'(1) Section 44 of the National Health Service Act 2006 (c. 41) (private health care) is amended as follows.

(2) In subsection (2)-

(a) after "not greater than" insert "- (a)";

(b) at the end insert ", or

(b) in the case of a mental health foundation trust designated under subsection (2A), that proportion or 1.5% if greater."

(3) After subsection (2) insert-

"(2A) An authorisation of an NHS foundation trust which was an NHS trust must designate it as a mental health foundation trust for the purposes of this section if it appears to the regulator that it provides goods or services only or mainly for the prevention, diagnosis or treatment of any disorder or disability of the mind or for the benefit in any other way of people suffering from a disorder or disability of the mind."'.- (Mr. Mike O'Brien.)

Brought up, and read the First time.

I beg to move, That the clause be read a Second time.

With this it will be convenient to discuss new clause 10- Private health care-

'(1) The National Health Service Act 2006 (c. 41) is amended as follows.

(2) In section 44 (private health care), after subsection (4) insert-

"(4A) The Secretary of State may by regulations make provision for exceptions to be permitted to the restriction mentioned in subsection (2) subject to the principle that any such exception must in all the circumstances be in the interests of the National Health Service.

(4B) The regulations may specify such other principles and conditions as the Secretary of State may consider appropriate."'.

I now get to move new clause 13-

The Minister has said that before.

Somewhere or other, hon. Members may well have heard me do so, as the hon. Gentleman says from a sedentary position.

The aim of the new clause is to enable a designated mental health NHS foundation trust to earn up to 1.5 per cent. of its total income from income that it derives from private charges. The clause also contains a definition of mental health foundation trust for this purpose.

In the course of the Bill's passage through the House, we have had several debates on the private patient cap. That debate was, I understand, reflected in the other place, too. The Government recognise the various concerns that have been set out, both here and in the other place, about the issue. We understand some of the frustrations that have been expressed. However, securing a consensus on an alternative approach is not easy. People have differing views about the private patient cap. Some say that there should not be one, some say it should be at zero, and there are a variety of views in between. We take the view that the way the system operates now is not the way we want to see it operate. It is not fair. We concede that argument immediately.

There is a strong case for reform, but let me be clear: the Government are committed to maintaining and strengthening the protection of NHS services for NHS patients first, while allowing NHS foundation trusts a degree of flexibility to operate effectively in the best interests of patients and communities, and in the context of evolving health policies. The Government are committed also to a full review of the patient cap-based upon those principles. We want to ensure that any private money that goes into the health service is directed in the best interests of the patients and the NHS as a whole.

Evidently, reforming the rules so that they are fair, logical and work well is far from straightforward, and opinion about how the cap should be reformed is, as I have said, very divided. Any new approach should therefore be developed in partnership with the NHS and other key stakeholders to ensure that it is pragmatic, workable and achieves our fundamental purpose without any unintended consequences.

The Government are already committed to a full review of the cap, following the conclusion of the judicial review of the current legislation. However, I can confirm today that we will bring forward that review process to start as soon as possible, within a month. It will begin with a call to the NHS and other key stakeholders for evidence to inform the review, and it will seek feedback by January. To review the policy effectively, we will approach our stakeholders throughout the NHS-the people who operate by the current rules and who would put any future new arrangement into practice. Our aim, therefore, is to undertake a very fast review, to give people the opportunity to put in their various submissions and to look to come to a conclusion early in the new year. We expect that the policy review will begin in the new year and report to Ministers in the spring. By having a meaningful and considered review, the Government will be able to undertake a consultation on options for the best and most appropriate solution that we can act upon at the earliest available opportunity.

Some Members of this House and of the other place will be keen to see action sooner, and I understand that view. We are committed to reforming the rules, but equally we cannot risk a repeat of the situation with the existing legislation, whereby we introduce new legislation without, first, a proper and full engagement with the NHS as a whole.

After various discussions on a previous occasion, a compromise was reached. At the time it looked like a relatively fair compromise, and perhaps it was, at the time, but it subsequently developed a number of anomalies that spread, and now the compromise is not working in a way that anyone would regard as entirely satisfactory.

Our debates here and in the other place have highlighted a specific and immediate concern, however, for mental health NHS foundation trusts-all of which for historical reasons have a 0 per cent. cap. They have no ability to access any private income at all, and they have no flexibility to earn private income and thereby support their NHS service users.

