a new hospital and the Government had paid a large amount of capital to build it, it would have correspondingly on its balance sheet public dividend capital alongside the interest charge against it. The headroom for borrowing might be modest. The extent

to which borrowing could occur would, as my hon. Friend the Member for Epsom and Ewell suggested, be more a question of the extent to which the project concerned would give rise to additional capacity, which would in turn give rise to additional revenue to service the debt.

Mr Chris Grayling (Epsom & Ewell, Conservative)

In some cases, one would expect applicants for foundation status to be trusts that have just built new hospitals using PFI. The question would therefore arise whether PFI liabilities, which might take a variety of forms, would also appear and be taken into account within the prudential code, as they should.

Mr Andrew Lansley (South Cambridgeshire, Conservative)

The same principle applies, and we are not speculating about that, given that the ''Guide to NHS Foundation Trusts'' says:

''prudential limits would apply to the total indebtedness of the NHS Foundation Trust as a group, i.e. all borrowing both public and private across the structure.''

Clearly, it includes the PFI borrowing that is already in place.

Mr Chris Grayling (Epsom & Ewell, Conservative)

One of the issues in recent times has been that the Government have not declared PFI debt as national debt, so it is off-balance-sheet. None the less, the debt of all the foundation trusts would have to be taken into account within the prudential code, which would mean that all of it could not be put on the national balance sheet.

Mr Andrew Lansley (South Cambridgeshire, Conservative)

My hon. Friend uses the term ''balance sheet'' in a particular sense, which I would not do for such a purpose. We tend to say, ''Is it on the balance- sheet?'' meaning, ''Is it in the national Exchequer accounts?'' PFI does not appear in the Exchequer accounts. However, it does appear on the balance sheet of the trust, and we are trying to resolve what is the prudential limit on total indebtedness of a trust, including the PFI money? If we are wrong, the Minister will put us right, but I think that that is the question.

I shall track that point. It means that if an NHS trust is becoming an NHS foundation trust, but—contrary to the scenario that I have just painted—it has old buildings with high maintenance costs and the like that are accruing to undermine its revenue position, the incentive to borrow, and the availability of borrowing, would be high.

That is not an idle scenario. I have spoken about Addenbrooke's trust, but in my constituency there is also the Papworth Hospital NHS trust, which in 1997–98 was one of the hospitals that sought to go down the PFI route. When the Government were elected in 1997, they said that they would not have many people pursuing PFI status, but a small number would be in the fast-track system. Papworth lost out for the simple reason that in those circumstances, the ''PFI-ability''—if I can put it like that—is dependent on the ability of the private financier to generate efficiency savings on ancillary, not medical, services and to contribute to the financing of the project, thereby relieving the burden on the hospital itself to pay. The Papworth trust was not ''PFI-able'' to the extent of some others, because the trust had already delivered every conceivable efficiency saving that it possibly

could on all its non-medical services, and quite a few on its medical services.

I painted that scenario to demonstrate that I can see where such arguments are coming from. If there is not a route for PFI, for somewhere such as Papworth there is at least a route to capital, which will enable it to do its job of rebuilding the hospital, wherever it chooses to go. It will need to be rebuilt and it will be a big project. At the moment that project is sitting in the queue for borrowing from the NHS, to which the Minister referred.

A big sum will be required, so while I understand why we want trusts to become foundation trusts and to have access to NHS borrowing, I do not see how the way in which they will get into the queue to have their big project financed in the future will be different from what happens now. Let us suppose that the Department of Health has a limit on its overall budgets, including its overall capital budget, and Papworth comes in—a point that was raised by the hon. Member for Birmingham, Hall Green. I am saying that from the perspective of a hospital that says, ''Right. We have not been able to get our project, but we have become an NHS foundation trust and, lo and behold, we get our project.'' Other things being equal, that must mean that there are other projects that will not receive the same capital. They may be less necessary, but that is neither here nor there.

That brings me to PFI. There are three things that I want to be sure about. The first is that before we discuss public dividend capital, we are clear that it is part of the total indebtedness of the trust. We are dealing with something that bears directly upon the borrowing limit. Secondly, the private finance initiative is counted towards the borrowing limit, but it is not going to be managed in the same way. Therefore, a trust looking to undertake future capacity building might still choose to go down the PFI route.

We should ask whether the additional capital activity will form part of the borrowing limit if the finance in question is not loaned to the trust but is capital raised by the private partner. If it is not borrowed by the trust, clearly it will not form part of the borrowing. It is true that many foundation trusts will choose to make their capital investment, although Papworth will not. At others, such as Addenbrooke's, the elected care and medical genetics centre that is on its way as a PFI project will not form part of the borrowing limit. So long as that is clear, it is fine.

We then have to ask about the freedoms. I am surprised that the guide to NHS foundation trusts says, at paragraph 5.22, that

''An NHS Foundation Trust will continue to be able to procure capital schemes using the Private Finance Initiative process, subject to the same degree of oversight as applies under the current arrangements.''

