Mr Andrew Lansley (South Cambridgeshire, Conservative)

We have had a substantial debate, and I took the opportunity earlier to ask some questions about the relationship of public dividend capital to the borrowing code, so I will not return to that point. However, I should like to ask two questions, the first of which is, I confess, probably due to my ignorance, so I hope that the Minister will be able to enlighten me. Under section 10 of the NHS and Community Care Act 1990, NHS trusts are established with originating public dividend capital. Subsequent to their establishment as NHS trusts, where the trusts have received grants from the Government for the purpose of providing additional capital investment, have they had corresponding increases in their public dividend capital? Discontinuity and inequality will build up if they have not. Foundation trusts should start out with similar balance sheets. In so far as they have assets, they should have public dividend capital, and vice versa.

Secondly, when the NHS foundation trusts come to borrow money from the foundation trust financing facility, clearly they will pay a rate of interest on what they receive as capital in that form. Separately, NHS trusts and foundation trusts, in so far as they have

public dividend capital, will pay a dividend; that is covered in subsection (4).

What is the relationship between those two rates likely to be? If NHS trusts receive capital from the Government with a dividend payable that is substantially less in terms of its return on capital than the return on capital requested of NHS foundation trusts in the form of interest on their financing facility, discontinuity between those two things will mean that there is a disincentive to becoming a foundation trust and borrowing money from the financing facility, rather than going to the Department for capital allocations, as happens at the moment. Will the Minister give us some reassurance that there will not be that perverse disincentive?

Mr Chris Grayling (Epsom & Ewell, Conservative)

I would like the Minister to clarify a few more points. My assumption about how this will work is that the initial public dividend capital will become a de facto loan from the Government that will be paid and repaid—interest will be paid and the principle repaid in the conventional way—once the foundation trust is set up. Will the Minister confirm that? If the public dividend capital is set against the nominal capital base of the trust when it starts up, will there be any impact on the level of public dividend capital if the trust decides to dispose of part of its asset base against which that dividend capital has been assessed and reinvest that capital in something else? Will that have any impact on the public dividend capital, or is it simply regarded as a loan—a cash sum owed to the Government?

Will foundation trusts be free to capitalise and repay their public dividend capital? Can they free themselves totally from public sector borrowing if they so wish? Can they come to an agreement to finance themselves entirely from a third-party source rather than the Department? Can they seek differential interest rates? Are they free to secure long-term 25-year finance at a low rate, or through a bank in another country, rather than repaying at a higher rate of return to the Treasury?

What is the term of the initial public dividend capital, if we assume that this is a loan? In what period does that initial block of money have to be repaid? Is that a variable interest rate or a fixed interest rate arrangement?

Will the Minister elaborate on subsection (3), which says:

''The Secretary of State may, with the consent of the Treasury, decide the terms on which any public dividend capital of an NHS foundation trust is to be treated as having been issued.''

Will he explain the purpose of the subsection more clearly? In particular, does he expect that all trusts will be treated in broadly the same way when their public dividend capital is set?

In another debate, my hon. Friend the Member for South Cambridgeshire made an important point about the different levels of public dividend capital between different trusts, based largely on the age of their buildings. Will the Government take any steps to ensure that a trust is not disproportionately disadvantaged simply because of the book value of its buildings? What valuations will be used? Will they

be the existing valuations on which the current public dividend capital is assessed, or will there be a revaluation process when the trusts are established to ensure that all trusts are operating on a level playing field, with common and comparable asset evaluation, and effectively an equivalent or fair value put on assets transferred from the public sector to their ownership.

How will the Treasury provide consent? What process will it go through? Must Treasury consent be provided for any other elements of the financing arrangement? This is the first reference to the Treasury in the Bill. Why is it in this clause? Will the Treasury have any other reference points in the financing, or is this reference to do with the Treasury's need to assess the public dividend capital, because of the implications for the public sector borrowing requirement?

Sir George Young (North West Hampshire, Conservative)

I have a small query about subsection (5), which obliges the Secretary of State to consult the regulator before he uses his powers under subsection (3). It might seem innocuous, but on page 14 of the explanatory notes we see that subsection (5)

''requires the Secretary of State to consult the Independent Regulator before deciding the terms on which any public dividend capital of an NHS foundation trust is to be issued.''

The implication is that the terms on which the capital might be issued could differ between an NHS foundation trust and an ordinary trust. Does the Secretary of State envisage different terms being attached to the public dividend capital for an NHS foundation trust and an ordinary trust? Those terms might be more severe or more lenient for a foundation trust.