We have received representations about how 0 per cent. caps constrain the ability of trusts to develop a broader range of innovative services and to support key facets of Government policy on health and well-being-for example, by providing specialist help for back-to-work schemes or employees at risk of mental ill health. Some mental health foundation trusts might want to work with private services that aid employees in private sector organisations, or help people who want to get back to work. Such a trust is currently able to provide assistance and medical advice, but not to accept any remuneration for doing so. That work could, however, be in the interests of its recipients and in the long-term interests of the NHS, because it could help with some of the mental health problems in society as a whole. If we allow some private income to be earned, we may be able to find ways for mental health trusts to do much more with the private sector. The current situation denies trusts the opportunity to enhance care to their NHS service users, and that concerns us.

The measure is therefore an attempt not to move the private sector artificially into the NHS, but to ensure that the NHS is able to earn private income to provide services to parts of the private and voluntary sectors, to work with other Departments and to ensure that we work with those private sector organisations with which other Departments work. The situation was not anticipated when the Health and Social Care (Community Health and Standards) Act 2003 was put in place, but, pending the review of the cap for all NHS foundation trusts, the new clause will establish an interim solution. If we enable a cap of 1.5 per cent. for those trusts, high-performing providers of NHS mental health provision will have room to innovate and to support the development of further high-quality services for the NHS.

I stress that today's proposal is an interim measure. Our review of the cap will seek to address the wide variation in cap levels that exists between NHS foundation trusts, and to establish a uniform test or set of principles that can apply equally to all NHS foundation trusts. Let me be clear: today's new clause applies only to mental health foundation trusts and those that become such trusts in the interim. As part of a wider review, we will look more broadly at the way in which the whole foundation trust area would operate, the range of private caps and how they ought to be reformed to bring about a much fairer situation.

We agree that private patient activity should be used to improve the service for NHS patients; that private income should subsidise NHS care and, therefore, be used to improve and widen services; and that NHS foundation trusts must above all preserve and promote the values of the NHS. Our review will consider those points. In other words, private patient income should be deployed for the benefit of the NHS and NHS patients. Our aim is not that the measure be a way for NHS hospitals just to earn some private income; there will have to be a purpose, and that will have to be taken into consideration. Our review will in part consider how that has developed.

New clause 10, which was tabled by the hon. Members for Eddisbury (Mr. O'Brien) and for Hemel Hempstead (Mike Penning), would introduce a clause that was added in the other place but removed in Committee. We removed the clause because we believed that it offered the wrong solution, even though it was seen as an interim measure. Allowing exceptions only introduces further uncertainty for the NHS and will simply lead to more claims of unfairness. As I recently said, if such exemptions were allowed there would be many debates. We must try to avoid setting up a system in which we create even more unfairness.

Our view is that the Conservative proposals would lead to greater unfairness. An exemption-based proposal would not remove the cap's underlying rule for the vast majority of NHS foundation trusts-that their private income should be restricted to levels set in 2002-03. A level playing field would not be fundamentally achieved at all; it seems to me that we would just produce greater unfairness and concern.

Any regulations created using the powers in new clause 10 are likely to provide only for a simple exemption from the cap. If the new clause were accepted, some trusts would, apparently, get an exemption from the cap. How far would they raise their private patient income? That, it would appear, would be entirely for them. I am not sure that Conservative Front Benchers are proposing such a measure, but perhaps they are-it is not clear from their new clause what they are proposing. I look forward to the contribution from the hon. Member for Eddisbury setting out what they are in fact proposing.

If the cap were entirely removed from some trusts, they would have no obligation to deploy their money for the benefit of the NHS or NHS patients, and the deployment of NHS resources to bring in private sector money could not be monitored or overseen-the Opposition new clause would, apparently, not allow that to happen at all. However, the Government's proposals for a policy review would, I hope, pave the way for a long-lasting legislative change in the future. The Government's new clause offers a pragmatic solution to the immediate concerns highlighted by hon. Members and those in the other place regarding NHS mental health foundation trusts, in respect of which we accept that there is an issue that needs to be dealt with now.

It is very unlikely that most mental health trusts could breach the cap, even if they tried, within the next year or 18 months; raising such income would require a very significant effort. New clause 13 gives those trusts the freedom they need. They can engage with the private sector when that is in patients' interests, and they can ensure that they deploy effectively the resources they earn from that. Combined with the Government's commitment to bringing about a review of the cap as soon as possible, the new clause provides a clear way forward on addressing the practical difficulties of the cap while maintaining its core principles.