Is no freedom to be offered to the foundation trusts to undertake PFI projects according to their own discretion, or will they be left under the same regime as at present? How will becoming a foundation trust benefit a new hospital that wants to add further capacity through the PFI route?

Finally, I come to the relationship between the borrowing code and the commissioning bodies. So far as I can see, we have at best a three-year forward programme of expenditure, and service level agreements that will probably happen on a yearly basis. There are some indicative relationships with commissioning bodies. If one is going to undertake capital investment, not on a PFI basis but using the financing facility from the Department of Health, one will probably still be doing it on a 25-year basis. The calculations will certainly be done on that basis.

How will that serviceability relate long-term borrowing to short-term commissioning? Will the assumptions about the serviceability of debt not, in practice, track back to the strategic health authority's deciding on the configuration of services? Only if the SHA agrees that the future configuration of services will be consistent with commissioning bodies' buying those services long-term can that debt be serviced effectively. My worry is that we talk about capital freedoms but that when we look closely, the issues still track back to decisions that are made at strategic level by the relevant SHA or the Department of Health.

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

I shall deal with the amendments first, and then with the wider points that have been raised. Amendment No. 247, tabled by the hon. Member for Oxford, West and Abingdon, requires the regulator to have regard to the impact of NHS trusts' access to capital. That point is already reflected in the Bill; we covered that ground many times in our debates on clause 3.

I assume that amendment No. 273, which would remove the requirement to have regard to generally accepted principles in the setting of a prudential borrowing code, is a probing amendment—

Mr Chris Grayling (Epsom & Ewell, Conservative)

I said so.

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

I am sorry. I did not recall the hon. Gentleman's having said so but I am delighted that he did, because it would have been daft for the Committee to consider such a proposal. As my hon. Friend the Member for Birmingham, Hall Green made clear, it is right that the Bill should set out the general principles on which the code should based. A strong case can be made for leaving the clause as it stands.

I shall now deal with some of the points raised in the debate, which naturally went into some of the underlying arguments. The right hon. Member for North-West Hampshire made a telling and well informed contribution to the debate, as did the hon. Members for South Cambridgeshire and for Epsom and Ewell. The question arose of who had been consulted on the principles for the prudential borrowing code. Wide consultations have taken place with the major banks engaged in the health sector in the United Kingdom, and the relevant major credit rating agencies have been involved, as have been the non-executive and financial directors of the prospective foundation trusts.

The discussions have been widespread, and I am glad that the right hon. Member for North-West Hampshire is aware of the details; I am happy to share them with the Committee. However, I have a dilemma in responding to the right hon. Gentleman. He is

effectively asking me to tell the Committee what the prudential borrowing code will say about the ratio that should be applied to the code. He knows that we have had wide-ranging discussions with all the foundation trust applicants about the shape of the prudential borrowing code; for instance, he mentioned service cover ratios, debt service to revenue ratios and interest cover ratios. Those were all discussed with the applicants during the consultation process.

All that I can say is that, under the Bill, it is the job of the regulator to promulgate the eventual code. However, it is unlikely that only one of those ratios will be selected. They are all likely to form part of departmental recommendations to the regulator, and it is worth noting that, currently, no financier relies on only one of them. All use a range of ratios, and we are likely to suggest that to the regulator.

The hon. Member for Epsom and Ewell spoke about long leases. Essentially, he is inviting me to tell the Committee in detail what accounting rules will apply to NHS foundation trusts. It is difficult for me to do so. A live debate is continuing on that issue, and it will cover the full range of accounting procedures, including the treatment of long-term leases. I cannot second-guess what the outcome will be for the accounting rules for NHS foundation trusts.

Mr Chris Grayling (Epsom & Ewell, Conservative)

It is difficult to escape the conclusion that the measure is being rushed through. I referred to a footnote on paragraph 5.17 of the guide, which states:

''The Prudential Code will be made available to applicants during the time period for submission of initial applications.''

We already have a shortlist of hospitals, and we are not expecting the regulator to be in place for some months, yet the Minister cannot give us details of the basis on which the decision will be made. Either it is a rushed bodged job, or the Minister is not giving the Committee the information that it has a right to expect.

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

It is certainly not a rushed bodged job. The code has not been finalised. As soon as it is, it will be published; it will be in the public domain. It is the job of the regulator. The post has not yet been established by Act of Parliament. The final publication of the prudential borrowing code will have to await that event. However, we are discussing with applicants for foundation trust status some of the general principles that are likely to apply, which is sensible; but they know, as I hope that the Committee knows, that no decisions have been made about the details of the code. That is the basis on which the discussions are taking place. I am not withholding information from the Committee, as I hope all hon. Members understand. That is not what I do.

Mr Stephen McCabe (Birmingham, Hall Green, Labour)

For the sake of clarity, is my right hon. Friend saying that some preliminary work is going ahead on the code, but when the regulator is appointed, the Department will have the option either to go along with that work or, conceivably, to tear it up and start again?

