Health and Social Care (Community Health and Standards) Bill

Part of the debate – in the House of Lords at 9:45 pm on 13th October 2003.

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Photo of Baroness Noakes Baroness Noakes Conservative 9:45 pm, 13th October 2003

I rise to speak to Amendment No. 154 and will also speak to Amendments Nos. 172 and 181 in this group. All of these amendments concern PFI in one way or another. Under Amendment No. 154, the prudential borrowing code under Clause 12 and the borrowing limits under Clause 17 would have to take explicit account of liabilities such as those arising under PFI contracts. However, it is not limited to PFI contracts, but covers all periodic payments over one year including short-term leases of property or other assets.

The amendment states that the actual accounting treatment in the books of the foundation trust is to be ignored. The accounting treatment for leases and PFI transactions can be arcane. They can have the curious effect that the private sector treats the PFI deal as a financing deal—like a loan—while the NHS trust treats it as an off-balance-sheet item. That is not fantasy: it really does happen in hospital PFI deals. However, I do not want to get into the accounting niceties today because the crucial issue is not the accounting but the substance.

PFI liabilities are real and significant obligations and should be taken into account when calculating what borrowing would be prudent under any code if borrowing can be allowed in practice under specific borrowing limits. In Standing Committee E in another place, the Minister made it clear that the Government had no intention of scoring PFI deals for the purposes of borrowing codes or limits. He said that a PFI deal would, in effect, be taken into account by cash-flow calculations. I do not see why the Government are so afraid of taking PFI liabilities into account explicitly. Implicit calculations run the risk of missing the substance, which is that hospitals with major PFI deals are up to their eyes in debt.

The problem with this treatment is that it could cause an unnatural bias in favour of PFI deals because, if the borrowing code and borrowing limits exclude PFI, that would automatically boost the attractiveness of PFI, whatever the underlying economics. That may please the Chancellor, who needs PFI to help him balance the books, but it is not necessarily good for the NHS.

The Government's approach will also be inequitable. Foundation trust A will have its existing PFI deal largely ignored by the borrowing provisions of the Bill. Foundation trust B, which financed its last hospital conventionally, will have its debt fully counted, and foundation hospital C, which is still operating in un-modernised premises, will not get a new hospital unless it enters a PFI deal.

We have grave reservations about how PFI is used in the NHS. However, the main issue is one of clarity. That is why Amendment No. 181 in this group inserts into Clause 17 a declaration that the borrowing limits do not affect agreements that involve payment for the use of assets. If that is what the Government really do intend, we invite them to confirm that by accepting Amendment No. 181.

The other amendment in the group probes how PFI fits in more generally. Clause 16.1 states that a,

"foundation trust may not dispose of any protected property without the approval of the regulator".

Amendment No. 172 would disapply that approval requirement when a PFI deal was involved. On 14th January 2003, my noble friend Lord Astor of Hever received a Written Answer to his Question on whether foundation trusts would be able to transfer their existing assets as part of a PFI transaction. The noble Lord, Lord Hunt of Kings Heath, replied:

"NHS foundation trusts will continue to be able to procure capital schemes using the PFI process subject to the same degree of oversight as applies under current arrangements".—[Official Report, 14/1/03; col. WA 39.]

There was no mention of the role of the regulator. However, Clause 16 seems to suggest that the regulator will have to give his approval when the PFI scheme involves the disposal of property or an interest in it, which will very often be the case. How will the PFI process work in future? Will the approval and oversight procedures of the Department of Health and the Treasury have to be gone through, as implied by the noble Lord, Lord Hunt of Kings Heath, and then gone through again with the regulator? If the regulator really is independent, he will surely not just nod through anything that the Department of Health and the Treasury come up with. If he does have substantive involvement prior to giving his consent, will that not extend timetables, which I understand are already stretched, still further?

The Minister may be aware that many in the private sector are concerned about the recent slowness in completing PFI health deals. How much additional time will be taken if the regulator's approval is also necessary? At what stage or stages will the regulator become involved? I beg to move.