New clause 13 is a welcome concession resulting from pressure put on the Government, not least by the official Opposition in both Houses. However, it does not go far enough. It amends the National Health Service Act 2006 to allow mental health trusts to get 1.5 per cent. of their income from private care. It leaves all other foundation trusts with the proportion from the base year. As the Minister said, new clause 10 is our reintroduction of the original amendment from the other place; it would allow the Secretary of State, by regulation, to allow foundation trusts an exception to the restriction on private income outlined in the 2006 Act.

With the lead from the very top, in the form of my right hon. Friend Mr. Cameron, we on the Conservative Benches are committed to our NHS as a high-quality service, free at the point of need and open to all. The public have seen and can see our commitment. I am grateful for new clause 13 because it shows that the Government recognise that private income for NHS foundation trusts does not undermine the principles of our NHS. The Minister made that point himself.

The history of the cap was best summed up by the former Labour Minister, Lord Warner, who said in another place that it was "anachronistic" and

"sops to parts of the Labour party".

It was introduced as a concession to get foundation trusts past the Government's reactionary Back Benchers; Lord Warner said explicitly that he repented his sins over that issue.

Limiting foundation trusts arbitrarily to the proportion of private-to-public income that they received in the base year is inequitable. The base year was 2002-03, the year before the first foundation trusts were authorised. For some foundation trusts, the limitation means 30 per cent., and for others, 5 per cent.; until now, it has meant 0 per cent. for mental health trusts. Worst of all, the limitation prevents many specialist hospitals, such as Great Ormond Street, from becoming foundation trusts.

As Labour Members know, private income for NHS foundation trusts is not about rewarding shareholders, partners or staff, but about generating income that can benefit the patients-the vast majority of them NHS patients-of the hospitals. Labour Members might not take my word for it, but this is what their own former Minister, Lord Warner, said about private income:

"it is potentially a source of income for trusts that they can use for the benefit of NHS patients"-[ Hansard, House of Lords, 6 May 2009; Vol. 710, c. 656.]

On Third Reading, he went on:

"We are moving into a financial climate where the NHS...will need every penny that it can get to meet public expectations"-[ Hansard, House of Lords, 12 May 2009; Vol. 710, c. 936.]

The limitation also impacts adversely on UK plc, hampering our provision of health care to non-UK residents, and on our research base, which is dependent on funding.

The hon. Gentleman appears to endorse Lord Warner's position that the money derived from private patient income should be deployed in the interests of the NHS and NHS patients. Does he in fact endorse it?

That is the whole point of involving private income. As the Minister would be the first to admit, to some degree the issue is a matter for the foundation trusts. As he knows, under the current arrangements for private patient income, those who are not necessarily NHS patients are being treated in NHS facilities. The answer is not as black and white as the Minister might wish it to be, but I have given the right answer even according to his Government's policies. I have simply recycled for the right hon. and learned Gentleman what is going on under his policies.

I am one of the reactionary elements in the Labour party who opposed the measure-and I am proud of it. Does the hon. Gentleman not agree that the only justification for private income in these circumstances is if it is net private income, and if treating such patients costs the national health service less than the income that it receives? Is it not true that for many years under a previous Tory Government, treating private patients was a net loss to the national health service?

I suspect that the right hon. Gentleman is drawing on questionable figures-and, possibly, prejudice. I do not have anything immediately to hand that would enable me to counter him. His first point is, effectively, correct: it would only make sense for the governing body of a foundation trust to make sure that the organisation made a net gain. That would be the incentive in any event.

Private income can also be used to make new services viable. A foundation trust might want to open what would need to be a 20-bed maternity unit, but public demand might, for example, fill only 15 beds while private demand might fill five. With the cap in place, that foundation trust could not set up the unit. The trust might want to build a new hospital, offer laser dermatology or provide another technology such as new cancer care services, but with the cap in place, it could not. The trust might also want to buy out private providers-that should get a cheer from Labour Members. However, with the cap in place, it could not.