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

It is clearly the regulator's responsibility under the Bill to decide how to set the code. As hon. Members would expect, my officials are having discussions with both applicants, and we will obviously have discussions with the regulator when the regulator is appointed. We are advertising that post as we speak. Once the shadow regulator has been established, those discussions will continue. That is a sensible and prudent way to do things. It should not be seen as contributing in any sense to the description that the hon. Member for Epsom and Ewell attached to the process. It is not a bodged or rushed job.

With the greatest respect, which I hope I always show Opposition Members, they are asking me to decide things that are not within my remit, because I am not the regulator. It will not be the job of Ministers to determine the accounting rules either. They are perfectly fair, reasonable and legitimate questions, but sadly it is not within my remit to provide the level of detail for which I am asked.

The impact of private finance deals will be as the hon. Member for South Cambridgeshire described. The total amount of borrowing that underpins PFI deals will not score against the individual trust's prudential borrowing limit. Of course, that is not the case; it is not borrowing that money. Ultimately, it affects the borrowing limit that the regulator will set in relation to the trust, because it is financed through cash flows and the revenue that the trust receives for providing the services to the local primary care trust.

If someone applies for a mortgage, the lender—the building society—will want to know the level of their indebtedness from credit cards, other mortgages, alimony, divorce settlement payments or whatever, because that affects their ability to finance the debt. Exactly the same principle will apply to the way in which the prudential borrowing limit is set. Obviously, with regard to large-scale PFI deals—some involve hundreds of millions of pounds—it would be unfair and inappropriate for all that to score against an individual trust's borrowing limit immediately. That would quite often mean that it could never borrow anything else, which is clearly not our objective.

There has been another rehash of the argument about how all that scores against the Department's overall capital expenditure limits. The Conservative party has had some merriment with that. Ultimately, it comes down to one fundamental issue. I do not want to go through the whole argument again, because my feeling is that we have heard it on at least three occasions already. I take it from what is proposed, and from later amendments, that the Conservatives approach this issue from the proposition that no borrowing limit should be applied or, if they believe that a limit should be applied, they will have cobbled together some bizarre formula of their own to reflect it.

It is worth bearing in mind the points that I made in the previous debate, on clause 11. Of course, there must be some prudential approach to borrowing; otherwise, we might encourage financial failure, which is in no one's best interests. That is a basic point, but it needs to be made. We have tried, in drafting the legislation and in the way in which we intend to

distribute capital resources across the NHS, to ensure that one part is not robbing Peter to pay Paul. I concede that that is a difficult balance to get right, but we have tried very hard to do that. We have set out on numerous occasions, not least on Second Reading, how we feel that that is being done.

My final point on this matter is the obvious one. Perhaps this will be construed as a partisan point, but I hope not; it is worth making. We had exactly the same debate when the Conservative party established NHS trusts in the 1990 legislation. That party imposed a borrowing limit on NHS trusts, and it did so precisely because it accepted the logic of the argument that we are advancing. It is not possible within the concept, as we understand it, of a public service—we keep talking about a public service—to have the situation that the hon. Member for Epsom and Ewell proposes.

The hon. Gentleman has made fun of the rules and procedures that we have established, but his views are not borne out by a proper analysis of the Bill and do not take into account Ministers' repeated explanations about the way in which the rules will operate.

Dr Evan Harris (Oxford West & Abingdon, Liberal Democrat)

It was not clear from what the Minister said whether he was approaching the end of his remarks. I did not speak for long, nor did I repeat the points made by the hon. Member for Epsom and Ewell, but I asked a specific question. I believe that similar remarks were addressed to the Minister by the hon. Member for Birmingham, Hall Green.

What is the position about taking from Peter to pay Paul within the overall limit, as the Minister puts it? If not all trusts are in this position by the end of the three-year capital allocation, will there be an impact or will there be an impact anyway, because the three-year capital allocation is not the sum total and more will be set against?

The Minister must forgive me if he did not understand my questions. I tried to put them clearly and I should be happy to give further clarification if he requires it.

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

It is my view that I answered that point repeatedly in the earlier debate. The hon. Gentleman knows the overall position. There will not be a total capital limit available to NHS foundation trusts or to NHS trusts other than that covered by the Department's expenditure limit. I have made that clear repeatedly. It takes us back to the points that I made in relation to clause 3 and the duties that the Bill imposes on the regulator. It is not a beggar-my-neighbour approach, and I have tried repeatedly to make that point.

Eventually we come down to the basics here. Some perfectly reasonable questions have been asked about the way in which the rules will apply in detail. I have tried, within the limitations placed on me, to answer them as fairly as I can. There are some that I cannot answer, because they relate to decisions that the regulator or others must take. Of course we are in discussions with the applicants for foundation trust status to see how the rules might look and what the implications would be of determining prudential

borrowing limits for individual trusts. It is an important and delicate stage of the process. However, it is not fair to describe it as botched or rushed. It is important that those general principles are set out. We intend that the formulation of the code is transferred to the regulator. It will not be Ministers' job to determine it.

