Health and Social Care (Community Health and Standards) Bill

Part of the debate – in the House of Lords at 11:30 pm on 13th October 2003.

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Photo of Baroness Noakes Baroness Noakes Conservative 11:30 pm, 13th October 2003

I shall speak also to Amendments Nos. 178 and 179 in the group. Amendment No. 176 amends Clause 17 so that no borrowing limits will apply to the individual foundation trusts other than an overall limit set at 100 per cent of total revenues. Above that limit, the regulator would need to give his consent, and doubtless the prudential code that we discussed earlier would come into play. The notion behind the amendment is that borrowing limits should not be constraints on a day-to-day basis for most organisations. They should not be the subject of annual review. All that is control-freak thinking that suggests that the Treasury has had too much to say in the drafting of the Bill.

I referred a moment ago to NHS foundation trusts needing to be more entrepreneurial. We would very much like to believe that assertion made by Mr Hutton. In that context, any controls on borrowing should be at a level that prevents only excesses but does not constrain ordinary activity. In the commercial sector, borrowing limits in constitutions are rarely an issue. They are set very high and only occasionally have to be altered. The position of borrowing limits in loan agreements is different, and borrowers typically have to satisfy a number of criteria of various types. However, the main point again is that the limits are constraints only if the borrower is in some financial mess. Then, the greater the mess, the stricter the limits.

The Government's scheme leaves the whole issue of limits in the hands of the regulator, who can set only an absolute borrowing limit. He cannot use more sophisticated indicators of the private sector and generally seems to have relatively little flexibility because he is in an annual review cycle and so on. We do not favour that scheme, and think it highly likely that it will operate as a straitjacket, which is why we favour a high overall limit only.

Our other amendments in the group concern some more detailed aspects of the borrowing regime. Amendment No. 178 deals with the case where the regulator carries out his annual review and sets the limit below the current level of borrowing. Our amendment says that the limit should be not less than the actual borrowing if that borrowing has been acquired within the regulator's previously set limits.

That is not fanciful. Let us suppose that a foundation trust decides to finance a development, possibly for authorised services but not necessarily so. It finances that conventionally with borrowing, but for some reason the development is not a success. Perhaps the quality offered for the authorised services was outclassed by another trust and patients went elsewhere, or a commercial venture went wrong. Whatever the reason, the foundation trust has debt which the regulator thinks is too high. If the regulator immediately reduces the limit, that may mean that the foundation trust must immediately reduce its debt, which may not be the most sensible strategy. The amendment would give a breathing space to the foundation trust so that a proper strategy could be drawn up to restore financial health.

Finally, Amendment No. 179 would require the regulator to review borrowing limits if the foundation trust requests it and would otherwise allow him to review limits other than annually. The amendment would give more flexibility in dealing with dynamic situations which often cannot be compartmentalised into neat, annual packages. How the borrowing regime works in practice for foundation trusts is of the utmost importance to them. That is why we propose the amendments. I beg to move.