The real question, which should be in the minds of Labour Members and of the whole House, is what proportion of a foundation hospital's income may be from private work before NHS patient care begins to suffer. That is the question posed by the self-declared reactionary, Frank Dobson. When the issue is put in those terms, it is clear that no one here can answer the question precisely; in many ways, the question is a false correlative. There is no absolute point at which NHS patient care suffers. The suitable balance of public and private work clearly varies from hospital to hospital, which is why taking the base year is arbitrary and unjustified. Furthermore, there is a raft of other ways in which foundation trusts are kept accountable so that they are not short-changing NHS patients for private work: through Monitor, terms of authorisation, the mandatory services schedule, contract variations with PCTs, boards of governors on significant decisions, asset-disposal locks and consultation.

The problem with new clause 13 is that it retains the arbitrary nature at the heart of the problem, and limits the raising of the cap to mental health trusts only. Why has the Minister chosen 1.5 per cent. when some hospitals get as much as 30 per cent. and many as much as 5 per cent.? For mental health trusts, the figure was nil, so 1.5 per cent. is of course an improvement. However, if, as I would argue, one were to apply the principle across the board to include children's hospitals such as Great Ormond Street, it would be vital to recognise that 1.5 per cent. is no less arbitrary than the other number that has been picked, and the hospital should receive recognition for what it is achieving. Can the Minister clarify where in legislation a mental health foundation trust is defined, because that has been difficult to find for registration purposes?

By failing to address the vagaries of the cap across the rest of the foundation trust sector, the Minister has committed to preserving the unfairness. As a result, the amendment is confused. Why is he not lifting the cap on Great Ormond Street? Is he saying that the care of people with mental illness is more important than the care of children? I hope not, and I do not believe so. By preserving the unfairness, the amendment fails to deal with the problem even-handedly and lets down some of the most needy patients in our NHS. We are therefore minded not to support it, but we cannot put at risk the small benefit to mental health trusts. Therefore, with all that on the record, we will abstain.

It is interesting to note, as a matter of process more than anything else, that the Minister said that the pursuance of a judicial review of Monitor's permissive interpretation of the legislation-ignoring, for instance, income from joint ventures and arm's length companies-was a reason not to do anything about the issue in Committee. We are now dealing with the remaining stages of the Bill on its final day in this place, and that judicial review has not yet been concluded. Why is the Minister bringing this measure forward now, whereas previously the review was an excuse for not doing so? I hope that he will give us a justification for that.

Before I sit down, it is my pleasure and privilege to welcome Chloe Smith to her first debate.

Most of my comments have already been outlined by Mr. O'Brien, so I will be brief. As he said, in the other place the Opposition inserted a clause to enable the Secretary of State to make exceptions to the private patient income cap for foundation trusts. The Conservative amendment seeks to reintroduce that measure, and had it been put to a vote we would have supported it. It is a shame that the Government removed the clause in Committee, but the reasons for that have been outlined, and at least we got a commitment to a review, which I welcome. The Minister outlined the process, but it would be helpful if he could be a little clearer about the time scales involved, because this could be one of those things that is kicked into the long grass and forgotten about once the impetus of the Bill is no longer with us.

I welcome new clause 13 in some ways, because it helps mental health trusts, which are completely hamstrung at the moment. Many of them, including my local trust, have innovative ideas about things they want to do and services they want to provide that are add-ons rather than taking anything away from existing NHS patients. However, what puzzles me is why the amendment applies only to mental health trusts: why not have a wholesale move to a minimum of 1.5 per cent., or whichever was the rate at transfer? A small number of foundation trusts have a cap of less than 1.5 per cent., and they will be feeling aggrieved that they are missing out-that they have seen others gain something that will enable them to provide new services while they are still stuck in the same shackles. Why did the Minister not take the opportunity to be a little bolder and introduce a level playing field of a 1.5 per cent. minimum for everybody whose cap was beneath that? Was it simpler to take this measure only for mental health trusts, or was there a reason why it could not be done for the other foundation trusts? I share the sentiments expressed by the hon. Member for Eddisbury, in that I would not want mental health trusts to lose out, but it is a shame that an opportunity has been missed.

Let me first deal with a couple of the points raised by Mr. O'Brien. I thank him for his indication that Conservative Front Benchers will abstain on this measure. We accept that this is an interim solution. We acknowledge that there are problems and unfairnesses in the way that the cap currently works, with some trusts able to have large amounts of private income and others seriously restricted.