We are trying to be even-handed and to create a regime that contains additional financial flexibilities for foundation trusts, not only in relation to borrowing but also in the retention and use of revenue. Those are significant financial gains for NHS foundation trusts. Others will not, at this stage, be able to use those financial freedoms, because in the first wave not all acute trusts will become foundation trusts. That is axiomatic.

Sir George Young (North West Hampshire, Conservative)

I am sorry to press the Minister, but it goes to the heart of the question posed by the hon. Member for Birmingham, Hall Green. If there are, as the Minister says, some gains for the foundation trusts, will there be some losses for the non-foundation trusts?

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

No, I do not think that that will be so. Crucially, the principal financial gain that we are talking about is the opportunity to avoid the bureaucracy of the current financial arrangements in the NHS and the requirement for every individual capital decision to involve someone higher up the chain saying yes. There will be financial freedoms over borrowing, which we have explored in some detail, but all those freedoms must operate within the overall settlement and framework that have been established for foundation trusts in the wider NHS.

Sir George Young (North West Hampshire, Conservative)

If a foundation trust uses those freedoms and thereby borrows more than it would previously have been able to do, does that mean that a non-foundation trust will get less?

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

We have had this debate repeatedly. My right hon. Friend the Secretary of State addressed this point on Second Reading and I have made repeated references to it in the Committee. There is one point that we have not considered. We have, perfectly fairly, been talking about borrowing, but issues other than borrowing will go into the pot, such as the sale of surplus assets by the foundation trust itself. The establishment of NHS foundation trusts will not reduce the amount of capital available for developing NHS services for NHS patients.

For example, proceeds from NHS trust asset sales are not added to central funds, but instead remain in the local health economy. The creation of NHS foundation trusts will not reduce the central funding available to the NHS. Proceeds from NHS trust asset sales are not typically taken into account when determining the amount of capital that is available for allocation. NHS foundation trusts are currently allowed to retain up to £10 million of proceeds from asset disposals, subject to demonstrating to the independent regulator's satisfaction that the proceeds that are used will be in line with the principal purpose. No unfair funding advantages will accrue to asset-rich trusts.

There is another point, which has not been developed. No additional source of revenue will be provided to foundation trusts to allow them to increase their borrowing. That would create a genuinely unfair advantage, and we are not proposing to do that.

Mr Chris Grayling (Epsom & Ewell, Conservative)

Will the Minister confirm that if a trust gets foundation status and chooses to sell a surplus asset, it will be free to retain that funding, but that a non-NHS foundation trust that does the same thing will have to give the money to the Treasury?

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

Yes, that is the position. The current rules allow non-NHS foundation trusts to retain up to £10 million of the proceeds of that surplus asset, but it is true that the rules will be different for NHS foundation trusts: that is one of the financial freedoms that we are discussing. However, that would not be done at the expense of other parts of the NHS: that would be a local asset that the foundation trust would have freedom to use.

Mr Stephen McCabe (Birmingham, Hall Green, Labour)

I sense the frustration of my right hon. Friend the Minister as he tries to explain this. Perhaps I am being remarkably dim, but I cannot quite understand the mechanism that ensures fairness. Foundation trusts will be on a faster track—it will be easier to identify their borrowing needs and to make progress with their plans. I support that, but if the money all comes out of an overall borrowing sum—a total figure—I fear that by making all this fast-track progress they will be eating up that sum and that there will be less for the people who are plodding through the existing borrowing arrangement. What is the mechanism to ensure that that does not happen and that there is fair distribution?

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

That takes us back to the discussion that we had on clause 3 and the overall responsibility of the regulator to set a prudential borrowing limit, taking into account the effect of that on the wider NHS. There is a genuine issue that will help to address the matter of fairness that my hon. Friend has raised. With greater use of the revenue resources that are available to them, NHS foundation trusts will be able to fast track some of their borrowing—as my hon. Friend said—in a way that will not impact negatively on other parts of the NHS. My hon. Friend said that I am frustrated: I am not, but this is a repetitive argument—we have been round and round on this point throughout our proceedings.

The fundamental question that we need to consider is whether there should be a prudential limit at all. It is, of course, possible to construct an arrangement without a prudential limit for borrowing, so that people will be free to borrow whatever they like irrespective of their ability to pay. We would then have to consider the consequences of that for the NHS as a whole. However, that is not a path that any sensible Government would go down: we have to start from that basic but important common-sense position.

I do not want to repeat these arguments because I feel that I am not convincing people about the merits of the case that I am putting forward. Everyone is

entitled to interpret this as they see fit. I have tried to explain the case that we have developed since these proposals were announced, and I genuinely believe that they will operate in a fair and transparent way across the NHS.