Mrs Cheryl Gillan (Chesham & Amersham, Conservative)

I do not want to detain the Committee for long, but I spoke in an earlier stage of our proceedings about a point raised by the Royal College of Nursing, and I thought that I should now mention a couple of things it has raised about clause 13. Like my hon. Friend the Member for Epsom and Ewell, the RCN seeks clarification on the role of the Treasury in deciding the terms on which any public dividend capital from an NHS foundation trust is treated. It would also like to know how the clause will affect non-NHS organisations that gain foundation status. After rereading the requests of the RCN and hearing what my hon. Friend said, especially about subsection (3), I have a couple of supplementary questions for the Minister.

How will the consent of the Treasury referred to in subsection (3) be sought? Who in the Treasury will be responsible for making that decision, and will that decision be publicised and put into the public domain? In what circumstances could the Treasury withhold its consent and what would be the implications of such consent being withheld? Would the Treasury have to publicise its reasons for refusal, and if such consent were withheld, who would adjudicate in a dispute between the Treasury and the Secretary of State? There is a general element to subsection (3) that is far too vague at this stage. I seek clarification and I would like the Minister to put more details on the record, so

that people interpreting the Bill later may be guided by his thinking on subsection (3).

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

I hope that right hon. and hon. Members will understand that I want to keep my comments on clause 13 to the minimum and sit down again before I take any more hits on the issues surrounding public dividend capital—a subject in which I know many of my hon. Friends take a close interest—but I am not among them.

Half a dozen specific questions have been raised, so let me deal with those. In general terms, I stress that this is a technical provision designed to safeguard public assets and ensure that the public dividend capital of foundation trusts remains an asset of the Consolidated Fund. There are similar provisions for NHS trusts, which I am sure hon. Members will understand.

The answer to the first question asked by the hon. Member for South Cambridgeshire is yes. I have forgotten his second question; I am sure he will ask me again presently. Can public dividend capital be repaid? Again, the answer is yes. That is covered by clause 13(6).

I was asked several intriguing questions about the role of Her Majesty's Treasury and how we obtain consent from it. Of course, that is a mysterious process even to those of us who have been in government, and I do not want to go into it. However, I can say to the hon. Member for Chesham and Amersham (Mrs. Gillan), who asked who would adjudicate in disputes between the Treasury and the Secretary of State, that there never are disputes between the Treasury and my right hon. Friend the Secretary of State, so the need never arises.

Mrs Cheryl Gillan (Chesham & Amersham, Conservative)

The Minister is living in cloud cuckoo land, but I will let him occupy that space on his own for the time being. If he cannot imagine that there will ever be a Treasury refusal, why is the measure in the Bill at all? It implies that the consent of the Treasury could be withheld.

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

Yes, it is obviously true that consent might be withheld. Of course if it were withheld, there could not be any change to the rate at which PDC was repaid or to any other arrangement for which consent had been sought, and the status quo would be maintained. That would be the implication of a failure on the part of Her Majesty's Treasury to give

consent. I do not believe that there is any science there that needs to be explained to anyone.

The right hon. Member for North-West Hampshire asked a very telling question—he is good at that—about whether the PDC rate could be set at a higher level for NHS foundation trusts. Clearly, that would have an implication for lending, borrowing, cash flow and everything else. The answer is no, it cannot; that, too, is set out in the Bill, in clause 13(4). The PDC rate must be the same for NHS foundation trusts and NHS trusts.

I was asked a question about interest rates on money borrowed for NHS purposes from the financing facility. That would be similar to the PDC rate as well.

Mr Andrew Lansley (South Cambridgeshire, Conservative)

Similar?

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

Similar. That is as far as I am prepared to go until and unless I get further advice. The clause is essentially a technical provision.

Mr Chris Grayling (Epsom & Ewell, Conservative)

The one point that the Minister has not addressed is about valuations. Clearly, the PDC rate will have been set in different ways at different times for different trusts over the years. It is possible that unless they are based on a fresh valuation of assets, one trust may be disadvantaged compared with another, simply because of the origins of its capital assessment. Is there a plan to review the valuations to ensure that trusts are all on a level playing field?

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

Yes, a regular process is always under way. I can give the hon. Gentleman that assurance.

I do not believe that there are any other outstanding questions, apart from, perhaps, the second question asked by the hon. Member for South Cambridgeshire.

Mr Andrew Lansley (South Cambridgeshire, Conservative)

The Minister kindly answered it, but attributed it to my hon. Friend the Member for Epsom and Ewell.

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

That was unfair of me. I apologise to the hon. Member for South Cambridgeshire.

There is no mysterious financial card trick being played here. This is a straightforward provision designed to protect and defend public assets, and I hope that the Committee will agree to it.

Question put and agreed to.

Clause 13 ordered to stand part of the Bill.

Further consideration adjourned.—[Jim Fitzpatrick.]

Adjourned accordingly at twenty-three minutes past Five o'clock till Tuesday 3 June at half-past Ten o'clock.