However, it was clear that in the area of mental health there was a major problem that was interfering with the development of public policy, encouraging trusts to engage with other providers to ensure that mental health issues were better addressed. I do not dispute that areas within acute trusts and other parts of the NHS have problems, but given the strong level of concern on both sides of the argument, and the fact that there was clearly a level of unfairness in the current system, we needed a proper engagement with this. It would have been easy to come up with an across-the-board solution, but the end effect would probably have been the creation of as many anomalies as we had solved. We took the view that there was clearly an issue with mental health trusts and that we could justify 1.5 per cent. on the basis that it was unlikely, given the sheer scale of the engagement, that most mental health trusts would be able to develop, within a year or 18 months, the level of private sector income that would hit that cap.

We are looking to have a review within a relatively short time; I have just announced that I have brought it forward. We want to resolve the policy clearly with as much of a consensus as is likely to be possible. I say that knowing that there are people with very strong, well-argued, coherent views, and those who have views of a similar kind on the other side of the argument. We need to ensure that there is an ability to work through the iterative process so that the debate comes to as much of an understanding and resolution as possible.

We also need to add to the equation the question of the purpose of such private income. Is it for the benefit of the NHS and wider health care, or does it just bring in some extra money which some boards may well feel it would be nice to have? We must have a clear view about that. As part of the review, I am seeking to flag up the fact that private patient income must be used for a purpose. I do not want it to be a long review-it should be fairly brisk so that in the spring we can come out with a clear view of the outcome of this debate.

Many people are concerned that we could go back to the old days when private patients seemed effectively to be subsidised by the NHS. Will the review include mechanisms to ensure that the full costs of any in-house private patients are recovered and charged properly, so that we do not have such subsidising of the private health care system again?

The hon. Lady makes a very good point. We do not want private patients to be significantly subsidised by NHS taxpayers. The aim is to ensure that we make a proper examination of the issue and come up with a set of principles that we can apply to foundation trusts, and perhaps the whole NHS, so that there is a clear view of what the objectives are. We do not want to restrict innovation, and it is important that we have the ability to develop new ways of providing services and looking after public health in general, both mental and otherwise. We therefore need to consider how the matter should be developed.

My point is a combination of what Sandra Gidley asked and what the Minister said in reply to her. The quicker the process by which the full range of tariff implementation can take place, the better it can assist us, because that will set out much of what we need to establish to ensure that there is not inappropriate cross-subsidy. People will be well aware of what the true cost is, so they can be sure that there are mechanisms in place for that.

That is a fair point, and I acknowledge that we will need to consider tariffs and how services are provided and should be developed in future.

I was asked a couple of questions. Sandra Gidley asked about the process that will take place. The timetable is that the call for evidence will begin within the next month, and the Department will seek feedback by the end of the year. A policy review will begin in the new year, which we expect to report to Ministers in the spring, and a formal Government consultation presenting the options for the most appropriate solution will then be brought forward. In due course, it will be for those dealing with the matter to bring forward legislation, and I look forward to doing so.

The hon. Member for Eddisbury asked me about the lack of a definition of a mental health foundation trust. He said that he had looked for it, but it is actually in the new clause. He is right that there is not a proper definition elsewhere, so we have included it in the new clause. I hope that he will see that a trust is included if

"it appears to the regulator that it provides goods or services only or mainly for the prevention, diagnosis or treatment of any disorder or disability of the mind or for the benefit in any other way of people suffering from a disorder or disability of the mind."

That is the definition that he seeks.

The hon. Gentleman asked about the judicial review. Our view was that it would be better to delay our review of the matter until after we had seen the view expressed by the courts. However, lawyers consider such things with a degree of care, and I have done so and taken the view that the courts would actually want to know how the Government propose to deal with these issues. I believe that it would therefore assist the courts if we set out how we propose to do so, so that the fact that we are conducting a review can be taken into account in any judgment that they reach in due course in relation to the judicial review. He asks whether we have changed our mind: yes, we have. Have we considered the matter again? Yes. Have we taken the view that we can go ahead with the change now? Yes, we have-I have taken advice from those who advise us and taken the view that we can move forward. [Interruption.] It was a lawyer's examination of the issues, to reach a sensible conclusion based upon the evidence.

I am grateful for the indication that Conservative Members do not intend to oppose the new clause, and I hope that we will have the support of the Liberal Democrat Front Benchers.

Question put and agreed to.

New clause 13 accordingly read a Second time, and added to the Bill.