Dr Evan Harris (Oxford West & Abingdon, Liberal Democrat)

The Minister does not want to repeat his answer, but I and some other members of the Committee feel that an answer has not been given, so we will not make any progress. He used the issue of retaining assets to show that there could be fair freedoms for foundation trusts, but is it fair for foundation trusts, on the basis of their status, to retain all their, say, £40 million of assets, when non-foundation trusts can retain only £10 million, with the other £30 million going to a central pot to be allocated elsewhere? The measure may be beneficial to foundation trusts, but it is surely unequal. The Minister may think that that is no bad thing, but he cannot deny that it is unequal to retain all of one trust's assets locally, while another's are dispersed across the whole NHS or, at least, across the whole strategic health authority.

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

Again, this argument tracks back to the origins of the proposals. We introduced them after having studied those parts of the NHS that had a good performance track record, including in financial management. We wanted to give those parts of the NHS greater operational freedoms. Whichever way one cares to cut it, a good case can be made for saying that those who perform well should receive a reward in the public service, just as they do in the private sector. That is a good thing, and that is what our proposals will do.

I genuinely believe that there is no sense in allowing foundation trusts to use surplus assets in a way that could, in any objective sense, be regarded as taking something away from other parts of the NHS. The Bill does not do that, but it does give wider freedoms and the ability—earned through past performance—to take certain steps.

As hon. Members have helpfully reminded me, we have answered several parliamentary questions on this issue. Those answers set out matters in much greater detail than I have been able to give today.

As in earlier debates, we have extensively traversed the range of financial freedoms that will be available to foundation trusts. I have tried to set out why the amendments should not be accepted and why they would make the Bill worse if they were. If any of them are pushed to a Division, I hope that my hon. Friends will join me in rejecting them.

Mr Chris Grayling (Epsom & Ewell, Conservative)

I made it clear that the amendment in my name and those of my hon. Friends was a probing amendment, and I shall return to it in a moment. Clearly, however, I have no intention of pressing it to a vote. None the less, the discussion has highlighted why Conservative Members feel so profoundly anxious about the Bill, why we believe that it is flawed and why we opposed it on Second Reading. Our discussions have given rise to three issues that clearly undermine the Government's strategy.

The first is the simple principle that the freedom to borrow should bring more resources to the NHS, not simply reshuffle existing resources. If the measures simply move money around the system, they are fundamentally flawed and will add no value. Indeed, they will probably create additional bureaucracy and do nothing for patients. In that respect, they are plain wrong.

The second point relates to membership liability, although the Minister did not answer my points in that regard. My view is based on all the arguments that we have heard in Committee. Given the issues that financial institutions usually take into account when lending to non-profit-making organisations—the legal structures that have been established, and the absence of guarantees and limited liability—members of the local community and of the staffing community who sign up as members of the trust will ultimately be liable for any financial problems that the trust incurs. I should be grateful if the Minister would correct me on that.

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

That was the very first question that I answered in Committee—however long ago that was. There is no question of individual liability on the part of staff or members of the foundation trust—that is absolutely clear. Foundation trusts are not limited liability companies.

Mr Chris Grayling (Epsom & Ewell, Conservative)

That is precisely the point. Limited liability companies would not carry a risk to the membership—whether shareholders or members. That is true whether we are talking about a company that is limited by guarantee or a limited company. However, nothing in the proposals suggests that there is any limitation on the liability. Is the Secretary of State liable for financial issues that arise in the management of the trusts? If he is, where is that stated in the Bill? If he is not, the only other people who can be liable are the members. Will the Minister clarify that point?

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

In a strictly legal sense, the debts and liabilities of the NHS foundation trusts are the responsibility of the trust itself as a legal entity. Let me make it absolutely clear to the hon. Gentleman and the Committee that staff or members of the public constituency would not have any legal responsibility whatever for NHS foundation trusts' debts.

Mr Chris Grayling (Epsom & Ewell, Conservative)

In that case, who does have responsibility for them?

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

I have told the hon. Gentleman who has responsibility; the corporation.

Mr Chris Grayling (Epsom & Ewell, Conservative)

The practical reality is that, in the case of the vast majority of non-profit-making organisations that do not have limited liability for their members—as would be the case in companies limited by guarantee—it is the members who ultimately carry the liability. Can the Minister provide further information about the legal position on which his statements are based? Ultimately, if any organisation runs up substantial debts that it cannot pay, somebody is liable.

Mr Andrew Lansley (South Cambridgeshire, Conservative)

I am rather surprised, because I thought that I understood the situation, which was

straightforward. The directors of the trust will incur liabilities. I assumed that, in so far as they incur liabilities in a regulated system, and do not exceed any of their powers under the Bill, if there were to be a catastrophic failure of the trust that left liabilities, they would not necessarily flow to the directors, because they had behaved in a prudential fashion. They would therefore flow back to the Exchequer, which had set up the regulatory system within which they worked.

Mr Chris Grayling (Epsom & Ewell, Conservative)

The Minister may correct me, but I do not think that is the case. The Government have constantly made it clear that those are separate organisations, and that the Government, and so by definition the Exchequer, have no liability for any debts that arise. The Minister nods in agreement, so I assume that that is the case. That takes us back to the argument that the only people who can be liable are the members, or the governing body and the directors. That is not set out anywhere in the Bill. When those debts are ultimately incurred, I cannot see who else would be liable.

When discussing the Bill, we keep seeing ways in which it will create huge disparities between foundation trusts and non-foundation trusts. The Minister knows that Conservative Members would have given foundation trust status to every hospital at once, and not created a hybrid situation in which some enjoyed it and some did not over many years. In our discussions on the disposal of assets, or the right of one hospital to retain much more money from selling assets than others, or hospitals being able to take other decisions using the freedoms in the Bill that some will enjoy and some will not—we have talked about the right to retain money from the tariff or not—the reality is that, over a number of years, we will create an NHS in which some hospitals enjoy freedoms that others do not.

That will inevitably attract staffing to those hospitals. The best pupils will want to go and work in a foundation hospital, rather than a non-foundation hospital. It will pull resources, expertise and skills into a small number of centres of excellence based on a star rating system that we know is fundamentally flawed. That system will not do any favours for patients and trusts across the NHS. It should have been all or nothing. I do not seek to press the amendment to a vote. I simply hope that in due course the Minister can provide more substantial information about the issue.

Dr Evan Harris (Oxford West & Abingdon, Liberal Democrat)

I am grateful for the opportunity to respond to the debate before the amendment is formally withdrawn. I wish to echo the point that has just been made, and explain why I found the debate so frustrating.

There is an answer that the Minister could have given to the question raised by me and by the hon. Member for Birmingham, Hall Green. I reinforce, though not with as much concern for effect as Conservative Members, that the answer could have been that, yes, it is a zero-sum game; there is a total number of assets that could be distributed, a total amount of borrowing, and arguably a total amount of profit to be had against tariff funding—although we have not had confirmation that foundation trusts will have that advantage. Those are unchangeable and

giving foundation trusts the ability to retain assets to a greater degree than non-foundation trusts, or to borrow through another stream that is not available to non-foundation trusts, will mean that those who have freedoms will gain more asset retention and capital from borrowing. That can come only from those who do not have or do not yet have that status. That is the answer. I do not understand why the Minister does not say that that is the case and defend it on the basis that we shall never move from where we are now to where we want to be, without creating some tier-isms. He could give such an answer, but he has studiously avoided accepting what is clear, referring only to a debate on clause 3, which did not deal with the matter.

It is bad that there is that inequity. However, that is not because there is inequality, because life is like that and some trusts are already fortunate enough to be able to recruit staff without having to go to agencies. The option of accessing those freedoms is not open to all on an equal basis, because it will be selected by the Secretary of State. Worse still is that the right hon. Gentleman is using a flawed criterion. It is unfair. It is not clinically based. It is spurious. That is the star rating.

I said what I am about to say on Second Reading. I am reassured that I was right to say it. What is so frustrating about the Government's position is that they are trying to have it both ways. They are trying to reassure their own left wing that such a policy is not unfair and trying to reassure those on the official Opposition Benches that wonderful freedoms will flow to foundation trusts. The Minister will have to deal with such matters sooner or later in our debates.

The Minister claims that one advantage of giving the freedoms to foundation trusts is that they will be less bureaucratic in accessing them. I hope, for his sake, that that is the case. However, the experience with private finance initiatives is that seeking to access private borrowing while remaining part of the public sector adds to the bureaucracy. That is perhaps for a good reason, but no one can say that PFI is fast and efficient, although it is at least genuinely new capital that is accessed. I tried to give the Minister a way out on the basis of his earlier commitment to honour the three-year capital allocations. He chose not to comment on that in the context of amendment No. 247.

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

I said that in the earlier debate. To be fair, I did not feel the need to detain the Committee with a further reminder of my earlier commitment in relation to those allocations.

Dr Evan Harris (Oxford West & Abingdon, Liberal Democrat)

My question was not whether those allocations would be met, but whether that commitment would remove the scepticism that the capital allocations to non-foundation trusts in those three years can be unaffected by additional borrowing obtained by foundation trusts in a couple of years' time when they first get going. It is accepted that all trusts will not have the status within the three years from the beginning of that capital allocation, which is why the honouring of that commitment is not an

answer to my questions and those asked by the hon. Member for Birmingham, Hall Green.

Sooner or later, the Government will have to come clean and debate the issue on its merits, instead of trying to have it both ways.

Mr Chris Grayling (Epsom & Ewell, Conservative)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr Chris Grayling (Epsom & Ewell, Conservative)

I beg to move amendment No. 78, in

clause 12, page 5, line 22, at end insert—

'( ) persons, other than an NHS trust, who have made an application under section 5,'.

Mr Win Griffiths (Bridgend, Labour)

With this it will be convenient to discuss the following amendments: No. 79, in

clause 12, page 5, line 23, leave out paragraph (a).

No. 248, in

clause 12, page 5, line 25, at end insert—

'(bb) representatives of employers, employees and patients,'.

Mr Chris Grayling (Epsom & Ewell, Conservative)

We have had two lengthy debates, so I propose to run quickly through the points behind the amendments. Much of the debate on amendment No. 79 has already taken place.

Amendment No. 78 is simply designed to add to the list of consultees the other group eligible to apply for foundation status. It seems completely wrong that the regulator must consult every NHS trust applying to become an NHS foundation trust, but exclude those bodies that are not NHS trusts but may, under clause 5, make the same decision in the next few months. I hope that that is an uncontroversial addition that the Minister can accept. The amendment would simply make it a duty to provide a level playing field for all those seeking foundation status.

The Minister will undoubtedly say that subsection (3)(c), which says

''such other persons as the regulator considers appropriate'',

will cover the issue; but as the Bill stipulates quite separately in clauses 4 and 5 that there are two categories of people who may apply for NHS foundation trust status, it is entirely appropriate to place a duty on the regulator to consult both groups on the making of the code if they are applying for foundation trust status.

Amendment No. 79 was always intended to be a probing amendment to allow us to establish more detail about the Secretary of State's role. We have had considerable discussion about that, so I shall confine myself to a question of process. I referred to the footnote in the guide about the code being made available to applicants during the submission of applications. The Minister responded that considerable work was being done in the Department, and that discussions were taking place with the trusts. However, later in the year, that work will be handed to the regulator so that he can put the code together. Can the Minister give us a timeline for how that will fit together? Clearly, if it happens too late in the process, a lot of the work that has been done by the applicant trusts will already be complete, and a

change to the prudential code late in the process will have a material impact on the business plans.

Can the Minister say what the timing might be for the parallel tasks of appointing the regulator, allowing the regulator time to draw up the code, the process of completing applications and the moving on to the final stages for the trusts pursuing foundation trust status? How will that work, and how can we make sure that applicants are not disadvantaged if the code arrives too late in the day?

Dr Evan Harris (Oxford West & Abingdon, Liberal Democrat)

Amendment No. 79 stands in my name, too. I do not expect the Minister to repeat what we have already said—I shall not do so, either—but we do not think that the Secretary of State should have the roles that the Government have given him, or that the borrowing should be against a limit for the Department of Health. We have already rehearsed that argument.

I shall briefly speak to amendment No. 248, which is in my name and those of my hon. Friends only. It is a restatement of the concerns raised about the unfairness that might be introduced in the short to medium term, or at least until all trusts are foundation trusts. Before making the code, the regulator must have a specific duty to consult more widely than is set out in the clause, because there are other people who are affected by the detail and general principle of the borrowing ability and the prudential code, namely the users and staff in the health service.

This is one of the few parts of the Bill in which there is not even a gesture towards specifying that representatives or users of a part of the NHS that is as affected as the foundation trusts, but in what we would see as a deleterious way—the Minister really ought to accept that—at least in the interim, should be consulted. They should not be forgotten, because that way lies continuing strife in the health service. As the Minister knows, there is already concern that the measure will cause unfair two-tierism, and not bothering to mention that there will be consultation with the other group affected by the changes can only add to that.

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

The hon. Member for Epsom and Ewell prefaced his remarks by saying that these were essentially probing amendments that would delete the Secretary of State from the list of consultees. He acknowledged that we had already covered much of that ground, so I do not think that there is anything useful that I can add to the discussions that we have had. I have given him an indication as to what is happening. He is right that he has anticipated my remarks in relation to the amendment that he has tabled on non-NHS trust applicants. Under clause 12 as it currently stands, the regulator can consult such other persons as he feels necessary.

I cannot say with confidence that there will be any such non-NHS trust applicants when the prudential borrowing code is first drawn up, although there may be. However, it would not make a lot of sense to include in the Bill an obligation to consult applicants who have not yet come forward. I am perhaps reading too much into the argument, but we could do without that. If there were applications from such non-NHS

trust organisations, the regulator would be able to consult with them under the Bill as it stands.

I agree with the hon. Member for Oxford, West and Abingdon that it would be beneficial if the regulator consulted as widely as possibly when drawing up the code, and that is entirely in the remit of the clause as it currently stands. I have some problems with the choice of wording in the hon. Gentleman's amendment, but I do not take issue with him on the general principle that it is right to hold as wide a consultation as possible. That is what we would expect the regulator to do and it is what the clause would permit him to do, so I do not feel that there is a need to amend the Bill as has been suggested.

Mr Chris Grayling (Epsom & Ewell, Conservative)

I am bit disappointed by that rapid response, because the Minister did not answer my questions about the time frames for the regulator's appointment, the completion of the code and the development of business plans for the foundation trusts.

However, the Minister did respond on the issue of another application coming forward. The Government have just started advertising for the regulator's post. One assumes that it will take two or three months to complete that recruitment process, and that if the chosen person is currently in a senior position, he will be expected to give at least a three-month notice period, so it is unlikely that that person will be in the new position much before October. The appointee will then need to get their feet under the desk for a few weeks, so I cannot foresee a situation in which the code can be completed much before the end of the year.

Given the provisions that the Government have put into the Bill, they clearly expect that others might want to come forward and try for foundation trust status. That is perfectly feasible and one can think of an obvious example—the Minister will be aware of the recent troubles that the King Edward VII hospital in West Sussex has had. It is conceivable that a large private hospital with NHS business might seek to change its status and become an NHS foundation. If that were to be the case this year, I cannot see why there should not be a duty of consultation. Given all that we have heard this afternoon about the limitations that would be placed on total borrowing for foundation trust, the arrival of a new player would have a material effect on total borrowing across the NHS. I suspect that Ministers have not taken that into account in considering whether someone will come forward for foundation status under clause 5. Surely it is logical that that organisation take part in the consultation and in the assessment of the impact of the borrowing code on both its own operations and other NHS organisations.

I am disappointed that the Minister does not feel it right and proper that such organisations should be given a statutory right of consultation, as trusts and the Secretary of State have, and that the regulator is simply left to consult such other persons as are considered appropriate.

I hope that the Minister will leap to his feet and make a couple more remarks about the time frame. Am I right? Where will the business plans kick in? At what stage will the process be by the time the regulator is appointed? It would be absurd if the regulator were developing the prudential code after most of the work to set up the initial foundation trust had been carried out.

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

I apologise to the hon. Gentleman and to the Committee for not dealing with the point that he just raised—I lost sight of it in my haste to sit down. The point that he made is fair and reasonable. The preparation and publication of the prudential borrowing code has to be done in a timely way to ensure that it adds value to the application process, and does not come in at the end as an ex post facto process, which would be absurd.

We would like to see the regulator publish the prudential borrowing code in November or December, and the hon. Gentleman is right to say that it will probably take until then to finalise the details of the code. That should be in time to benefit the applicants for the foundation trust process, and to make that process reasonable.

If by the end of the year the Bill has been passed and clause 5 has become section 5, and there is then an application from a non-NHS trust to become a foundation trust, the regulator would consult that organisation. The regulator would want to operate in an open, democratic and accountable fashion. I repeat to the hon. Gentleman what I said earlier: if such an application were to be made, the clause as it is currently drafted would allow the regulator to embark on a consultation with that applicant.

I accept the point that the hon. Gentleman made, which is reasonable and fair. The only thing that caused me to hesitate in accepting his amendment was the basic point that I made earlier—that when the legislation is passed there might not be such an applicant, which would make the provision rather peculiar. In those circumstances, I am not sure how the regulator would discharge his duty to consult, if the Bill contained such an express reference. I am probably making too much of the point, but that is why I am reluctant to accept the amendment. I shall think about it overnight, but I do not think that it would add anything to the Bill. I am not being curmudgeonly in denying the hon. Gentleman the opportunity to amend the Bill, and I hope that it may be possible to find something that we can accept from the Opposition—

Mr. McCabe rose—

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

Or, indeed, from my hon. Friend.

Mr Stephen McCabe (Birmingham, Hall Green, Labour)

I do not think that I will be offering anything to the Minister. I ask him to think carefully before he makes concessions of that sort. It seems to me that it would be absurd for an organisation whose only motive is its current profit position to apply for foundation status, simply to help it out of a hole. Moreover, for such an organisation to be able to influence the outcome of the code to its satisfaction

would be utterly at odds with the principles that we are pursuing. I hope that the Minister will not give too much scope to them.

Mr John Hutton (Minister of State, Department of Health; Barrow & Furness, Labour)

My hon. Friend has made a good point, which we debated at some length when considering clause 5. I made the point then that clause 5 would not be a rescue route for organisations that were in financially poor health. We would not want them to be able to offload their financial responsibilities on to the taxpayer through that clause. If there were to be such an application, I am confident that it would not receive the initial approval of the Secretary of State. I do not, therefore, think that that mischief is likely to happen.

As I said, I am happy to consider those matters, but for the reason that I indicated, I cannot say to the hon. Member for Epsom and Ewell that we are likely to agree to that particular amendment.

Mr Chris Grayling (Epsom & Ewell, Conservative)

I am disappointed that the Minister is unpersuaded, but I do not wish to detain the Committee any longer, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Chairman, being of the opinion that the principle of the clause and any matters arising thereon had been adequately discussed in the course of debate on the amendments proposed thereto, forthwith put the Question, pursuant to Standing Orders Nos. 68 and 89, That the clause stand part of the Bill.

Question agreed to.

Clause 12 ordered to stand part of the Bill.